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 alls starts by developing your smallest viable market.
- Market types
- Existing market: bootstrap and niche down
- Resegmented market: craft a value proposition based on the key players’ weaknesses
- New market: figure out a commercial use case
- Clone market: borrow whole or part of the successful business model
- Key takeaways
- Other case studies
- Airbnb, OPN entry strategy
- Coca-Cola, franchained entry strategy
- Netflix niche entry strategy
- OYO octopus entry strategy
- Partnerships entry strategy
- Tesla’s MVP entry strategy
- Zoom multipronged entry strategy
- The facets of business model innovation
Let’s start with some basics of classic economics.
While the definition above is helpful to get us started. There is a more practical way we can define market types.
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.
Existing market: bootstrap and niche down
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 understanind 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, while there might be many ways to enter. An effective strategy is to identify a subset of customers (a niche) which you can target and provide the most value.
Thus, it’s possible to start by bootstrapping your business:
Identifying a niche, is a key element to get started with a small set of potential customers able to give you feedback as you grow.
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.
Resegmented market: craft a value proposition based on the key players’ weaknesses
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 which 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 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 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
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 give you the option to expand the project (and its technical requirements) and ask for funding based on a concrete idea backed up by data from potential customers.
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 industry, would this work in other industries? For instance, when Uber model proved viable (at least from a scalability standpoint), new applications of the model started to sprout:
Another example is how Baidu took advantage of the proven model of Google to dominate in China. Baidu‘s founder 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
- Entering a new market requires also a basic understanding of the structure of that market
- There are several entry strategies we can use, and some of them depend from 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 it back to our business
Other case studies
Below, a series of case studies that show how several companies used different strategies to achieve initial traction.
Airbnb, OPN entry strategy
As the story goes, in 2007, Brian Chesky and Joe Gebbia couldn’t afford the rent on their San Francisco apartment that is why they decided to transform their loft in a lodging space.
Yet instead of relying on Craiglist, they built their site, which they called Airbed & Breakfast and leveraged on Craigslist to drive users back to their website,
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 run into the so-called chicken and egg problem.
In short, a platform differently 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 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
In a FourWeekMBA analysis to dissect the Coca-Cola system, the company uses a template wherein the short term 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 goes back from 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 tied to Coca-Cola with a franchising agreement.
Netflix niche entry strategy
When Netflix started its operations, it did that in the most feasible way 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 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 to roll out fully!
OYO octopus entry strategy
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 provided by ad hoc OYO’s representatives.
- The expansion process ends when the company is able to properly manage the end-to-end customer experience.
This sort of go-to-market is skewed toward distribution.
Partnerships entry strategy
Tesla’s MVP entry strategy
From Tesla’s mission, it’s clear that the company wants to become in the long-run a mass-adopted car company. Yet, when it launched, it was all but a mass-market organization. An outside looker might have had the impression that Tesla was just a sports car company, coming up with a great electric alternative.
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 segment of the market.
The company opted for a go-to-market strategy that was the only feasible at the time. It built a sport’s car, that was interesting only to a relatively small audience, and yet it was competitive.
Sport’s cars have much higher prices compared to other models (like sedan), and perhaps the person buying that type of car might be less sensitive to 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 smaller player in terms of volume of car 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.
Zoom multipronged entry strategy
The good experience is channeled by sales efforts to identify customers opportunities, such to transform 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 he 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.
This sort of go-to-market is skewed toward product and distribution.
The facets of business model innovation
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, where there are consolidated players, that have been offering a bundle or portfolio of products for years. Or perhaps a single product with many features, but only a few of those features are interesting to customers. You can take the existing offerings and only develop the single product or killer feature that customers really 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 a little overall value, a platform that connects customers with service providers, and cuts out those fragmented intermediaries will be very appealing to both sides of the marketplace, looking forward to help you make those intermediaries irrelevant. Think of how Uber, Airbnb, and many other platforms business models have been disintermediating entire 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 lower cost, can go far. Companies like Amazon in e-commerce and Netflix in media have been following the value innovation approach.
- Or perhaps use all three above, which make up the formula for business model innovation. Indeed, over time companies that do 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.
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