In the classic tale of Goldilocks and the three bears, we learn that as the small girl sits in the chairs of each bear, one was too big, one was too small, and one was “just right.” Then she proceeds to eat their porridge and test their beds, finding that really only one truly matches her specs.
Market selection isn’t really so different.
When it comes to choosing which markets to go into, you don’t necessarily want the largest market, which might be overwhelmingly difficult to target without major adjustments to your business model. But you might not want the smallest market either, because it might not offer enough growth for you later on. What you do want is to align your business with the markets that are “just right.”
Finding the Markets That Are “Just Right”
How do you know what “just right” means? Before you can determine this, you’ll need to have a number in mind. How much do you aim to grow your international business in the next three to five years? Do you want it to represent 25% of your total revenue? 50%? Do you want to add $10 million in revenue? $50M? Having a clear financial target for international is more than half the battle. After you know how much revenue you want to generate, it becomes much easier to narrow down which markets to focus on.
Many companies, after doing this simple financial exercise, realize they actually don’t need to expand to more countries than they’re already in, but they might need to double down on some of the ones that are easy to sell to currently, to simply carve more out of them.
One common blocker leaders have is figuring out what their goal for international revenue should be. Go with your instinct on what seems rational and achievable on the financial target. Do not go with your instinct on country selection, however, at least not initially! You will have more natural flexibility with your financial target for international, as you see how your domestic market performs. Country selection is far less forgiving! Once you have customers in a given market and begin to scale, complexity grows and it’s not as easy to back away. So make those country choices with much more careful consideration.
Narrow Down Your Target Markets Using These Four Questions
Once you know your financial target for international over the next 3-5 years, here are some questions you can ask to narrow down the countries from which you can derive that revenue and achieve your goal:
- Which countries are easiest for us to sell into? Common clues can be found in your sales data. Look at the win rate (close rate) by country. Check out the sales cycle duration (average days to close). Do some countries close easily without negotiation or discounting while others require steep discounts or numerous rounds of bartering? As you scale, these issues can compound. Consider “ease of sale” as a primary factor for country selection. In fact, think about your ability to scale that ease of selling too. Is the country accessible from a time zone perspective? Can you hire people in that time zone, and in that language, easily? Will it also be an easy country to scale into later?
- Which countries are the most profitable? Look at your overall profitability by country too. Do some countries simply cost more for you to service due to higher rates of support tickets, more complaints, or other issues? Or, do you have a cost advantage in some markets compared to others? Consider profitability, because often this can be an indication of product-market fit too. Depending on what you’re selling and how, localization might be an option that will either be easy (such as with a mobile app or a simple web app), or far more complex (with any high-touch model or most enterprise B2B software). Don’t add languages without thinking through the full customer experience in a new language, and how you’ll support new languages at every step.
- Which countries operate similarly to our home market? You’ll want to consider various things here depending on what you’re selling. A very common one is billing and forms of payment, along with ability to accept foreign currencies. Where possible, target countries that share the same currency first, that accept the same forms of payment, that speak the same language, or that have other links such as trade agreements and shared economic zones. Different markets can have very different payment needs, and even with credit cards, rejection rates can vary dramatically from place to place. The more differences you encounter, the less likely you’ll be able to gain leverage from your business model without making changes. Where possible, choose “like” markets over ones that are too dissimilar for short-term growth. View dramatically different markets as longer-term bets that won’t offer you a very quick return, or where you might need a different strategy (partnering, M&A, etc).
- In which countries do we see strong underlying market growth? This is a tricky one that has to be evaluated in combination with all of the above. Sometimes the fastest-growing markets are emerging ones that might not be similar to your home country’s. Depending on maturity of the market, some countries might want to pay less but require more support, as a common example, making it tough for those to be profitable markets, unless you also have a cost basis in the region by which to lower your costs. So, look for markets that offer all of the above factors — easy to sell to, highly profitable, culturally and economically linked — as well as ones that happen to be growing fast.
Generally, you’ll be better off targeting fewer countries than more, but when it comes to which countries, you can’t just go based on market size alone. Ask yourself the four simple questions above, and this will help you considerably to narrow down the universe (okay world) of options before you. This will help you find the “Goldilocks” markets that are “just right” to help your business grow and reach its potential much faster than if you go into markets based on false signals that can slow you down later on.