Market expansion is a goal many executives share, and rightly so. Expanding into new markets is not only a revenue driver but also a way to escape familiar competitive dynamics. It has powered giant success stories, such as Netflix’s entry into video streaming and then content production. Moreover, you don’t need to be a Silicon Valley wunderkind company to make it work. Consider Fujifilm’s transformation from Kodak rival to a $20 billion medical imaging powerhouse, or how Ingersoll-Rand grew from air compressors into markets as diverse as air conditioning and power tools.
But great care is required as dangers abound. All too often, these efforts become pet projects of senior executives, and they scale up before the customer needs or business model are truly worked out. Conversely, they can also linger in a zombie-like state, moving forward aimlessly with an unclear list of priorities, too little funding to spring to life, and no ability to kill off struggling ventures.
Who gets market expansion right? Look to venture capitalists for inspiration. Their profession is to assess new markets and figure out the best bets to make on them. Of course, if you have an established business, you should have a leg up on the VCs, as you have strategic advantages you can also leverage. The trick is to stay market-focused (not inwardly-focused) and not to transpose preconceptions from your existing business into new ones.
So, how do you do it? Here are four steps to expand into a new market:
1. Start from market needs and work backwards
Don’t be a hammer looking for nails, but rather start with what the market really requires. This is often not what customers are asking for directly—that’s the obvious stuff which your future competitors are hearing too. Go deeper by using techniques such as Jobs to be Done, so that you understand the root motivations people have, the awkward work-arounds they may have simply gotten used to, and the totally different methods that people use to cope with similar challenges.
Look at what Princess Cruises did prior to the pandemic to kick off its efforts to change the game against rivals. Rather than gravitate immediately to doing more of the same—bigger swimming pools, better food, etc.—it spent three months going really deep and landed in a totally different spot: making the cruise experience more personalized.
2. Establish strategic theses
Given what you’ve learned about underlying market dynamics—as well as contextual factors such as your strategic strengths and competitive activity—lay out a set of clear theses to build your market expansion efforts. These can include a short list of factors:
- What are the market needs? What jobs are customers trying to get done that are relevant to you? What drives them to prioritize different jobs at different times? What frustrations and pain points exist in accomplishing those jobs today? How do customers measure “success” in accomplishing those jobs, and what gets in the way of achieving that success? How valuable is it to them to improve the situation?
- Why are they currently under-addressed? Is it just that nobody has noticed before? Are these needs somehow unattractive for industry incumbents to serve? (This is a classic formula for disruptive innovation.) Are trends starting to move in this direction but the industry hasn’t yet caught up?
- What segment looks most compelling to target? When I led a team developing one of the first smartphones in the late 1990s, I was too tempted by opportunity. There were so many things this device could do! You could even send a fax from your phone! (I’m still not sure why.) Meanwhile, Blackberry’s device did essentially one thing: e-mail. And it did so spectacularly well. Don’t make my mistake. Blackberry won that battle.
- What are your competitive advantages? Now is the time to put on your traditional strategic lenses. What advantages from your existing business leverage into the new one? Are there any disadvantages you would carry with you?
- Why can this business scale fast? Don’t get caught in “pilot hell,” always trying things out but never punching the accelerator. Figure out which markets are poised to grow quickly, what uncertainties are most important to resolve prior to that happening, and what levers you can pull that would pour fuel onto the growth fires.
- What major risks exist and which should you prioritize? Push your thinking category-by-category to enumerate risks and then prioritize. Don’t start with what you think the priority risks are, because the mind tends to focus too narrowly when considering the risks behind new ventures.
Throughout this step, try to remain solution-agnostic, focusing on what your concepts should accomplish rather than what the solutions themselves are. Once people start to think about the tangibility of a specific solution, they tend to focus on that rather than on the context in which it has to work.
3. Search for potential solutions
Now is the time to find those solutions. Think about this from three angles. First, what are others doing, including outside your core geographic markets. For instance, we often find inspiration in other sophisticated economies like Japan, Singapore, and Brazil. These analogies can spark fresh thinking.
Second, look at what start-ups are doing and which types of start-ups in your focus area venture capitalists seem most enthusiastic about. They may not be perfect parallels for your business, but you can learn from the bets they chose to make.
Last, convene a meeting of your internal stakeholders, grounding them thoroughly in the outputs from your steps prior to this one so that the impact of preconceptions is minimized. In this meeting, alternate between divergent and convergent thinking to push for diverse and detailed concepts.
4. Shape, prioritize, and iterate
Venture capitalists excel not only at backing new ventures, but also at killing them. Out of every 10 investments a VC makes, only a couple will be real winners. Determine what are the key proof points for prioritized market expansion ideas, and what is the minimum investment of money and time required to reach them. Beware the zombie projects—if they can’t prove they should live, don’t keep investing. Market expansion doesn’t succeed if you spread attention thinly. By all means seek and test diverse ideas, but then focus on the champions.
Expanding into new markets is alluring but a challenge. Done right, however, you can minimize the risks while powering vibrant new growth.
Steve Wunker is a former Bain consultant who has focused on disruptive innovation as an entrepreneur and consultant for over 20 years. He is the author of several books including Jobs to be Done: A Roadmap for Customer-Centered Innovation and Capturing New Markets: How Smart Companies Recognize Opportunities Others Don’t.
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