Start-ups and the International environment
Given the current environment why don’t you expand your activity abroad? Why are start-ups not searching for more opportunities in emerging markets in order to combat the local recession?
International expansion can provide a start-up with tremendous growth opportunities. It allows your company to grow faster by casting a wider net, and helps diversify your revenue stream. While global expansion can be an exciting time, it’s a significant undertaking and requires some careful planning and making some hard decisions.
There are several important things to take in consideration when expanding a start-up internationally .
1.It is very important to follow your customer base and your prospects.
To determine where your biggest global opportunity exists, take a look at your customer base. If 50% of your International customer base is in Europe and only 10% is in America, it makes a lot of sense to choose Europe as your International business base. There is a great deal of research and networking that can be done at minimal cost before you need to buy a plane ticket and spend cash or invest in these markets. Make sure you have enough proven revenue in a region before opening up a new branch.
Also take a look at where the majority of your non-domestic prospects, or leads, live. You may notice that you’re generating the most leads in a country other than your largest international customer base. If this is the case, take conversion rates and cultural factors into consideration. Even though you’re generating a lot of leads in a particular country, can its population afford your products’ price point?
Finally, as much as we’d like to make ’’data-driven decisions’’, the choice of location might come down to people. Does one of the founders have a particular affinity or background in a location? Knowing your business’metrics and numbers can help you make better decisions but these “people-driven decisions” should be considered. Often, the revenue perspective is not the “best” decision.
- Why would you expand into an emerging market if achieving a return on that investment takes a long time and may not occur? If the local market and closer markets are in recession and emerging markets are growing…why not take the risk ?
Expanding internationally is a big investment, so it’s important to get the highest return of investment possible. With going international there is a risk involved, but on the other hand, the return on investment will depend of the business plan and the way the start-up intends to achieve it. Defining an international revenue goal for your international office will help you determine things like: the number of sales representatives needed to generate $X in revenue, the diversity of marketing tools needed to make those sales representatives successful, the number of customer service representatives in order to serve the international customer segment. Setting clear goals ahead of time will help keep the team that opens up the international headquarters accountable for its success.
It is very well known that start-ups are very cautious about investing even relatively small amounts of money in the current climate. The principal method of achieving this with litte or no risk is to employ the services of consultants that can find distributors on the basis of commission, which means that you don’t need to employ anyone, and you have no fees to pay if a sale is not made. That company will get all the assistance they need to make the sale, including regulatory, and negotiations which would include ensuring purchase order evidence if it were to be required to secure a bank loan. Regarding the cost of hiring someone, there could be many options and if they are the right people, the revenues could have an interesting return. All companies have finite resources – people and capital – and have to choose carefully how they invest them. If you are larger you can place more bets but it is usually the aggressive upstart with a good strategy that grows faster – albeit from a smaller base. On the other hand, if you make access to capital easier and cost of capital lower, resource constraints can partly be remove. If you DO decide to venture overseas, do it as a “networked consortium” made up of like minded business. Share the costs, burden risks and eventually rewards. What you may lack in resources, people and money is made up from the other members of the group.
- The skills and expertise of the locals is the most important and most valuable aspect when facing the opportunity of going abroad. Another important aspect to take in consideration is the fact that overseas market might be more receptive to local sellers.
A major benefit of opening up an office overseas is being able to recruit local talent, who will be experts in your industry in their culture because no one will be better prepared than the people who grew up in the region. On the other hand overseas markets often need a local contact or network of contacts to build into, and most start-ups lack time, money and patience to spend 1-5 years building up such a network.This fact may require a different message to sell to overseas markets and lack resources or knowledge to create such a message. And not to mention different local legal situation making is proportionally more expensive to engage with an unfamiliar market, legal system, trade system, etc.
It is important to plan to hire mainly locals to staff your International representatives and be sure to maintain your company culture. Going overseas also needs local partnership which is not easily acquired. This can help businesses discover opportunities big and small which could provide you with the first step into a new market. Local partnerships of any size can provide you with information and advice on exporting whether you are doing it for the first time or looking to expand further into new markets.
- Networking with companies who have already taken the opportunity of going abroad seems to bring positive benefits as often there are synergies.
In this environment, business, especially the start-ups stand little chance of attracting the kind of investment that helps to cover the cost of new market entry and effective sales penetration with experienced sales and business managers able to deliver the kind of results required.
You have to be aware that there are those who will risk their all on a commission package, but, with people, you get only what you pay for. If you want good people, be prepared to pay for them or your efforts will go unrewarded. The solution (as in most marketing) is to have a niche product or service which people are willing to pay premium on to justify the costs of importing that product or service.
Although Europe is becoming very dependent on virtual communication, in-person interaction is highly valued in cultures like Europe and East Asia. Use conferences and networking events to make connections with local industry-leaders in the region you’re opening your new office. Plan to stay a couple extra days after the conference for face to face meetings with your new connections. Meet with local press in-person to provide interviews on your global expansion plans.
Networking with the locals will help you spread the word not only about your product, but about the career opportunities now available to the local marketplace. You may need to hire aggressively during the first couple years in your new office branch, so networking is imperative to drive high-quality candidates to your business. And the meetups is the best marketing strategy for going international, because they’re easy to organize, relatively predictable, and highly effective for creating champions – people who will spread the word about us because they believe in us. At such an early stage of your company’s development, understanding what customers want and need is paramount.
- Don’t underestimate cultural differences.
Every business and every investment is a risk. But, if you have people on disposition, if communication between the owner of the company (the investor) and management good, than the risk is minimized; and communication is absolutely necessary to minimise surprises and maintain trust; government/embassy/ “support” counts for very little if/when a crunch comes. This fear arises because it is an unknown environment, political situation and economic situation in a foreign country. There is also a language barrier to overcome that the start-ups seem still less willing to invest in. Why go on expensive overseas research or attend Fairs if you don’t have a simple brochure in the local language or some pages on your website?
Just as marketing best practices vary from culture-to-culture, so do business practices. However, in Europe, it is customary for employees to have at least 20 non-holiday vacation days and be required to take all of them. It’s important to take this cultural difference into account when projecting sales quotas and development sprints.
When opening an office abroad, there are a lot of elements to plan for, such as:
- Negotiating leases and contract. It is not that expensive to start a business and by renting and leasing what you can, you can really save a lot of money upfront .
- Determining company structure. Expect that you will need ongoing support for deciding the best and the right company structure and plan to hire agencies/local consulting services to help if you don’t have the resources in-house.
- Setting up accounting and tax reporting system. You’ll need your finance and operations departments to be very well organised. Plan to hire local accountants/tax law experts in order to support the local finance department.
- Supporting local employees’ human resurces resources needs. Again, global expansion is a big investment, and it’s important to get these basic elements right from the get-go.