A GUIDE TO GOING GLOBAL

Expanding a business to a new international market is a big challenge to tackle for any company.

2021-04-21

Expanding a business to a new international market is a big challenge to tackle for any company. Depending on which market your startup wants to enter, you will not only face new business challenges but also cultural differences that can lead to further hurdles. The endeavour requires a lot of commitment and many dedicated resources.

In this post, we will share some of the learning and best practices of companies that already expanded internationally.

1. When is the right time to expand?

The generally accepted wisdom for founders with big home markets was to crack your domestic market first and only worry 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. Startups from countries with a population of less than 50 million go international twice as fast as startups 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 advice maybe to go international as early as you can – If possible, start by selling internationally from your home base. 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

Steven Carpenter, former Global Sales & operations at Dropbox and exec at AccelI defines 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 conclusively that their addressable market extends beyond their home country, the goal being to driver valuation.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., 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 the US very early on and see what takes. You probably wouldn’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 local currency.

If you are in a position where you are going to need people on the ground to sell and delivery your product then you need to consider the scale rule.

The Working Well Enough Rule

There’s often no clear moment when this 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.

2. Where To Go

3 Steps to choosing your next market + a bonus step

Step 1: Define your Options

Before you think through your international strategy you need to work out how to define your options. When most people hear a company is expanding internationally you’d assume the business is entering a new country. This might be technically true but there are range of different options for how approach expanding globally. Does it make the most sense to define your expansion by cities, countries, languages, ecosystems, or something else?

For example, Citymapper’s international expansion is defined around cities, not countries. Each city has distinct transit partners to integrate, a distinct set of terminology and localization requirements. Companies such as Uber and Deliveroo are also largely defined around cities (or metro areas) since supply-demand network effects are almost entirely within cities. Being big in Berlin doesn’t necessarily mean Deliveroo will be big in Munich, too.

For a mobile games business or a mobile app you can think about different markets by the distribution channels that dominate the market. You can lump together all markets where the App Store, Play Store, and Facebook dominate mobile app distribution: North and South America, South East Asia, and Europe. Once you are on these platforms you have global distribution, then you can think about within this distribution channel what are my biggest language markets. By adding a Spanish translation, you open yourself up to the Spanish market which is multiple countries.

You can then consider the other truly distinct large markets such as China, Japan, and Korea, where partners such as Tencent, Line, and Kakao are far more important for distribution and require careful (local) cultivation. So in games there are four distinct markets that matter globally: China, Japan, Korea, and “Rest of World.” When you are defining your options you may want to also consider regulations. The 50 states of the US all have different licensing and financial regulations. So companies in Insurance and Financial technology often define their options to the state level and jump through one set of regulation hoops at a time.

Step 2: Prioritise Markets

Don’t jump straight into a massive Google Sheet with every possible statistic on 100 possible countries! Instead, think through what really matters to your specific business. It’s helpful to score and rank these priorities against each market you are considering.

You’ll likely have specific priorities for your business but there are some general questions to make sure you can answer. So you want to look at :

Is the new market big enough to really matter? When it comes to scoring, you want to go as big as your home market, but ideally bigger. And you need to look at the size of your directly addressable market. Stats such as population, GDP, or number of small businesses can be a distraction.
What else are you proving if you win in this market? For software companies, proving you can win in the highly competitive US market is an important step to building a great company, and towards an IPO or other liquidity event.
Is there dramatic growth or shrinkage of the market? Single-digit % market growth or shrinkage is irrelevant for a startup. However if the market is falling off a cliff or expanding very fast, take that into account.
How well will your product work in this market? Speak to a few locals from this country and see how they react. If you can keep a consistent product across countries your life will be 10x easier.
Can you beat the competition? Who are the local competitors or likely entrants? What advantages do you have, and what advantages do they have? Focus on the local startups as well as the incumbents. Think through partnerships and channels.
Will the economics work? Run a simple test on Adwords or Facebook to see how marketing costs will compare. Make a best guess on pricing and see what this implies for unit economics.
Do you have a route to market? Are there channels in this market that control market access and might make life difficult? See for example how UK financial comparison sites have struggled to sign up the strong insurers and displace offline brokers in continental Europe.
Do you have enough funding to make meaningful progress there (or are you confident of your ability to raise this money)? The classic mistake here is taking a business to the US too early, without enough funding to do it properly.
Do you have an existing partner or key customer who can help you get started? For enterprise software companies, the first clients to win in a market are often the hardest, so if you already have them it will increase your chance of success. Again this is something to be careful with, in particular with partners who might lose interest at a crucial stage — or stretch your resources too thin.
How will the time zone differences and travel impact you? For a new market to be a success, you and your management team are going to have to get out there in person and spend a chunk more time on the phone. Jetlag kills your personal productivity.

BENEFITS OF GOING GLOBAL

Step 3: Workshop & Decide

Once you have scored and ranked your options you need to make a decision. Discuss it as a management team, and get input from your board. Some issues are nuanced, and some challenges can make countries complete non-starters. One trap to not fall into is worrying about trying to get unanimous agreement. At the end of the day this is a decision you as the CEO needs to make and stand behind. You will never get the full set of facts, so you need to make the best decision on available information.

As a side note: If you don’t have prior experience of the country, it is important you spend time there in person to get a sense of local specificities. There is no substitute for this.

Bonus Step 4: Review annually

Expanding into new markets takes time. Reevaluating the decision at every monthly board meeting is too short-term. However, it is important to periodically review the investment in new markets and refocus if needed. Annually is probably the right cadence, although if your market is moving very quickly, then more frequently makes sense. Do be patient. Even if you have successfully built the company in your home market and you reached scale, it won’t be as easy as copy and paste. This is never the case. You will have false starts and bad hires, and you’ll need to tweak your product and messaging.

A. Who to Send

It’s tough to execute well on an international expansion strategy and more companies fail than succeed. It’s key that the new office is headed up by a trusted senior executive, and ideally one of the founding team. That will make sure the international expansion effort gets the attention it needs back home and maximise the chances of cultural alignment across your two offices. If you can’t spare someone of the required calibre then best to wait until you can.

B. What to do before you get there

Expanding a business comes with a lot of work – once you land in a new market, things will move quickly and it will be costing you money so you want to have established a playbook for how that is going to go. The same can be said for having a strategy well in advance. Elements like getting a work permit/visa can take up to 6 months in countries like the US. The process is much quicker for Singapore, which takes about eight weeks if you are applying for the entrepreneur’s visa (EntrePass ). That one element can change whether you are entering the new market this year or next so it is important to understand your options.

Conclusion

In conclusion, getting the first international sale and opening the first international office are exciting and value creating moments in the life of a startup and ambitious founders want to get these milestones under their belt as soon as possible. However, expanding globally is riskier for some startups than others. Best practice in deciding when to pull the trigger is to build a solid understanding of that risk in your company and to balance that with the reward you will get if you are successful in executing on your international strategy.

Centuro Global helps companies do this everyday and our country blueprints that can help founders build this strategy is broken into 8 Steps:

Market Assessment: How to prepare your website and communication for the foreign market.
Market Entry Options: What is the best company type to support your entry into the market?
Tax & Accounting: What are the tax regulations in country and what do you need to do to be compliant?
Legal: On top of Corporate law is important to understand, Data Protection, Privacy Policies, Trademark and copyright laws
Employment: What are the Labour laws in the country? What is required for you to comply with HR regulations?
Immigration: What are your visa options?
Banking Solutions: Should you use a local or international bank account?
Property: What are your options in the country for establishing an office space?