How to Stay On Track When Entering a New Market (and Avoid a Train Wreck)
On June 28th, 2011 Google Plus was launched with great fanfare. The full weight of Google, a $700+ billion behemoth, pushed to make the new social media platform a success. People who wanted to use their other products, such as Gmail or YouTube, were forced to sign up to the platform.
Yet despite the brilliant minds who conceived the platform, the amount of revenue invested in trying to make Google Plus a success, and the arm-twisting to get signups, it has turned out to be an expensive failure. This isn’t an exceptional story. The business world is littered with examples of companies that have struggled to enter a new market.
Thankfully, there are new market entry strategies that work, as long as you’ve done your business model homework to understand customer needs. Here are six crucial steps to successfully enter a new market.
Analyse the Competitive Landscape
Unless you have a truly blue ocean product, most marketplaces are competitive with established, often dominant, actors. The number of customers in that marketplace are finite. No company wants to lose customers or clients. That’s a given, but it’s a point worth emphasizing.
For a business to develop a new market entry strategy, it’s necessary to understand the marketplace. In many (most?) verticals, the factors that define success, and the customer acquisition channels available, are fairly well understood. We’ll use blogging as an example.
Most bloggers think about search as the primary customer acquisition channel for blogging. There are a whole host of factors that impact the chance of a piece of content ranking for any given search term. Some of these are more important than others. For instance, there is a correlation between the amount of content a website produces and the volume of traffic it receives.
Unsurprisingly, the dominant media properties on the net are content-producing monsters. For instance, according to a report by DigiDay the Huffington Post puts out 1,600 pieces of new content per day. Forbes, meanwhile, “only” publishes 400 pieces of content daily.
Of course, search isn’t the only channel for acquiring customers (readers) for a blog. Other obvious customer acquisition channels include PPC, video, podcasts, and visual search (primarily Pinterest).
Understanding the competitive landscape and the different channels for acquiring customers is an essential starting point for defining a route to market. Once the analysis has been completed, it’s time to devise a strategy.
Create the Opportunity
In the book Blue Ocean, W. Chan Kim and Renée Mauborgne split the world of business into two primary camps; red oceans and blue oceans (as briefly alluded to above). A red ocean is an established market. There are a lot of companies competing in the vertical and the scope for growth is limited.
A blue ocean is the opposite. It’s a newly emerging market where the rules are less clearly defined and the competition is either non-existent or limited. This opportunity offers the best scope for growth when launching a new product. Uber is a great example of a company that started in a red ocean—where they called themselves a cheap luxury taxi service—and pivoted into a blue ocean.
There can be tremendous opportunity for growth and profit in a blue ocean. And it’s not always only the initial disruptor that profits from a new market entry strategy.
One company that has built its whole business model around entering new markets is Rocket Internet. The company is worth billions. The company’s business strategy is to imitate new e-commerce stores, and apps coming out of Silicon Valley, and then take them to market in different areas of the globe.
There’s a great article about Rocket Internet on The Hustle. The image below, which is taken from a Slideshare presentation, provides a snapshot of the holding company assets in 2015.
Underpinning the success of every company in Rocket Internet is a clear business plan.
Set Clear Key Performance Indicators
A business plan forms the reference point for the new market entry strategy. It is used to set Key Performance Indicators (KPIs). When entering a new market, the strategy is normally underpinned by the relative importance of the following four factors:
- Price: Being cheaper than the competition
- Quality: Offering a better service or product than the competition
- Innovation: Offering something different than the competition
- Capital: The lubricant for rapid growth
Generally, the more difficult it is to differentiate a company from its competitors, the more capital is needed to achieve success (and the more likely a venture is to fail). The relative importance of the other factors have a big impact on the route to market, and sales and marketing strategy.
Once a new market entry plan has been defined, it is important to set clear KPIs. These are the benchmarks for reviewing the success of the new venture. The KPIs are normally linked to the development of the product or service as it enters a vertical and the growth of the company. It’s important to have these benchmarks in place early as it’s easy to lose track of targets once a plan is implemented.
To keep things simple—and this is something a lot of business leaders suggest—it can be a good idea to have one “master” KPI for the company. This serves as a reference point for the team. It is something that Noah Kagan does at Sumo.
Hire the Right People to Lead the Project
One of the most important components of success for entering a new market is staffing. If you’re managing a small business, it can be challenging to attract the best talent. Large companies generally don’t have the same issues with budget. Regardless, it’s important to get the right people.
The aim should be to hire overachievers to key positions in the organisation. These will be the people that drive the company forward and push for growth. This needs to be balanced out with the “doers” who keep everything going, but don’t have the same hyperactive, voracious ambition (too many overachievers in a company and you end up with a company culture that’s a caricature of The Wolf of Wall Street).
Once the right people have been found, you need to keep them with the company. Tools like the 9 Box Talent Grid, Kanban and Scrum can help a fast growing company retain the best talent and grow strategically.
This is something that’s acknowledged at many successful scale ups. This interview with Patty McCord, formerly the Chief Talent Officer at Netflix, gives an insight into the hiring and firing practices at some of the biggest tech companies.
Grow Fast or Fail Fast
With the key personnel in place, and a set of objectives agreed upon, it’s time to implement the strategy. The general principles for bringing a product or service to market should be pretty simple; create a Minimum Viable Product (MVP) to test the demand and then scale.
Testing market interest can be as easy as setting up a landing page and picking up the phone to see if a target demographic would purchase a product or service (again, assuming you’ve done your homework on customer needs). Try to avoid scope creep.
From the outside, it appears scope creep was a major issue with Google Plus. The company spent millions of dollars internally developing the platform and then millions more promoting it. There are obvious issues with this approach to entering a market.
- It’s expensive both in terms of financial cost and human resources;
- The demand for the product or service is only tested at the end; and
- It’s hard to cancel a project after investing so much in it.
It makes a lot more business sense to test the demand for a product or service first within the vertical. Then, once that initial demand is validated attempt, scale up by following an agreed business plan. While this can’t eliminate the risk of failure, it does reduce the amount of time and money expended on a project.
Acquire then Innovate
If capital is available, then acquisition is an alternative route to entering a market. This approach is used successfully by many of the biggest companies in the world. For example:
- Pixar Studios – acquired by Disney
- YouTube – acquired by Alphabet (Google)
- Instagram – acquired by Facebook
By acquiring a company, a business removes a competitor and gains the human resources and knowledge of the sector that made it a success in the first place. Of course, this is not an option for most organisations, which is why this suggestion was left till last.
Risk is a given in business. Most successful entrepreneurs have failed multiple times on the road to growing a company (and many have failed multiple times afterwards). The strategies outlined in this article will not remove risk of entering a market. Rather the risks, in terms of capital expenditure and time, can be significantly reduced by applying these market entry principles.
Hopefully, with the right strategy in place, and a business plan that is focused on clear KPIs, you can maximize your odds of success as you enter a new market. Done it? Share your experience with other readers. Or, ask a question about the strategy outlined here, in the comments below.