Legacy Constraints

Legacy Constraints are the Achilles' Heel of enterprise companies; they are your opportunity. 

One of our clients is a rapidly growing software as a service (SAAS) company. We are helping them on their way to becoming a global company - which of course takes money. Our initial evaluation showed there were a number of billion-dollar companies that appear to be offering similar services suggesting a tough road ahead. Naturally investors asked us to explain how we hoped to compete. They suggested that as software companies, our competitors’ products could easily be modified to crush us. We looked closely at what these large firms were doing and noted that they had all invested in assets related to brand, people, and infrastructure to deliver their services in very specific ways. They could conceivably tweak their offerings to compete with us, but would then have to abandon huge legacy investments in their current branding, infrastructure and people. Expensive. Hard to do. Highly disruptive. 

Once our investors understood how these “legacy constraints” would limit competitive pressure, they funded our client at a very favourable valuation. (Stay tuned for further developments.) 

Want some more examples?

• Imagine two Olympic skiers, one a medalist in Downhill and the other in Slalom. They are both world-class skiers but their legacy investments in training, coaches, and psychology make it almost impossible to shift to the other discipline at a high level. 
  
• Tesla has no dealers and doesn’t pay for advertising. It is competing on channels – could GM, Ford or Toyota shut down their legacy dealer channel? 
  

So What?    Many SMEs believe it’s next to impossible to come up with a compelling and defendable offering that a larger corporation won’t simply replicate. But is it true?  Remember, large corporations are like oil tankers steaming steadily towards their quarterly reports – they can experiment but they can’t turn on a dime and they can’t really commit to anything that will disrupt their earnings.   

Try This:  If you are launching a new product or service, identify your largest potential competitor and then really understand their value flow model – end-to-end.  Where are their investments and what is mission critical for them (product, channel, payment service etc)?  How are they constrained?  In other words, their Achilles' Heel! 

Once you have done that, see if you can design your value flow in a way that would be impossible for them to follow.  If you have a tough one – call me – I love a challenge.