I frequently meet with software companies from around the world, where we discuss issues around internationalization. One typical question is which market (geography) to penetrate first or next. I ask them the following question: “Assume that I know everything about each individual market in world. Which questions would you ask me in order to assess and prioritize markets?”
In 10 out of 10 cases none have prepared a list of questions that they must have answered before deciding to enter a new market. Of course they can come up with the traditional questions like market potential and competitors, but it is obvious that they have not worked hard to make a prioritized list of critical and specific questions and the corresponding justification mechanism.
Many software companies seem to consider “market analysis” a waste of money and will rather “jump in the pool” and check depth and temperature this way.
We will never be able to know the idiosyncrasies of a new market, where we have not been operating before, as well as we know our current markets. Thus we must accept a certain degree of uncertainty. But how can we get a feeling for the most fundamental challenges which we must expect to face in the new market?
Before jumping into the pool we need to find out what we need to know (and skip all the stuff which is just nice to know). I have a rule of thump saying around 10 questions. If we can get reasonable answers to 10 critical questions we can assess the market penetrability.
I don’t believe we can get much help from Gartner, IDC, Forrester et al who all operate on a very global level. It is also very unlikely that there is an existing and fairly actual report, which is addressing our specific case (if there is – get it!!). So what should be done?
I believe two types of market intelligence activites should be performed.
Web Based Market Research
Obviously a web based research effort will identify competitors, their positioning, their GTM and also some of their reference customers. Analyzing industry specific online media will give you an idea of market trends and gossip.
By interviewing customers you can obtain a wealth of information. What they are doing today in the area that you address, who their current vendor is, if they are satisfied, if and when they are planning to replace etc. (Remember that if you have a list of 1.000 companies, you will be able to get in touch with around 750, and make it through to 500 individuals of which 250 are willing to talk to you – don’t take it personally it is just the way life is).
The supply side
Until now we have been focusing on the demand side of a new market. If we cannot expect to win business there is no reason to look at the supply side. If your market analysis comes out positive it is time to look at how your supply side and your value chain should be organized. What is the minimum setup required to get bootstrapped into the new market? Don’t invest in getting market dominance in the first 12 months – it is not going to happen. You will just loose an awful lot of money.