Expanding your company’s products or services into a new market can be an effective way to achieve your growth goals and objectives. However, it’s essential to have a well-thought-out market entry strategy before you enter any new market. If you don’t have one, then you may run into roadblocks that impede your growth.
At Select Funding, we work with small business owners every day to help them achieve their objectives, and that includes providing working capital and advice for new market expansion. With the right strategy, it’s possible to seamlessly expand to a new market. Here are seven factors to consider before entering a new market.
What Does It Mean to Expand into a New Market?
When a business chooses a growth strategy, one option that may be in the mix is market expansion. A market expansion may fall into two general categories:
- Geographical expansion refers to moving into a new city, state, region, or country. For example, a company based in Florida might expand into Georgia and South Carolina. A company in New England might expand into the mid-Atlantic states. Or, a US-based company could expand into an international market.
- Material expansion occurs when a company expands into a new market by offering a new product or service with the hope of attracting a new target audience. For example, a footwear company might expand into apparel or an accounting firm might expand by adding a business payroll service.
There are many ways to approach new market entry as a business owner. For example, you could franchise if you were interested in rapid expansion into multiple new geographical markets. Two options to expand with a new product would be to merge with another company or acquire the company in a purchase.
What Are the Reasons a Business Enters a New Market?
There are significant benefits to entering a new market. New market entry may not be the right choice for every business, but here are some of the most common reasons that businesses enter a new market.
Increased Business Stability
Every business owner knows that shifting economic conditions can change their financial outlook in a moment. One of the biggest benefits of new market entry is that it gives businesses more stability by providing more chances to keep the cash flowing.
Whether a new market expansion involves a new territory or a new product or service, having more to offer means that a company may have a better chance of maintaining its footing in the face of economic hardship.
Better Competitive Edge
Beating out competitors is one of the keys to business success. Companies need to be able to differentiate themselves from their competitors and one way to do that is by expanding into a new target market.
Moving into a new market segment or offering a new service or product can help a small business stand out from the competition and grab their fair share of sales and profits.
Economies of Scale
Small businesses may sometimes struggle to make ends meet because they don’t have the leverage to negotiate low prices for raw materials, supplies, or products.
With new market entry, there’s the possibility that companies can earn more money than they did previously while paying less because they’ll have the ability to negotiate deals and take advantage of economies of scale.
Increased Profits
Increasing profits is probably the most common business goal for growing companies and established organizations. There are many potential strategies to help companies grow, but new market expansion is one of the most effective.
Not only will your business attract new customers, it’s possible that you may see increased sales and profits from your existing customers—something that’s particularly true if you’re introducing a new product or service.
What Are Common Barriers to Entry in a New Market?
New market expansion can be an effective growth strategy but it’s important to understand the challenges as well as the benefits:
- Cash flow. It takes money to expand, whether it means paying rent on a separate location or investing in R & D for a new product. Without sufficient cash flow to succeed, new market expansion is not a wise strategy.
- Loss of control. Small business owners are sometimes taken aback by how easy it is to lose control in a period of expansion. If you’re accustomed to having a hand in all aspects of running your business, expansion may require you to give up some control.
- Compromised quality. New market entry requires companies to think about how they will maintain their quality and stay productive with added responsibilities and split attention. You should have a plan in place to make sure your existing customers don’t end up disappointed in your company.
You’ll need to keep your working capital needs in mind and be strategic about new hiring to make sure you’re not compromising your business or brand as you expand into a new market.
7 Factors to Keep in Mind when Entering a New Market
Now, here are seven important factors to consider before you expand into a new market.
#1: Your Business Goals
Most businesses expand into a new market because they believe it will help them achieve their growth goals and objectives. We would suggest that before you proceed with any market expansion strategy, you start by reviewing your existing goals.
Goals can change, so business expansion doesn’t need to perfectly align with your existing goals to be a good strategy. However, you should make sure that your goals are in alignment with your plans for expansion and that each goal is SMART (Specific, Measurable, Attainable, Relevant, and Time-Bound) before you proceed.
#2: Market Research
Whether you are introducing new products, offering new services, or simply expanding into a new geographic area, you’ll need to conduct market research to make sure that new market expansion is the right option to help you meet your goals.
Here are some questions to ask as you research the market you’re considering:
- Is there an audience for my product or service?
- How many competitors are there in the market?
- Will my company be able to compete with available resources?
- What are the key characteristics of my target audience?
Any potential investor will want evidence that you have completed market research, so it’s essential not to skip this step.
#3: Your Existing Vendors and Partners
If your market expansion strategy involves expanded production of existing products or manufacturing new products, you’ll need to consider several things regarding your existing vendors and partners:
- Can your existing partners handle your anticipated production needs?
- Will your vendors accommodate you with economies of scale?
- Are there other vendors available who can provide what you need?
A good place to start is by talking to your existing vendors, who may be eager to accommodate you since your growth may lift them, as well.
#4: Your Brand
Your company brand is an essential part of your identity. It’s what tells potential customers who you are and what you believe, so it’s important to consider your brand and how expansion will impact it before you proceed.
Ultimately, any expansion you undertake should be consistent with your brand and in line with your core values. If it isn’t, you’ll need to be mindful and engage in some well-planned rebranding that honors your existing customers while making room for new ones.
#5: Impact on Your Existing Customers
The potential impact on your existing customers is something you can’t afford to overlook as you contemplate market expansion. Growth can be good for everyone but you’ll need to ask yourself how increased production or overworked staff may impact your relationships with the customers who helped your business get to this point.
It’s important to have a strategy in place that will allow you to grow mindfully and with your customer base in mind. Be careful to think ahead, making strategies for increased production, logistics, and customer service.
#6: Licensing and Logistics
There are multiple ways in which practical things can get in the way of expansion. You’ll need to be clear on what your expansion strategy involves and what you need to do to make your dreams into reality.
For example, any company moving into a new state or territory will need to think about business licensing and permits. You may also need to register as a foreign company and think about how you will deal with the logistical challenges of providing services or delivering products.
#7: Working Capital and Cash Flow
There’s no question that expanding into any new market requires enough cash to meet your increased expenses and fuel your growth strategy. For that reason, it’s essential to understand your current cash flow situation and make accurate projections to be sure you’ll have the money you need.
Small business financing is one option to consider. At Select Funding, we provide small companies with the working capital and equipment financing they need to take on a new market, whether that means opening a new location, purchasing new equipment, or hiring more sales staff to meet your growing needs.
Fuel New Market Entry with Small Business Financing
Moving into a new market requires careful planning and strategization. You’ll need to consider how you will expand, what resources you need, and the impact your expansion will have on your existing customer experience and business model.
Are you considering a new market entry? Select Funding can help you get the working capital you need. Click here to get started!
