We sure do love a prudent founder. Cautious and deliberate, the founder avoids impulsive decisions and does exactly what we advocate for the most: validating the need before making any judgment calls. But what happens when this goes too far, and that risk-averse tendency becomes a liability?

We watched a strong company with growing revenue risk collapse, not from a bad bet, but from being recklessly risk-averse. This company had a visionary repeat founder, a great product that was popular with users, and a growing base. However, this growing base was all concentrated in a single market. We saw the risk in being so concentrated and with ample runway, it was time to seriously investigate expansion. The demand signals in two specific new markets were blaring loudly, and the entry path was clear. However, the founder declined repeatedly, citing that expansion felt risky and the home market was working so well. The frustration was real, because we always advise clients to wait for validation before making investment decisions in opening new markets, but this was extreme.

Hindsight is 20/20 but even in the moment as we watched the company achieve stellar success we felt the foreshadowing that it couldn’t last. Unfortunately, a single external shock outside of anyone’s control completely wiped out demand in that market overnight. Without that diversified base we’d been advocating for, the company’s revenue collapsed almost immediately.

We worked with the company and its investors to quickly pivot into those same new markets we’d been championing for months, but they were operating from a place of extreme urgency rather than the measured and careful approach they could have taken if they had opened those markets from a stronger position.

In fairness, expansion is not always the right answer. However, concentration in one market is itself a position, and that un-hedged bet can prove to be the riskiest one of all. It’s just danger masquerading as stability.

So how can you tell what the difference is between a healthy, measured focus and a dangerous concentration that leaves all eggs in one basket? Start by determining if focusing on one market comes from a clearly defined strategy, or if it’s just a default stemming from fear. If it is a strategy, are you still hedging your bets against potential risks both defined and undefined? What are the merits (again, clearly defined) of doubling down in this one market?

Additionally, consider how much the company’s survival rests on things you can (or more crucially, cannot) control. If you’re concentrated in one region, do you have a diverse client base? Multiple channels? Are you relying on a single or restricted macro condition? The more dependency there is on outside factors, the more that decision to stay in one market looks more risky than disciplined.

Even if prioritizing expansion in an existing market feels like a strategic bet, it’s worth mapping out what expansion into new markets would look like. It may be considered Plan B, but making these plans with a clear head helps ensure that it can be quickly actioned if Plan A falls apart overnight.

So what should founders and investors be asking in order to tell the difference between the measured approach versus the dangerous concentration? You’ll definitely want to know before an external shock makes this distinction for you, so consider this:

If the company’s single biggest market dried up overnight, how long would it take for revenue to recover? (Worth noting that if you can honestly and objectively state “It wouldn’t” then you have your answer to a much bigger question.)

Is the focus because of clear-headed strategy, or because expanding feels scary?

What underlying conditions have to stay true in the current market for the company to continue on its trajectory, and how many are within control?

If you’re a founder weighing market expansion, or an investor weighing the potential of a promising company that’s in a single market, let’s connect.