# Niches *Small bets, big profits.* --- You make safety interlocks for industrial machinery. Your market has fewer than ten competitors domestically, fewer than eighty globally. Your share is around 65%. Operating margins run above 25%. Return on capital employed sits at 40%. The board wants to know where the growth comes from. --- The obvious answer is a bigger market. Your technology is adjacent to industrial automation, which is fifty times larger. A 5% share there would triple your revenue. The strategy deck writes itself: leverage existing capabilities, cross-sell to current customers, expand the addressable market. But in a market fifty times larger, you're one of forty competitors instead of one of ten. Your brand recognition, which is near-total in your niche, is close to zero. Customer acquisition costs multiply. Sales cycles lengthen. You're competing against incumbents who know that market the way you know yours. Your margins compress from 25% to 12% as you invest in building a position. Your return on capital drops from 40% to 15%. Two years in, you have 1.5% of the bigger market and you've absorbed most of the cash your core business generated to get there. The board is now asking when the adjacent market will start contributing. --- There's a version that looks safer. A competitor in a different niche comes up for sale. They make water quality monitors. The business earns a 20% return on capital. Their multiple is reasonable. Your financial advisors run the numbers: buy them at 8x earnings, fold the earnings into your 20x multiple, and the market re-rates the combined entity higher. Earnings per share goes up on day one. But the quality of those earnings is lower than yours. Their 20% return on capital dilutes your 40%. The market sees blended returns falling and adjusts accordingly. You paid for growth that the share price gives back. The spreadsheet arithmetic worked. The strategic arithmetic didn't. --- The alternative is to grow the market rather than your share of it. With 65% share and 40% return on capital, your margins fund investment that competitors at 5% share can't match. New applications for your technology in industries that haven't adopted it yet. New geographies where regulation is catching up and creating demand that didn't exist five years ago. Adjacent problems your existing customers already ask you to solve. The market grows from £20 million to £50 million over a decade. You still own 60% of it. Revenue has more than doubled, margins have held, and you never left the territory you understand best. Your competitive position funded the expansion, and the expansion reinforced your competitive position. --- Now scale this across a portfolio. Not one niche but twenty. Safety interlocks, fire detection, water treatment, environmental monitoring, health diagnostics. Each one small, each one dominated, each one funding its own market expansion. Trim the businesses that fall below target returns. Reinvest in the ones that exceed them. No single decision is bet-the-company. No transformational acquisition, no dramatic pivot, no entry into a market where you start from zero. Just thousands of small steps in roughly the right direction. The aggregate effect, compounded over decades, is transformation without any single transformative act. --- That's [[Halma]]. From a small industrial conglomerate to a FTSE 100 company valued at over £10 billion. Forty-five consecutive years of dividend increases, a record unmatched in the index. Return on capital employed consistently above 40%. The same financial model, set in the mid-1970s, barely changed since. The strategy was almost aggressively boring. No restructurings, no pivots, no headlines. The centipede just kept walking. ---