Where to test new markets: Evidence from a digital product platform

Abstract

Entering new markets is crucial for technology startups to scale. But it is not clear which initial users help startups learn about demand in these target, often foreign, markets. While local users can typically offer clearer signals, foreign ones can offer more transferable ones. This raises the question: How does the local vs. foreign composition of initial users shape startups' subsequent foreign user growth? I test this question on a digital product platform. Taking advantage of variation in feature timing, I find that startups with a higher share of local initial users achieve more foreign user growth after they feature on the platform. This effect magnifies among startups in more familiar and representative local contexts, where local signals are even clearer and more transferable. Consistent with these results, a supplementary experiment shows that foreign users prefer products that incorporate clearer and more transferable local feedback. Together, these findings underscore the importance of choosing initial users who offer both clear and transferable signals, with implications for entrepreneurial experimentation and strategy.

Keywords: Entrepreneurial strategy, experimentation, technology entrepreneurship, global strategy, digital platforms

JEL Classification: M10, M13, M16