How to Break Into New Markets with Your Existing Business - Fora Financial
Close
How to Break Into New Markets with Your Existing Business
March 06, 2020
How to Break Into New Markets with Your Existing Business

How to Break Into New Markets with Your Existing Business

For any business, there are many important balances to strike. You must provide great service, but at a reasonable cost. You want to allow employees their freedom and creativity, without creating chaos. 

Still, perhaps nothing is as complicated as expanding the business while maintaining service levels. Let alone breaking down barriers to entry and expanding the business into new markets. 

However, just because this is difficult doesn’t mean it can’t be done. With the right preparation and strategy, you can capitalize on a new market without sacrificing existing customer loyalty. To that end, this post reviews why you should enter new markets and how to do it well.

Why Should You Try To Enter New Markets?

At one point or another, most successful companies need to enter new markets. This happens when continued efforts to maximize existing markets are less valuable than entering new markets. It’s a simple matter of opportunity cost.

Think about a single restaurant in a small suburban town, for example. At some point, the ROI on investments aimed at increasing revenue and decreasing costs will start declining. 

Before long, the ROI of opening a new restaurant will surpass that of investing in the existing restaurant. So any rational investor will prefer to invest in opening a new restaurant.

Still, when weighing entrance into a new market, you must consider more than direct revenue and costs. In many cases, establishing yourself in new markets can unlock new competitive advantages.

For example, a printing service provider who enters new geographical markets can offer more efficient logistics solutions. In this example, the business gains access to new customers and improves their value proposition. 

Another advantage of entering new markets is economies of scale. When you achieve economies of scale, you can produce more at lower costs. All that said, why your business might enter a new market also depends on your business itself.

Tips For Breaking Into New Markets

It’s important to understand that breaking into new markets is a difficult and risky task. However, that doesn’t mean it can’t be done. In fact, about 98 percent of U.S. exporters are small to medium-sized businesses.

The problems arise when small businesses don’t properly plan and prepare for their expansion. So it’s well worth your time to research before jumping in. 

The alternative is far more expensive than the time it’ll take to do your homework in expansion. In this post, we’ll outline our top tips for breaking into new markets.

Determine What You Want To Be Known For

Determine What You Want To Be Known For

New markets mean new problems. Even larger companies need to reinvent themselves in new markets, to an extent. On its own, this is a good thing. A company that can seamlessly cross new market boundaries is more robust and diversified.

However, there’s a risk of losing your identity when you’re constantly reinventing yourself. This happens all the time, especially with exciting new companies. They start with a great new product or service. They build on it and expand at a frenetic pace.  

Then all of a sudden what made the product or service great in the first place is muddied up. Not only does this result in a failed expansion, but it can also damage your existing business. 

This is what makes determining (and sticking to) what you want to be known for so important. Whatever you choose, it must be the thing that stays true wherever you go.

Apple is a great example of this; the company has moved from the computer market to phones, software, publishing, financial services, and much more. Plus, they serve customers worldwide. Yet everywhere they are, Apple is still Apple. 

Whether you walk into an Apple Store in Beijing or San Francisco, you see a similar aesthetic. From the Genius Bar and the roof-high windows to the white apple and the staff uniforms, it’s all familiar.

This is why you must establish an identity that enters new markets seamlessly so you can increase your chances of success!

Is There A Real Need For Change?

When you set out to break your existing business into a new market, there must be a need. In other words, it must be clear exactly why you’re breaking into the market you are. 

It should also be clear why now is the right time to do it and how you’re going to do it. At a fundamental level, this holds true for any new venture. Just think back to when you first started your business. 

Think about what your justification was for doing what you do. Chances are, you were—and still are—addressing a very real need. Also, you likely had a plan that laid out how you’d achieve your goal.

The reason this is so important is to ensure your expansion aligns with your business goals. Often, as entrepreneurs seek growth, they lose focus and do too much in their pursuit of growth. They lose sight of what the market wants and what’s good for the business. The results of this are varied, but they all end in poor execution.

To prevent this, it’s critical to take a measured approach that evaluates both internal and external factors. 

For example, consider the three common options for growth:

  1. Increasing market share.
  2. Diversification.
  3. Partnerships, Joint Ventures, and Mergers and Acquisitions.

If you’re not clear on which of these three options you’re using, you need to do more thinking. 

Show That You Know What You’re Doing

As you did when you first started your business, you must build credibility in new markets.

One way to fast track credibility-building is to expand into new markets with current clients. For example, let’s say your company offers architectural services for office developers. 

If those office developers also build homes or retail centers, you can expand by serving their other needs. By doing this, you expand your service mix with existing clients. As a result, you don’t have to start from zero with the relationship.

That said, expanding with new clients doesn’t give you a free pass. You still have to show you know what you’re doing. The previous relationship may get you in the door, but your service or product must be valuable.

For brand new markets, managing your brand reputation is especially key to your expansion plans. So protect it as one of your most valuable assets. 

One way to protect your brand is to start small when you expand into a new market. That way, you can build up your reputation, test your ideas, and start to scale up. Even if there are hiccups along the way, the consequences won’t be as severe. 

While the slower approach may delay returns, it will also reduce your risk. Ultimately, going slow may end up being far more cost-effective than jumping in before you’re ready.

Perform Plenty of Research

When you expand into a new market, it’s impossible to remove all unknowns. There are just too many market intricacies, cultural differences, legal challenges, and much more.

However, there are many unknown factors you can remove with careful research. At a minimum, you should be researching the following before expanding:

  1. Market/industry assessment
  2. Major competitors
  3. Products or services
  4. Target audience
  5. Distribution channels
  6. Pricing
  7. Packaging
  8. Advertising
  9. External factors

In each of these categories, you’ll identify issues and challenges requiring strategic planning, so this research will inform your business expansion plans in many ways. 

If possible, get ideas from the right people on your research. For example, if you employ a marketing expert, you should ask them about your findings as they relate to advertising. Or, you can delegate this work to subject matter experts within your business. The important thing is that you—as the business owner—can synthesize this research into a plan.   

A well-informed plan will be a powerful tool for breaking into a new market. Your research should also include identifying potential partners or alliances. In geographic expansion, there are often strategic partners available who can help you break in.

In fact, working alone is one of the top reasons companies fail when expanding geographically, so don’t be afraid to lean on the expertise of others. They’ll remove risk, even if they do take some of the value you create. Plus, once you’ve established yourself, you can always divest yourself of your strategic partners.

Perform Plenty of Research

Prepare Your Business Financially For Change

Breaking into a new market is like sailing into a storm. You can do it, but your ship better be prepared. When you’re breaking into a new market, your finances are what keep your ship together during the storm.

Reggie Gilyard, Dean of Chapman University’s business school suggests asking:

  1. Can you access affordable capital at a reasonable cost for new infrastructure, if needed? 
  2. Is your target growth rate financially sustainable with your current capital structure and profit margin? 
  3. If not, do you have access to capital to support the investments required to grow?

If you can answer Gilyard’s questions, it’s likely that your capital needs are under control. However, capital isn’t the only financial consideration for expansion. 

You also want to make sure your cash flow is sufficient. A lack of free cash flow is one of the top reasons new businesses fail. Yet even if insufficient cash flow doesn’t cause failure, it’ll cause problems. 

For example, if you don’t have enough short-term liquidity, you may be forced into an expensive loan. Alternatively, if you’re financially prepared, you can make plans for cash flow problems. 

With more time to plan, you’ll have more options. You’ll be free to increase investments if needed or take time to identify capital sources.

In essence, that’s what preparing financially does for you—it creates options. In any kind of expansion, this flexibility is invaluable. It helps you adjust on the fly to the unpredictability of expansion.

Our Final Thoughts

Overcoming the barriers to entry you’ll find in any new market isn’t easy. Then again, neither was starting your own business, so you can do this.

Ultimately, if you plan on growing sustainability, breaking into a new market is a prerequisite. Not only that, new markets provide much-needed diversification. That way, should any part of your business decline, you’ll have other profit centers. Even better, you may add efficiency by unlocking new competitive advantages in new markets.

Still, you need to treat entering a new market like starting over. Do your research, establish your strategy, prepare your finances, and settle in. Just like when you first started, building credibility will take time. However, with proper execution, the benefits will outweigh the cost.

For more small business strategies, sign up to our email newsletter.

Subscribe

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Fora-Logo_TEAL-KNOCKOUT
Post by:
Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].