Should You Expand Your Business to a New Market?
This article was originally published on Mashable.
Diversify or die. Pivot or persevere. These are the adages that accompany expanding into new markets. And they are harrowing to entrepreneurs, to say the least.
"Don't do it and you'll fail"—that's what they mean. But in the startup world, expanding is a double-edged sword. If you diversify too soon, you will also fail.
New markets are alluring. They shine with possibility. They glisten with a go-getter attitude. But, like an oasis in the Sahara, they are often optical illusions.
So what's the secret to seeing past the intangible lush greenery? Ensuring you have an unfair market advantage. We spoke with three executives to learn more about "diversify or die" and how to diversify smartly (or not at all).
Your Current Business Model Takes Priority
"I worry that 'diversify or die' sends executives down the wrong path. You shouldn't diversify for the sake of diversifying," says Nichole Kelly, CMO of SME Digital, a social media and digital marketing agency. "You should diversify when you uncover that your company has an unfair advantage to compete in a new area in the marketplace. This could be a new product, it could be a new part of the world, or it could be as simple as adding line extensions to your existing products."
Before you head off to brainstorm line extensions or new products that make sense for your brand and your existing customer, know that you need to be secure in your own market before expanding to a new one. The trick to expanding is to never take too much focus off what drew customers to you in the first place. Otherwise, you risk losing them (and thereafter, your business).
"A good check and balance is to make sure that entering the market doesn't force more than a 10 percent change in the company's current business model," says Kelly. "That usually means there is a nice alignment of existing resources. If it requires more than a 10 percent change, it needs a pretty heavy cost-benefit analysis."
If you're convinced that expanding into a new market is your next step, Kelly recommends seriously asking yourself these three questions first:
- Does our distribution channel provide any advantages for going into other geographic markets? For companies with brick-and-mortar locations, ask, "Can we test this market online first?"
- Can we take an existing product to a new target audience? What will they find valuable? Why would they buy?
- Can we take a new product into our existing customer base? What products do our customers need? Why would they buy?
These answers will identify your new markets, if they exist, and force you to take the conservative approach: Test it first.
Technology: Friend and Foe
"New technologies can be a double-edged sword. The Internet and social media bring about a whole slew of new competitors, each with minor differentiation and each claiming to be the best," says Warren Casey, CEO of Ceiba Solutions.
Invest your time and money, then, into a social media channel or technology that doesn't give you return, and your new market expansion resources are nil. “Businesses can be made or broken on the Internet. That's fact," says Casey.
Social media, for instance, works well for companies with "wow" factor, says Vijay Nadkarni, CEO and founder of Mobiplex, a sports motion analysis company. "The Internet and social media can be helpful if the startup has a product or service that is capable of grabbing the attention and mindshare of people. For a startup with a narrowly defined product, or one whose value is not immediately recognizable, it may be harder to get much benefit from the Internet or social media."
In other words, keep to your core audience and business model. The problem you solved in your first market is your golden nugget—hold tight to it. Be wary of new apps and tech that don't make sense for your brand. Instead, use the Internet to your advantage and test, test, test.
"The Internet has made it incredibly easy for testing, using ecommerce models in new markets. We can even test the basics of marketing, product, price, promotion and placement with simple landing page tests combined with a small advertising spend," says Kelly. "Social has added a new layer of intelligence around audience demographics, too, which makes it easy to share ads with very specific audiences quickly."
Test and repeat. That's the new mantra, especially for startups. Do that and when it comes time to diversify, there won't be an "or die" option. In the meantime, practice perseverance in your own market. Dominate there and the resources to expand will come with it.
"I fear that far too many startups and founders consider it a brave decision to pivot when facing a challenge or problem," says Nadkarni. "I believe to persevere is many times the far greater example of bravery. Great things have never come easy, and those who think they do have never done anything worth doing."
How has your business moved into new markets? Tell us about your experience in the comments.