"New markets may seem full of opportunities, but the hidden challenges can lead your company into a crisis." This was the cautionary message from Felix Hong, former head of Google Nest's Taiwan R&D Center, during the "Global Innovation and Entrepreneurship Seminar" held at Nangang Software Incubation Center on November 15th.
The event was co-hosted by Might Electronics, the Taiwan Global Angels (TGA), and the U.S.-based startup accelerator EntreCamp.
Felix was invited to shed light on why many startups, once they hit their growth phase, struggle or even collapse when attempting to enter new markets. He warned attendees to not only see the opportunities but also carefully assess the hidden costs.
What Do Startups Miss When Expanding to New Markets?
"If you’re in a key product or business role (founder/CEO/CPO), you need to move to where your customers are!"Felix emphasized that the success in a new market heavily relies on whether leaders can fully commit. Long-term presence on-site is crucial to understand market needs and engage directly with customers.
"The budget for launching a product in a new market—covering marketing campaigns, distribution, equipment, and local talent—is as important as product development itself."He highlighted that merely focusing on market expansion without considering cost efficiency can lead to financial losses, funding shortages, and even closure.
Many startups put most of their budget into product development, overlooking the substantial hidden costs involved in entering a new market.
When considering market expansion, you need to evaluate whether local resources are sufficient—especially if you plan to establish a branch or an on-site team. Is the additional investment worth the potential market gains? Hidden costs like local regulations, infrastructure limitations, and both hardware and software considerations will impact your company’s resource allocation and overall plans.
Overall, "As the company or product line grows rapidly, so do the needs for budget and resources in new markets. It's vital to carefully evaluate whether the expansion is cost-effective."
Felix’s "What Not to Do" Warning: "If you hand off every aspect of a contract to someone else, that's the day your startup begins to fail!"It’s essential for founders to oversee contracts and partnership details closely. "Stay involved and keep your hand on the wheel!"
Relying solely on contractual guarantees without actively managing external partnerships often leads to poor outcomes, and in some cases, it damages the core business.
Some startups, after signing a deal, outsource key tasks and only occasionally check progress. This often results in subpar deliverables and negatively impacts the company.
Expanding Your Business: Don’t Overlook Supplier Relationship Management
Felix also talked about managing relationships with suppliers, stating plainly, "expect the unexpected."Issues like quality problems or production delays are almost inevitable when working with the supply chain. Founders should expect these risks and be prepared for them. The success or failure of a supplier can have a huge impact on a startup.
Felix noted that supplier performance can be a double-edged sword."When suppliers are struggling, you might get better negotiation terms, but there's also a high risk they might suddenly go under—which happens often. On the other hand, when they are thriving, they might not pay enough attention to a small startup."
It’s crucial to understand a supplier's expertise before partnering, especially to confirm if they’ve handled similar projects before. A lack of experience may lead them to subcontract, increasing communication costs and risks.
"Trust but verify" was another key piece of advice Felix shared. He suggested personally verifying any issues raised by suppliers. Some problems might be genuine bottlenecks, but others could be minor challenges that can be resolved. Face-to-face discussions on-site often reveal hidden issues and help tackle obstacles.
Fostering transparent communication and being honest about your business goals and current status are key to building trust with suppliers. "Trust is built on transparency. Be as open as you can be. When you make requests, the supplier will feel if you’re being upfront, which will help gain their full support."
Be Hands-On with Important Projects! "If the project is important, the founder or key manager should work directly from the supplier's office!"Felix stressed the importance of "being there," both in form and action. "It’s not about micromanaging but showing the supplier that you value the partnership and are committed to its success!" Such involvement boosts the supplier's motivation and willingness to collaborate, helping ensure that the project stays on track.
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