As startups scale and grow, there comes a crucial time to ask: do you expand abroad? There are obvious benefits to overseas expansion, not least growing your customer base. However there are pitfalls too. So how you do you make sure to avoid them?
The first question is: do you need to move abroad at all?
It may be an option to avoid if you are largely UK-focused and happy with just a UK customer base.
However, if you want to become an industry-defining business, it’s a case of when, not if, for international expansion, according to Alex Macpherson, chairman of VC fund Octopus Ventures.
“There are relatively few sectors where you can build a billion dollar business in just one European country,” he says.
Timing and preparation
Once you’ve decided to expand abroad, deciding when and how to make your first move is crucial. “Being prepared is everything,” Macpherson says.
Test out communication tools in your home market for cross-border collaboration, and start building a core team around whoever you are going to send abroad first, advises Mike Tattersall, chief commercial officer of retail and consumer sector specialist investment fund True.
“By developing a network of mentors, advocates and service providers in advance, this will allow you to hit the ground running, regardless of whether your team has previous international experience,” he adds.
It’s worth getting in touch with tech entrepreneurs from your country that have succeeded or failed in expanding to your chosen destination, says Marie Raichvarg, managing director of Paris coworking space Partech Shaker. They are likely to have useful advice on what you should prioritise – and what to avoid.
Pick your pioneer
It is vital to think carefully about which person from the team will go abroad first. Generally, this will be one of the founders, says Macpherson. One of the most common mistakes is to send people abroad without support, he says.
“It’s really easy to underestimate the human aspect for individuals who might be leading the charge into new territory. They bear the brunt of travel and the time difference working in a different location,” Macpherson says.
“Trying to start a business, move into an apartment, figure out the tax system, it’s a lot of pressure – especially moving families. A happy family means a greater chance of success,” he adds.
Cultural barriers and time differences
It seems obvious, but it’s crucial to take things like language or cultural differences into consideration. You should recruit natives for all of the countries you wish to expand to, suggests Paul Picard, head of business in France for startup ManoMano, an online DIY marketplace.
It’s also worth considering the impact that any time differences may have on the team.
“If you are five hours apart there’s a reasonable overlap in terms of when you can communicate with each other. If you’re eight hours, you are severely limited over when you can have some of those interactions. So one party may have to have different working hours,” Macpherson says.
The formula that worked for your domestic market may not work in a new market, according to Tattersall.
“You’ll need to retest all your original assumptions about product and market fit, customer feedback and sales cycles – the whole model,” he says.
Each market is different, and it’s important to get to grips with cultural differences.
For example, meetings in the UK tend to run for half an hour or an hour, while in the US fifteen minute meetings are not uncommon. What may seem assertive to an American could appear boastful to a Brit, so it’s important to make allowances for a different environment.
“If you are going to Asia, in many of those countries people expect a ‘get to know you meeting’ first. It’s all about relationships whereas the US is more transactional,” says Macpherson.
It’s worth thinking very carefully about which country you move to first.
"My number one piece of advice would be, when deliberating over potential markets in which to expand, carefully consider what make the markets different to the one(s) in which you are already operating within, and chose the markets which best complement your existing business," says Damian Kimmelman, CEO and cofounder of DueDil.
“Also, look for ways to test the waters before you expand into the market. Before our own expansion, as the first step we focussed on selling our existing product to multinationals based in or operating in the U.K., then we made the decision to expand product coverage in France, Germany, Benelux, and the Nordics, which we knew would be of most value to our customers," he adds.
“When analysing a new market, young businesses should look at statistics on ecommerce sales, digital buyers, online shopping penetration rate, average online spending, and where their competitors are selling,” advises Erich Litch, chief revenue officer at online payments startup 2Checkout.
Marie Raichvarg from Partech Shaker adds: “The size of the market matters for sure but you also need to consider the local competition and all the (sometimes hidden) costs to enter the market efficiently."
“Startups often underestimate the costs of opening operations in the US for instance. Plus it can be interesting to test your internationalisation process in a less strategic country,” she says.