Is the Size of the Outsourcing Market Skewing Your Thinking About Your BPO’s Prospects?
When I worked in finance, part of my role was creating pitch decks to secure funding or prepare for an IPO. One of the slides that would reliably catch investors' attention was a diagram showing three concentric circles to represent different market sizes. This slide was meant to get investors excited about the sheer potential of the business, showing the vision of how large we could become with the right funding and execution. Here’s how it worked:
Total Addressable Market (TAM): This was the largest circle, representing the total possible revenue if a company captured 100% of the market.
Serviceable Addressable Market (SAM): A smaller circle within the TAM, representing the portion of the TAM that our business’s products or services could realistically address.
Serviceable Obtainable Market (SOM): The smallest circle, nestled within the SAM, showing the slice of SAM we could realistically expect to capture with the right resources and execution.
Example Market Opportunity slide from one of AirBnB’s first pitch decks
Recently, I’ve been thinking about how many companies, especially in the outsourcing industry, are misunderstanding the true meaning of these circles—and how it's affecting their strategies and growth.
The Lure of the Total Addressable Market (TAM) and Why It’s Misleading
According to Grandview Research, the total addressable market for outsourcing services was valued at a whopping $280.64 billion in 2023.
For challenger Business Process Outsourcing (BPO) firms, that figure can be tempting. It’s easy to think, “If I can just capture a tiny slice—say 0.1%—of that market, my company would be wildly successful!”
But that line of thinking is naive. The TAM for outsourcing services may indeed be vast, but that doesn’t mean it’s accessible or realistic for every firm. In fact, the largest players in the industry—companies like Teleperformance, Accenture, and Wipro—collectively hold about 37% of the market share.
If you’re a small or mid-sized outsourcing firm, that means you’re competing against roughly 300,000 others with similar services, often at lower prices.
This isn’t just intense competition—it’s market saturation. And instead of leading to easy riches, the TAM can be an overwhelming red herring, one that might distract firms from finding a more sustainable, achievable path to growth.
The Danger of Playing in a Crowded Ocean
In this hyper-competitive environment, many BPO firms feel compelled to “cast a wide net,” trying to serve any client or industry they can get. But this approach leads to several challenges:
High Sales Effort, Low ROI: Casting a wide net often means spending excessive time and money on sales and marketing just to secure a small slice of the pie. With 300,000 competitors, the effort needed to break through the noise is massive.
Commoditization and Price Pressure: With so many companies offering similar services, clients have little incentive to pay a premium. BPOs that lack differentiation often find themselves in a race to the bottom, where price becomes the only lever for attracting clients.
Difficulty Building a Brand: It’s nearly impossible to stand out in a crowded ocean without a clear identity. When you’re just another “outsourcing firm,” prospects don’t see a compelling reason to choose you over any other, leading to long, uncertain sales cycles.
In short, competing for market share in this vast ocean may seem appealing in theory, but it often leads to a losing battle. Instead, there’s a more strategic approach that can set you apart from the crowd.
The Strategy: Find a Cove, Become the Big Fish
Imagine the market as a vast ocean, filled with fish of all sizes. As a small BPO, you’re a little fish surrounded by thousands of others. Instead of trying to compete with everyone in the open waters, imagine carving out a “cove” where you can focus, grow, and eventually dominate. This “cove” is your niche: a smaller, specialized market where you can position yourself as an expert, rather than just another outsourcing provider.
Here’s how this approach works in practice:
Identify a Niche with Specific Needs: Choose a small, targeted segment of the market where your services can provide exceptional value. This might be an industry vertical, a specific type of service, or even a particular client problem that isn’t being addressed by the big players.
Differentiate Through Specialization: In this cove, aim to become an expert. Develop deep expertise in solving the unique challenges faced by clients in this niche. As you build your reputation as the “go-to” provider for this specific problem, you’ll naturally stand out.
Build Relationships and Gain Market Share: In a smaller, defined market, you can invest more deeply in relationships, refine your processes, and develop a clear brand identity. Over time, this focused approach allows you to capture a larger share of the market within your niche, transforming you from a “little fish” into the “big fish.”
Expand Strategically: Once you dominate your cove, you can look to expand into adjacent niches (the “bay”), leveraging your reputation and success to capture new clients. This step-by-step growth is far more sustainable than trying to tackle the entire market at once.
By creating a niche, you’re not just competing—you’re building a market where you’re the clear leader.
“All failed companies are the same: they failed to escape competition.”
Ways to Niche Down in the Outsourcing Industry
To illustrate the power of niching down, here are a few ways I recommend BPOs apply this approach:
Industry-Specific Specialization: Rather than offering general customer support, a BPO could specialize in providing support for a specific vertical, like healthcare. By developing expertise in healthcare regulations, patient privacy, and medical terminology, the BPO becomes a trusted partner in an industry where compliance and expertise are critical.
Service Specialization: Instead of offering a broad range of services, a BPO might focus exclusively on lead generation for SaaS companies. By tailoring processes, technology, and metrics specifically to the needs of SaaS sales, the BPO positions itself as an essential partner for high-growth tech companies.
Problem-Specific Specialization: A BPO might focus on helping companies manage seasonal spikes in customer service demand, such as during the holiday season. By becoming an expert in handling short-term, high-volume service needs, this BPO attracts clients looking for specific solutions rather than general support.
In each of these scenarios, the BPO is no longer a “one-stop shop”—it’s the best provider for a particular need, setting it apart from the sea of undifferentiated competitors.
The Benefits of Building a Niche
Taking a niche approach might feel limiting at first, but the benefits are transformative:
Reduced Competition: In a well-defined niche, you’re no longer competing with 300,000 other firms. Instead, you’re positioning yourself as one of a few key players in a specialized area.
Pricing Power: Niche expertise is valuable, and clients are willing to pay a premium for a provider that understands their specific challenges and industry.
Brand Authority: As you build a reputation in your niche, you become known as the go-to expert, earning trust and loyalty from clients.
Predictable Growth: With a focused strategy, your marketing and sales efforts are more efficient, your revenue streams more predictable, and your growth more sustainable.
Conclusion: Forget the Ocean—Find Your Cove and Thrive
In a market as crowded and competitive as outsourcing, focusing on the TAM can be misleading. The promise of a large market may seem enticing, but the reality of fighting for visibility among 300,000 competitors is daunting. Instead of battling it out in the vast ocean, consider finding a small, strategic cove where you can establish yourself as the expert.
By starting small, building your reputation, and expanding strategically, you’re setting up a pathway for sustainable growth that’s not reliant on price wars or endless competition. If you’re a challenger BPO, embracing a niche strategy might be the key to escaping the intense competition and building a thriving, profitable business.
