Breaking into New Markets: Evaluating Your Best Approach
It’s a question that keeps many a startup executive team up at night — what’s the best mode of entry to break into an emerging market?
There is no right or wrong way to enter a market. The mode of entry depends on the opportunity, what you know about it, and the opportunity cost of putting that effort and money into another opportunity.
In this post, I’ll tackle strategies for choosing a mode of entry by providing the following:
- A brief overview of the different modes of entry into emerging market opportunities.
- An explanation of the risk/reward versus control paradigm that all executive teams have to consider.
- A collection of questions to help an executive properly evaluate the mode of entry decision.
I am not an expert in this space, but I am sharing what I have learned from recent research and speaking to experts like Paul Ruppert from Global Point View and Davis Bell from Instructure (an OpenView portfolio company).
8 Common Modes of Entry into Emerging Markets
- Reactive: Opportunistically taking inbounds from the target market.
- Licensing: Licensing software to another company for white label sale or to be built into another software product.
- Reseller: Selling through a reseller (this can include or exclude support).
- Business Development Rep/Inside Sales Rep: A phone team selling into the market from the company headquarters or another established office.
- Commissioned Independent Business Development Agent(s): A contract-based sales rep who works on the ground for a specified period of time on your behalf.
- Guerilla Team: A lean sales team on the ground with very limited marketing support.
- Acquisition: Acquiring another business that is already in the target market. Very uncommon in the space.
- Joint Venture: Partnering with another firm on an investment in the area. Very uncommon in this space.
Risk/Return Vs. Control
Each mode of entry has a unique level of risk and control. Below is a chart that evaluates the perceived levels of risk and control for each approach.
According to David Arnold, a well published author on the matter, most companies opt to go with a model of increasing control where the company takes a low control approach to test the market and then later switches to a directly controlled subsidiary model. That’s because at very start, companies are typically entering a foreign market with a low knowledge base and are essentially validating and testing their understanding of a market and its potential opportunity. Consequently, the risk is incredibly high at the front-end so they typically want to minimize risk during the initial evaluation period and then they will increase control as their certainty around the market opportunity increases to a more comfortable level and will move towards a fully controlled subsidiary model.
However, there is no one size fits all model. Like any decision in business there are exceptions to the norm and sometimes being the exception is the preferred outcome. Consequently, the key is to evaluate the mode of entry question from the appropriate angles so as to ensure that you are adequately evaluating the decision.
Questions for Assessing Market Entry Approaches
This is a compiled list of questions collected from experts in the field as well as published literature on how to best approach this question. Make sure to ask:
- What is objective for entering this market?
- How well do you understand this market? Do you know what you don’t know?
- What is the opportunity timeline and are there other parameters that affect your opportunity outcome such as competitors aggressively moving into market?
- Is there a strategic reason for being on ground in market?
- Will it open doors to other markets?
- Are we worried about losing out on opportunity due to competitor aggression in market?
- Is this a key innovation center or space that will force us to aggressively innovate on product?
- Is this a leader in space and does this require us to have presence to be a global leader in this market?
- Do you have the patience to peruse a go-at-it-alone strategy? What are the implications if you fail?
- Are any of your current partners present in this market? Is this a potential avenue for entry? Do you understand their goal, priorities and decision-making process specifically related to this market? How do those align with your company’s objectives?
- Are their local companies with whom you can partner? Do you understand their goal, priorities and decision-making process? What is your track record in similar partnerships elsewhere and what have you learned from them? How do those align with your company’s objectives?
- Does making sales into market require an in-person presence?
- What can you learn from experiences of foreign companies entering market?
- What is opportunity cost of putting a full-time resource on ground versus in another market? Do the rewards justify this cost? At what point would it be the case?
- What is product/package the target prospects would be interested in? Do we know this? Or are you trying to learn this?
- What level of support from headquarters will be offered? Is this necessary, for long-term customer success?
- What opportunities have you had in this region to date? And how were they closed? Have any of them become customers?
3 Thoughts to Consider Before Selecting an Entry Mode
- There will be cultural and regulatory factors that will alter time of entry requirements. Think of each new market as new business market entry: Factors will be different. Don’t fall victim to the re-wrap approach it almost always fails.
- If selling through a partner, keep in mind you have handed control to your partner to determine where and when to focus, and for how long. Consequently, their timelines and priorities might not always align with yours.
- Consider customer satisfaction after acquiring customers if service is not available locally or via a reseller. Are you selling strategically so that this need could be covered by a minimal number of resources?
I’d love to get your feedback on this list of questions. Please share your thoughts in the comments section below.
Photo by: Abdullah Bin Sahl