28 May 5 wrong reasons not to do a market analysis before expanding in a new market
When entering a new country, many businesses consider a market analysis to be the first step, in order to understand the specific landscape and specifications. However others are reluctant to conduct one, and we have heard various reasons from prospects and clients who argued against it. Here is how we have convinced many of our clients to start their international expansion journey with a market analysis by alleviating some of their concerns:
“We don’t need to do market analysis, we already know the country and its market”
Many founders think they can skip market analysis because they already have enough insights about a market from studying there in exchange, traveling there for work, or speaking to some of their contacts in the market. First knowledge about a market is good and valuable, but making an important decision for your company in terms of personal and financial investment should not be based on some casual discussions and good intuition.
Some of that knowledge might be either outdated, if you haven’t had a chance to travel or live in the country for a few years, and even if you gathered some valuable insights recently, those might be biased if they only came from random sources. A strategy should be based on more factual and objective data about the local environment and landscape. As you know you never get a second chance to make a first impression and therefore you would rather be well prepared for your first meetings with potential partners and clients.
Thus, it is even more important to exactly find out in advance what the users’ needs are in the new country, which competitors already try to satisfy these needs – successfully or not, in order to analyze what your company’s unique selling point in the new market can be! By doing this you will notice that even your USP needs to be localized.
“We don’t need to do market analysis, we’ll do the same as we did in our home country”
Another tempting approach for founders is to just replicate the strategy they followed when successfully conquering their home market, assuming that if it worked there it will most likely work the same in the new country. However, most countries are very different from one another and should be approached with understanding when entering them for the first time!
Even if your product was ready for the local market and that you had a few employees who can speak the language well enough to try and sell it, your business development experience will still be radically different than in your home country.
First and foremost, you will not have access to the same network that you have in your home country, where you most likely had connexions from your academic background, your friends and family, or previous work experiences.
Additionally, the ecosystem might be very different in terms of market maturity, client expectations, and competitive landscape. All those elements will have a strong impact on how you should enter the market, therefore you should reduce the uncertainties in those areas as soon as possible, to mitigate potential risks when entering the market.
That is why even if you already conquered your local market successfully, you will have to start all over again in your new market with a different ecosystem, no brand awareness, and little access to local networks. Good preparation will help a lot when it comes to alleviating those challenges!
“We don’t need to do market analysis, because we do not have any competition”
Some businesses assume that if they don’t see any competitor in the local market at first sight, they can easily enter the market without bothering with detailed analysis since no one will challenge their market entry. This is always a risky decision, for two main reasons.
First of all, without an in-depth analysis, you might have overlooked some competitors in the local market, either because they are rather small, or because they describe their product/service differently than you would expect. Especially in countries that do not use English for all their marketing and communication, it is easy to miss a competitor if you don’t know the lingo they might be using locally.
Secondly, even if, however unlikely it is, you are indeed in a blue ocean market and don’t face any competition, it does not mean you should ignore every other aspect of the local ecosystem. To develop as fast as possible and leverage the fact that you are the only provider in the market you will need to leverage partnerships, gain institutional support, and avoid legal hurdles. Assessing the market thoroughly will help you move quicker, capture the market and become a leader before the inevitable competitors emerge following your initial success!
Therefore a market analysis is valuable in each of those cases, either to uncover competitors you might have missed, or to help you leverage your first mover advantage as well as possible by reducing uncertainties and risks.
“We won’t do a market analysis, because it’s too expensive”
Even when founders are convinced that a market analysis would be important and help them expand, budget can be an issue. Some consider it an outright waste of money, while others believe it is too expensive to outsource, and would rather do it in house by assigning some of their employees to this task (and risk a biased outcome). However, when balancing the cost of professional market analysis and the potential savings, the ROI is undeniable!
If we assume that a market analysis will cost anywhere from 5.000€ to 25.000€ based on your company, the level of detail you are looking for as well as the market/industry that you want to assess, it can indeed be a significant expense for start-ups and scale-ups. But let us look at some easy financial assumptions to justify the investment:
- If you entered the market at the wrong time or with the wrong product/service/pricing or positioning your initial marketing efforts will have been wasted, which can cost anywhere from 10.000€ to 100.000€ depending on the allocated marketing budget.
- If you hired the wrong person (let’s say a country manager or a business development manager) based on wrong market assumptions, you will not only have lost 12 month of potential revenue (between realizing you’ve got the wrong person and hiring and onboarding someone new) but this will set you back anywhere between 50.000€ and 150.000€ depending on when you realize it and the salary of this person.
- If you missed potential funding opportunities or acceleration programs you could have effectively lost anywhere between 3.000€ and 40.000€ in support financing.
- If you ignored a legal requirement during your product development/localization you might have to start over, which can cost you anywhere between 3.000€ and 15.000€.
These are just some first examples. Other financial risks include unrealized revenue as well as damage on reputation, branding as well as team motivation due to not fulfilled targets. Also think about your investors who will not be pleased that you do not succeed / grow as planned and who might question a potential next funding round.
Therefore, even when looking exclusively at the cost and potential savings , a good market analysis will usually be cheaper than any of the risks associated with entering the market without conducting one before. The opportunity cost is just too high when any mistake can set you back up tens or hundreds of thousands of euros!
“We won’t do a market analysis, because we don’t have time for it”
Some businesses are ready to spend the money on the study, but don’t want to “waste time” analyzing the market, when they could be spending that time meeting clients and closing deals. Especially in the fast-paced environment of tech start-ups it can be a valid concern, and delaying a market entry too much can be as costly as entering it too early and unprepared.
But one does not exclude the other. A proper market analysis should not take longer than one or two months, and will not only help avoid potential pitfalls that could slow your expansion down, it can also help speed up the process and even generate business while doing it. Finding strategic partners and building your local network, listing acceleration programs and local institutions/associations that can provide valuable insights into the market, by narrowing down the client base, allowing you to focus on the most attractive industries and companies during your initial business development efforts … all those insight will help you move at light speed into the new market!
Additionally, a market study should never be conducted in a silo, and you can start your expansion efforts in parallel to the study, building on the insights that are gathered along the way. That way you don’t have to delay your initial efforts too much, but are able to ensure the final crucial steps of your market entry are based on solid insights, and can be undertaken quickly and with a higher success rate than if you had gone in unprepared.
By now you will have realized that despite all those reasons you might think of to delay or skip a market analysis, it should be an integral part of any international expansion roadmap and it will help you:
- save time, as well as money,
- reduce the uncertainty of entering a new market,
- reduce the risks that every business faces when growing internationally.
International market expansion will never be an easy journey, but you can at least mitigate those challenges you will face by preparing in advance!