How To Navigate a New Market Entry?

Market Expansion: Then and Now

Growth comes hand in hand with market expansion. Before the global economic turmoil started, Venture Capitalists made market expansion a pre-condition for investment. International market expansion was a start-up priority before the global economic turbulence. Now, we are facing a new reality. Starting with N26, many aggressive growth examples like Gorillas and Sunday retreat from the new markets hurriedly and return to their motherships in an attempt to save the last bucks.

Nevertheless, the belt-tightening measures imposed by the VCs won’t stop some start-ups and scale-ups, as some examples will always work better cross-border.

So, what’s the difference between successful and non-successful expansion strategies? How do you know if it is too early or too late to expand? Which markets will work better for you? We will come to that, but first, let’s dive deep into the dynamics of new market entry.

New Market Entry: Biggest Mistakes

Market expansion is a form of art. No matter how an organization deals with the topic, one thing is clear: making assumptions about a market is the worst mistake you can make. Let’s take a look at the common mistakes entrepreneurs make during new market expansions, costing them time, money, focus, and maybe PR:

• Assuming your product-market-fit because the new market speaks your language

• Assuming your processes will run the same in the new market

• Assuming your customer personas are similar in the new market

• Assuming the new market or a specific minority segment represents your whole target market

• Assuming the regulations are the same and you don’t need any additional licenses or approvals

• Assuming the spending behaviors are the same and consumers or corporations will be willing to pay similarly

• Assuming that the processes will take the same amount of time and underestimating the local bureaucracy

• Assuming similar cost structures

• Assuming that you don’t have any competitors in the new market

• Assuming your success overall due to your former track record

Even neighbor countries or countries that speak the same language (UK, Ireland, Australia, and USA or Germany, Switzerland, and Austria) are very different in terms of lifestyles, customer behavior, expectations, and market needs. Such discrepancies can be found even in other parts of the same country.

In the end, you can’t expect your downstairs neighbors to have the same taste in music or food, so why would you assume that for different markets with different cultures?

New Market Entry: Critical Questions

New market entry strategies based on assumptions tend to fail as, sooner or later, companies discover the small or significant changes needed for their products, marketing strategies, or even their branding in the destination market. Successful companies, however, tend to strategize before their market entry, starting with answering critical questions.

Question 1: WHY?

The most important question before an expansion is WHY?

WHY are we expanding in the first place? Did we grow sufficiently in our home market? Did we exhaust all possibilities where we are from? Are we going to realistically profit from a new market entry? Or do we simply want to demonstrate growth?

Question 2: WHY NOW? or WHEN?

If expansion is the right strategy for us, we should determine the right time. When is the right time? Is now the right time? Do we have enough (human and economic) resources? How can we create a successful market entry strategy? Do we have enough focus, or will the expansion distract us from our critical goal?

Question 3: WHERE TO?

The destination for relocation or expansion projects can be a “make or break” factor. It should be carefully researched and backed with data. However, it is usually taken as a snap factor and usually answered before the WHY question, as there tends to be an underlying personal factor:

-       “We want to expand to Japan as we have no competitors there.”

-       “Our C-levels always wanted to live in the Netherlands, so we are relocating to Amsterdam.”

-       “Our investors are in San Francisco, and they want us there.”

-       “There are many German speakers in Switzerland, so we think the expansion will be easy for us.”

-       “My partner lives in Egypt, and I want to try entering the Egyptian market to be close to her.”

 The new market should include either potential customers, talents, or investors. Ideally, it should have a bit of all, as merely having potential employees or investors in one market wouldn’t be sufficient to create a customer base in the destination market. Moreover, data needs to be generated in order to be prepared. New markets call for market entry strategies if you do not want to risk experiencing the mentioned "make or break" factor.

Question 4: HOW?

After ensuring the economic and product-related reasons behind an international expansion or relocation project, companies should definitely develop market entry strategies. HOW will we enter the new market? Should we have a pilot project, find a partner, or start marketing/sales directly? How will we adapt to the local culture? How is our new market entry perceived by the local customers? Do we need tweaks? If there are multiple products or services, which one should we push forward first?

Question 5: WHO?

Last but not least, companies should clarify the task distribution and the operational model before entering a new market. For example, WHO will be in charge of the new market? How will you manage the new location? Who will make decisions? Who will write or tweak the texts according to the new language/dialect? Who will manage customer support?

After successfully assessing all the questions that point in a positive direction, companies should take a step back and double-check the market opportunity, considering market dynamics, solution acceptance, ethical perspectives, and planned legislative proposals. Case study examples of rapid growth followed by stagnation include grocery and delivery start-ups that bumped into labor law and ethical questions, crypto start-ups that got cast aside after new regulations, or pandemic-focused products that became irrelevant in the post-quarantine era.

Some Trojan Horses

Doing a thorough assessment before an international expansion project can be overwhelming, but it can save your company from making excessive expenses or losing time. It is better to postpone your market entry until you are sufficiently prepared, rather than entering too quickly and pausing your services, realizing the change or update requirements. As your company will have the chance to make an impression only once, it is critical to make use of this one chance well.

·      Start with the critical questions and align on the expansion and relocation goals. Ensure that these goals are professional only.

·      Conduct market research and check product-market-fit

·      Observe your competitors and have a broad perception when evaluating competitors

·      Assess whether you have enough resources, know-how, and local workforce

·      Check regulatory, legal, and tax-related authorization requirements

·      Get feedback from locals directly instead of making assumptions

·      Create a business case for the new market

·      Find partners and communities

·      Compile all findings into one master document, and voila – you have your battle plan

·      Repeat all the above for each and every new market entry

Every market offers a new opportunity, which should be taken seriously.

If you don’t have the capacity to make the assessments yourself or don’t know the market well, consider outsourcing some or all of the steps to focus better on your core business. Our experts are one e-mail away if you need help with any of the steps above.