Achieving growth by setting new strategies for new markets
Capturing new markets is an excellent way to grow. But if such markets were easy to crack, they would not hold so much potential for profit. By using strategies appropriate for this unique business environment, companies can vastly improve the odds that they will triumph in this uncertain terrain. Readers of this article will learn how to develop and execute five important strategies.
A big challenge is the need to adopt strategies well suited to these new markets. Much as the principles of Newtonian physics break down on a nano-particle scale, the traditions of business strategy in established fields fail to provide appropriate guidance for capturing new markets. As this article will show, a distinctive approach is essential.
The task is worth the effort. For companies in mature industries, breaking in to new markets can expand the full potential of their business. Look at the example of Green Mountain Coffee Roasters
Indeed, companies in established industries can look to countless examples of rejuvenation through the opening of new markets.
Of course totally new industries produce winners as well. Twelve out of the twenty-five largest firms in Canada began operations in industries that were once new, from telecommunications to rail transportation and energy production. Today, start-ups abound in new industries, not just in technology, but also in low-tech fields such as garage organization systems and dog waste removal.
The Distinctiveness of New Markets
If new markets are so enticing, why do established companies often struggle in them? A big reason is that their traditional approaches to charting strategy can fail utterly in these unique environments. Tools such as those for tracking market share, competitive offerings, and profit-margin trends accomplish little when the customer, competitive products, and the extent of competition are all mostly unknown. The use of familiar tools is predicated on a world where trend lines can be extrapolated, and the universe of customers and competitors is understood. Clearly, those conditions do not apply in new markets.
The differences between new and established markets also extend to the reasons why companies plan strategy in the first place. In large firms, strategy is a mechanism for allocating annual budgets and holding people accountable. It is a way for top executives to exert control over their companies.
Whether they work for big companies or tiny start-ups, individuals crafting strategy for new markets should pay attention to five critical ways in which their approaches should differ from developing strategy for established markets.
1. Generate demand before vanquishing competitors
2. Time market entry rather than move immediately to exploit opportunities
3. Sell to customers directly before leveraging powerful sales channels
4. Win in targeted footholds prior to targeting big markets
5. Retain flexibility instead of trying to leverage fixed costs
The success or failure of a new venture often comes down to a handful of risks that can be identified up-front. Accordingly, spreadsheets can focus on the implications of a small number of variables and what assumptions would need to hold true for the venture to be viable. This is the critical discussion to have. If managers can understand those risks better, they will either fail quickly and with little expense, or they will learn enough to re-direct their ventures and be successful.
Like any good venture capitalist, an established company pursuing new markets needs a portfolio of investments. The average venture fund exceeds the rate of return of public companies by about 25 percent, and yet 60-70 percent of its investments will be total write offs. The secret to success is to fail quickly and cheaply, and then to double down on the winners. To do so, a fund needs a portfolio of opportunities that balance varying types of risks and maturity, much as a personal investment portfolio would do. In established markets, companies can carefully pick a few shots, but in new markets humility matters. Despite the best preparations possible, there will always be surprises.
The challenge of new markets is the flipside of their allure. If they were easy to crack, they would not hold so much potential for profit. By using strategies appropriate for this unique business environment, companies can vastly improve the odds that they will triumph in this uncertain terrain.
Por: Stephen Wunker
Fonte: Yvey Business Journal, Janeiro de 2011