The observation
A new market segment now accounts for a fifth of a company’s revenue and consumes a disproportionate share of senior leadership’s time relative to its size. The common explanation is that this reflects early-stage investment — new segments require extra attention while they establish themselves, and this cost should normalise as the segment matures and its processes catch up with the rest of the business.
That explanation has a shelf life, and the difficulty arises when the shelf life quietly expires without anyone noticing. Growth often does not expose new weaknesses so much as it removes the cover that concealed existing ones — decisions and trade-offs that were entirely sound under the conditions they were made in, but were never revisited as those conditions changed.
What leaders usually conclude
“This will normalise with time” is a reasonable working assumption when a new part of the business is genuinely new. Early customers in any segment often need more hand-holding, early processes are genuinely less mature, and some elevated cost is a legitimate, temporary feature of establishing something new rather than a sign anything is wrong.
The trouble is that this assumption has no natural expiry built into it. Nothing automatically prompts a leadership team to ask, eighteen months or three years later, whether the “early-stage” cost is still early-stage, or whether it has quietly become the permanent shape of how this part of the business operates. Without that prompt, an assumption that was accurate when made can remain unexamined for years after it has stopped being accurate, simply because nothing forced its reconsideration.
What the evidence suggests
Consider an organisation where a new segment now represents a fifth of revenue after three years — no longer early-stage by any reasonable definition — and continues to require more bespoke work per unit of revenue than the rest of the business, a characteristic that was known and explicitly accepted when the segment was entered. The deeper issue is not that this trade-off existed. It is that the trade-off was never revisited once the segment reached meaningful scale. A decision that was correct when the segment was small — accept higher servicing cost in exchange for establishing a foothold — was never re-examined once the segment was no longer small, and the entry-conditions assumption quietly became a permanent operating assumption without anyone deciding it should.
This is a specific and common instance of a broader pattern: entry conditions become permanent assumptions. A decision made under one set of circumstances continues to govern behaviour long after those circumstances have changed, not because anyone actively decided the original logic still held, but because no mechanism existed to prompt the question. Larry Greiner’s research into organisational growth describes a closely related dynamic at the level of whole organisations — practices that solve a problem at one stage becoming, unexamined, the source of the next stage’s problem. The mechanism here operates at a narrower scale, inside a single decision rather than across an entire organisational structure, but the underlying logic is the same: what worked does not automatically keep working, and nothing about growth itself flags the moment it stops.
Ronald Coase’s classic account of why firms exist offers a relevant angle here too. Coase argued that organisations expand by internalising activity as long as doing so is cheaper than the market alternative — but that this calculation shifts as scale changes, and past a point, costs that were once absorbed easily can become disproportionate. A servicing cost accepted as a reasonable price of market entry at small scale does not automatically remain reasonable at a fifth of total revenue; the calculation that justified it originally was made under conditions — smaller scale, different opportunity cost for senior time — that no longer hold, yet the conclusion drawn from that calculation persists unchanged.
What makes this pattern especially easy to miss is that nothing about it looks acute. There is no single moment of crisis, no clear trigger that forces the question onto the leadership agenda. The cost simply continues, consuming a disproportionate share of attention relative to the segment’s size, year after year, until — often prompted by an unrelated review, a new leader questioning it for the first time, or simple accumulated frustration — someone finally asks whether the original justification still applies. By then, the arrangement has often become sufficiently embedded, with people, processes and relationships built around it, that reversing it carries real cost of its own, quite apart from whatever cost was already being absorbed.
Contextual factors shape how long this kind of gap can persist unnoticed. Businesses with a strong culture of formal, periodic strategic review are somewhat more likely to catch outdated entry-condition assumptions during that review, simply because the review forces a structured look backward at decisions that might otherwise never resurface. Businesses that grow quickly, with leadership attention constantly pulled toward whatever is most urgent, are more vulnerable, precisely because urgency crowds out exactly the kind of unforced, non-urgent question — does this old assumption still hold — that this pattern requires someone to ask. There is also a size effect: a legacy trade-off consuming a disproportionate share of attention is easier to notice when the segment involved is still small relative to the business, and easier to overlook once it has grown large enough that its cost, while still disproportionate, no longer stands out as sharply against a much bigger overall picture.
For how this pattern presents in other kinds of organisation, see other sectors.
Questions worth considering
- Which current decisions were made under conditions — of scale, of resource, of competitive position — that no longer apply, and have any of them been revisited since?
- Is there a mechanism, of any kind, that periodically forces a “does this still make sense” question about decisions made when the business was smaller — or does the question only get asked when someone happens to raise it?
- If a decision like this were being made today, for the first time, with the organisation’s current scale and current priorities, would the same trade-off still be chosen?
More on this topic: Growth.
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