When You Should Expand into New Markets
Startups often expand into new markets because they need growth. But if we take a step back to ask why do we need growth you’ll often find that it’s because investors are expecting it given the stage the company is at, or that the company is experiencing stagnant growth in their current ICP.
However, there is a time and place for expansion and it’s often not what you think.
During my job search I spoke to a company who wanted to expand to Europe. But given their stage in revenue (around $10M), I was surprised they thought that was a good move. Had they really tackled and conquered their TAM (total addressable market) or SAM (sellable addressable market) in the U.S.? Had they taken all of the considerations into account when looking into expanding into Europe or other territories such as: GDPR, server locations, a legal entity set up in the location, boots on the ground for sales and marketing, localization of the website, developer docs, content, ads, etc.?
In the past I worked for another organization who wanted to expand into different verticals. I don’t know who came up with the idea but all of a sudden it was mandated we go after Financial Services. Was this a practical joke? We had zero marketing content for FiServ, not to mention that my past experience with FiServ told me those deals took 9-18 months to close and we were getting measured on performance by quarter. There was an expectation to close a FiServ deal within 3-6 months.
In another company I worked the Board suggested we go after eCommerce. Again, marketing had zero content and zero customers in eCommerce. But logically it made sense for what we sold. Yet, as an organization, we didn’t understand the nuances of eCommerce, their needs, the impact our product could/should have on their business. We had to hire external experts and interview people in eCommerce to do our own market research. And still were expected to talk about our success at the next board meeting. It was unrealistic. In reality, it took us close to 9 months to start getting eCommerce customers and over a year before we started having some traction.
When should you expand into a new geographical market vs new vertical?
VERTICAL EXPANSION
If you feel you’ve exhausted the verticals you have currently conquered, then by all means look to see if you have product market fit within another vertical. If so, then you need to build out your marketing efforts before diving in head first.
You need to first understand and ideally have an SME (subject matter expert) in your company for that vertical.
Second, you need to generate brand awareness in that new vertical which requires content - lots of it.
Third, you need to set realistic expectations about how long it will take to see any real traction.
GEOGRAPHICAL EXPANSION
If you’ve exhausted or have at least 20% or more market share in your country, then you have the right and should go outside of your geographical location. But if you don’t, you shouldn’t. The reason you’re not growing isn’t due to ICP, it’s most likely due to lack of product market fit.
Most B2B SaaS companies do not expand outside of their geo until they are way north of $100M in revenue. As an example, 6sense did not expand to EMEA until they were north of $150M in ARR. So when I see companies south of $100M wanting to expand it tells me they either don’t have product market fit or they have a broken GTM process somewhere, or both.