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 alls 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 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:

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 get 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 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:

duckduckgos-business-model

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

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 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.

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 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:

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 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

Key takeaways

  • 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,

SourceGrowthHachers.com 

Therefore, Airbnb, to gain initial traction, used what is known in growth marketing as OPN (or other people’s network). 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 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

franchained-business-model

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.

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 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

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 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

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 grows.

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.

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 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

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 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.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which target is to reach over two million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get in touch with Gennaro here