Understanding the Law of "Necessary but Insufficient"

If your business isn't as successful as you'd like, it's time to take it apart piece by piece to see just where the problems are.

Over the years, as I've worked with tens of thousands ofsmall-business owners to answer the question "What works, whatdoesn't, and what's missing when it doesn't?", Idiscovered an often misunderstood law, which is violated everywhereI look. It's the law of "necessary but insufficient."Let's take a look at it together.

Start by taking your business apart, piece by piece. Can youidentify what's necessary to the success of your business but,by itself, is insufficient to produce the results you want?

Increased revenue is one example. Increased revenue is alwaysnecessary (or, at least desirable), but obviously, by itself,it's insufficient without increased gross margins. Andincreased gross margins are always necessary (or, if notabsolutely, positively necessary, at least preferable to decreasedgross margins), yet without increased net profits, increased grossmargins by themselves are insufficient to produce the results youwant.

At the same time, increased revenue and increased gross marginsand increased net profit can all still be insufficient ifthere's inadequate capitalization to support the growth. Inshort, without the necessary capitalization, you can grow likecrazy-and grow yourself right out of business! So manageable cashflow is the fourth part of the holistic financial equationthat's part of the law of necessary but insufficient.

And that's only the beginning of the reason why, whensomebody promises you more sales than you can possibly everimagine, for example, you've got a whole bunch of questions toask. Such as: What will the operational costs be to create thosesales? What will my gross margins be? What will my net be? Whatwill the cash flow implications be? What's the business plan?What will happen to me if what you say will happendoesn't? What's the cost to me of not producing theresults you're promising? The people cost? The marketing cost?The sales cost? The missed opportunity cost? And so on and soforth.

No matter where you look in your business, there are necessarybut insufficient categories everywhere:

  • Your business is clean, but visually unimpressive.
  • Your interior has been freshly painted, but the colors arepsychographically wrong for your central demographic customer.
  • Your salespeople are courteous, but insufficientlyknowledgeable about your sales process.
  • Or your salespeople are sufficiently knowledgeable about yoursales process, but there's no script, so they each describeyour business and your products differently.

Necessary but insufficient.

So what can you do to correct the situation? Make a list of eachand every result you want produced in your business-scrutinizeevery aspect of your entire company. Next, create an organizationalchart detailing every function and every position within everyfunction.

Then organize each of the positions by the results each isaccountable for, starting at the bottom of your business and movingto the top, thinking: What is the position? What is the function?What are the results each is intended to produce? How is itsupposed to look, feel and act in order to produce those results?At what cost? At what price? What will be the return oninvestment?

None of the positions or functions is sufficient by itself toproduce the results you want, but each of them, done in exactly theright way or put in exactly the right order, is necessary toproduce the desired finished product: a highly successfulbusiness.

The law of necessary but insufficient is a great way to make allthose decisions you need to make by asking yourself: Is itnecessary? Is it sufficient? If it's not necessary, don'tdo it. If it's insufficient, what else is necessary to completeits sufficiency? It's a logic tree I think will be of greathelp to you. But don't just think about it. Do it! Thinkingabout it, while necessary, is insufficient to produce the impact Iknow it will produce once it becomes an operating part of yourbusiness.

Let me know what happens.

Michael Gerber is the founder and chairman of E-Myth Worldwide, wherehe invented a revolutionary small-business development systemthat's been proven in thousands of businesses across the globe.Since 1977, Gerber has been sharing his business success strategieswith millions of fans of his E-Myth books, audiotapes and programs.As a business-coaching pioneer and bestselling author, Gerber haschanged the face of small business by providing entrepreneurs withan innovative and stunningly clear understanding, capability andprocess to transform any small business into a world-classenterprise.

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