Moving into new markets

Growing a business isn’t easy, and moving into new markets is always a big issue. Here are a number of different pitfalls that I’ve recently seen early stage companies fall into in their expansion…

Just because the business has proven demand in one area, does not mean that this success will be repeated elsewhere.

A very simple example of this would be an ice cream van may do very well on a housing estate, where kids tend to play out in the street together in the summer; but fail to sell a single 99 in more affluent parts of town, where although there are the same number of potential customers, they are all playing behind high gates, in a swimming pool at the back of someone’s garden - even if, by some chance these kids do hear and respond to the ice cream van once, there is no guarantee of repeat trade. Mr. Ice Cream Van man needs to understand his market, their habits, preferences and nuances fully before spending a penny on expanding into it, effectively treating it like a ‘re-startup’.

Despite putting away a healthy profit from the existing business activities - large human and capital investment will probably still be necessary to keep both sides of the business afloat.

This is a point that is frequently under-estimated, much to the regret of many expanding ventures. Since the business is effectively re-starting-up elsewhere - the same effort, sacrifices and resources need to be in place as at the initial launch of the business. So if you required £250k to start-up in the first place, you are now making £60k per annum profit (well done), and have worked out that you realistically require £150k to expand into the French market - simple maths would tell you that you need an additional £90k.  Simple economics and management would tell you that you need more.

When you are moving into new markets you still have to fight off any challenges in your existing territory - be that competition, internal staff issues, day to day operational glitches and the like; these need to be managed with the same focus and effort with or without additional markets in the picture, and this comes at a cost, probably in recruitment of someone to oversee the existing business.

Added value will also come from expertise in the new target market, and someone with an understanding of small business expansion. You are not just looking at finding someone with a pot of cash, you’re looking for the right investor.

Planning for investment at this level takes time, as does getting to know an appropriate investor and agreeing on the investment’s terms. Leaving your company the time and space to do this will be an important factor in its efficiency, simplicity and future success.