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.
The mother of the modern market expansion
One of the most successful market expansion of modern business history was achieved by Apple. As the company moved from niche PC maker; it jumped to new markets, until it created a whole new market with its iPhone (what is known as a blue ocean, or at least it used to be so).
As Apple created new products, those new products also comprised new technologies, and they were coupled with a different distribution model.
Platforms dominate distribution platforms
When Apple jumped from computers to the iPod, it started to understand that to create a whole new market, a product alone wasn’t enough.
It needed a new way to distribute it and a new platform for enabling a different level of content consumption for consumers.
From there, the iPod, iTunes, and a new distributionmodel (single songs could be consumed in place of buying entire CDs), a whole new distributionplatform was born.
TDM: Technology + Distribution + Monetization
Netflix started 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:”
In a Wired article, entitled “The Netflix Effect” from 2002, Reed Hastings, still current Netflix’s CEO, highlighted:
The dream 20 years from now, is to have a global entertainment distribution company that provides a unique channel for film producers and studios.
Thus, Reed Hastings was well aware of the potential of building a platform, yet it knew it took time to achieve the viability of that business model. Netflix could have burned all its capital to enter that market early on.
Yet the first time “streaming” was announced on a Netflix financial statement was in the 2007 annual report, presented in 2008, and by 2009 annual report streaming would be mentioned 88 times (FourWeekMBA analysis). That is when things started to pick up!
Netflix jumped from a smaller, limited market, to a much larger market, with much less physical constraints. As Netflix jumped from DVD-rental to streaming, it also slowly abated the fulfillment costs related to the delivery of the DVDs. As of 2007, when Netflix revenues were still fully coming from DVD-renting those were over 10% of its revenues (FourWeekMBA Analysis).
And suddenly Netflix jumped from a limited market to an unlimited, digital market, without physical constraints, besides servers’ costs, of course. In 2019 server expenses increased by $18 million as more streaming was served on the platform (FourWeekMBA Analysis). And yet, this model was way more scalable.
Other examples that we’re looking at currently, are all around us. Another interesting one is Uber and how – as the company scales – it explores new ways it can achieve its mission, and yet be careful not to take this step too fast, as a false step might certain business death.
Technological platforms mature with the birth of an economic ecosystem around them. Conversely, “business platforms” require technological, distribution, and monetization changes, that combined provide a new way of doing business, and the basis for new business models to emerge.
Logical only in hindsight
While it all makes sense to look at market expansion in this way, it’s important to understand that this is logical only in hindsight. In reality, as companies go through those periods of market changes, they need to adjust.
For instance, as Netflix survived two eras of changed content distribution formats, the survival is all but granted.
And in the next era, where augmented reality might become the next available consumer-platform, the whole TDM framework might change again!
Key takeaways
Market expansion can happen in several formats. It can start by gaining more market shares in an existing market. Or perhaps by expanding the existing market.
Or it can happen by taking advantage of a whole new market. As those new markets become available the whole TDM framework (technology, distribution, monetization) makes available new “business platforms” which enable new business models.
A total addressable market or TAM is the available market for a product or service. That is a metric usually leveraged by startups to understand the business potential of an industry. Typically, a large addressable market is appealing to venture capitalists willing to back startups with extensive growth potential.
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.
In simple terms, market validation is the process of showing a concept to a prospective buyer and collecting feedback to determine whether it is worth persisting with. To that end, market validation requires the business to conduct multiple customer interviews before it has made a significant investment of time or money. A transitional business model is an example of market validation that helps the company secure the needed capital while having a market reality check. It helps shape the long-term vision and a scalable businessmodel.
Market orientation is an approach to business where the company focuses more on the behaviors, wants, and needs of customers in its market. A company will first target a niche market to prove a commercial use case. And from there, it will create options to scale.
In a tech-driven business world, companies can move toward market expansion by creating options to scale via niches. Thus leveraging transitional business models to scale further and take advantage of non-linear competition, where today’s niches become tomorrow’s legacy players.
Digital and tech business models can be classified according to four levels of transformation into digitally-enabled, digitally-enhanced, tech or platform business models, and business platforms/ecosystems.
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.
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 businessmodel. And as the product is offered at wider and wider market segments, it’s important to align product, businessmodel, and organizational design, to enable wider and wider scale.
Developing a successful business strategy is about finding the proper niche, where to launch an initial version of your product to create a feedback loop and improve fast while making sure not to run out of money. And from there create options to scale to adjacent niches.
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.
In an asymmetric businessmodel, 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.
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 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 businessmodel. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
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 businessmodel.
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 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.
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.
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).
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 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.
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.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
