Entrepreneur’s Framework for Entering Foreign Markets
By Darrell Dvorack – Feb 1, 2011
For all his brilliance, Shakespeare was never a business consultant, but sometimes he sounded like one: There is a tide in the affairs of men, which taken at the flood, leads on to fortune. This could apply to multinational companies flooding our new, flatter world. But even more so, it could apply to the flood of information and advice for entrepreneurs looking for their first fortunes in global markets: Google “small business foreign market” and you’ll get an incredible 47 million hits compared to only 9 million for “Brad Pitt Angelina Jolie”.
There are some good reasons for this flood. In addition to the reality of greater global opportunities, the weak U.S. economy is driving firms to search for new business wherever it can be found. And export-promoting bureaucracies at multiple federal agencies and all 50 states have added their voices to the online chorus generated by the private sector.
Unfortunately, much of this flood is trite or misleadingly glib, especially for entrepreneurs. One site talks about “tapping in” to foreign markets, as though it’s as simple as adding another Facebook connection. Another quotes a consultant claiming that, “Going global can be a natural extension of what you’re doing…You just produce in higher volume and move it somewhere else.”
Venturing into foreign markets is obviously more difficult than that even for large firms, much less for early stage and other small companies with limited resources and narrow margins for error. A business model that succeeds in the U.S. may fail in a foreign market due to any one of many national differences, such as culture, regulations, legal system, and so on. As a result, the best framework for an entrepreneur to analyze, plan for and successfully execute expansion into foreign markets is to re-think his business model for the new environment.
In most cases, this re-thinking should consider major issues such as the following:
Who is your target customer and what problem are you solving for him? This is a threshold issue. If the target customer and/or his problem are fundamentally different in new markets, then everything else potentially changes.
What is your solution’s customer value proposition? What makes your solution a “must have” for the customer rather than merely a “nice to have”? What evidence do you have to support your claims?
What is your solution’s key differentiation compared to your major competition? What does your customer believe is the primary alternative to your solution? What is the one thing that makes your solution better for the customer compared to the alternative?
What is the nature of the market your target customer occupies? How large is it, what drives its growth, what are its major segments, what are its purchasing practices, etc.
How do you efficiently and effectively reach, acquire and retain your target customers? What marketing, sales, distribution and customer service strategies are necessary for success?
What team capabilities are needed to succeed? Do you already have the talent and the bandwidth to dedicate to the market? If not, can you readily acquire them?
What strategic partnering possibilities are available that might significantly improve your business model? Are there potential partners that could improve your solution’s customer value or competitive differentiation? Are there potential partners that could improve important functions such as fulfillment, marketing, distribution, etc.?
Can you earn a great return on your investment within a reasonable period? Do you have the capacity to finance the expansion? How long will it take to achieve profitability, and how long to cash flow breakeven? How does the project ROI of this initiative compare to other investment opportunities?
What strategic partnering options are available to significantly accelerate performance, lower risk and improve ROI? Could your solution be licensed for marketing to one or more already established vendors? Are there firms with proven capabilities that could be incorporated into a joint venture? Are there attractive acquisition targets?
Venturing into new markets – foreign or not – always entails risk, but there are ways to improve your odds. Perhaps most important is that your U.S. business model is already succeeding, because at least some its elements will be incorporated into the foreign market model. If your business is already succeeding, you can provide good reference customers to your new foreign prospects, and your current customers might even give you a strong introduction to their foreign units.
Another way to improve your odds is to already be successfully exporting your solution to foreign markets, even if these markets don’t include your new target. Your team will start learning the myriad ways in which doing business abroad differs from the U.S. And foreign reference customers will add to your credibility.
In next month’s column, we’ll take a detailed look at joint venturing in foreign markets.
By Darrell Dvorack – Feb 1, 2011
For all his brilliance, Shakespeare was never a business consultant, but sometimes he sounded like one: There is a tide in the affairs of men, which taken at the flood, leads on to fortune. This could apply to multinational companies flooding our new, flatter world. But even more so, it could apply to the flood of information and advice for entrepreneurs looking for their first fortunes in global markets: Google “small business foreign market” and you’ll get an incredible 47 million hits compared to only 9 million for “Brad Pitt Angelina Jolie”.
There are some good reasons for this flood. In addition to the reality of greater global opportunities, the weak U.S. economy is driving firms to search for new business wherever it can be found. And export-promoting bureaucracies at multiple federal agencies and all 50 states have added their voices to the online chorus generated by the private sector.
Unfortunately, much of this flood is trite or misleadingly glib, especially for entrepreneurs. One site talks about “tapping in” to foreign markets, as though it’s as simple as adding another Facebook connection. Another quotes a consultant claiming that, “Going global can be a natural extension of what you’re doing…You just produce in higher volume and move it somewhere else.”
Venturing into foreign markets is obviously more difficult than that even for large firms, much less for early stage and other small companies with limited resources and narrow margins for error. A business model that succeeds in the U.S. may fail in a foreign market due to any one of many national differences, such as culture, regulations, legal system, and so on. As a result, the best framework for an entrepreneur to analyze, plan for and successfully execute expansion into foreign markets is to re-think his business model for the new environment.
In most cases, this re-thinking should consider major issues such as the following:
Who is your target customer and what problem are you solving for him? This is a threshold issue. If the target customer and/or his problem are fundamentally different in new markets, then everything else potentially changes.
What is your solution’s customer value proposition? What makes your solution a “must have” for the customer rather than merely a “nice to have”? What evidence do you have to support your claims?
What is your solution’s key differentiation compared to your major competition? What does your customer believe is the primary alternative to your solution? What is the one thing that makes your solution better for the customer compared to the alternative?
What is the nature of the market your target customer occupies? How large is it, what drives its growth, what are its major segments, what are its purchasing practices, etc.
How do you efficiently and effectively reach, acquire and retain your target customers? What marketing, sales, distribution and customer service strategies are necessary for success?
What team capabilities are needed to succeed? Do you already have the talent and the bandwidth to dedicate to the market? If not, can you readily acquire them?
What strategic partnering possibilities are available that might significantly improve your business model? Are there potential partners that could improve your solution’s customer value or competitive differentiation? Are there potential partners that could improve important functions such as fulfillment, marketing, distribution, etc.?
Can you earn a great return on your investment within a reasonable period? Do you have the capacity to finance the expansion? How long will it take to achieve profitability, and how long to cash flow breakeven? How does the project ROI of this initiative compare to other investment opportunities?
What strategic partnering options are available to significantly accelerate performance, lower risk and improve ROI? Could your solution be licensed for marketing to one or more already established vendors? Are there firms with proven capabilities that could be incorporated into a joint venture? Are there attractive acquisition targets?
Venturing into new markets – foreign or not – always entails risk, but there are ways to improve your odds. Perhaps most important is that your U.S. business model is already succeeding, because at least some its elements will be incorporated into the foreign market model. If your business is already succeeding, you can provide good reference customers to your new foreign prospects, and your current customers might even give you a strong introduction to their foreign units.
Another way to improve your odds is to already be successfully exporting your solution to foreign markets, even if these markets don’t include your new target. Your team will start learning the myriad ways in which doing business abroad differs from the U.S. And foreign reference customers will add to your credibility.
In next month’s column, we’ll take a detailed look at joint venturing in foreign markets.