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International launches will lose power. This is where new market expansion is moving to
How remote work will affect acquisition and go-to-market strategies
Welcome to the second edition of my growth newsletter! I've seen a few of articles on how coronavirus will change the way we work, but I decided to look ahead on how the “new normal” will impact go-to-market and acquisition strategies. If you enjoy this read, subscribe to future editions and/or email me feedback!
New market expansion is a fairly straightforward term - it refers to launching your product and investing resources in a market you were previously not focusing on. It is often associated with international launches: you're a Dutch startup, and you decide to expand to France. You hire a French-speaking sales executive, you organise meetups in Paris, etc. I assume you know the drill.
But new market expansion is not just about internationalisation and, as I'll argue in this article, with the sudden growth of remote work, it will become less about just that.
How do companies expand into new markets today
This is the journey we see for a typical successful SaaS today. They have a fairly defined target audience (e.g. mobile app startups) and a big footprint in their home market (e.g. Barcelona). This footprint is created thanks to: well-connected founders, local press, dog fooding in their city, customers referrals, amongst others. There is network effect in a geographic-based community and startups reap those benefits.
Once they've found product-market fit* and there's no more (or cheap enough) way to acquire new customers in their local market, they expand to a new market. They pick a new country to focus on and go on to mimic what has worked for the first batch of users in a specific city. (This article from growth agency Off The Record does a good job at summarising how companies do that.)
They localise the product, invest in partnerships and offline events and, if successful, they can create the same referral effect from this newly formed network. They compose an "international expansion" playbook and use that to continue their world domination. This is an oversimplification of what happens to illustrate the point, but you get the gist.
*Arguably everyone in the tech industry - from growth celebrity Neil Patel to VCs Balderton to myself - says you should wait to have PMF before venturing to new markets.
What changes: Remote work will weaken geo-based networks
With COVID-19, we've been pushed to work remotely sooner than expected and we haven't yet seen how that will affect acquisition strategies. But if you expect tech companies to become more distributed, here are some changes we are bound to see:
Founders are based in different cities • Founders' personal and professional networks can often help them in getting local press and even their first customers. Assuming there's a smaller overlap between their networks, this makes their joint network have less connected nodes and could delay referral effect.
Employees from a certain company are no longer all in the same city • If you have a B2B company that sells for fintech and have a bottoms up strategy, London is a great place to install your business in and an obvious new market expansion. Monzo, Transferwise and Revolut employees and executives are all over the city. If they no longer are there, the advantage to focus your acquisition in a certain location could be pointless.
Communities move online • Sponsoring meetups and public speaking at small events are a good way to increase your footprint in a local market. When meetups are replaced by webinars, the attendees are from all over the world. They're connected solely by their interest (why they've joined webinar) and not by their interest plus location.
What the future holds: Stronger interest-based networks
Acquiring customers that belong to a highly connected network is one of the most important activities to get right to reach organic growth. I'd say it's probably second only to having product-market fit, which is a must-have.
That is one of the main reasons why companies start out with a niche. You don't need to think for very long to come up with examples of companies that are massive now because they've nailed an interest-based + geographical-based audience; like Facebook and college campuses.
Nailing a niche won't become any less important, even as networks reshape • The principle of focusing on a network to grow will remain the same, pandemic or not. But as we tech workers move towards having more distributed lives, their geographical-based networks could lose power, while their interest-based networks could strengthen.
A starting market will be more vertical than previously • This is a natural progression from the software market's saturation, but it will be amplified. In the newsletter space, for example, we see the existence of successful tools per vertical: for journalists (Substack), e-commerce (Mailchimp) and content creators (ConvertKit). In order to benefit from existing networks, new products need to be more vertical than before.
New market expansions will also move vertically • Since international launches will lose some of its referral effect, acquiring users in a new international market will also become more expensive. On the other hand, acquiring and building for new verticals will become cheaper than it is today.
Niche webinars will grow as an acquisition strategy • Several European cities have regular meetups for local startup founders - Amsterdam, where I live, has a couple. In cities with a high density of tech workers, like San Francisco, you can also regularly attend meetups on specific topics like mobile acquisition. These meetups only exist as an acquisition strategy by B2B companies. As tech workers disperse, these marketing initiatives should move online. Online communities around industries - like Everyday Marketplaces - are already scaling.
Companies investing in their own industry-based communities will have a big advantage scaling • Lattice, who just nabbed a $45mi investment, has put a big focus on their Resources for Humans Slack group and content marketing. Through these network-building initiatives, they are growing their awareness across HR workers throughout the world.
There are multiple signs interest-based networks are already growing. Community building consultancy agencies are being created, companies focused on monetising Whatsapp/Telegram groups are popping up, Patreon is helping out long tail community builders earn money.
People that live in the same city, speak the same language and go to the same places will always belong to a network. However, with the growth of distributed workforces, these networks will become more varied and dispersed. The referral effect and therefore, organic growth, you get from city-by-city launches will be weakened.
On the other hand, focusing on highly networked niches will always be a pillar of organic growth. Online communities, based on interests and industries, are growing and will make vertical new market expansion cheaper than currently.
What's coming up: my next article
For my next article, I will deep dive into the acquisition and onboarding of Shopify. I wanted to do an onboarding dissection of a specific product and felt like Shopify, who has a strong focus on educational content, would make a compelling case study. How do you convince users to go through the funnel while still giving them all the necessary advice to be successful? If you think that will be an interesting read, subscribe to the newsletter to be notified once that's published.