New Market Entry 101
When and How to Enter a New Market?" These are two fundamental questions that all founders ask themselves when they consider to expand. There is no a one-size-fits-all strategy; however, there are patterns that founders should take into consideration. Jason Davis, former MIT Sloan School of Management Professor and current INSEAD Professor, conducted a research that sheds some light on this matter. Here are his keys finding.
Timing is everything nowadays in almost all aspect of business, and the same is with new market entry. Today’s startups can no longer afford to wait until they become major players in their home market before they go international. The sooner they expand into new regions and markets, the faster they will grow.
Single market or global?
Definitely enter one new country at a time. Sequential country entry allows companies to consolidate knowledge before entering the next market. It is highly recommended to test your product first in a smaller market before entering a larger market like the U.S.
Seeding or soloing? It’s all about learning.
There are two dominate new market entry strategies successful startups use: seeding and soloing. Seeding is when executives begin learning about foreign market entry by looking at what others have done or by seeking advice from experienced consultants or experts. They build on that knowledge through experimentation or learning on the fly. Soloing is when managers learn about a foreign market through experimentation or improvisation, and then rely on similar approaches, such as trial and error, over time. Jason Davis’s research shows that soloing companies, in the first two new countries they entered, took less time to capture their first sale, took less time to break even, and reported higher overall ratings of success than the seeding companies. But while companies that used seeding did not perform as well initially, they performed better in the longer run — when they entered their third and fourth international markets. No matter the method, you need to be ready to learn quickly and learn a lot!
Another very important insight from Jason Davis’s research reveals the importance of a team's quality. Companies with management teams that have broad international business experience are more successful than those whose managers lack it. Companies with a broad and diverse management team tend to lean more heavily on seeding, and are therefore more successful in the long term. They have a bigger network so the knowledge they glean from others is much greater and richer.