When is the right time to globally expand your business?
Judging the right moment to go international is going to be a big moment for a leader and a daunting decision to make. You have to take all the different elements of your company into consideration. Here are some general rules we can look to start.
The generally accepted wisdom for founders with big home markets was to win your domestic market first before thinking about going international after that. However, the most aggressive founders are now thinking about growing sales globally from day one.
Judging the right moment to go international is going to be a big moment for a leader and a daunting decision to make. You have to take all the different elements of your company into consideration but there are some general rules we can look to start that might help tell you, you are on track.
The 25% Rule
This one is fairly straightforward. When 25 percent or more of your business is coming from international markets, it’s time to scale outside your home country.
The Scale Rule
The Scale Rule can help founders to decide if they are ready or too early to scale by defining it. For this, we turn to Steven Carpenter, former Global Sales & Operations at Dropbox and exec at Accel.
“I define scale as when your company has reached “product/market fit” in tandem with “business model fit.” It’s the moment when your customer acquisition growth rate is increasing while your acquisition costs are decreasing, AND the unit economics of the business are moving in your favour. You aren’t yet profitable but you understand your cost levers.”
The Go-Fast Rule
The founders that follow the Go-fast rule know that they can sell internationally with minimal incremental cost and that if they were successful, they would increase their growth rate and demonstrate that their addressable market extends beyond their home country, the goal being to drive valuation.
If your business can use its existing logistics or pass along new delivery costs to the customer to service in the new market then it can generally be a no-brainer to run an AdWords or Facebook campaign in your new market very early on and see what takes. You shouldn’t even need to localise your offering for these tests. If the proposition is going to fly internationally then some customers will convert even when the pricing isn’t a local currency. If you are in a position where you are going to need people on the ground to sell and deliver your product then you need to consider the scale rule.
There is also an argument for expanding early that you can pre-empt copycats, American investors looking for ideas from European or Asian markets, etc., and vice versa.
The model is working well enough rule
There’s often no clear moment when your business model is ‘working’. So, you can ask yourself does it if feel like the management team has moved its focus from continually fighting fires to optimisation? If you are still fighting fires it might be too early but if you aren’t then your business model is probably working well enough that you can handle the fires of an international office.
Start-ups from countries with a population of less than 50 million go international twice as fast as start-ups from countries with a population of more than 50 million: 1.4 years as opposed to 2.8 years.
Smaller countries need to think internationally from an early stage. A founder in the U.S. or China can focus 100 percent on their home market and comfortably build a $billion business. That’s the upside for bigger countries. The downside is that they may only think about the international market at a late stage and may struggle to adapt their business accordingly. Whereas a founder in Sweden or Ireland knows from day one that their business needs to be international, if it is ever going to get really big, and builds accordingly.
As a general rule, the return on investment (ROI) of expanding internationally is usually less than the ROI of expanding domestically. Typically, with a business that is going well in its home market, €1 invested in local growth will increase user and revenues more than €1 invested abroad. Eventually, though, a company will reach saturation point in its home market and need to expand elsewhere, at which point this equation might switch around. But usually, it is cheaper to expand at home than abroad.
While the advice may be to go international as early as you can - If possible, start by selling internationally from your home base.
Expanding a business to a new international market is a big challenge to tackle for any company. Depending on which market your start-up wants to enter, you will not only face new business challenges but also cultural differences that can lead to further hurdles. The endeavor requires a lot of commitment and many dedicated resources. The good news is, that you’re not the first one starting this undertaking
At Centuro Global, we strive to assist companies of all sizes at every stage of their journey and growth. We simplify the scaling process for businesses by offering a clear strategy and roadmap for new market entry and business growth. We then connect clients with the right local resources and experts furthering efficiency in scale, within the strategy.
Find out more: https://www.centuroglobal.com/