Will a focused strategy work? Is it too risky? How do I identify what to focus on? We encounter these questions rather frequently during the course of our engagements. This article is an attempt to articulate why focus is not a choice, but an imperative for an emerging company.

A slice of the pie is still big enough

The first, and most obvious, reason is that emerging companies lack scale, and in the medium term, are unlikely to attain scale. Thus, a company that does not have a focus stands the risk of being left out of the action. Being a generic, small player, probably the only way one can compete is on price, and that's not a happy situation to be in.

On a more positive note, the global outsourcing market runs into trillions of dollars, and as a corollary, the global spend by segments of this market is not insignificant. Hence, a company need have no worry that by focusing they will be addressing a limited market and run out of opportunities. For example, if you choose to focus only on the Indian market, and say, target, the retail industry, the estimated IT spend by 2010 is US$ 2.5 B. Clearly, the market is not a limiting factor in carving out a focused strategy.

Being the best fish in a small pond...

The third reason stems from pragmatism. In order to co-exist with larger scale players, the one way to differentiate and stand out is to bring something to the table that the scale player cannot. And that is expertise in a niche area. We have seen many examples of mid- sized companies stitch together enduring relationships with global corporations, as a vendor bringing in specialized capabilities. In this case, the buyer is also less prone to replacing the specialist through a consolidation exercise.

The fourth good reason is that it makes best business sense- only a niche player with some unique expertise can command a premium price. Getting above industry price is especially critical for smaller companies, as they do not have economies of scale in managing costs and hence must get good price realization to be profitable.

.....Also gives you the big picture and all the details

Another not so intuitive merit of staying focused is that it better prepares you to identify "lucrative" opportunities. And what do I mean by this? Let me explain by drawing an analogy - when you examine a drop of blood, it appears like a "Homogeneous" red blob to the naked eye, while with a microscope, suddenly, you are able to see red blood cells, white blood cells, platelets and plasma. Chances are if you had not been a biology student, you would never know that the one drop of blood was actually constituted of so many elements. It is the same with markets- when you look at markets in a broad sense, you often miss the nuances and the sweet spots! The ability to identify sweet spots is closely linked with your ability to understand markets at a lower level of granularity, which comes with focus.

Extending this theme, a focused player is able to define new market categories and dominate them. For example, let us take Ariba. They created a software product for managing indirect spends, in a market dominated by ERP players who were competing with each other to create full- fledged all purpose solutions. Ariba may not be a billion dollar company, but they are the clear market leader in the Spend Management space- a category they defined and chose to dominate. Closer home, IT service providers who chose to focus on the ISV market created the category of Offshore Product Development Companies.

As a corollary, by staying focused, you are able to define sharper offerings and hence articulate a more compelling value proposition to your prospects and customers. At the same time, it helps you strengthen organizational capabilities in a planned way.

Adding it all up, it is clear that a focused strategy helps create more value for the customer, and hence for the company itself. If you examine the valuations of companies (during an IPO or while being bought out), you would notice a clear premium for those that bring in specialized expertise.

If you are convinced of the merits of staying focused, then here are some guiding principles:

The dimensions of focus could include geography, a vertical or a horizontal area (ex-BI). There are even companies that have opted to focus on a vendor's platform, ex- Microsoft technologies, or SAP centered services.


The road map to focus