Startup's expansion strategy and moving forward

Entering new markets can be a good strategic move that benefits a company. It is also a risky endeavor. How then to carry out expansion? I asked Piotr Smoleń, the CEO of Symmetrical.AI and Dawid Lesniakiewicz, co-founder of the Programming Giants, for advice.

Startup's expansion strategy – table of contents:

Based on their experiences and opinions, this text was created with a presentation of three necessary steps to take if you are thinking of moving forward with expansion. To begin with, you need to assess your readiness, then choose an expansion vector (geographic expansion is only one option) and finally perform a series of tests. Let’s begin then!

Step 1 Assess your readiness for expansion

What factors should be considered when assessing a startup’s readiness to enter new markets? Every business is different. Therefore, each case requires a customized approach on a case-by-case basis. On the other hand, we can identify three areas that a startup founder should always pay attention to. Namely, product-market fit, expansion vector and market fit, says Piotr Smolen, CEO of Polish-British Symmetrical. AI.

Let’s now focus on each of these criteria.

Criterion #1: Product-Market Fit

Before entering a new market, a startup should achieve the so-called product-market fit.

I have written about it before, in this text, but I will remind you what it consists of. Product-market fit is about matching the product to the needs of customers, and this happens when a company’s offering solves the problems of its audience.

The key question, then, is how you will know when you have achieved product-market fit.

You will do it, for example, by performing the 40% Sean Ellis test, by which you will determine the degree of customer disappointment at the thought of discontinuing your offer. How to perform such a test? I also wrote about it in the text on product-market fit.

Piotr Smolen also advises looking at the following business parameters:

Number of customers – the more customers there are, the more likely it is that the product is tailored to the market. The same is true for revenue.
Low churn rate – if customers are abandoning your product or service, it’s a bad sign. Most likely, your solution does not meet their needs. In the other direction – a low churn rate indicates product-market fit.

Criterion #2: Expansion vector

However, if you are confident that your product or service is indeed a match for your customers’ expectations, you should consider which vector you intend to expand. Geographic expansion is just one possibility.

In addition to it, there are two others:

New market segment – involves expanding your business to a new, previously unserved customer segment. For example, until now you have offered your product to small businesses, and now you want to offer it to corporations as well.
Vertical integration – involves providing customers with additional services. For example, if you offer a system for accounting, you may now want to offer them an HR and payroll system at the same time.

Criterion #3 – Market

After deciding on an expansion vector, you should think about the market you want to enter. You may find the following questions helpful in your choice:

Will the expansion benefit existing and new customers?
Am I able to match the offer to the new distribution channel?
Will I market my product in the same way in the new segment?

Step 2 Evaluate market attractiveness and profitability of expansion

A startup’s readiness for expansion is one thing, and its profitability is another.

So you have to ask yourself whether it is worth it. Is it worth entering a new market? And a quantitative and qualitative analysis will help you answer. Start with a qualitative analysis to express your chosen market in numbers.

First, you need to determine whether there are enough potential customers in the market. What scale are we talking about? A thousand or a hundred? By determining the quantity, we can determine whether the chosen market is large enough to be relevant to our business, or whether it is too small to be worth exploring, says Piotr Smolen.

At the same time, the CEO of Symmetrical.AI believes that quantitative analysis, although important, should not be the main point of market research. In his opinion, qualitative analysis is much more essential to learn about the specifics of an area.

First, we need to understand the competitive landscape of the new environment. It may turn out that our company, which is a leader in Poland, is at best an average outside Poland. It is necessary to know this in advance, adds Piotr Smoleń.

Likewise, it is also useful to understand the pricing strategies in international markets, which may differ from those in Poland. Another key aspect is to understand how customers in a given market purchase products and services, as distribution channels may work differently.

Product bundling is also an important part of qualitative analysis. Just because you sell two products separately in Poland doesn’t mean you will also sell them separately in a foreign market. You may have to bundle them together.

Step 3 Make hypotheses and perform tests

The information gathered in the previous steps will serve you to prepare a strategy and carry out the expansion. Nonetheless, it is not worth it to immediately go full steam ahead into a new market, increase employment or open a local office outside Poland. Instead, it is much better to perform a series of tests and explore business hypotheses.

When I asked Piotr which hypotheses he was referring to, he listed these four.

Value proposition. The first thing you need to verify is the value proposition – does it resonate with the new market? Will customers even be willing to pay for what you have to offer them?
Pricing. The second important element is pricing, i.e. the price list and how it is charged. How do the prices offered by your startup fit into the dynamics of a given market? Do they need to change? Do you somehow need to adjust your pricing strategy to fit the specifics of a particular market?
Product Packages. Third, you must verify how customers respond to the service or product packages you offer. Does the combination of services and products meet the needs of your potential customers?
Distribution channels. The fourth hypothesis you should make concerns distribution channels. Does the way you deliver your product or service make it easier for customers to purchase your solution, or does the opposite prevent it?

I’ve noticed that many startups have relented in their attempt to expand because they needed to enlist the help of an outside, local expert at the business hypothesis stage. My advice is to look for one. He or she will be a source of knowledge about the market, says Piotr Smolen.

Together, you will find it easier to verify the above four business hypotheses. In this process, direct conversations with customers, surveys, landing pages with product descriptions and advertising campaigns to gauge interest in your offering will be useful. Try selling your solution to a small sample. Then you will see what works in your current business model and what needs improvement.

Only after performing a series of tests will you be able to determine whether the market selected in the second step is indeed attractive from your company’s point of view. If so, only then will you decide to hire, for example, a country manager and build more complex organizational structures. Then you will simply expand your business – nevertheless, I will skip this expansion thread.

And that’s because by a large measure, organically growing a company in a new market is akin to building a business in your home market and taking care of all the aspects you know, such as sales, marketing, HR and so on. I would like to discuss mistakes instead.

4 mistakes in the expansion

Let’s take a look at four common mistakes companies make when expanding. These range from spreading out into too many business areas at once to taking too hasty an approach to global expansion.

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According to Peter Smolen, one of the common mistakes during expansion is getting distracted by focusing on different directions at the same time. Simply put, we want too much, too fast and at once. We want to introduce a new product while simultaneously entering new customer segments and a new market. This complicates the whole process. That’s why it makes sense to choose one expansion vector – either a new customer segment, a geographic market, or an additional product or service.
Error

Another common mistake is to expand too quickly. The constant push by investors to build global unicorns and media reports of fast-growing competition sometimes encourage them to go that route, the route of expansion.

However, it is not always worth it. There is a lot of value to be discovered in an existing market that you know and understand well. Rather than entering a new market, consider beforehand what share you’ve captured in your current market and whether it can sometimes improve on that score. Often the answer will be yes.
Error

The third mistake is to choose the wrong direction of expansion, as if geographic expansion were the only vector in which to expand. This is not the case.

By deciding to go West or East, it’s easy to forget that customers also evolve and grow out of products. As a result, it happens that startups blinded by the vision of global expansion lose their current customers. And sometimes it’s better to think about how to modify your offerings so that they still appeal to customers whose needs have changed over time.
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The last mistake is to rely only on quantitative data. In terms of numbers, the market selected in such an analysis may appear as the one you absolutely must enter – it’s big, the customers are there and the money is there. Only that the numbers do not reflect its full specifics. You also need to know the customs of customers and their ways of handling products and services. This is where qualitative analysis and a local expert who knows a particular market inside out are helpful – it’s always a good idea to have one in your corner.

Case study. The Programming Giants

What does expansion look like in practice? Let’s take a look at Programming Giants- a Polish programming school for children, which operates globally under the Coding Giants brand. In addition to Poland, this thriving educational startup also teaches in 14 countries, including Spain, Germany, Dubai, Mexico and Australia.

David Lesniakiewicz, the co-founder of the Programming Giants, is undoubtedly knowledgeable when it comes to the issue of global expansion. That’s why I decided to ask him to share his experiences, insights and tips on the subjects. This is his comment.

Source: Giganci Programowania (https://www.giganciprogramowania.edu.pl/)

Decision and readiness

In the case of Giants, the decision to enter foreign markets was driven by the opportunity to scale the business based on our existing services in Poland and, above all, on the positive, healthy metrics we have developed over the years.

Our financial position in the Polish market gave us security and allowed us to invest strength and resources to test appropriately selected foreign markets.

The business model also played a significant role here. As an organization growing in two ways – based on in-house outlets and online classes on the one hand, and the basis of stationary franchise outlets on the other – we were able to test the possibilities for growth in foreign markets in each of these options.

Of course, this requires adequate resources and communication, but it also produces adequate results that can be immediately translated into providing the customer with an offer in the right formula. In turn, testing both formulas us to decide which one or combination of them will ultimately work best in each country.

Preparing for expansion

We collect data extensively and in a variety of ways – from desk research conducted in-house, through cooperation with research agencies. Of course, we start with basic data about the market, its potential derived from economic indicators and metrics about our business, and a brief competitive analysis. This is the basis.

The more difficult part concerns studying the needs and business environment.

Then we conduct tests because in the end, they are the only thing that decides whether we enter a particular market or not. The process is complex and a little different in each market, and it also evolves as the organization learns more and more about the differences we see in customer needs in different markets.

Our organization is customer-centric by design, and we strive to nurture this approach at every stage of business decisions because it translates into the quality of service and ultimately the success of our business.

Testing the market

The next step after selecting a target market is to conduct detailed testing of our customer acquisition funnel. This process involves analyzing every step, from collecting leads (mainly through performance marketing), to organizing trial lessons, to converting interested people into regular customers.

This will help us to accurately measure the effectiveness of each stage of the funnel and calculate the customer acquisition cost (CAC). This phase is crucial to our strategy, as it is the basis for our decision to continue expansion in a given market.

Insightful analysis allows us to identify potential areas to optimize and improve our marketing efforts. Accurately measuring the effectiveness of each stage of the funnel is essential for making choices about resource allocation and marketing and sales strategies. This, in turn, translates into better alignment of our offerings with customer needs and expectations in the new market.

Potential risks

Mistakes, of course, can be pointed out a lot, and it is important to remember that from the perspective of our organization, by new market we currently mean any foreign market.

So here is the issue of cultural differences, which can translate into many differences in the way business is conducted in the home market and a particular foreign market.

The mistake in this case may be insufficient knowledge of the market or ignoring the differences. This leads directly to a lack of sales, and without knowing why.

Another mistake can be a lack of operational flexibility. Differences between markets can make the business organization look different in each market. You need to observe these needs and respond to them on an ongoing basis.

A misguided expansion. Evacuation plan

Finally, let’s assume such a scenario. You made a decision to expand your business, chose a market and started to set up in it. But after some time you realized that it was a wrong move after all. So now you want to back out.

The question is How? This is not an easy process, although the assumptions are simple.

In this case, I believe that the decision to withdraw from the market is justified and should be taken as soon as possible. Nevertheless, it is connected with certain consequences, because at this stage we are already burdened with contracts with customers and business partners. We can’t just leave them, says Piotr Smoleń.

So what does he advise?

First, take care of customers who have taken the risk of working with us. Second, inform them of your plans, and then arrange for a smooth and painless transition to a new supplier, which will, of course, incur costs. And to offset them, there is only one thing you can do: do it as quickly as possible.

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Author: Adam Sawicki
Owner and Editor-in-Chief of Rebiznes.pl, a website with news, interviews, and guides for solo entrepreneurs and online creators. In media since 2014.
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