Expanding Into New Markets Without a Plan: Why It Fails

Introduction

Most “new market” failures don’t look like failure at first.

The team appears to be a sales group that has achieved several quick successes while their leader presents a presentation which shows positive outlook.

The cash gap appears at this point which causes margin reductions and delivery delays while you learn that your supposed growth market operates as an expense drain.

Diagnosis

Smart companies always conduct planning because they never act without thinking. The team chooses to ignore this information because the initial indicators prove to be incorrect.

They confuse demand signals with a real market.

The company receives limited new leads while its distributor provides backing and people start hearing about potential government contracts which creates a feeling of accomplishment. It isn’t. The observed behavior seems to result from customer curiosity rather than following their typical buying behavior. Most markets experience their first market response through customers who perform price comparisons and who place evaluation orders based on their relationships, but these customer groups fail to generate long-term growth.

They copy-paste the home playbook.

The different elements which make up product pricing and sales cycles and payment patterns do not move directly from one market to another. The Harvard Business Review has shown that businesses which expand abroad fail to understand how customers in new markets behave and how their operations function in those markets. Famous retailers have experienced this problem when they try to expand their operations on a large scale.

They underestimate friction: regulation, logistics, and talent.

The primary goal of market entry expansion demands more than increased sales performance. The company needs to establish entities while following rules and conduct imports and obtain certifications and handle employee recruitment and provide post-sales support and resolve customer disputes. The OECD conducts regular analyses which demonstrate that multiple rules and entry barriers increase the actual expenses which businesses must pay for their international and domestic business activities.

They handle execution as if it were an additional project requirement.

The system operated without an assigned owner who would establish decision authority and create an integration strategy. The PMI research shows that project failures occur because of weak execution management and inadequate governance systems which organizations must establish to handle complex projects.

A realistic example shows an industrial supplier of middle size entering the GCC market through a distributor to achieve SAR 20M in year one sales. The company has received SAR 6M in orders during month six, but they operate with low profit margins while facing extended payment terms of 120–180 days and their site problems continue to accumulate. On paper: progress. In cash: pain.

Impact

A business that expands without planning will experience financial losses which standard P&L reporting systems cannot track.

Margin dilution: you discount to “enter,” then keep discounting to stay.

The company needs to use its available funds for buying inventory and supporting local operations and mobilization activities because it faces delayed cash payments.

The delivery of services at late times creates execution debt because it leads to early damage to your business reputation which occurs during your most vulnerable time.

People burn: your most skilled operators will eventually need to fight fires which occur in different time zones.

The GCC experience increased project risks because its projects use milestone-based schedules and they depend on many subcontractors and must follow strict compliance rules. The delivery process will face delays between 4 to 8 weeks when any of the following situations happen: missing certification or delayed customs clearance or insufficient local partnership strength. The extended period of delay will affect when revenue becomes available while simultaneously leading to financial penalties and contract modifications and damage to customer relationships.

The practice of doing nothing requires continuous financial investment because people believe it will help them succeed although they should acknowledge their failure.

System / Framework: The PLAN-to-SCALE Market Entry System

The system functions as an effective method to minimize incorrect race beginnings. Five pillars, in order.

Proof of Profit (Not Proof of Interest)

What to do:

Validate unit economics before scaling activity.

Create a basic deal model which includes price and land cost and commissions and warranty/service and payment terms and returns and support overhead.

Run 10–20 deals through the model with real assumptions.

Why it matters:

The organization should focus on obtaining profitable revenue which can be collected instead of pursuing revenue as its main objective. The problem will expand in magnitude because the company will increase its operations while the first 20 deals do not meet their projected gross margin targets and working capital requirements.

Market Reality Map

What to do:

The organization needs to document all stages of the procurement process which includes identifying all parties who approve purchases and those who affect decisions and the duration of the process and all necessary verification steps.

The system requires identification of hidden obstacles which include certification needs and local regulations and language proficiency requirements and installation duties and data storage regulations and procurement procedures.

The comparison shows that organizations purchase different solutions than what their stated requirements indicate.

Why it matters:

The main reason behind planning system failures stems from the lack of ability to identify vital constraints which need evaluation. The constraint becomes your strategy. The OECD explains that multiple regulatory systems create obstacles which directly impact businesses that operate across different locations.

Route-to-Market Design

What to do: Pick one route and design it fully:

The organization requires a hiring plan which will define performance criteria and deliver essential training to staff members to help them reach their sales targets and give excellent customer assistance.

The distributor/agent needs to perform capability due diligence through conflict rules to find suitable target accounts while creating exit provisions.

The JV/partner requires governance structures and IP boundaries and decision rights and an integration plan.

Why it matters:

Most business expansion efforts become unsuccessful because organizations depend on "hope + incentives" to manage their distribution channels. You require a machine which needs design to achieve lead flow and sales motion and delivery motion and accountability.

Operating Backbone

What to do:

The system needs one person to function as its owner who will maintain complete authority over the system.

The organization needs to establish decision rights which include pricing exceptions and credit terms and delivery commitments and warranty approvals.

The company needs to create its basic operating system which includes all processes from order placement to cash receipt and service delivery and escalation management and regular reporting.

Why it matters:

A new market represents the establishment of an additional business segment. The failure to establish early backbone systems will create organizational disorders which organizations mistake for growth problems but results from inadequate governance practices. PMI’s work on performance and complexity supports the need for disciplined execution structures as complexity rises.

Controlled Scale (Gates, Not Goals)

What to do:

Scale only after passing gates:

Gate A: 20 deals with target margin.

Gate B: collections behavior proven (e.g., 80% within agreed terms).

The delivery and service SLAs at Gate C operate at peak performance for 60–90 days while maintaining their stable delivery and service operations.

The Gate D facility conducts partner performance verification tests under limited circumstances which require such assessments.

Why it matters:

Organizations create operational plans to improve their work activities after they establish their organizational goals. The implementation of gates within a system requires organizations to develop their operational abilities. Harvard University researchers found that organizations which stick to their strategy will outperform the market when they expand their operations into international markets.

Close

New markets do not lead to business failure because the market presents any level of difficulty. The death of businesses occurs because leaders start to expand their operations before their organization develops solid economic foundations and market access and operational systems.

Taking no action would force you to spend money on revenue generation which would decrease your profit margins and empty your cash reserves.

Two next steps:

Build a one-page Proof of Profit model for your top 3 target segments.

The system needs to implement scale gates which monitor margin performance and cash flow and delivery operations instead of tracking sales activities.

Start with Pillar 1. If the unit economics don’t work, nothing else matters.

References

Internal Links

• https://www.3msbusiness.com/corporate-collapse-key-lessons-from-major-failures
  
  

• https://www.3msbusiness.com/when-resources-allocated-to-the-wrong-priorities

External Links

Harvard Business Review – Expanding into Foreign Markets

https://hbr.org/2024/01/a-better-way-to-expand-into-foreign-markets

OECD – Barriers and Fragmentation in Services Trade / Regulation

https://www.oecd.org/trade/topics/services-trade/

Harvard Business School – Strategy and Performance Across Markets (Working Paper)

https://www.hbs.edu/ris/Publication%20Files/strategy-performance-across-markets_8b9c1b4a.pdf