Entering a new market? Be prepared to make the tough and expensive choices

I had a conversation this morning with a software and IT services company based in Boston. They’re doing well and have clients all over the US. They also have a number of principals who are from Canada. As a result, they’re eyeing the Canadian market for expansion. Our call was to discuss some of their options for entering the Canadian market, and how successful those options might be.

As the economy continues to turn around – quite quickly in Canada and slowly but surely in the US – companies are naturally starting to think about expanding. For US companies, Canada is a smart target – our business environment is similar, our dollar is strong, and there are often personal and professional relationships that can be leveraged.

But entering a new market, even a similar one, is never easy. And the options that look like they will give you a toe-in-the-door often aren’t the shoo-in that executives hope. Here are some of the tactics the Boston Company has in mind for entering the Canadian market, and my feedback on their relative chances of success:

1. Leverage our existing US customers to get introductions to their Canadian subsidiaries
   1. For any company doing business with a multinational that has a Canadian subsidiary, this makes a lot of sense in theory. Since there is already a relationship with the parent, surely that trust and experience should flow to the subsidiary. But think of it exactly as you would a personal relationship. Do you want to be friends with your mom’s friends? Do you think they could really add a lot to your life? Not so much. So don’t assume that a Canadian subsidiary will want to be friends with you simply because you’re friends with the parent. You may get a polite introduction and even an initial meeting with the Canadian company, but unless there is a specific mandate from the US parent to use your services, that’s probably all that will happen.
   2. Not to be entirely negative, I have seen this approach work in instances where an individual at the Canadian company sees the work of the US vendor and invites them to Canada. For example “Hey you guys do great work, I’d like to talk to you about helping us out in Canada.” In short, it needs to be a Pull rather than a Push strategy to work.
      Relative chance of success: 15%
2. Leverage our partners to get introductions to Canadian companies
   1. The Boston Company has partnerships with a number of other businesses who provide introductions to their clients when they see those clients have a need for the company’s software product. A lot of companies do this and it can work well, but it takes effort. It’s the easiest thing to set up a partnership, and something quite different to have it generate business. The US Company is getting a few introductions from their partners to companies in the US, but the problem for them in Canada is that the partners don’t have very strong relationships here, and there’s very little reason for them to care that much about it
      Relative chance of success: 5%
3. Ride someone else’s banner
   1. The Boston Company sometimes get subcontracted by Big 4 consultancies to implement projects they’ve landed. The Big 4 are landing a lot of contracts right now, so the Boston Company could probably get some Canadian work with them. This would give them an introduction to a Canadian client or two, the ability to get their product in the door (although they would have to white label it) and the chance to ultimately tell a story about an implementation at a Canadian company.
   2. Having the Canadian story to tell is essential. As buyers, we all like to think we can see when industry and geography are relevant to a situation, but in my experience companies still buy based on a vendor’s experience in their industry and in their backyard (geography).
   3. This approach can be a starting point, although it leads to a slow growth process – the Boston Company will need to get the Canadian experience under the banner of the Big 4, and then start the process of building their own brand and experience in Canada (which they can’t do while working under the Big 4’s banner).
      Relative chance of success: 40% (but leads to a slow growth process)

Most companies are looking for the easiest and fastest ways to grow their businesses in new markets. And in my experience, the easier and quicker approach they take, the more likely they are to be out of that market within 18 months. Any one of the above approaches can work, given the right magical combination of factors. But if you’re running a business, you usually don’t build a strategy based on magic.

I think the Boston Company needs to seriously consider why they want to enter the Canadian market and whether there is sufficient business for them here. If they have done the quantitative analysis of the market and they know, based on fact not intuition, that there is a sizeable opportunity for them here, then they can make a confident decision about the sizeable investment needed to be successful. In my experience it is feet on the street – i.e. sales people knocking on doors in the target market – that make for a successful market entry. And that takes money and time.

Have you made the leap into a new market recently? What worked for you?