Considerations for Entry into a New Market

The reasons for contemplating entry into a “new market” are certainly varied. In general, it is normally driven by the need to alter or change business strategy to sustain or improve the present level of revenues and profits generated from operations.

There are three (3) general categories that describe alternative Purposes for pursuing a “new market” entry strategy. These include Diversification; Share Gain; or Radical Change.

Developing a business plan to enter a “new market” needs to have a well-defined set of business goals and objectives. Before starting down this path it is essential that you know what determines a successful result and within what timeframe. Without initial clarity on management’s expectations for a successful outcome from this undertaking, it leaves open the likelihood for second guessing about the merits of the effort all through the planning and implementation process.

Starting with well-defined Business Goals

Having well defined business goals (for entry into a new market) is a critical element in setting expectations for developing a “market entry” business plan. In this regard, an assessment of both external market factors (Table 1) and internal organizational factors (Table 2) specific to the market being considered needs to be completed. In both of these areas, identifying the challenges, the risks and the effort required to implement a successful business plan is key to minimizing surprises once the process begins.

External business issues

The first thing that needs to be addressed is to thoroughly understand the “market” you’re contemplating entering. In-company knowledge of the “market”, depending on its level of departure from the company’s present business, can be very helpful. It can provide a level of affirmation of the business plan as well as identifying potential support resources if the plan is implemented. Over-reliance on internal sources to validate the go-to-market business plan introduce prejudice or add risk to an assessment of the market.

Most important, information on the market needs to be current and objective. The complementary use of external sources for researching the “market” is a key consideration. External information sources include consulting firms, independent researchers, and industry experts. This approach provides objectivity and a significant extension of the effort to thoroughly assess what it will take to be successful in this “market”. It also goes far beyond gathering market numbers and related commercially published analysis.

Using external market research sources can challenge the organizations internal views on the attractiveness of the opportunity. It can also uncover various issues that the company needs to be prepared to address if they choose to go forward with a plan to enter a “new market”. This helps minimize surprises, reduce risk, and avoid under-estimation of the commitment necessary to ensure the company can Win.

Sole reliance on internal sources to frame the market entry plan unintentionally introduces some potential pitfalls. The emotional attachment or certain pre-determined opinions about the merits of moving ahead with the project happens all too often. This can lead to convenient assumptions about certain aspects of the targeted “market” that turn out to be incorrect once the effort has begun. Table 1 provides a list of key issues that need to be assessed and researched prior to implanting a “new market” entry plan.

Internal capabilities, core competencies and strategic fit assessment

When considering entry into a new market, the level of departure from the present business model typically determines the complexity of the tasks required to prepare a viable business plan. Normally there are sufficient, identifiable synergies between the existing business and what is being proposed as a “new market” to provide a reasonable set of expectations of the effort required to be successful.

These synergies may include potential resources, manufacturing infrastructure, relevant technology or intellectual property, and industry knowledge which can reduce risks. They also contribute a level of confidence in the ability of the current organization to make positive contributions to the “new market” entry initiative. Financially, this hopefully reduces the size of the investment required for implementation and shortens the timeframe within which the intended business goals for this effort can be realized. Table 2 provides a list of the element within the current organization that may contribute synergies with a “new market” entry plan.

Alternatively, those “new market” entry strategies which represent radical departures from the company’s present business provide limited in-company insight into doing business in this space. A radical departure strategy is considered when management sees the need to make a major shift in the long-term strategic direction for the company. It can be the result of major events or industry transitions that emerge which demand a change.

One current example is the increasing importance of sustainability in the products and/or services that companies offer to their customers. This is a global issue and one for which corporations have now made major commitments to addressing this issue as a focal point of their long-term business strategy. It has caused companies to divest certain parts of their business, re-direct their focus on product mix, and actively revise their long-term strategic direction and customer image. This includes re-evaluating the industries and/or markets they choose to serve.

Summary

With the information gathered from internal and external sources (as listed in Table 1 and Table 2) in hand, a decision to go forward needs be based on the answer to these questions: (1) Is the market real?; (2) Can we win?; and (3) Is it worth it?

Is the “new market” Real?

Building an in-depth understanding of the market that you are considering entering is critical. The more divergent the intendent “new market” target is from the company’s present business, the more important the effort to research it prior to proceeding.

The initial idea for considering entry into a “new market” is almost always generated from within the organization. Relying primarily on internal inputs to validate the business case, however, brings with it the risk of missing key issues that significantly change its attractiveness as a business strategy.

Engaging external sources to provides an objective viewpoint on the market situation combined with inputs from within the company becomes a very important part of the evaluation process. Into determining if the proposed “new market” entry opportunity is Real.

What will it take to Win?

Reality strikes when matching up the requirements that are necessary for the company to be successful in the “new market” with what is currently available from within the organization to address them. The more adventuresome the proposed effort, the likelihood that the investments needed and time required to put the company in a position to Win increases significantly.

Is it work it?

The size of the total investment required to position the company to Win needs to be evaluated by management in order to answer the question- Is it worth it?

Financial metrics become the primary tool used to assess the merits market entry. The anticipated time to reach the break-even point in cash flow is one key metric. The expected timeframe to achieve payback on the projected investment is another. These and other financial benchmarks represent key determinants in deciding whether to move forward.

Beyond financial metrics, the time and effort needed to Win and reach the strategic business goals set by the company represent the challenge that management needs to be willing to accept. When multiple geographies are involved, if additional manufacturing facilities are needed, and many of the other issues listed in Tables 1 & 2 need to be addressed, the decision quickly becomes complex,

Certain markets or industries that have (or are projected to have) major transitions occurring which can alter the premises upon which a decision to go forward is based need to be identified and considered. “Oops” is not a pleasant thing to hear somewhere in the middle of implementing a “new market” plan.