Sooner or later, every company enters a new market. You might be an inventor selling a better mousetrap, or a Fortune 500 executive launching a new division to rev up growth.
Whatever the case, at some point you'll need to think like an entrepreneur -- whether it's to launch a new product or service line, extend to a new market segment, or establish a beachhead in a new geographical territory.
The reality, as every entrepreneur knows, is that most markets already have existing competitors. Even the largest companies in the world sometimes find themselves the small fish in a big, new pond. And the bigger fish already know the territory; they have the scale, connections, and market share to make life difficult for newcomers.
Still, there are tried-and-true ways to swim with the sharks, and start and grow a business. There's always room for new entrants, if they follow a few sound principles of entrepreneurship.
There are three steps to effectively entering a new market:
1. Don't buy into old-line definitions of a market and its segments.
Identify the competitors and their value propositions, and then figure out if a new segment makes sense.
In 1986, for example, Honda executives thought that young professionals who owned Civics and Accords but were ready for an upgrade wanted something different from what luxury carmakers like Cadillac, Lincoln, Mercedes, BMW, and others could offer.
So Honda launched the Acura division, whose cars didn't have the prestige -- or price tags -- of its competitors, but were still high in performance and quality, didn't skip on luxury trimmings, and came backed by great customer service. Acura's unique mix of value, performance, and service sold 109,000 cars in 1987, a strong first full year on the market.
2. Be creative with execution.
In 1997, Red Bull began to market its carbonated blend of caffeine, amino acids, and natural stimulants in the U.S. as an "energy drink," not a supermarket soda. But it couldn't flood the airwaves or the newsstands with advertising, and didn't have the pull to put cases of cans on supermarket shelves.
So the company got its products in front of customers at sporting events -- the more extreme, the better -- and in bars and clubs. Nearby convenience stores then began carrying Red Bull, and consumers drank it up.
In 2004, the private company reportedly earned $2 billion in global revenues, and it holds a commanding share of the fast-growing energy-drink market it practically invented. Red Bull might have been just another cola wannabe had its clever marketing not trumped the brands and distribution power of the major beverage makers.
3. Change your moneymaking approach to be different from the market leaders.
By not playing in the same soda markets as Coke and Pepsi, Red Bull didn't have to compete on price, where it probably couldn't have won. It successfully sells its 8.3-ounce cans for $2 each, a premium over larger servings of sodas and iced teas.
On the flip side, while big companies entering new markets need to think like entrepreneurs, too, they can also leverage their scale and resources in new ways. Acura was able to build on and leverage Honda's engineering and manufacturing prowess to give consumers a lower-priced luxury car option that didn't sacrifice on quality or creature comforts.
Don't Sit Still
If the good news is that you've successfully entered or created a market, the bad news is that you'd better be ready for a competitive reaction. If you've been successful, you'll almost certainly wake the sleeping giants and draw in newcomers.
For example, since Acura's launch, Cadillac and Lincoln have dramatically retooled their lines, Mercedes and BMW have added "entry level" models, and Toyota and Nissan have launched the Lexus and Infiniti lines, respectively.
To make matters difficult for Red Bull execs, Coke and Pepsi both now have their own energy drinks, and so do other entrepreneurial firms, like Hansen Natural. Mergers can also change market dynamics quickly, so be ready to intensify.
As competition heats up, key leaders need to grow, too. Many fast-growing companies eventually face a time when their leadership suites need to be upgraded. Sometimes, more "professional" managers need to be hired, as eBay and Yahoo! have both done at the very tops of their leadership suites.
The Risks of Giant-Slaying
There may be times in which a new entrant's growth stalls even though it does everything right. Innovating, moving quickly, and offering something unique -- be it customer service, technology, value, brand association, or a different mix of attributes -- should give the entrepreneur a good start.
But giants have a lot of power in their scope (i.e., bundling different products and services together), brands, relationships, and customer bases. Think of Microsoft's successful battle with Netscape over the web browser market. Clearly, not every big company is slow or can't innovate. Some are very good at figuring out new market segments and can shift huge amounts of resources -- both capital and great talent -- to defend whatever turf is under attack.
Not all big companies are afraid to take risks, either; indeed, because of their size and resources, they can afford to take them. GE, for example, brings those advantages to almost every market in which it competes.
Against such competitors, things can be very difficult for the ambitious newcomer. Indeed, if a big competitor is really good at what it does, there comes a time when an entrepreneur should ask whether exuberant growth is really in the cards.
Be realistic and take care not to let your ego get in the way. Great entrepreneurs (like Virgin's Richard Branson) know when to pull out of a losing battle, and how to rekindle their entrepreneurial spirit and go back on the offensive when there's a new opportunity for growth.
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