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Should a start-up enters emerging markets?

April 8th, 2009 · 3 Comments

A friend works for a start-up company. They’re on track to generate $30 million revenue this year, which will allow the company break even. Eighty percent of the revenue are from the US, while the other twenty percent are from western Europe. They still have about $10 million of cash that they received as part of their most recent round of venture capital financing.

Lately, the company has received inquiries from 3 potential customers who are very interested in doing business with them. But, these 3 potential customers are from 3 different countries: South Korea, Russia, and Brazil.

They have no presence in any of these countries. They would need to make some changes to their product in order to support customers in these emerging market.

The sales people are eager to close the deals. The head of marketing is excited because it’ll be a "great story" to talk to the media about.

The CFO is shaking his head: it’ll be very costly to enter these market. And it’s very hard to estimate how many customers they can get once they enter each of the emerging market. The financial risk is high. The VP of engineering is also very concerned: his small team of developers have already been working their tails off to ship products. Customizing the products for those emerging market customers will only add more pressure to the team. Does it really worth it? The director of operation and support is equally concerned: how could his small team to support customers with such diverse languages and customized products?

If you’re the CEO, what would you do? Should the company stay focused in the US market and continue to grow revenue and profit? Should the company enter the emerging markets? Or there is something in between? How would you decide?

I’ll share my thoughts in another post.

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Tags: Build a Company · Innovation · Start-up Success

3 responses so far ↓

  • 1 Chris Travers // Jul 8, 2009 at 12:47 am

    I think the company should sit tight and evaluate exactly what is involved to minimally enter those markets. This means getting the engineering, sales, etc. folk together and talking about it. The fact is that without specifics, it is not worth trying to discuss whether they should or not as every product is different.

    My business does a fair bit of work with emerging markets and there are always interesting surprises there. We are looking at expanding drastically in the next year and funding this through operations. However this is not something I would do if we hadn't been working towards this capability for a while.

  • 2 GeekMBA360 // Jul 9, 2009 at 12:59 pm

    Thanks for your comment, Chris. I agree with your methodical and cautious approach in entering an emerging market. It's not something to be rushed. Start-up companies have very limited resources, and they must be very strategic, and pick the right battle.

  • 3 GeekMBA360 // Jul 9, 2009 at 4:59 pm

    Thanks for your comment, Chris. I agree with your methodical and cautious approach in entering an emerging market. It's not something to be rushed. Start-up companies have very limited resources, and they must be very strategic, and pick the right battle.

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