• Key factors for expansion
• The six types of new markets
• Success factors
• Broad framework
• Expansion blueprint: the summary

Key factors for expansion

Every B2B software company that intends to grow will consider entering new markets as a natural plan. It should come as no surprise that a study by Bain & Company¹ points out that most successful companies that outgrew others had entered new markets.

Expansion into new markets is a critical decision for B2B software firms seeking sustainable growth and market diversification. Determining the right time to expand requires a strategic approach based on several key factors:

• Market saturation: If the company's core market has reached a saturation point or is showing signs of maturation with limited growth potential, exploring new markets becomes essential for continued expansion.
• Demand and growth prospects: When existing markets lack the necessary growth opportunities to meet desired targets, exploring new territories offers the potential for increased demand and expansion.
• Geographical and vertical diversification: Companies heavily concentrated in specific geographies or industries might consider expanding into new regions or verticals to enhance their market reach.
• Product suitability: If the company's product or solution aligns well with potential new markets without requiring substantial modifications or investments, it presents an opportunity for a smoother entry.
• Vision alignment and core competencies: Identifying opportunities in new markets that align with the company's long-term vision and capitalise on its core strengths and competencies can be a significant driver for expansion.

The six types of new markets

As Dan Cremon outlines in his Winning Moves book, expansion can take any of the following six forms$^2$:

1. New geographies: expansion into untapped or adjacent geographical locations, offering the potential for increased market penetration and customer reach. Small B2B software companies can consider expanding into new geographical markets that have a demand for their products but are currently underserved. This could involve localising their software for different languages and cultures or complying with region-specific regulations. For instance, a German software company could expand into the French market by localising its software and marketing materials to French and ensuring compliance with the ‘General Data Protection Regulation’.
2. New verticals: venturing into industries or sectors that complement the existing business. Small B2B software companies can diversify their risk and increase their customer base by venturing into new industries. For example, a company that offers a project management tool for IT companies could adapt their software for use in the construction industry.
3. New customer segments: targeting previously untapped customer demographics or segments. By targeting new customer segments, small B2B software companies can broaden their market and increase their revenue. For instance, a company that traditionally sells to large enterprises could develop a scaled-down, more affordable version of its software for small and medium-sized businesses.
4. New use cases: adapting existing products or services to cater to new applications or needs. Small B2B software companies can innovate by finding new applications for their existing products. For example, a company that offers data visualisation software for financial data could market its product to sports teams looking to visualise player performance data.
5. New spots on the value chain: moving to different stages of the value chain to expand offerings. By moving to different stages of the value chain, small B2B software companies can increase their profitability. For instance, a software company could start offering consulting services to help clients implement and get the most out of their software.
6. New distribution channels: exploring different channels to market products or services, such as partnerships or collaborations. Exploring new distribution channels can help small B2B software companies reach more customers. This could involve forming partnerships with other businesses to bundle their software with complementary products or using platforms like the Salesforce AppExchange to reach more potential customers.

Each of these six types of new markets offers distinct opportunities for companies to diversify, grow, and expand their reach, catering to different aspects of market demand and potential for business development. By considering these six types of new markets, small B2B software companies can identify numerous opportunities for growth and expansion. However, each company should carefully consider its own capabilities, resources, and business goals when deciding which new markets to enter. Understanding these avenues enables companies to make informed decisions about the direction that aligns with their objectives and capabilities for successful market entry and growth.

Success factors

Success in market expansion relies on five key factors$^2$. Some of these seem to be common knowledge yet we have seen plenty of examples wherein companies do not pay attention to these. These factors take into consideration the limited resources that small B2B software companies have at their disposal in comparison to their larger counterparts.

1. A strong core: A robust core business is essential for successful adjacency expansions.
2. Strategic selection: Expand strategically by choosing the right opportunities aligned with your strengths and market demands.
3. One move at a time: Manage risk by avoiding excessive diversification. Focus on one new direction at a time to maintain core business stability.
4. Start narrow and expand: Begin with a foothold in a specific area before broadening your reach.
5. Build a repeatable process: Develop and refine a consistent methodology for entering new markets.

Broad framework

If you are looking for a structured approach to expanding into new markets, here is a four-step framework that could help guide the process of expanding into new markets.

1. Identifying opportunities: Explore adjacent areas to your core business and understand customer behaviour to spot opportunities.
2. Evaluating opportunities: Assess the potential size, effort, and probability of success in new markets.
3. Selecting: Use data-driven analysis to choose the most lucrative expansion opportunities.
4. Executing: Enter new markets by building, partnering, or acquiring businesses in those sectors. See more at Entering new markets.

Expansion blueprint: the summary

Venturing into new markets is a strategic imperative for leading B2B software companies toward sustained growth, adaptability, and industry leadership in an evolving landscape. Recognising the six types of new markets proves pivotal to navigating this path effectively. It is not over there, as success hinges on following a practical four-step framework that serves as a guide for a smart and calculated market entry.