How to approach a new market without betting the business
A new city, state, customer group or channel is a different business in disguise. How to test it small, check what will not carry over, and decide when to stop.
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A business that is doing well in one place often sees the next place as an easy extension. Another city, another state, another kind of customer or another way of selling looks like more of the same. In practice it is often a second business, with its own customers, competitors and costs, run by the same person who is still looking after the first.
This guide is a way of thinking about a first move into a new market. It is general, it is not advice for any particular business, and it does not suggest that every business should expand. Some do better by staying where they are.
What you should come away with
- Say exactly what is new: place, customer, product or channel
- Find out what customers there do today before assuming they need you
- Test with the smallest step that gives a real answer, and decide in advance how much you can lose
- Expect habits, suppliers, people and rules to differ, and check the rules with a professional
- Protect the first market while you work on the second
- Set a date and a measure, in advance, for deciding whether to go on
Begin by being exact about what is new. 'A new market' can mean a different city or state, a different group of customers in the same place, a new product for existing customers, or a new way of selling such as online or through distributors. Each changes different things. A new city changes the people and the competitors. A new customer group changes what they value and how they pay. A new channel changes who is in between you and the buyer. If you cannot say in a sentence what is different, it is hard to know what to check.
Next, ask why you want to go. Owners give many reasons: the home market feels full, a customer from elsewhere asked for it, a competitor is moving, or growth simply seems to be the next thing to do. Some are stronger than others. A request from a paying customer in another place is a real signal. A feeling that the business ought to be bigger is not, by itself, a reason to spend money. Write down your reasons and see which ones you would still believe if you were explaining them to a sceptical friend.
Then find out what customers there actually do today. This is the step most often skipped, because the owner assumes that what worked at home will work again. Spend time in the place or with the customer group before you commit. Talk to people who might buy. Ask who they buy from now, what they like and dislike about it, and what would make them change. You are not selling at this stage; you are learning whether they have the problem you solve, and whether they are already well served. If nobody can name a problem, that is a finding worth having before you spend anything.
Plan the smallest test that would give a real answer. For some businesses that is a few sales to customers in the new place made from the existing base, before any office, shop or hire. For others it is one distributor, one stall, one online listing aimed at the new region. The test should be small enough that failing would not endanger the original business, and real enough that someone pays. Before you start, decide how much money and time you are prepared to lose. Saying it in advance makes it easier to stop later, because the decision has already been made.
Expect some things not to carry over. Customers in a new place may have different habits about payment, credit and the time they take to decide. Language and ways of doing business can differ more than expected. Suppliers, staff and partners usually have to be found again, and they will not yet know or trust you. A good reputation at home may count for little where nobody has heard of you. Do not assume that your first customers came because of the product alone; some probably came because they knew you.
Check the rules, because they can be different. A business that supplies goods or services from another state may have to register for GST in that state in some situations, and the position depends on how you operate. A business that exports goods generally needs an Importer Exporter Code from the Directorate General of Foreign Trade. Licences, local rules and labour requirements can also differ by place and by trade. This article cannot tell you what applies to you, and the rules and thresholds change, so check the official portals, such as gst.gov.in and dgft.gov.in, and speak to an accountant or other adviser before you begin.
Think about people and your own time. A second market takes the owner's attention, and the first market can suffer without anyone noticing at first. Decide who will run day-to-day work in the new place, and how much authority they will have. If the plan depends on you being in both places at once, say so honestly and work out what gives. Tell your existing customers and staff what is happening, so that they hear it from you.
Protect the first market. The business that pays the bills today should not be put at risk to fund the one you hope for. Keep enough cash and attention at home to carry on if the new market takes longer than planned, which it often does. If the expansion would only be affordable by cutting service to existing customers, that is worth pausing over.
Set a measure and a date. Decide, before you begin, what you will count and when you will look: a number of customers, repeat orders, payments received on time, or a cost per sale you can sustain. Pick a review date, such as three or six months, that suits how quickly your business sells. At that date, ask honestly whether you are learning and getting closer, or only spending. Be careful of the instinct to put in more money because you have already put some in. What is spent is spent; the question is whether the next step is worth taking.
It is acceptable to find out that the new market is not right for you, and to step back with a clearer view of what your business does well. Either way, an owner who tested carefully has more to go on than one who simply decided to grow.