Only have 1 minute? Check out these 3 takeaways:
- Expansion is a growth stage for the business in which the company explores new markets or new products and services to offer.
- A successful expansion requires understanding the new market, analyzing the competition, adapting your value proposition, and overcoming challenges.
- 2 CEE companies that have successfully expanded their operations include Romanian UiPath and Hungarian Prezi.
When it comes to startup expansion strategies, I like to quote Peter Thiel, the co-founder of PayPal, who said: “Almost all successful companies in Silicon Valley had some model of starting with small markets and expanding.”
And indeed, in the bustling CEE startup scene, growth and expansion are often intertwined. With the combined enterprise value of CEE startups quadrupling in the last five years to a total of €190 billion, outpacing the average yearly growth rate recorded in Europe (4x in CEE, 3.1x in Europe), the potential for startups to scale and venture into new territories is immense. But how do startups navigate this complex landscape? What does it take to successfully expand?
In this article, we explore the most popular startup expansion strategies, with the goal of providing a quick yet comprehensive guide for startups ready to explore new markets and diversify their portfolios.
Understanding startup expansion strategies
One way to think about expansion is as a growth stage for the business in which the company explores new markets (i.e. customer segments) or new products and services for the same customers. According to classic business theory, this definition would comprise “market development” and “product development” growth strategies.
Market expansion: venturing into uncharted territories
Venturing into new markets is a crucial element of startup expansion strategies. This involves taking existing products or services and introducing them to a new geographic area or demographic. For CEE startups, this could mean expanding beyond the region and entering Western European or global markets.
Of course, when it comes to expansion, VCs often play an important role in supporting startups. For example, the Warsaw-based Inovo Venture Partners launched a third fund with €100 million in assets in August 2022, aimed at supporting CEE-based early-stage and post-traction startups with global potential.
Similarly, Angel One Fund, a Ukraine-based investor, launched a new $1.5 million fund in October 2022. The fund is aimed at helping pre-seed startups that want to grow and enter global markets.
Another example is Bulgaria-based Eleven Ventures that announced the final closing of its Eleven Fund III at €60 million in January 2022. The fund is aimed at investing in early-stage startups from Southeast Europe with a focus on global markets.
The support of local VCs is great, of course, but new market expansion does not come without challenges. To succeed, you need to:
- Understand the new market
- Study customer behavior
- Analyze demand for the product or service
- Get to know the competitive landscape
Portfolio expansion: diversifying products and services
Another key aspect of startup expansion strategies is portfolio expansion. This involves diversifying the startup’s offerings by introducing new products or services. Portfolio expansion can help startups tap into new customer segments, increase their market share, and reduce dependence on a single product or service.
For instance, Bulgarian-born Chaos, a global leader in 3D visualization, recently acquired the Italian company AXYZ design, enhancing its ecosystem of real-time visualization tools, photorealistic renderers, and 3D asset libraries.
However, portfolio expansion is not so straightforward. It requires a deep understanding of customer needs, market trends, and the competitive landscape (these are must-DOs for any expansion strategy you decide to focus on so keep them in mind at all times). Another important thing startups need to ensure is that the new products or services align with their brand and business model.
Understanding your new target market
Like we already said, understanding the new target market is crucial when expanding to new markets or diversifying the portfolio. This involves researching and analyzing the demographic, psychographic, and behavioral characteristics of the potential customers in the new market.
For instance, if a CEE startup is expanding to Western Europe, it needs to understand the consumer behavior, preferences, and needs of the Western European market. To do that, a startup can:
- Research market reports
- Conduct surveys
- Use data analytics tools
Remember that understanding the new target market can help you tailor your products, services, and marketing strategies to meet the needs and preferences of the new customers, thereby increasing your chances of success in the new market.
Competitive analysis in new markets: knowing your rivals
Competitive analysis is another crucial part of any expansion strategy. It involves identifying and analyzing the strengths and weaknesses of competitors in the new market. This can provide valuable insights into market trends, customer preferences, and potential opportunities and threats.
For instance, a CEE startup expanding to Western Europe would need to analyze the key players in their industry in that region, their products or services, pricing strategies, marketing tactics, and customer base. This can help the startup identify gaps in the market, differentiate their offerings, and develop effective marketing strategies.
However, you should remember that competitive analysis is not a one-time task. It should be an ongoing process as market conditions, customer preferences, and competitors can change over time.
Adapting your value proposition for new markets
When expanding to new markets, startups may also need to adapt their value proposition to meet the needs and preferences of the new customers. The value proposition is a unique mix of:
- Product or service features
- Customer service
- Price
- Brand image
For example, a tech startup from the CEE region might need to tweak its value proposition when it expands to a market where customers prioritize personalized customer service over high-end features. This could involve enhancing their customer service, offering personalized solutions, or even rebranding.
Adapting the value proposition is a great strategy since it can help startups attract and retain customers in the new market, thereby driving their expansion success.
Overcoming expansion challenges: turning obstacles into opportunities
It must have gotten pretty clear by now that expansion is a challenging undertaking. Some of the most common issues startups may face include:
- Regulatory compliance
- Cultural differences
- Logistical complexities
- Competition
However, these challenges can be turned into opportunities with the right strategies. For example, startups can:
- Leverage local partnerships to navigate regulatory complexities
- Adapt their products or services to cater to the cultural preferences of the new market
- Optimize their supply chain for logistical efficiency
- Differentiate their offerings to stand out from the competition
Case studies: successful expansion strategies from CEE startups
To further illustrate the effectiveness of the strategies we listed, let’s look at some successful expansion stories from CEE startups.
UiPath: expanding to new markets
Romania’s first unicorn UiPath, a leading provider of Robotic Process Automation (RPA) solutions, is a prime example of successful market expansion. The company expanded its operations from Bucharest to global markets, including the US, Asia, and Western Europe.
UiPath’s expansion strategy was not an overnight success, though. The company faced multiple failures and considered shutting down the business at one point. However, a turning point came when they realized the market fit with RPA and began to focus their resources on building a platform for training and orchestrating software robots.
The company’s breakthrough came when a large BPO company in India was doing a pilot project to find the best provider of RPA technology. UiPath (then named DeskOver) competed against other RPA providers and came out on top. This experience gave them a keen understanding of the market their product was operating in, and from that moment on, things changed dramatically for UiPath.
Prezi: portfolio expansion through product diversification
Hungarian startup Prezi, known for its interactive presentation software, diversified its product portfolio to expand its customer base. The company launched Prezi Video in 2019, a new tool that allows users to create interactive videos. This product diversification strategy helped Prezi increase its user base to over 100 million worldwide.
Key takeaways for CEE startups planning expansion
While expansion can pave the way for new opportunities for startups, it demands meticulous planning and execution. Here are some key takeaways for CEE startups planning their expansion:
- Understand the new market: Research and analyze the demographic, psychographic, and behavioral characteristics of the potential customers in the new market.
- Analyze the competition: Identify and analyze the strengths and weaknesses of competitors in the new market to identify gaps and opportunities.
- Adapt your value proposition: Tailor your product or service features, customer service, price, and brand image to meet the needs and preferences of the new customers.
- Overcome challenges: Leverage local partnerships, adapt to cultural preferences, optimize the supply chain, and differentiate your offerings to overcome expansion challenges.
