Market Expansion

How many ways are there to Grow? M&A of course, inorganic and lots of benefits depending on the acquisition strategy, but can include things like: existing market share consolidation, technology advancement, talent (aquihire), and not last - new market entry. M&A works as a growth strategy - it's proven and difficult to beat for large scale leaps in top line revenue. However, with valuations remaining very high, it's often expensive and has other significant operational challenges.

So let's say you don't have a war chest and need to grow the old fashioned organic way - how many paths are there to growth?

1. within your own base: develop and sell additional products that create value for your customers. They already know you, believe you provide value and can serve them effectively. This is the most common growth model, and rightfully so. Less risk but also, lower reward.

2. segment migration: better known as moving up-market or down-market. If you are a provider to the mid-market, the allure of enterprise is undeniable. (brand names, high ASP, we can do this!). But be careful, those enterprise providers are looking at your segment as well - out of the box functional coverage, existing distribution and partner network, stronger brand - let the battles commence! And don't forget SMB - the rise of product led growth SaaS has allowed companies to start small and go very, very big.

3. geographic expansion: same market/industry, same segment, same products - new country. Language, location, law, currency, regulation, workflow, supply chain, buying culture, etc., etc., etc. It's not easy but achievable if you have low competitive barriers or significant brand advantage. Word of advice - remember that once in, it's extremely difficult to leave a country - so take great care with the decision.

4. market expansion: taking a known value to a new industry. Two examples I have done recently: manufacturing to distribution; retail to healthcare. To me this is the most interesting of the organic growth types, but it takes skill to identify which markets to enter and when. It is critical that the markets are large enough to support the required GTM investments in sales and marketing, and equally critical that the you are limiting the investment in product development. There will be some necessary and small modifications, but if a full feature set enhancement is required, step back and ensure you have appropriately modeled the cost and return of this entry. For this purpose I categorize destination markets as: A) complimentary adjacent & B) variant adjacent. Complimentary has high overlap across value creation, product/use requirements, business model and buying behaviors. Variant has a significant deviation in one or material deviations in multiple.

I have recently completed a market growth project for a company providing SaaS software and other professional services to the Dental market. The chart below shows three adjacent markets that have overlapping requirements. Combined, their size is just slightly smaller than the existing market.

However, the largest of the three opportunities is a variant adjacent. If size were the determinant factor, you would go there first, but there are significant deviations in the business model and product requirements between the Dental market and that needed for Chiropractic. Veterinary and Optometry were both complimentary adjacent markets - needing no changes to the product for immediate use and value gain. A strategic plan was set to pursue entry to the complimentary markets in 2021, while developing a minimum viable product and testing for the variant. If customer input on the MVP was positive, that market would be pursued in late 2022. Overall the growth model represented by this plan would increase SaaS ARR by greater than 42% over the next 24 months, while appropriately managing investment expense and cash flow.

Meaningful revenue growth + significant valuation growth is the result of a focused market expansion strategy. Execution matters and there is still a ways to go, but establishing the strategic path is the first step.