Can a system change, change the size of your accessible market?

Finding the next source of growth can be difficult and feel stifling. The obvious markets are already being served, expansion requires more people and capital, and the opportunities around the edges often look too small or difficult to be worthwhile at scale.

Sometimes the opportunity is already there. Something in the business is making it uneconomic.

Consider a small business like a tax consultancy with thousands of very small businesses in its potential market. They are exactly who needs professional tax services, but the economics become increasingly difficult as customer value falls.

Part of the problem can come from an unexpected place.

Some customers need accounting services throughout the year. Others need professional help primarily around tax season. The consultancy still maintains a set of accounts, in software a company, for each customer in its accounting system, so software charged per company creates a recurring cost throughout the year.

For a larger customer that cost is easily absorbed. Move down the market and it becomes increasingly significant. A year of software costs has to be recovered from a customer who may generate revenue during only a small part of that year.

Eventually the customer becomes too small to serve profitably, but change the underlying system and that boundary moves.

Software without the same recurring per-company cost makes lower-revenue customers viable. Automation, reminders, standardised workflows and customer self-service can reduce the cost of serving them further.

A collection of relatively small systems decisions can open an entirely new market: thousands of customers who were previously too expensive to serve profitably. Just the right change can put a business into a very good position, where they can still be selective about the customers but have a far bigger base to choose from.

Designing around constraints

Every system, process, contract and commercial model creates constraints. Understanding where they come from can reveal opportunities that are difficult to see from inside the existing model.

We once built systems for a reseller programme designed to extend market reach. Resellers could provision services themselves and received their margin as a discount when they bought them. There were no commissions to claim, invoices to submit or payments to reconcile. Making the channel easy to participate in gave the business access to other companies' sales teams, customer relationships and market presence, helping it reach scale much sooner.

Another project came during the early development of virtualised data-centre services, when deploying serious computing infrastructure still meant buying hardware, planning capacity and waiting weeks for equipment to arrive. Virtual servers, networks and firewalls reduced that provisioning time to minutes or seconds and allowed capacity to follow actual demand.

That eventually enabled entirely new business models. Computing infrastructure could respond to an event as it happened: demand arrives, additional capacity is created, demand disappears and the capacity can disappear with it. Businesses could build services around highly variable demand without permanently owning enough infrastructure to handle their largest conceivable peak. Today that idea is familiar; at the time it fundamentally changed what could be built economically.

We approached a different constraint in banking. Businesses needed data connections to banks for payroll, statements, payments and ERP systems. Banks provided these links themselves, effectively as individual services for individual customers. That worked, but the cost excluded a much larger population of businesses whose requirements were individually small.

We developed a common data-transport system capable of carrying the different banking and application protocols across shared infrastructure. Thousands of relatively small requirements could then be aggregated onto infrastructure whose economics improved with scale. The opportunity was to make bank connectivity affordable to a much larger market while turning that larger market into substantial recurring business for the network provider.

The reseller programme changed the economics of market reach. Virtualisation changed the economics of capacity and experimentation. Shared data transport changed the economics of serving thousands of small connections.

In each case, changing a constraint created room for a different strategy.

Systems determine strategic freedom

Every system creates constraints, by putting something in place, it occupies space that could have been occupied by something else.

The important distinction is where those constraints fall.

A system can constrain hundreds of possibilities that would never be useful to the business and have almost no practical effect. Another can work perfectly today while closing off the customer segment, channel or operating model management wants to pursue tomorrow.

Flexibility everywhere adds its own cost and complexity. Good systems come from understanding the business deeply enough to preserve flexibility where it has value and accept constraints where they have little practical consequence.

That gives management more room to respond as markets, competitors and opportunities change.

Sometimes the competitive advantage is being able to move when others can't.

​The power of a narrower focus

Scale gives a large company resources. It also means building systems, processes and capabilities that work across a much broader business.

A smaller company can concentrate its resources around one or more much narrower requirements. Modern integrated systems make that increasingly powerful by reducing the people, capital and infrastructure required to support them.

A specialist wholesaler might make thousands of small orders profitable by automating much of the work involved in processing them. A manufacturer might build its systems around short production runs that are difficult for larger competitors to accommodate economically. A service company might provide unusually responsive support in a particular market without building the support organisation a larger generalist requires.

Delivery-only food businesses provide a more visible example. Digital ordering, payments and delivery allow the entire operation to be designed around preparing and dispatching food. That changes the premises, staffing and capital required to compete for the same customer's meal when compared with a traditional restaurant.

Each business is exploiting a different opportunity. The common advantage is focus: systems can be designed around the particular customers, transactions or services the business wants to win.

For an SME, that can change the competitive equation. An opportunity that appears to require the resources of a much larger company may become practical when the systems are designed around the narrower part of the market that matters.

Find what's holding you back

Think about something valuable your business would do if it were practical.

Perhaps there is a customer segment you would like to serve, a market you would enter, a service you would offer, or an opportunity to grow that currently requires too much money, time or labour.

What, precisely, makes it impractical?

Follow that constraint through the business. It may come from a process, pricing model, supplier, piece of infrastructure, software system or simply the amount of manual work involved.

Then ask what would happen if it changed.

The tax consultancy found a much larger addressable market. Other businesses have found new channels, different cost structures, greater capacity or the freedom to pursue strategies that previously made little economic sense.

The opportunity may already be there. Something in the business may simply be keeping it out of reach.

What does your business need to change?