Entering an emerging market can be a big growth driver--but you need to minimize the risks. Try this three-step approach for capturing new opportunities.
Emerging marketplaces are tempting opportunities for growth businesses, but they are also risky propositions. New, unproven customer segments, enabled by technology innovation or other disruptive trends, can be a volatile mix of opportunity and uncertainty.
How can you capture the benefits presented by emerging marketplaces while minimizing the risk? We worked with a client in the rapidly changing digital media sector to form a three-step attack plan.
Just like any other investment, it's important to rank the opportunities you're considering. For emerging markets, we suggest using the following criteria:
Market size: How big is the existing space and what are the prospects for future growth?
Cost structure: What's the revenue potential of this space?
Adjacency: How much unique value will you be able to transfer from your existing markets?
Competitive intensity: Is the market already saturated or is it wide open? Focus on the wide-open spaces--as long as they meet your other criteria.
For each prioritized market, map out a plan to gain a foothold in the new market by landing one or two "keystone" customers that provide credibility to your offering. You may have to offer a cut-rate price to attract them, but successful "colonization" will attract other customers that don't want to miss out.
After securing one or two key customers, work quickly to expand your relationships, with a goal of securing 60 to 80 percent share of wallet in that market. It's better to go deep in a few markets than to spread yourself too thinly across a broad range of markets. Be aggressive in targeting the most attractive customers with a unique value position.
By following these three steps, you may be able to achieve early-mover advantage in an untapped and potentially lucrative market. Gaining a foothold with a few key customers in a high-potential segment is a proven way to manage your growth smartly while remaining aggressive with your growth strategy.
KARL STARK AND BILL STEWART are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree. @karlstark