Finding New Customers in Untapped Markets
In business, if you’re not growing, you’re dying. Expanding your core business is an effective way to boost sales, increase brand awareness and stretch into new territories. Deciding which markets to enter and when requires disciplined research and strategy.
“If this is a completely new business, approach it as if this is your first time,” says E. Michael O’ Malley, a business mentor at The Fairfield County, Conn. chapter of SCORE, an organization that provides how-to resources and mentors for small business owners. “Make sure you have the cash flow, the customer base and the demand to make it work.”
Things to consider before expansion
- Viability – Expanding too soon or going into the wrong market can be detrimental to your core business. “Expanding is not something you do willy-nilly and then react to the results,” says Mark Lowenstein, chair of the Cape
Cod, Mass. chapter of SCORE. Lowenstein advises owners to:
- Measure the size of the market relative to your product or service. Is there room for growth?
- Determine the viability of the market area you’re considering. Will it produce the volume and profits needed to justify the expansion?
- Invest in marketing. Will the results match the research?
- Demand – If your business is humming along, but your customers are begging for you to take advantage of an underutilized market, it may be time to expand. O’Malley explains: “A customer from Pittsburgh calls and says, ‘There’s no one over here. We keep buying from you online and at trade shows, but this whole area could be beneficial to you.’” Review your online business. If 30 out of every 100 orders are from Pittsburgh, that’s a message.
- Customers – The neophyte assumes every idea is a good one. Lowenstein says that the veteran “tests the market, samples the product to a focus group, and asks for feedback.” The more you know what your customers think, the better off your business will be.
- Funding – “A lot of companies are undercapitalized,” says Lowenstein. Often, the first round of money or startup capital comes from your left and right pocket. The next round of funding or expansion capital may now require investors. A solid business plan, a detailed cash flow analysis and a profitability overview are required reading to investors. “You’ve got to do a budget,” says Lowenstein. If you’re not a finance guy, hire one. Don’t let that deter you from creating a solid plan for your next business.
- Barriers to entry – Beware of barriers to expansion such as:
- A tough competitor in the prospective market whose customers are fiercely loyal and will only do business with them.
- Local laws that don’t allow you to sell certain products.
- Unfamiliar state and local tax laws. For example, “you may come from Florida wanting to do business in Pennsylvania and suddenly, you have to pay state income tax, which is going to depress your earnings,” says O’Malley.
The research you do before jumping into new markets could help you hone in on a million-dollar idea or save you from throwing hard-earned money down the drain. “The best business people do good homework,” says Lowenstein. “That minimizes issues down the line.”