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Market entry framework: how consultants evaluate new ...
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The analysis usually covers: “The number you want is the addressable market for your specific product or service, not the total industry revenue.” Industry profitability. Average operating margins and returns on capital for the industry. If the industry average ROIC is 6% and your cost of capital is 10%, the market would need to be structurally different for you specifically, or you’d need a very compelling reason to believe you can outperform the average.
The analysis usually covers: “It’s the specific segment you’d actually compete in, with the specific buyer you’d actually sell to.” Industry profitability. Average operating margins and returns on capital for the industry. If the industry average ROIC is 6% and your cost of capital is 10%, the market would need to be structurally different for you specifically, or you’d need a very compelling reason to believe you can outperform the average.
Question 1: is this market attractive? “A big, fast-growing market is not automatically attractive.” Market attractiveness comes down to: can the participants in this market earn good returns? And is that likely to continue?
How to think about it “The data is incomplete. The internal politics are real. The CEO has a strong opinion before the analysis starts.” The framework above won’t eliminate any of that. What it will do is force the conversation into the right structure. When someone says “we should enter the Indian market,” you can respond with the right questions: Is the market attractive for our specific business? Do we have a realistic right to win? How would we enter? And do the numbers work on realistic assumptions?
Formulate an initial hypothesis. Based on what you know before the deep analysis, what do you think the answer is? This is the standard McKinsey approach: form a hypothesis early, then test it rigorously with data. It’s more efficient than open-ended research because it focuses the team on the specific facts that would confirm or disconfirm the entry decision. “Customer interviews in the target market, competitor analysis, financial modeling, regulatory research.” Pressure test. What would have to be true for this market entry to succeed? List those conditions explicitly, then evaluate the probability of each one. If the entry only works if you win 15% market share in two years and the incumbent doesn’t respond and the regulatory environment stays favorable, you’ve identified a fragile plan.
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