market-entry-strategies

Context-Based Market Entry Strategies For Startups

An entry strategy is a way an organization can access a market based on its structure. The entry strategy will highly depend on the definition of potential customers in that market and whether those are ready to get value from your potential offering. It all starts by developing your smallest viable market.

Market types

Let’s start with some basics of classic economics.

market-types
A market type is a way a given group of consumers and producers interact, based on the context determined by the readiness of consumers to understand the product, the complexity of the product; how big is the existing market and how much it can potentially expand in the future.

While the definition above is helpful to get us started. There is a more practical way we can define market types.

market-types-why-it-matters
Market types will influence the whole organizational structure, the funding needed, and the strategy adopted to enter or sustain a business in the marketplace.
market-types
Professor Steve Blank helps us with a simpler definition of markets, also more in line with the kind of context often startups have to deal with.

You can read the full guide on the market types below. In the next paragraphs, we’ll see how to tackle each market and what entry strategy you can use.

Read: What Are Market Types? Four Types Of Markets To Build A Business

Existing market: bootstrap and niche down

entry-strategy-existing-market

In an existing market made of existing customers and potential competitors, a business can already gain a lot of traction and feedback from an existing customer base.

The real matter is really understanding how to provide more value.

In those cases, some powerful entry strategies are:

  • A 2x better solution priced the same than existing alternatives
  • A solution that offers much more value to a subset of the customers of existing alternatives

In short, in an existing well-defined market, there might be many ways to enter.

An effective strategy is to identify a subset of customers (a niche) to to which you can target and provide the most value.

Thus, it’s possible to start by bootstrapping your business:

bootstrapping-business
The general concept of Bootstrapping connects to “a self-starting process that is supposed to proceed without external input.” In business, Bootstrapping means financing the growth of the company from the available cash flows produced by a viable business model. Bootstrapping requires the mastery of the key customers driving growth.

Identifying a niche, is a key element to getting started with a small set of potential customers able to give you feedback as you grow.

Sometimes whether to start from a niche or microniche is a matter of understanding how competitive and saturated is an existing market.

As a rule of thumb, a market that is extremely saturated will require you to drill it down until you find the smallest customer base to kick off your business.

For instance, if you’re starting today an online bookstore, sure you can start by making it the “everything store” (oops that seems it was already invented two decades ago and it is called “Amazon”) but that might be soon doomed to failure.

Instead, you want to be very specific. Something like, “I’ll start an online bookstore with the most curated books you can find about biographies from entrepreneurs of the 18th century.”

There might be a few thousand people across the world, interested in that. But those few thousand people are ready to become your raving fans and customers.

microniche
A microniche is a subset of potential customers within a niche. In the era of dominating digital super-platforms, identifying a microniche can kick off the strategy of digital businesses to prevent competition against large platforms. As the microniche becomes a niche, then a market, scale becomes an option.

Read: Microniche: The New Standard In The Era Of Dominating Tech Giants

Resegmented market: craft a value proposition based on the key players’ weaknesses

entry-strategy-resegmented-market
Identify a gap in the value proposition of existing competitors. What is that those large companies or existing, consolidated players can’t offer which you can instead?

Imagine you enter an industry dominated by other players. For instance, what about starting a search engine today? Or also back in 2008?

That doesn’t sound like a brilliant idea unless you know what your search engine can offer that Google can’t.

That is how DuckDuckGo started in 2008, when Google was already the dominant player in the search industry, together with a few other giants:

duckduckgo-business-model
DuckDuckGo makes money in two simple ways: Advertising and Affiliate Marketing. Advertising is shown based on the keywords typed into the search box. Affiliate revenues come from Amazon and eBay affiliate programs. When users buy after getting on those sites through DuckDuckGo, the company collects a small commission.

DuckDuckGo is throwing the user’s data on the fly.

Would Google’s business model be sustainable in the first place if it was to throw away the users’ data?

Probably not, and that is what makes DuckDuckGo’s value proposition clear: “I give you what Google can’t.”

Thus, when entering a resegmented market, where there might be an opportunity at the low-end of this market (DuckDuckGo started in 2008, when privacy concerns were still minor, compared to these days):

  • Find a gap in the existing value proposition of existing, dominating players (incumbents’ value gap analysis)
  • Offer what they can’t because it’s against their core business model (an offer they can’t replicate)
  • Look for the smallest set of unhappy customers for those incumbents ready to buy an alternative (minimum viable market)

New market: figure out a commercial use case

new-market-entry-strategy

Opening up a new market seems to be the hidden dream of many entrepreneurs.

That’s because, for a while, that new market might be extremely profitable and with low competition (the so-called first-mover advantage).

Yet opening up a new market, not only is a risky move, but if that market holds up, new companies might quickly replicate what you’re doing, thus making your first-mover advantage turn in their favor (Google was a latecomer in search, and so Facebook was a latecomer in social media).

But how do you enter (actually create and define) a new market?

In that case, it’s all about finding the commercial use case, which is initially big enough either to develop an initial potential customer base (made mostly of innovators).

In this case, it makes sense to look for funding because potential investors can validate your idea in the first place (if they’re willing to put money, it might be the first sign of a potentially worth-it commercial application).

Or ask, “is there a way for me to test the idea without making it technically complex?”

For instance, let’s say your idea is to start a software company, yet developing that would require hundreds of thousands of dollars.

What if you develop a simple App instead?

Costing a tenth of that, developed in a tenth of the time, yet a good starting point to understand whether the idea is commercially viable at that moment (what’s not commercially viable today might be so in the future)?

That would allow you to expand the project (and its technical requirements) and ask for funding based on a concrete idea backed up by data from potential customers.

Clone market: borrow whole or part of the successful business model

When some business models have proved viable in specific industries, instead of starting from scratch, why not take what exists out there and apply it in a new geographical area?

Similarly, if a business model proved viable in one industry, would this work in other industries?

For instance, when the Uber model proved viable (at least from a scalability standpoint), new applications of the model started to sprout:

cloning-uber-business-model
On Product Hunt, there is a curated list of startups applying the Uber model to other industries.
clone-market-entry-strategy

Another example is how Baidu took advantage of the proven model of Google to dominate in China. Baidu’s founded in 2000 after gathering financing from an early-stage venture capital firm launched in China.

Today Baidu has most of China’s search market share.

Also, when applying and modeling what works, you need to add a twist, which is often what makes the business model sustainable. Copycat alone won’t work for long.

Today, and already at the time, Baidu was a company that had its own specificities, given the fact the established model for the search was getting developed in the western context.

Read: Baidu Business Model

Key takeaways

  • Entering a new market also requires a basic understanding of the structure of that market.
  • There are several entry strategies we can use, and some of them depend on the market type we’re entering.
  • There isn’t a definite strategy to enter each market. However, we can draw from some examples in the business world and apply them back to our business.

Other case studies

Below is a series of case studies that show how several companies used different strategies to achieve initial traction.

Airbnb, OPN entry strategy

airbnb-business-model
Airbnb is a platform business model making money by charging guests a service fee between 5% and 15% of the reservation, while the commission from hosts is generally 3%. Due to the pandemic, Airbnb is stretching its business model and experimenting with new formats like online experiences to transition toward fully digital experiences.

As the story goes, in 2007, Brian Chesky and Joe Gebbia couldn’t afford the rent on their San Francisco apartment, which is why they decided to transform their loft into a lodging space.

Yet instead of relying on Craiglist, they built their site, which they called Airbed & Breakfast, and leveraged Craigslist to drive users back to their website,

SourceGrowthHachers.com 

Therefore, Airbnb, to gain initial traction, used what is known in growth marketing as OPN (or other people’s networks). It surfed a giant at the time (and still), Craigslist.

To be sure, Airbnb didn’t just gain visibility on Craigslist. Instead, it surfed the site to push its platform.

A platform business model to take off runs into the so-called chicken and egg problem.

In short, a platform is different from a linear business; to gain initial traction has to kick off its operations on often different sides.

For instance, for Airbnb, it was critical to enhance the listings available on the platform to make it valuable for users and vice versa.

The more users joined, the more it would attract listings.

Where to start? Back in 2010, Airbnb figured out a mechanism and automation that enabled listings on the platform to be reposted on Craigslist, thus generating substantial traffic.

In addition, those who searched for listings on Airbnb were users looking for alternatives to Hotels, so a great target. By using this initial strategy Airbnb managed to solve its initial growth phase.

Coca-Cola franchained entry strategy

franchained-business-model

In a FourWeekMBA analysis to dissect the Coca-Cola system, the company uses a template wherein the short term of its new operations are controlled, and the company keeps a controlling equity stake in the new venture.

As soon as it takes off, the operation returns from the chain to the franchise.

Thus the company divests its controlling stakes, and in the long run that becomes a franchising agreement.

From there, the concept of “franchained.”

This go-to-market strategy has worked pretty well for Coca-Cola since 2003 to enter new markets by leveraging on its scale, by controlling the new venture, and after that leaving it independent by being tied to Coca-Cola with a franchising agreement.

coca-cola-business-strategy
Coca-Cola follows a business strategy (implemented since 2006) where through its operating arm – the Bottling Investment Group – it invests initially in bottling partners operations. As they take off, Coca-Cola divests its equity stakes, and it establishes a franchising model, as long-term growth and distribution strategy.

Netflix niche entry strategy

netflix-market-expansion

When Netflix started its operations, it did that most feasibly at the time as a DVD-rental company.

That was the most viable way to start a business that could compete with existing players like Blockbuster.

Netflix could have tried to play it bigger.

Netflix had known for years that being a competitive player in the DVD-rental space was “just the beginning of something else.”

Yet the first time “streaming” was announced on Netflix plan was in the 2007 annual report, presented in 2008, and by the 2009 annual report, the term “streaming” would be mentioned 88 times (FourWeekMBA analysis).

That is when things started to pick up, and Netflix moved away from its go-to-market strategy.

It took over a decade from its foundation for Netflix to see its strategy roll out fully!

netflix-revenues

OYO octopus entry strategy

oyo-business-model
OYO business model is a mixture of platform and brand, where the company started primarily as an aggregator of homes across India, and it quickly moved to other verticals, from leisure to co-working and corporate travel. In a sort of octopus business strategy of expansion to cover the whole spectrum of short-term real estate.

The process of standardization of the experience starts with what OYO claims to be a 150-point checklist that goes from the booking experience to the support center and the on-ground Cluster Managers, ready to solve any problem it might arise during the experience of guests.

Thus the go-to-market (expansion) strategy looks like the following:

  • Identification of the next opportunity/area/vertical to tackle.
  • Acquisition via a growth representative expert in building up partnerships.
  • The expansion team will apply the 150-point checklist to make the property in line with the OYO standard.
  • Support and assistance are provided by ad hoc OYO representatives.
  • The expansion process ends when the company can properly manage the end-to-end customer experience.

This sort of go-to-market is skewed toward distribution.

Partnerships entry strategy

partnership-marketing
With partnership marketing, two or more companies team up to create marketing campaigns that help them grow organically with a mutual agreement, thus making it possible to reach shared business goals. Partnership marketing leverages time and resources of partners that help them expand their market.

In some other cases, a successful go-to-market strategy can be primarily about finding the platform or the partner that can help your product to gain the right amount of traction.

Tesla’s MVP entry strategy

tesla-vision-statement-mission-statement
Tesla’s vision is to “create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles,” while its mission is “to accelerate the advent of sustainable transport by bringing compelling mass-market electric cars to market as soon as possible.” Tesla used a transitional business model as its ecosystem grew.

From Tesla’s mission, it’s clear that the company wants to become a mass-adopted car company in the long run.

Yet, when it launched, it was all but a mass-market organization.

An outside looker might have assumed that Tesla was just a sports car company coming up with a tremendous electric alternative.

tesla-market-entry-strategy

However, that was just a go-to-market strategy used by Tesla to enter an extremely competitive market, which required massive capital to survive in the first place.

Tesla, instead of going for a model that would compete with all the other sedan car companies in the middle and lower segments of the market.

The company opted for a go-to-market strategy that was only feasible then. It built a sports car that was interesting only to a relatively small audience, and yet it was competitive.

Sports cars have much higher prices compared to other models (like sedans), and perhaps the person buying that type of car might be less sensitive to the price itself.

That is how Tesla slowly built up its strategy to cover larger spaces within the car industry.

And while Tesla is still a more minor player in the volume of cars produced, as of 2020, compared to companies like Ford and GM, it is rolling out its strategy to become a mass-market electric car company.

As this is a complete market change, it will still require a few years for this strategy to roll out successfully.

tesla-production-numbers-by-year

Zoom multipronged entry strategy

zoom-business-model
Zoom is a video communication platform, which mission is to “make video communications frictionless.” Leveraging on the viral growth from its freemium model, Zoom then uses its direct sales force to identify the opportunity and channel those in B2B and enterprise accounts. 

Zoom defines its go-to-market as a “multipronged go-to-market strategy for optimal efficiency.” It starts with “viral enthusiasm” triggered by users as they join the platform for free.

The good experience is channeled by sales efforts to identify customers’ opportunities, such as transforming a non-paying user into an enterprise customer.

For instance, as pointed out by Zoom in its 2019 10K, “back in 2019, 55% of the 344 customers that contributed more than $100,000 of revenue started with at least one free host prior to subscribing.”

Therefore, the sales model combines the viral demand generation from the free Zoom Meeting plan with direct sales looking for potential customer opportunities.

The Zoom direct sales force includes:

  • Inside sales
  • Field sales

Those are organized by customer employee count and vertical.

In short, Zoom the workflow looks like the following:

  • Free accounts are channeled through the right sales representative.
  • SMBs opportunities will be assigned to an inside sales team member for the acquisition of the paid account.
  • Larger SMBs accounts or potential enterprise accounts are assigned to field sales.
freeterprise-business-model
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.

This sort of go-to-market is skewed toward product and distribution.

The facets of business model innovation

entry-strategies-startups

Based on the context, an effective way to determine the market entry is by understanding the stage of development for the industry you’re about to enter.

From there, you can evaluate whether it makes sense to:

Unbundling the product

In a market context, consolidated players have been offering a bundle or portfolio of products for years.

Or perhaps a single product with many features, but only a few are interesting to customers.

You can only take the existing offerings and develop the single product or killer feature that customers want.

This will be your entry point to unbundle the current market offering.

Cutting out intermediaries

In a context where the market is plenty of fragmented intermediaries that extract much of the value from that but offer little overall value.

This platform connects customers with service providers and cuts out those fragmented intermediaries will be very appealing to both sides of the marketplace; looking forward to helping you make those intermediaries irrelevant.

Think of how Uber, Airbnb, and many other platforms’ business models have been entirely disintermediating industries.

Value innovation

in a digital world where it becomes possible to craft an offering that can scale, the player that figures out how to enter a market by offering more at a lower cost can go far.

Companies like Amazon in e-commerce and Netflix in media have followed the value innovation approach.

Re-mixing

Or perhaps use all three above, which make up the formula for business model innovation.

Indeed, over time, companies that develop a competitive advantage tend to control the three aspects above.

From product to distribution and value innovation, as long as those elements are in balance, a competitive advantage might hold.

Read also: Business Strategy, Examples, Case Studies, And Tools

Read Next: Lean CanvasAgile Project ManagementScrumMVPVTDF.

FourWeekMBA Business Toolbox

Business Engineering

business-engineering-manifesto

Tech Business Model Template

business-model-template
A tech business model is made of four main components: value model (value propositions, missionvision), technological model (R&D management), distribution model (sales and marketing organizational structure), and financial model (revenue modeling, cost structure, profitability and cash generation/management). Those elements coming together can serve as the basis to build a solid tech business model.

Web3 Business Model Template

vbde-framework
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.

Asymmetric Business Models

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Business Competition

business-competition
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that, in the short-term, seem unrelated.

Technological Modeling

technological-modeling
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.

Transitional Business Models

transitional-business-models
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable business model.

Minimum Viable Audience

minimum-viable-audience
The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people which needs are unmet by existing players.

Business Scaling

business-scaling
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.

Market Expansion Theory

market-expansion
The market expansion consists in providing a product or service to a broader portion of an existing market or perhaps expanding that market. Or yet, market expansions can be about creating a whole new market. At each step, as a result, a company scales together with the market covered.

Speed-Reversibility

decision-making-matrix

Asymmetric Betting

asymmetric-bets

Growth Matrix

growth-strategies
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).

Revenue Streams Matrix

revenue-streams-model-matrix
In the FourWeekMBA Revenue Streams Matrix, revenue streams are classified according to the kind of interactions the business has with its key customers. The first dimension is the “Frequency” of interaction with the key customer. As the second dimension, there is the “Ownership” of the interaction with the key customer.

Revenue Modeling

revenue-model-patterns
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.

Pricing Strategies

pricing-strategies
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.

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