Labor-Intensive | Businesses that become more difficult as sales increase are already broken
Labor-intensive
Increased sales are not proof of a healthy business.
The more a broken business grows, the heavier it becomes.
Many companies feel relieved when sales grow.
Projects increase.
Customers increase.
Orders pile up.
Therefore, they think they are moving forward.
However, in truly dangerous businesses, things do not get easier even when sales grow.
It is actually the opposite.
The more it grows, the more the front lines get clogged.
The more it grows, the more exceptions arise.
The more it grows, the more complex management becomes.
The more it grows, the thinner the gross margin becomes.
The more it grows, the tighter the cash flow becomes.
Even so, companies do not stop just because sales are growing.
That is because the numbers are increasing.
It is because it looks like there is momentum.
But the reality is different.
It is not growing.
It is just moving forward while increasing the burden.
Labor-intensive does not mean having many employees.
It is a structure where every time you generate sales, you need the same amount, or even more, people, man-hours, and exceptions.
A business that has entered this state does not become stronger even though it is selling.
It looks like it is piling up, but in reality, you are carrying it from zero every time.
Companies that mistake this for "busy growth" will break down even further.
Symptoms
When labor-intensification begins, the first thing that happens is not a deficit.
Sales are growing, but there is no extra room on the front lines
As orders increase, hiring and adding staff become necessary
Individual responses for each project increase
Man-hours for handovers and coordination swell
It cannot be absorbed by products or systems, and there are more situations where it must be filled by people
Profit and cash growth are weak relative to sales growth
Bottlenecks in management, CS, and development increase in proportion to sales growth
"It's growing, but for some reason it doesn't get easier" becomes the norm
At this stage, it can still be interpreted positively within the company.
"It's natural to be busy because we are growing"
"It can't be helped because we are in an expansion phase"
"We can absorb it if we increase staff"
"Now is the phase to go after sales first"
Of course, there is a certain amount of growing pains.
But what is dangerous is that it is not a temporary pain, but that it begins to be fixed as a structure.
As sales increase, you cannot function unless you increase staff at the same rate.
In fact, the complexity increases even more than the sales.
When that happens, the business is not growing.
It has entered a state of exhaustion that looks like expansion.
Companies that let this slide by saying "it's still growing" will have the weight come back to haunt them later.
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A scene from the front lines
There was a time at a certain company when we monitored the number of consultations and coordination man-hours on the front lines alongside monthly sales.
Sales were growing.
Orders were also increasing.
Externally, it looked quite strong.
Internally, there was a strong sentiment that
“Now that the market is growing, we should capture as much as we can.”
However, something else was happening on the front lines.
Conditions differ for every project brought in by sales
CS is absorbing individual operations
Development is being dragged down by exceptions for specific customers
Administrative departments are overwhelmed by billing and contract processing
Managers spend their entire day just coordinating
Even when we hire, the capacity is immediately filled
Looking only at the numbers, the company was moving forward.
But the feeling on the front lines was the opposite.
“Even though it’s increasing, it’s not getting any easier.”
“It doesn’t feel like we’re building anything up.”
“The more sales increase, the more coordination increases.”
The most dangerous part was not the busyness itself.
It was that the content of the busyness was skewed toward absorption and coordination rather than value creation.
In other words, the company wasn't generating sales.
It was constantly saddled with a bundle of individual responses.
Even so, within the company, growth had become the ultimate virtue.
That’s why no one could stop it.
But when you are on the front lines, you understand.
If things continue this way, the more sales increase, the less capacity the organization will have.
That state is not growth.
It is a state where the weight of the business model is being exposed by the increase in sales.
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Why it happened (structure)
Labor intensification is dangerous not just because you run out of people.
It is dangerous because the business is structured in a way that leaves no reproducibility or capacity even as sales accumulate.
There are three reasons.
1. Every time you generate sales, individual handling increases
In principle, a strong business should see the same mechanisms become more effective as sales increase.
However, labor-intensive businesses are the opposite.
Every time you generate sales, individual conditions increase.
Operations differ for each customer
Contract terms differ for each project
Service offerings are not standardized
Customer success depends on the efforts of staff on the ground
In this state, even if sales accumulate, the system does not.
Every time, people absorb the work and that is the end of it.
Therefore, even though sales increase, the company does not become stronger.
In other words, labor-intensive does not mean having many people, but rather that people are filling in for the lack of systems every single time.
2. Prioritizing the conditions for winning orders over the conditions for a viable business
Labor-intensive companies go out to win orders.
That in itself is natural.
But what is dangerous is starting to break the conditions of the entire business just to win an order.
Changing conditions to make it easier to win
Expanding offerings to suit the customer
Selling based on exceptions rather than standards
Prioritizing short-term orders and putting long-term operations on the back burner
As a result, the order is won. But the business becomes weaker.
This is because even if you win at the moment of the order, the subsequent operation, continuity, profit, and reproducibility are broken.
In other words, labor-intensive is also a state of winning when selling, but losing when running the business.
3. "It can't be helped for now" delays structural improvement
This is the most dangerous part.
In a phase where sales are growing, any unreasonable demand is easy to justify.
We are in a growth phase now.
We have no choice but to absorb it with people for now.
We should take it all now.
We can fix it later.
These words may be correct in the short term.
But if that continues, the time to build a system will never come.
As a result, the company enters:
Busy -> Fill with people -> Become even busier -> Fill with people again
This cycle.
And in the end, even though sales are increasing, neither profits nor margins are accumulating.
When it reaches this point, labor intensity is no longer a problem for the front lines.
It is a problem where management has continued to leave a heavy structure inside the growth.
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How to make a judgment
When you see this state, the first thing you should do is not to "bring in more people."
It is not to ask for more enthusiasm from the front lines.
It is not to increase the number of projects further.
What you should do first is to separate which sales are supported by a system and which sales can only be handled by people.
You should look at the following five points.
1. Which customers and projects require a lot of individual handling?
2. Which departments' workloads are increasing in proportion to sales growth?
3. How much of the sales cannot be handled without hiring more people?
4. What is the difference between projects that leave a profit and projects that just keep you busy?
5. Where does value provision end and absorption work begin?
What is important here is not to lump everything together as "not enough people."
What is needed is to distinguish where there is a genuine labor shortage and where structural failure is being covered up by people.
Therefore, the judgment will be as follows.
First, list sales and man-hours by project and customer.
Next, identify exception handling and adjustment man-hours. From that difference, separate repeatable sales from people-dependent sales.
Prioritize standardization and drawing lines over expanding orders.
Before increasing staff, stop sales that do not fit into the system.
What you should do in a phase of labor intensity is not to increase staff.
It is to redesign sales.
Companies that cannot stop here will next lose the outline of their value, and in the end, they will become companies that try to take on everything.
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Result
If you can treat labor intensity as a structure at this stage, you will be able to re-examine the content of your sales.
You can see which sales have reproducibility.
You can see which sales are wearing down your frontline staff.
You can see where you should standardize.
In other words, before increasing sales, you will be able to see the conditions under which you can grow without breaking.
Conversely, if you proceed here by saying "we are still growing," the company will become even heavier.
Increase hiring,
increase coordination,
increase meetings,
and increase exceptions.
And in the end, you enter a state where sales are increasing, but neither profit nor margin remains.
But in reality, you are not busy.
You may have just been calling heavy sales growth.
The turning point for labor intensity is here.
It is not about whether to grow.
It is about whether you can distinguish whether sales will make you stronger even if you grow them.
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Criteria you can use tomorrow
1. Always look at sales growth and frontline load side-by-side
If sales are increasing but margins are not, it is dangerous.
It may not be growth, but an increase in load.
2. Be wary of sales that cannot function without adding more people
Sales that only work on the premise of hiring have weak reproducibility.
Question whether those sales are truly a structure that builds up.
3. Do not evaluate projects with many individual responses based solely on "sales"
Don't look at whether you won the order, but look at whether it works, whether it remains, and whether it expands.
Whether it works,
Whether it remains,
Whether it expands.
Sales that don't work are not strong sales.
4. Don't dismiss busyness as growing pains
Distinguish between temporary strain and structural weight. It's dangerous if you find yourself saying "it can't be helped for now" more often.
It's dangerous if "it can't be helped for now" increases.
Labor-intensive doesn't mean having many people.
It is a structure that cannot function unless you provide the same amount of labor and man-hours every time you generate sales.
Do not justify this as part of growth.
That becomes the next standard.
This weight does not end here.
Next,
"Value Unknown | [Business] Companies that cannot explain what they are selling become weak"
If you read this, you will understand where companies that continue to carry sales with people lose the very outline of their value.
If you also read what I wrote in the past,
"[Management Plan] 6. Just increasing sales will cause a company to collapse - Profit is determined by 'cost design'"
you should be able to see more clearly the structure where an increase in sales directly turns into hardship.
This series is designed so that you can follow the order in which a company breaks down through business, organization, and accounting.
Please follow if you want to keep up with the rest.
If your company is showing similar signs now, I would be happy if you could 'like' this so you can look back on it later.