“Statistically, periods of downturns are moments where great companies are being built,” Olivier Legrand, chief operating officer at digital marketing and customer relationship management (CRM) solution Sendinblue, tells Sifted.
“Usually when you start a company, you start by identifying a pain point or a challenge, and there's no better time than a complex economic environment to actually identify such an opportunity.”
But what happens when it’s time to scale? Here’s a cheat sheet on expanding into new markets during a slowdown.
First, consider which market is best
When looking to enter a new market or vertical, it’s first crucial to analyse which sector could prove most fruitful.
For example, the ecommerce sector offered a huge opportunity for Sendinblue, so it strived to connect with ecommerce platforms. The company started business email marketing, and added more features along the way, informed by the needs of their ecommerce customers, such as: marketing automation, SMS, chat and push notifications. Then it moved into voice solutions with the recent acquisition of Yodel.io, a cloud-based business phone solution.
“We identify as being a company that helps its customers engage their own customers in the best way possible,” says Legrand.
Back Market is an online marketplace for refurbished devices such as smartphones. It took a two-pronged approach to expansion: a geographical expansion that allowed more countries to access its marketplace and products, and a vertical expansion to drive growth in these new countries.
We identify as being a company that helps its customers engage their own customers in the best way possible
The startup’s geographical expansion strategy focused on countries that consume the highest volume of new technology. After launching in France, Back Market expanded into six new EU and US markets. Then, the team decided to take a break and reflect on what they’d learnt so far.
“Had we rushed our geographic expansion, we simply wouldn’t have disrupted the ‘in with the new, out with the old’ technology lifecycle in the long-term,” Amandine Durr, chief product officer at Back Market, tells Sifted.
When it came to vertical expansion, Durr says the startup couldn’t just offer viable alternatives to motivate new markets — it had to make buying refurbished technology better than buying new technology.
“That’s why we maintained competitive prices for partner sellers using our algorithm and increased assurances for customers by providing free returns for 30 days and a minimum one-year warranty,” she says.
Think about the size of the prize
Before entering a new marketplace, it’s vital to consider whether you could offer a value proposition that can be differentiated — be it in price or service — and if you are uniquely positioned to excel at this. For example, you may have an idea or an operational advantage relative to other players that could want to address the same market.
“It is extremely important that founders identify the size of the prize and be confident that the market they're going after is big enough to justify this shift in resources,” says Legrand. “Less capital pushes you as an organisation to get smarter, and this is when you get your opportunity.”
Less capital pushes you as an organisation to get smarter, and this is when you get your opportunity
Legrand adds successful startups solve problems and problems still exist in slowdowns.
“Businesses that succeed have found their market and value proposition, and solved a real problem,” he says. “If you solve such a problem, other companies or people will buy what you have to offer.”
Then, make the first move
If you are a startup wanting to take the first steps towards entering a new market or vertical, consider what the size of the problem is that you want to solve and whether it’s big enough to shift a large portion of your resources towards.
A startup doesn't have infinite resources, so once you make the choice to do something new, you're also making the decision to not do something else. Therefore, Durr suggests establishing KPIs — key performance indicators — that are in line with your vision and mission.
“It sounds simple, but too often KPIs are overlooked in favour of grand strategies,” says Durr. “KPIs ground startups when they expand into new markets and, at a time of economic downturn, they play a key role in effective decision-making.”
Durr adds it can also be helpful to distribute the ownerships of markets among your startup’s teams.
KPIs ground startups when they expand into new markets and, at a time of economic downturn, they play a key role in effective decision-making
“Top-down decisions can be passed along and actioned much more easily when you’re focused in one market but, when diversifying markets, you have to diversify leadership and responsibilities as well,” she says. “Regional and vertical leaders have to be empowered to make decisions that are best for their markets.”
But, you can also learn from the past
While uncertainty is always concerning, it’s also important to remember we’ve been through tougher economic times before. For instance, the impact of Covid was also significant for businesses on the cusp of launching into a new market.
The likelihood to succeed for a startup often just means whether they have an edge
Sendinblue worked with Great British Chefs, a premium food platform, to find new ways to engage with their customers digitally. They reconsidered how to manage their databases, build segmentation, and speak to their customers. Great British Chefs went on to launch a new paying subscription model for its readers.
“Covid has been a real moment for us when the underlying movement of digital digitalisation — which was happening for a very long time and that we'd been a part of — was suddenly accelerated,” says Legrand. “For me, the likelihood to succeed for a startup often just means whether they have an edge.”