Growth is central to the strategies of most entrepreneurs. It can be the one thing that challenges us and drives us the most. In our pursuit of new growth, we are are keen to evaluate new products, new geographic regions, new partnerships and even new markets.
Expanding into a new vertical -- taking your existing product or service into a new market with an untapped customer base -- can be a viable path to increasing revenues and meeting top-line growth objectives.
Related: 5 Tips for Handling Rapid Expansion
But when is such a move the right strategy? What are the primary considerations for deciding whether to enter a new vertical? My recommendation is to start with evaluating your strategy and answering a series of questions that focus on why, what, when and how.
Why are you exploring vertical market expansion?
Expanding into a new vertical can be harder than starting a new business initially. Why? Because typically businesses looking to expand in this manner have already established themselves, their teams, their products, their business model, their operations and their vision within a specific domain -- making adaptation unnatural and complex.
Knowing that expansion of your business in any sense is rarely easy, you should ask yourself what’s driving your decision to enter a new vertical. Will it allow you to tap into a new customer base to drive new revenues or increase market share? Will it help you gain an edge over your competitors? Or could it be that it helps you drive increased diversification. Perhaps it is a way to strengthen your overall company positioning or reinvigorate your employees and increase retention.
Having clarity around "why" you are pursuing this path will help you determine whether there’s a good, quantifiable reason to justify the resources, time and effort involved.
What do you have to offer and does it meet a market need?
Think about your company’s expertise and whether the opportunity to expand into a new vertical builds off of your core strengths. Does the opportunity leverage your past experience and what you do best or does it require a new competency?
Look closely at what you offer today. Do you offer a product, a service, or both? Do you have a single offering, a closely related line, or a broad offering of products and/or services? What technologies do your solutions leverage? What problems do they help solve?
Think about what is most viable for the new vertical you intend to serve. Does a single offering make the most sense initially? Or a broad offering of products and/or services? Is your existing product currently feasible or is a redevelopment effort necessary? What alternative solutions already exist? What is your advantage relative to those and does your offering have unique points of differentiation?
When does it make sense?
To assess timing, it’s important that you understand the opportunity and risks involved. This requires having reliable data to conduct an in-depth market and customer analysis. What is the size of the market? What is the growth rate of the market? What is the revenue and market share potential?
You should also make sure you understand the customer environment. What is the profile of your target customer? How many targets are there? Where do they exist?
Next, you should conduct a deep analysis of the competitive landscape. How competitive is the space? Who are the players? Are there any winners? What types of new competitors are likely to emerge? What are the barriers to entry?
Last comes the question of whether you are prepared to execute. Have you thought through a resource plan? Have you set priorities and are your teams set up to enable you to achieve them? Have you identified and secured financial requirements?
How will you go about making the move?
Adapting to new environments and effectively competing relies largely on a winning go-to market strategy -- one that’s well integrated, distinctive and most importantly something your company can execute.
Who is the ideal target customer? What is the value proposition that’s tailored to those customers’ needs and your company’s strengths? How will you acquire customers? How will you build awareness and credibility in the new market? What type of sales model will you use? Are there channels and partners you can leverage to accelerate the close of new customers?
What’s key to a winning go-to market plan is how well the plan adapts on an ongoing basis. Gathering real-world experience and fast, reliable customer feedback is essential to continually refining your strategy. Whether it’s enhancing your value proposition, evolving your business model, fine tuning your sales strategy or modifying your actual offering, the key to success is creating a feedback process that perpetuates ongoing testing, learning, and optimizing.
Take a step back and paint a picture of the future state of your business. As entrepreneurs, some of you will find that this path aligns well with your aspirations and the passion you have for pursuing it. For others, it will be too much of a change. The key is knowing what’s right for your business and when, having a strategic plan, and being able to execute with both commitment and focus.