Most founders chase capital first. They believe a funding round is the unlock that makes everything else possible.
Tom Phillips, who built Phillips Publishing International to roughly $300 million in revenue, 1,100 employees, and 200+ profit centres across high-tech, defence, aerospace, and energy markets, would tell you that's exactly backwards.
Years ago, Phillips laid out the five resources he'd ranked, in priority order, that every business actually needs. Capital was on the list. But it was fourth.
What he ranked above it is what makes the hierarchy interesting. And what he ranked below it is what most SYSTEMology readers will find surprising.
Here's the order, and why it matters more than most founders realise.
Why does the order matter?
Because every resource on the list depends on the one above it.
Get the team wrong and your understanding of the market gets filtered through the wrong people. Misread the market and you build the wrong product. Build the wrong product and capital just lets you scale the mistake faster. Try to scale a mistake and even the best systems can't fix what shouldn't have been built in the first place.
Most founders skip steps. They start with capital, or they start with the product, or they start with the systems. Each shortcut feels efficient at the time. Each one creates a structural weakness that shows up two years later when the business has grown enough for the cracks to matter.
Phillips' point isn't that any of these resources are unimportant. They're all on the list. The point is the order.
Who is Tom Phillips and why is his hierarchy worth listening to?
Phillips Publishing International was, in Phillips' own words, "a company that attracts business builders to build a successful business for ourselves and our customers."
That's not the description most owners would give of their own business. Most would say "we publish newsletters" or "we run an accounting firm" or "we build custom homes." Phillips would say his real business was attracting and retaining the kind of people who could build the next thing, and the thing after that, and the thing after that. Newsletters were the first product. The publishing was the mechanism.
By the time he gave that talk, the firm was past $300M revenue. They'd hit $100M in year 20 and celebrated by taking all 1,100 employees, plus spouses and kids, on a three-day all-expenses-paid trip to Disney World. (The Washington Post picked it up. The Today Show ran it. The PR was incidental. The point was thanking the people who'd built the business.)
When a founder who has actually built that scale tells you what to prioritise, it's worth listening. Especially when his answer cuts against the conventional wisdom every business book has been parroting for thirty years.
#1: Why do people come first?
Phillips' first resource is what he calls "business builders." Not employees. Not staff. Builders. The people who can take a fragment of an idea and turn it into an operation.
His operating principle for hiring them is one of his most-quoted lines.
"Hire the best and cry only once."
The arithmetic is simple. The most capable person you can hire will usually demand a salary that feels uncomfortable. Maybe ten thousand dollars more than you wanted to pay. Maybe fifty thousand. The temptation is to hedge, hire someone less experienced for less money, and tell yourself you'll trade up later.
Phillips' counterpoint, in his own words.
"Wouldn't you rather spend an extra ten thousand dollars to get somebody who is really good or fifty thousand or whatever the number is, and cry only once as you say yes to the outrageous requests, and then have a wonderful long relationship with this individual?"
The mediocre hire costs you the salary plus the cost of every screw-up they create plus the cost of replacing them in 14 months when they leave or you let them go. The capable hire costs you the salary and produces results that compound for years.
This applies even in a $1-3M service business. The Systems Champion, the head of operations, the senior delivery person, the senior client lead. These four roles, hired well, change the shape of the business. Hired badly, they keep the founder permanently in the weeds.
Phillips spent the largest portion of his time on this single resource. (We've written about what a Systems Champion actually is and how the right Systems Champion can be a non-specialist who outperforms a specialist. That's the modern, small-business version of Phillips' principle.)
People first.
#2: Why does market understanding beat capital?
Phillips' second resource is depth of understanding of the customer and the market.
Not market research. Not surveys. Lived, operational, first-hand understanding of who your customer is, what they actually struggle with, what they fear, what they want, and what they'll pay for.
You can't fund your way to product-market fit. Money doesn't tell you what the customer wants. Money tells you you can afford to keep guessing wrong for longer. The teams that nail their market are the ones who spend disproportionate time inside the customer's world before they build anything at scale.
Phillips ran a company that served high-tech, satellite, aerospace, defence, energy, and public policy markets. Each of those markets has its own language, its own buying cycle, its own anxiety profile. He didn't fund his way into them. He hired (and developed) the kind of people who could go deep into each market and earn the customer's trust. The market understanding was an output of the people. Not the capital.
If you're building a $1-15M business, the principle still holds. The most expensive failure mode is shipping a product into a market you don't actually understand. A small-business owner who spends four months running discovery conversations with 30 ideal-fit prospects will out-build a competitor who skipped that work and bought paid ads.
#3: Why do products come third?
Once the right people understand the market deeply, the product writes itself.
This is the resource where most founders think they should start. They have the idea. They love the idea. They want to start building. The problem is that without the right team and without the market understanding, the idea you build is rarely the product the market actually wants.
Phillips' four publishing companies and 200+ profit centres weren't pre-planned at the founding. They emerged because the right people, embedded in markets they understood, kept finding products the customers needed. The product portfolio was an output of the first two resources, not a starting point.
For a small business, this means: don't fall in love with your product before you've fallen in love with the customer. The customer is the boss. The product serves them. Get the first two right and the product becomes obvious. Get the first two wrong and no amount of product polish will save it.
#4: Why is capital the fourth resource, not the first?
Here's where Phillips gets contrarian. In his own words.
"If you're ever going for capital, remember that you've got the asset with the leverage, the brain power, the insight, the leaders. And that number four capital is number four. We list this, and for our bankers we say, well, you're at number four, but we're going to elect you and lend money to us."
Read that again. He tells his bankers, to their faces, that they're the fourth most important resource in the business.
Most founders treat bankers, investors, and VCs as the gatekeepers to growth. Phillips treats them as a commodity. He's right, structurally. There are tens of thousands of capital sources. There are very few business builders, market specialists, and product visionaries with skin in your particular game.
The capital chases the asset. The asset is the team plus the market plus the product. If you have those three, capital becomes available. If you don't, capital arrives and accelerates your decline.
This is why so many funded startups die. The funding wasn't the problem. The funding arrived before the first three resources were in place, and the team spent two years burning cash trying to figure out what they should have figured out before they raised.
The implication for a $1-15M owner is liberating. You don't need a funding round to grow. You need the right team, deep market knowledge, and a product the customer actually wants. With those three in place, the capital you need (a line of credit, a small loan, your own retained earnings) becomes available almost effortlessly. (We've written about how to scale without hiring expensive specialists. The principle there is the same as Phillips'. The unlock is the team and the systems, not the capital.)
#5: Where do systems fit, and why does Phillips rank them last?
Phillips' fifth resource is organisation and systems. He himself anticipates the objection.
"The fifth, organisation and system. We have a very detailed oriented business, very complicated business. We're in an intangible business, a creative business, a people business. You need to be highly organised and have great systems. Without that we could not have over 200 different profit centres. So that is our fifth, and I'd suggest it may rank a little higher for you in some of your own businesses."
That last sentence is the key for a SYSTEMology audience. Phillips ranks systems #5 because he had 1,100 high-calibre business builders running on them. The team absorbed enormous variance. The systems were a multiplier on top of an already-functioning operation.
For a $1-15M business with 5-50 staff, systems probably need to rank higher. Not because the principle is different, but because the team is smaller. You don't have 1,100 business builders to absorb the variance. You have one or two key people, and the systems are what stop everything from depending on them being in the room.
But the order Phillips outlines is still right. Systems are the layer that lets the first four resources scale. They're not a substitute for the first four.
This is the harder truth most SYSTEMology articles don't say out loud. If your team is wrong, no system will save you. If you don't understand your market, your CCF is a documented version of the wrong process. If your product is broken, systemising it just lets you ship the broken thing more reliably.
Systems are how you replicate consistency as you scale. They're not how you create the thing worth replicating. The first four resources are how you create it.
How does this translate to a $1-15M business?
The order doesn't change. The relative weight of each resource does.
A small business owner working through Phillips' hierarchy looks something like this.
Right team: the right operations leader, a Systems Champion, one or two senior delivery people, a sharp client lead. Five to seven roles that, hired well, would change the shape of the business permanently.
Market understanding: ongoing, structured, weekly. Customer conversations, post-sale interviews, win/loss analysis. The kind of disciplined listening that produces a clearer picture than any survey.
Products: an offering that emerges from the first two. Refined every quarter based on what the market actually buys, not what the founder wishes they would buy.
Capital: retained earnings, a small operating line, modest debt. Most $1-15M businesses don't need outside funding to grow. They need the first three nailed.
Systems: the documented operating layer that lets the team deliver consistently. Critical Client Flow first. (Here's how the CCF works.) Then Minimum Viable Systems for the highest-leverage roles. Then the longer tail of supporting documentation.
In that order. Done in that order. Reviewed in that order.
Where to start
If you've read this and felt a quiet unease, that's useful information.
Most owners read Phillips' hierarchy and realise they've been working on resource #4 (capital) and #5 (systems) while #1 (people) and #2 (market understanding) sit unaddressed. That's the gap that the next 12 months should be focused on closing.
The honest order of operations is uncomfortable. Hiring better people is hard. Spending three months in customer conversations is slower than launching a new ad campaign. Refining a product based on what the market actually wants is humbling. Capital and systems are easier to think about because they're more controllable.
But the easier work is rarely the work that compounds. Phillips built a $300M business by spending most of his time on the hardest, slowest, least-controllable resource. That's why it worked.
If you want a clean diagnostic of where your business sits across all five resources right now, the Systems Strength Test maps nine operational dimensions in about 10 minutes. It won't tell you to skip the first four. It will tell you which of the five resources is the weakest in your operation today, and where the next 90 days of work should land.
The order matters. People. Market. Product. Capital. Systems.
Get them right, in that order, and the business almost builds itself.