4 Tips for Entering Brand New Markets
Choosing which markets to expand into, and when to do so, is a crucial decision for startups. Done right, new market expansion can expose new revenue streams, catalyze user acquisition and drive a startup forward towards profitability. Done wrong, startups can end up sinking huge amounts of human and financial capital into dead-end initiatives that have the potential of leading directly to business failure.
At RISE Conference in Hong Kong last weekend, discussions about new market entry was one of the most hotly debated topics. Joining moderator Gwendolyn Regina Tan of Mashable, to discuss this, were three startup leaders with experience of both successful and failed attempts at new market entry: Shobhit Shukla is the CRO of AdNear, Gerald Eder is CEO of Compare Asia Group, and David Lee is CEO and Founder of Shakr.
New Market, or Home Market Domination?
Sometimes, deciding to move into a new market is simply a mistake. “Whenever you enter a new market, you increase complexity within your organization and it takes a lot of time, energy and money to enter into a new country,” said Eder. “Sometimes it’s easier to open up a new audience or market within your current market. Other ways of expanding your market ‘at home’ is to launch a new product locally, making something that already works, work better.
Other times, entering a new market is the only option. Lee stressed that in places like Southeast Asia, where there are many small markets, an early move might be a smart choice. He also explained that it doesn’t necessarily take deep pockets to enter a new market. If startups are able to avoid setting up entities, hiring and getting expensive office space, costs can be manageable, even for an early-stage business. “We try to dip our toes into a new market before we fully commit,” Lee said, referencing his new market entry strategy with Shakr. “If an exploratory push results in reasonable traction with customers and hopefully positive financial results, then you can go all in,” he said.
Understand the DNA in Your Target Market
A critical mistake many startups make when executing a new market entry strategy is not knowing the unique dynamics of the new market. You need to understand what makes the local population tick. You also need to be able to answer the question; How are local consumers different from those in my ‘home market’?
Expecting the characteristics in a new market to mirror those at home is an easy and all too common mistake. Yet it’s one that can lead to rapid failure, if hypotheses have not been tested properly. Eder explained that an awareness of cultural and demographic differences is critical to success in a new market.
Shukla stressed the importance of senior management spending time overseas, to truly understand the fundamental changes that you will likely need to implement to appeal to the local market. Lee agreed, citing Shakr’s experiences in successfully building a local, passionate community around the company vision. Shakr has developed a cost effective video creation platform aimed at small businesses. Freelance designers are central to their continued growth, especially in new markets.
“Designers are key, so building a local designer community has been a key pillar in our market entry strategy. We’ve been able to build these overseas communities, by providing resources to get them started, but ultimately letting them lead the way.” Lee went on to explain that locals know what their market needs and have helped Shakr build local knowledge and networks. “We now have designer programs growing organically in several markets. Once we’ve helped them get set up on our platform and helped them secure a few initial clients, they’ve taken the opportunity and run with it.”
Properly Assess Internal Capabilities
Shukla explained that one of their biggest challenges has been finding the right local people to lead their market expansion. “We found it very hard to find the right hires in Indonesia, where finding people who will fit into the startup environment is really tough,” he explained.
On a tight startup budget, companies still need to be very cautious of not stretching resources too thin. In the excitement of building big and building quickly startups often fall short on resources. “You have to assess your capabilities and if you don’t have the capacity, you might have to take a step back and until you have adequate internal resources,” said Lee.
“Sometimes the biggest mistake in entering a new market is letting setbacks cloud your vision. New market entry is tough and you need the patience and stamina to weather the storms.” With inadequate internal resources, whether human or financial, weathering these likely storms can become impossible.
Focus On the Right Things
It is vital to have a clear understanding of differences in a new market, compared to at home. Following from this, what is required for effective product localization and strategy. However, sometimes startups get bogged down in the differences and become blind to the opportunities presented by the similarities.
“The 80/20 rule applies here,” commented Eder. “We would use the same tools, metrics, processes and strategy to get the 80% and wait a year to localize the business model and marketing strategy to get the other 20%,” he explained.
As a startup trying to find your next opportunity for growth, sometimes you don’t have a choice but to try new market entry. You’re never going to be 100% sure, but a smart CEO, backed by the right team, can minimize risk. “Sometimes you just have to have that hunger to reach for what’s out there and grasp it, and if it’s there, it’s there,” Lee concluded.
Ultimately startups must try new things and take risks in order to flourish – that’s the nature of entrepreneurship. If you break the daunting project of new market entry into a rational step by step process, it’s much easier to see the whole picture and avoid failure. Start by gaining a thorough understanding of the new market, ensure that you have sufficient internal capabilities, and don’t be deterred by losing small battles along the way. As Drew Houston, CEO of Dropbox said, “Don’t worry about failure; you only have to be right once.”
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