Application software companies frequently talk about expanding their markets. Often this idea represents wishful thinking rather than a well-thought out rationale and business plan. If your business is discussing expanding its market, here are 10 questions to answer before you decide.

What is a new market?
A new market is any market where you are not currently making a concerted effort to gain business. You may be doing some business in that market "by accident" but you are not actively expending resources toward that specific source of business. The new market may be a geographic area (expanding to Europe when you are currently only selling in the US) , a new industry (selling to hotels when you have only sold to hospitals), or a new application for existing products (can you sell your GPS device to the vending industry?). The key issue is that a new market requires an investment to reach a new set of customers.

We frequently see enthusiasm for a new market. Often the new market is exciting because the existing markets are seen as difficult and the new market as "easy". Companies are often victims of "incestuous consensus" where a small group becomes insulated from the outside realities and sit around agreeing with each other. For example, they might decide that a new market is easy without having the external information to know it.

Ten Questions to Ask Before You Decide

1. What is your business objective in expanding your market and why?
As with any business decision, you need to have an objective in entering the new market. It may be a short term objective (we need more revenue next quarter) or a strategic objective (our biggest competitor is in Europe and we are afraid that it will cause our US sales to erode if we are not there also). The objective should be explicit and have defined revenue and time expectations. "We want to sell to the automotive market" is a wish, not an objective. "We expect 10% of our revenue to come from the automotive market by 2006" is an objective.

Why do you want to expand? Growth, stability, avoiding obsolescence of your existing offering, and many other reasons exist. Know why you want to reach this objective in terms of business metrics, opportunities and risk.

2. Could you reach your business objective in your existing market?
Investing in your existing market can be an alternative to expansion. Breaking into a new market is always hard. Unless your existing market has reached saturation, it may be easier to reach your objective in your existing market. Selling where you have references, knowledge, product, reputation, etc. will be easier than selling in a new market.

When answering this question, ask, "Why can't we expand in our existing market?" New markets are exciting and excitement can often cause companies to put their hopes in new markets without fully exploring their own.

3. Do you have a realistic understanding of the resources it will take to be successful in this new market?
Initially, Market expansion always looks easier than it will be. Do not underestimate what is required to be successful. It will take a larger investment, more people and more time than you think. How can you get a realistic estimate? Make a detailed rollout plan with input and estimates from all the executives involved.

Identify the important milestones and challenges. For example, if you do not get the first sale on schedule, will other activities need to be deferred? Talk to others who have tried this type of expansion. Always put some contingency time and money into the plan, as you will need it.

4. Do you have the domain knowledge, product, business processes, etc. to succeed in this new market?
Once you make a plan, it may become obvious that you do not have all the resources that you need. For a geographic expansion, you will need people in the new location to be successful. You will need existing staff to support these remote people. Trainers, sales support and executives will have to visit the new geography frequently if you expect success. Post sales resources will have to be either in the new geography or loaned from existing resources before the first sale.

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