How Not to Bring a Business to a New Market: Top 10 Mistakes of Founders
Entrepreneurs often choose a new market based not on clear criteria, but on intuition and inner feelings. But such a bet should not be made emotionally, it is fraught with mistakes. Mikhail Belyaev (The Orbit Me) spoke about the most common.
In recent months, Russian entrepreneurs have had to rethink their approaches to scaling abroad. Companies have shifted their focus from Western markets to other areas, such as Turkey, the United Arab Emirates, Latin America, and the CIS countries. Although these regions are no less promising, the founders often make the same mistakes that prevent them from gaining a foothold in new countries.
1. Fear of emerging markets
Before February 2022, entrepreneurs tended to consider Europe and the US as target markets when scaling overseas. Often this was due to the presence in the regions of large companies, familiar entrepreneurs, popular accelerators like Y Combinator and 500 Startups. Other directions remained incomprehensible and frightening for many founders. Uncertainty to the already difficult situation was added by the difference in mentality, especially with the eastern countries.
However, emerging markets offer many new business opportunities. For example, India could become the third-largest consumer market in the world after the US and China by 2030: household spending in the country is projected to increase from $1.5 trillion to $6 trillion. And in Latin America, startup funding is growing faster than anywhere else.
Do not be afraid of these areas - if you have a systematic approach that allows you to assess the potential of a particular country for your product, there is no difference what kind of country it is. The proximity of the mentality should not be a decisive criterion when planning the development strategy of your company.
2. Hope for a little bloodshed
We know from experience that many companies expect to enter a new market at low cost. As a result, they simply do not have enough “fuel in the tank” to gain a foothold in the region. Disappointment in specific markets is usually associated with a misjudgment of time, money and other resources.
Most often, founders, especially in the b2b sphere, underestimate the difficulty of entering the Middle East, Southeast Asia. In these cultures, trust and willingness to buy your product develops over time. We see from our mentors and experts that one meeting is not enough. In this, the regions differ from Russia, which is characterized by Western pragmatism: we are not used to investing in relationships with people.
So don’t expect to get by with little bloodshed. You must have a liquidity reserve. We advise, based on our experience in the home market, to estimate how long it will take to enter a new region and how much money will be needed to hire a team, marketing experiments and other expenses, and then multiply this figure by three.
3. Fascination with Non-Paying Leads and Free Pilots
This is especially true for markets with a large population, such as India, with approximately 1.4 billion people, or Indonesia, with more than 280 million inhabitants. Often, startups host free webinars or product demos, launch advertising campaigns, see inspiring conversions, and make false positive conclusions that their solution will be bought in the country. However, everything is arranged differently there: the cost of bringing a user to a conversation with sales or consuming a lead magnet is several times less than in Russia, but the cost of attracting a paying client is much higher. For example, in the Russian EdTech industry, the conversion from an application to communicate with a seller to a sale is 20%, while in India it is only 3%.
Only going through the sales cycle from beginning to end will allow you to understand whether the unit economy is developing or not. Motivating consumers to spend their hard-earned money on your product is the main task for a business. It is this skill that must first be tested as a hypothesis.
4. Trust one seller or local partner
This is another traditional pattern of Russian entrepreneurs when entering new markets. Companies find one country manager or sales person and bet on him.
However, in our experience, even in Russia you cannot rely on only one seller, because you will never know for what reasons the sales process is actually delayed. The employee will always blame external factors, the product, the presentation.
When entering developing countries, you are even more likely to be led by the nose. It may take six to nine months of such communications with one seller or partner before you realize that something is wrong.
Be sure to involve several salespeople in the process so that you can compare the results of their work with each other and draw conclusions. It is also worth making their indicators transparent to each other so that those who are lagging behind can see that this is not a matter of cultural context or other factors, but of personal skills.
5. Underestimation of the difference in mentality within the region
Companies often believe that within the same region the mentality is similar. In fact, it can vary even within a particular country.
This is clearly seen in the example of India, which includes 28 states and eight union territories. All of them are different in terms of culture, religion and even language: residents of one part of the country may not understand the representatives of another. Because of this, buying habits also vary: somewhere, businesses need to explain in great detail what the benefits of the product are and why it is worth the money, somewhere consumers will wait for discounts and other special offers, and somewhere, on the contrary, they will be interested a decision only if it is associated with elitism.
It is difficult to immerse yourself in the local context, adapt the product and communication to the diversity of mentality. Therefore, you should not think that you can quickly check the demand in all of India or Latin America. You will definitely need a marketing and communications partner who knows the specifics of different industries within the region.
6. Mistaking courtesy for partnerships
Another feature that is associated with the mentality. In some countries (especially India, China, Japan and other Asian countries), due to the politeness of foreign partners and their culture of dealing with foreigners, it may seem that all the doors are open for you. In fact, this is not so.
In India, for example, in principle there is no gesture that would mean “no”. If you ask local entrepreneurs if they have had experience with a particular company or if they have certain competencies, you will most likely hear a positive response. But in fact, it may turn out that they do not have such experience and skills.
Therefore, we recommend that you devote more time to assessing real skills or connections. It is important to test people in practice, look for references, recommendations, and not make decisions based on words and promises. Only actions and results matter - they will show whether you can rely on a local partner or employee.
7. Inattention to legal issues
When entering a new market, it is necessary to take care of legal issues in advance, and ideally, to attract a separate team. Without this, you may encounter unforeseen difficulties. For example, in some countries it is impossible to connect local acquiring without having a local legal entity, and without this it will not be possible to test the product. So the state artificially pushes foreign companies to open local representative offices. This process can take three to four months.
Before expanding overseas, it is worth exploring what might prevent you from testing your baseline hypotheses in the region. This will help, on the one hand, not to get involved in unnecessary bureaucracy in those markets in which you are not completely sure, and on the other hand, to avoid such surprises.
8. Short and unprepared business trips
The experience of the spring wave of relocators has shown that Russian founders often unknowingly try to swoop into the region. In the best case, they participate in a local conference on a hot topic, in the worst case, they go on a trip with the “I’ll figure it out on the spot” attitude. This, as a rule, does not lead to any results.
At the other extreme, prepared trips for five working days are scheduled for ten meetings with the right people. In Arab and Asian cultures, you are likely to agree to communicate with you, but they will perceive you as a business tourist, and not a potential partner.
Ideally, the trip should be planned so that you can meet at least twice with the specialists of your interest in the region. In the East, word of mouth is always in the top 3 channels through which new customers come, so it’s worth considering that your interlocutors are likely to recommend someone else to you. Our advice is to travel in a road show format and expect at least a month and 15-20 meetings with decision makers. This way you can get the first target client and many useful contacts.
9. Entering markets without a systematic approach and discipline
The desire to “pull the market on the product”, and not vice versa, is common to all entrepreneurs. Founders often try to do what they do in their home market in a new location. However, if you are not able to systematically test and confirm hypotheses in other countries and quickly adapt your product, you are unlikely to be able to conquer them. The home environment allows a business to solve problems through a good understanding of the market and the network, but this approach fails in a more complex, unfamiliar environment and deprives the founder of the opportunity to succeed abroad.
You need to start with an analysis of demand and competitors, comparing your niche in at least three potentially interesting markets, and developing a go-to-market strategy. This is a basic exercise that, unfortunately, according to our estimates, 80% of founders do not do.
10. Focus on business friends when choosing countries
This point is closely related to the previous one. Often, entrepreneurs make a choice in favor of the market because they know the founders who have succeeded there.
Having connections can really make it easier for you to enter a new region, but this is not enough to gain a foothold in it. In any case, your product will have its own specifics. Just because your friend’s EdTech solution took off in India doesn’t mean your EdTech startup will succeed there too. Perhaps someone else’s product has unique features that distinguish it from other companies in the competitive Indian market, but your solution does not.