Home Depot's China Fail

MSNBC is reporting today about the embarrassing closure of Home Depot's last store in Beijing. Instead of rapidly penetrating the vast Chinese market, Home Depot now barely has a foothold on the mainland.

It's not that Home Depot should never have tried to enter China. With a rapidly growing population of homeowners, it's a market the company simply cannot afford to ignore, but their market entry strategy was obviously flawed. Their initial focus was on establishing their brand presence throughout the country rather than first understanding Chinese consumers. They discovered the hard way that Chinese buyers are extremely price sensitive and that few homeowners are comfortable tackling repairs on their own. In short, the business model Home Depot has relied on for decades to fuel its growth led it down the wrong path in China.

An arguably better approach would have been to start with a single store as a laboratory for studying how Chinese consumers approach home repair and remodeling, making adjustments to their business model until they found a profitable way to sell DIY supplies. The lessons for entrepreneurs and big companies alike:

• Test your most critical assumptions before making large, irretrievable investments.
• Iterate rapidly until you discover a winning business model.
• Invest aggressively and focus on execution only after you've eliminated the biggest risks to your venture.