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Expanding to New Markets? 3 Secrets of Success

The CEO of buzzed about app Sosh offers advice for businesses that are scaling local market to local market.
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As a consumer, chances are many of your favorite businesses are location specific.

Think of that quirky bakery around the corner or even Craigslist, jammed packed with stuff for sale or rent in your community. But as an entrepreneur, the best business ideas have the potential to reach massive scale and serve national or international markets.

How do you bridge a consumer’s hankering for the highly localized with the businessperson’s desire for big growth and big returns? That’s the question facing some of today’s hottest startups, from Uber and OpenTable to TaskRabbit, as well as smaller scale entrepreneurs looking to repeat their success in a new local market.

It’s also the quandary facing Sosh, a much buzzed about app that helps you discover things to do in your area. Sosh has attracted the attention of some of the startup world’s hottest investors, including Instagram co-founder Mike Krieger and VC firms Sequoia and Khosla Ventures. The company currently serves San Francisco, New York City, and Seattle, and is soon to launch in Chicago, DC, Boston, and L.A. We talked to co-founder and CEO Rishi Mandal about what he has learned so far about hopscotching from local market to local market.

Get the Playbook Right

If you’re looking to scale from market to market, the first and most fundamental questions you have to answer are: Where should you go, and what level of resources you should pour into each new location? Get the balance wrong and overstretch yourself too early and you can easily “grow yourself to death.”

Sosh has avoided this fate by allowing their product to smolder in new markets rather than demanding it catch fire instantly. "We treat every city we're in as an opportunity to learn," says Mandal. "Massive expansion comes after we can completely nail the product fundamentals."

"Expanding through local markets is really about first developing a playbook and then executing that playbook," Mandal continues. "There's an investment period upfront where you have to get the playbook right--which is hard work in local markets--before you can blow it out. You want to pour fuel on fire, not on logs. If you pour out your fuel before you actually have a spark, then you'll just end up with wet logs."

Binge on Data

If you’ve ever made a long-distance move, you know that, in many fundamental ways, one city is not like another. What’s true for residents is also true for businesses, so don’t try to skimp on the "getting to know you" process in a new market.

"We use a mix of human intuition, data, and technology to accelerate our understanding of every city," Mandal explains. "For every city Sosh services, we, of course, have a team member who has great taste and knows the city well. We also, however, try to turn it into a data problem (as much as possible). For a new city, we'll ingest dozens of public datasets (up to 40) to understand where different types of people live, where businesses are located, how people move around a city, what the weather patterns are like, what neighborhoods are up-and-coming."

What sort of data is Mandal talking about exactly? He offers an example from the company’s recent Seattle launch:

"We noticed an interesting fact. About 70 percent to 80 percent of people in Manhattan take public transport to work everyday. In Seattle, however, that number is more like 15 percent to 20 percent. Most of them drive their car. The question for us became how we should adapt the way we make recommendations for fun things to do on weeknights in a city where most people are driving."

Ignore the Doubters

Scaling local market to local market is harder (and slower) than building a single app or warehouse from which you ship your products across the country, so no doubt your business will attract doubters. Ignore ‘em, suggests Mandal, and focus on the upsides of building in a series of markets instead. If nothing else, the process will keep you sharp and demand constant attention to the needs of your customers.

"When your product is live in, say, one market, you don't yet have the opportunity to grow your userbase exponentially to incredible heights. Many entrepreneurs and investors I've come across see this as a disadvantage-- which it is, in some ways," Mandal concedes, but "it's also a great advantage because it forces you to focus on two things you might not otherwise have considered: market penetration and repeat usage."

 

IMAGE: evoo73 / Flickr.com
Last updated: Mar 11, 2014

JESSICA STILLMAN | Columnist

Jessica Stillman is a freelance writer based in London with interests in unconventional career paths, generational differences, and the future of work. She has blogged for CBS MoneyWatch, GigaOM, and Brazen Careerist.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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