Choosing the right market (pt 1)
You are ready for the next stage of growth, but how do you choose the best territory to expand into?
Two pre-requisites: you know and can articulate your ideal customer profile and your value proposition for them. If you sell through partners, you will also need the ideal partner profile and the partner value proposition. If you need help defining your ideal customer profile, take a look at this blog or for the Customer Value Proposition this blog provides guidance.
Strategies for choosing which territory are:
Geographic proximity
Business culture
Size of addressable market – and ease of addressing it
Specific opportunities
A mix of the above
Geographic proximity
The old saying ‘twice the distance, half the trade’ still holds true in the digital world. People buy from people, and it’s a lot easier to build relationships if you are in the same time zone and can easily attend in person when required. Equally, while the country next door may view you as foreign, you are nowhere near as foreign as being on a different continent.
This strategy is one that has long been used in the Nordics where international expansion will be ensuring entry into the other Nordic countries. If your financial resources are limited and your company has had little experience in selling outside its domestic market, a short term strategy may well be to begin in a smaller market to test the processes. This offers the combined benefits of a smaller investment and lower risk.
Business culture
Different countries (and indeed different regions within larger countries) will have different business cultures. Culture covers a variety of attributes: language, importance of - and the way of conducting - personal relationships, methods of making decisions and the local legal framework all form a part of business culture. Choosing a country with similar business culture is a good idea for your first steps in international expansion, particularly if you are mono-lingual and wish to minimize localization costs. Typical examples are US firms expanding into Europe choosing Ireland or the UK as their first target market.
Size of addressable market and ease of addressing it
Choosing a large addressable market will increase your chances of a successful market entry. However, if you are having to make significant changes to your business model in order to expand, a lower risk strategy is to target a smaller market, test your proposition and refine your new business model. Companies intending to target the US market will often enter the UK first as a test of their ability to internationalize.
A key factor to be considered, in terms of size of the addressable market is how advanced a territory is on the technology adoption curve. While Bulgaria and Denmark may have largely similar population sizes and be members of the European Union, only one of them is at the forefront of technology innovation and adoption.
Ease of addressing a market is dependent on multiple factors, however, determining the strength of your likely competition is an element that is easily forgotten by companies that are clearly number one in their home market. The same competitive dynamics may not apply in the new territory.
Specific opportunities
Specific opportunities can come in two ways. A potential customer (or partner) finds you because what you offer delivers clear value to their business. This does not guarantee you will win the deal – there is still much work to be done. Assuming a successful engagement you are likely to have undertaken the first steps to market entry and are quite likely to have your first reference customer. The second way you can have a specific opportunity is where one of your customers expands internationally and wishes to use your software in their subsidiary. Again, this gives you a potential reference customer as a quick win.
In both cases the temptation is to assume you do not need to do any of the other steps necessary for successful market entry, such as sizing the market, identifying the competitive landscape and deciding on your go-to-market model. Not doing these activities can lead to your growth plans being frustrated because of the relative ease of your early success.
A mix of the above
While one factor may dominate the choice of target market, in most cases two or more factors will affect the final decision. It is, therefore useful to consider all of them and to determine whether any of them represent either a major blocker or enabler of your internationalization efforts.