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The Incredible Shrinking TAM

This is Chris Halliwell with a new post for the Technology Marketing Center Leaders' Blog.


ImagesWhat to do when the market that has sustained the your growth starts to slowly experience the effects of next generation or disruptive technology?  Would you warn "don't stick your head in the sand?" But who has the guts to tell the Board that the Golden Goose is just about out of eggs, particularly if it's not obvious what to do about it?  As Ken Olson at Digital Equipment learned so many years ago, when open UNIX and cheap workstations threatened mini-computing, ignoring the threat leads to doom.  What's doubly sad is that in many instances, such as Digital, the company had the technical wherewithal to transition its customers to new technology, they just didn't want to because the new technology was cheaper. Management couldn't get their heads around restructuring and the unpredictable market expansion potential of cheaper, faster, smaller, easier.  If you don't replace your own aging technology, some other competitor will be more than happy to do it.

Share of Wallet

One approach to the dilemma of the shrinking TAM is to double down on your market and find more things to sell to current customers. This bundling strategy can include development of complementary products and/or addition of software and services, very often beefed up maintenance and support (Has anyone got a sensor and an algorithm I can borrow?)  Typically including acquisition of ancillary piece parts of a familiar solution, the management dilemma is one of embracing profit, rather than growth orientation.  The bigger bundle, if it is actually better for customers than piece parts, should be more profitable.  But it will still be a low growth opportunity year over year.

Like Science, Good Strategy Has No Dogma

Another approach to slowing TAM growth is to find an adjacent market where your technology might add value.  While the technology may not have to adapt much to this new market, many other variables may change and require substantial investment:  the channel, the buying process, the ecosystem, the nature of the problem and therefore sources of value, and so on.  A second warning in pursuing adjacent markets is the human tendency to over-analogize – analogies can be very helpful, just not if they close the mind to differences in market mechanics.  I've seen management teams blindly following fundamental "principles" of old market dynamics, wondering why the same tactics that worked so well last time are not working in the adjacent market. To avoid these mistakes good growth strategy must be more like the scientific process – hypothesis testing based on asking the right questions, and answering with facts (or as close as you can get to facts!) Sounds obvious as it is, it just isn't that common.

Define Your Organization's Foundation for Growth

One of the most difficult things for anyone or any organization is a hard, honest look at differentiating capabilities.  What you're after are the building blocks of unique competencies. The idea is to match competencies to high growth opportunities.  Once in my early mid-career I was miserable and felt wrongly matched, unappreciated.  I wanted to change jobs, but had no idea what kind of career path would inspire my drive to grow.  I read a terrific book that took me through a series of exercises to identify my passion and define my competences so that I could find a better fit job and make good money.  One exercise was to write a 50 page "story" of my career history, what I liked, what I was good at, and then decompose that story into "building blocks."  The idea was to see what other career paths might utilize these same building blocks.  It worked! 

Corning and the CCC Process

In 1879 Corning made glass envelopes for light bulbs.  Since then they have continuously committed substantial investments in Research, organically creating several multiple billion dollar businesses:  From silicone in the 30's to ceramics in the 50's to optical fiber in the 70's, to computer screen glass in the 80's, to Gorilla Glass in the 2000's.  Corning has for decades executed innovation process with rigor, but the core framework for growth rests on a simple idea of the three Cs: Finding important problems to solve for Customers using Capabilities that are unmatched by Competition.

3-Step Strategic Response to TAM Erosion

Step One:  Get your head out of the sand, go to the Board and resolve the dilemma between slower, but more profitable growth (share of wallet) versus less profit short term to find and develop new TAM.

Step Two:  Consider adjacent TAM opportunities where you have obvious technological value and then doggedly search for differences in the new market that will require additional investment.

Step Three:  Go beyond adjacent markets to high growth "white space" opportunities that match a deconstructed view of your core competitive strengths to hard problems worth solving.

Then, go do something, fast, before it's too late.

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