How to Expand Into a New Market Without Falling Into a Trap

Disney's 2015 Star Wars Celebration
ANAHEIM, CA - APRIL 16: Cosplayer dressed as Admiral Ackbar on Day Four of Disney's 2015 Star Wars Celebration held at the Anaheim Convention Center on April 19, 2015 in Anaheim, California. (Photo by Albert L. Ortega/Getty Images)
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Startups typically set out in relatively niche markets because they’re easier to get a toehold into. But companies are like goldfish: They’ll only grow as big as the pond they’re planted in. And let’s get real: if you’re in a $400 million market, it’s safe to say your company will never be worth anywhere near that full $400 million. If you want to get really big, you need a massive market.

But this doesn’t necessarily mean you need to go after a giant market to begin with — you can also enter new markets as you grow.

As the CEO of Instructure, which provides learning management systems for high-school, higher education and corporations, I’ve attempted the latter option multiple times over the last five years — to varying degrees of success.

In my experience, usually the process isn’t deliberately planned. Instead, it typically happens like this: A partner or customer opens a door into an adjacent market and invites you to participate. Everyone around the table looks at each other, shrugs, and asks, “Well, should we go into this market? There’s money to be made there, and we could probably pull it off…”

As Star Wars’ Admiral Ackbar so eloquently declared, “It’s a trap!”

And I don’t mean that expanding into adjacent markets is always a bad idea. I mean that businesses should be wary of crossing a threshold simply because the door is open. Many bad business mistakes start with extending into a new market just because an opportunity came up.

There’s a more strategic approach, and I like to think of it in terms of a simple recipe:

1. Make a list of markets adjacent to your current market.

2. Grade them based on a few factors:

  • Market size
  • Strength of competition
  • Similarity to your current sales pattern and cycle
  • Dissatisfaction with current available solutions
  • Technical ability to develop a competitive product

3. Pick an internal business leader who is product focused.

4. Have them shortlist the potential adjacent markets.

5. Have them draft a go-to-market concept.

6. Validate the new offering in the market.

7. Execute.

By following this recipe, we managed to create successful organic growth at Instructure with the creation of our corporate training program. A few years ago, we noticed that our customer retention rate had dipped slightly. When we dug into the numbers, we discovered that although our academic customers (schools and universities) had a nearly perfect renewal rate, our corporate customers weren’t renewing. That was particularly weird, because our product wasn’t designed for corporate customers. Why, we wondered, were businesses using our academic software to train their employees?

We made some interesting discoveries. For one, the corporate market is a $3.8 billion industry. But more importantly, workplaces were changing rapidly, thanks in large part to millennial employees who weren’t interested in rigid nine-to-five work schedules, and cared deeply about mobility, flexibility, and the ability to use modern technology at their jobs. Instead of archaic onboarding techniques, they wanted online training that worked at the speed of Twitter. Meanwhile, managers wanted access to data points that could help them evaluate the effectiveness of their impact training programs, and the impact it was having on their business. Unfortunately for them (but fortunately for us), there weren’t many great solutions.

So we leveraged our expertise and built one, launching Bridge, a learning management system for corporations, in 2015. As a fast-growing company ourselves, we were able to test the product on our own teams to figure out what worked and what didn’t. It may not have been the sexiest opportunity, but it was the right one: Bridge has been growing in triple digits.

Why did this foray work while so many attempts, at other companies as well as our own, fail?

I pin it down to strategy. We worked to procure each ingredient in the recipe, from the size of the opportunity, to an assessment of the competition, to feedback from our own teams.

Of course, just because you have a recipe doesn’t mean you’ll produce an amazing meal. But a recipe definitely helps.

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