Navigating the Long Tail of Opportunity in Business

By Paul Roetzer | Posted Oct 13, 2009 | 6 Comment(s) | Filed in: Business

My experience as an entrepreneur, and our work with clients in dozens of industries, has helped me realize that opportunity is everywhere for unique and innovative companies that bring real value to customers.

But opportunity can be overwhelming if you don’t adapt to changing markets and growing demand, focus on your core customers and strengths, and build a scalable infrastructure.

Growth for growth’s sake, without a profitable business model or strong exit strategy (for those who are more concerned with pre-profit valuation), results in little more than an entrepreneurial ego boost.

The Long Tail of Opportunity

The Long Tail, as defined by Chris Anderson, applies to the collective strength of the niche markets/products in the demand curve tail, and their ability to out produce a relatively small number of top selling products at the head of the curve.

While many businesses such as Amazon, Netflix, eBay, Google and Apple have built empires on the Long Tail, it is extremely difficult for service-intensive businesses to extend too far down the tail due primarily to the limitations of human resources.

So, as I grappled with our agency's growth during the last 12 months, I started seeing a long tail of opportunity emerging, similar to what can be found in many businesses.

Unlike in an online, product-based model in which inventory and niches can be infinite, for many businesses still bound by human resources and shelf space the questions become, how do we assess growth opportunities — not just services and markets, but anything that can impact growth — and where do we chop the tail off?

Sample Model

For the sample chart below, I’m considering an “Opportunity” (X-axis) anything that has potential to increase revenue. For “Growth,” (Y-axis) I’ve shown hypothetical percentage returns that could result from an increased focus on an opportunity over the next 24 months.

Note, in some cases the opportunities with the greatest growth potential won’t actually be profitable decisions in the short term. Also, not all opportunities are created equal, and some require greater risk if you want to lead and position yourself where the market is going, instead of following the herd.

So, in this theoretical example, in which the vertical markets and emerging services collectively represent significant growth opportunities, a strategic decision is made to cut off the tail at “Pricing Strategy” (represented by the red dotted line).

This means we would not invest energy or resources in pursuing those opportunities in the tail to the right of the red line.

Knowing When to Cut Off the Tail

Here are a few lessons I've learned about how to assess the long tail of opportunity.

1. Know your strengths and limitations as an organization. If the instrastructure isn't in place, don't push the growth beyond your ability to service it.
2. Concentrate on retaining and growing your core customers. They are your most profitable and important relationships.
3. For service-based businesses, your people are your greatest asset. Have an employee recruitment and retention plan from day one.
4. Recognize a quality new business lead, and stop wasting time on prospective clients that won't value your people and your services.
5. Trust your gut instinct when it comes to determining direction. Research and analyze your options, but only to refute what you already know to be the best choice.
6. Take risks, but understand and accept the ramifications of your actions when you fail.
7. Remember that the goal is to produce profits. Make decisions based on profit, not revenue, potential.
8. Don't be afraid to completely evolve what you have spent years building. Listen to the markets, adapt to demand and move where others aren't willing or able to go.

Your Long Tail

So what do you think? Does your business have a long tail of opportunity? How do you navigate it and decide which opportunities to pursue?

Paul Roetzer is founder and president of PR 20/20, a Cleveland-based inbound marketing agency and PR firm. He can be found on Twitter @PaulRoetzer

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