What do two venture capitalists think about global expansion? Caroline Xie from ICONIQ Capital and David Pakman from Venrock share their insights on international growth and expansion from their portfolio of companies.
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When is a Company Ready for Global Expansion?
A company should ensure the following before exploring international expansion when the company’s:
- Current business and foundation is strong
- Product-market fits and a clear value proposition for the customers have been established
- Culture, domestic operations, and processes have a solid foundation
Competitors emerge quickly today, whether they are direct competitors who copy the value proposition or adjacent competitors who start to flood the market. So there is some risk in slowly approaching global markets. With this, companies tend to go global earlier than when companies typically have considered expanding in the past. Recently, it isn’t uncommon to see startups in the series B time frame starting to expand outside of North America.
Investors recommend that companies take a more fluid approach and begin to deliberately accept orders and customer base from their non-North American market long before they would traditionally have opened up offices in other continents.
Where Do Companies Typically Enter First in Global Expansion?
This depends on the product segment, but it is important that companies assess the competitive landscape and opportunity set first. Many startups that are US- or North American-based may only have experience launching their sales materials and products in English. So even if companies begin to see demand coming from other countries, they are unable to open up to those target markets.
Partnering with localization companies like Smartling helps companies prepare to go global. Companies need to assume from the start that their product or service will need to be offered multilingually and multiculturally. Therefore, they should incorporate localization strategy into their business plan from the start.
The more forward-thinking companies that have adopted solutions in the early days have more choices about which international markets they can expand into. Otherwise, they most likely will be limited to English-speaking markets only.
Caroline shared about one of her customers who chose to have its first major international expansion in China. Many software companies start with English-speaking countries and Western Europe first and China isn’t commonly the first country a US company would expand into. However, for this company, it made a lot of sense given their product offering and consumer demand in China. This is a good example of where this kind of strategic alignment was critical for success.
What Cultural Nuances Should Companies Be Mindful Of?
There always are cultural implications for every product and marketing strategy. Not knowing cultural differences or the way people communicate in another region can hurt a company.
There are instances where companies use humor in their marketing materials, but it tends to be very specific and subtle humor that is only relevant to the American audience. So when companies expand to new countries, they have to restructure their marketing strategy to be culturally appropriate in those specific countries. This process is much different than just translating a few web pages or translating an app with a different domain name.
Investors recommend hiring talent diversely to ensure both linguistic and cultural diversity on the team. This helps the team understand and appreciate the local culture that the company is expanding into. The executive leadership needs to focus on bringing in the perspective of operating a global company as opposed to US-centric.
How Companies Drive Shareholder Value During Global Expansion
The very first step to drive shareholder value in international business is setting up the team in the organization to compete globally. The CEO must have global ambition and be able to build a product that has global appeal. That requires extensive market research around the entire market to understand its needs. Companies must learn about the different cultural and competitive dynamics that exist in their target markets and adapt their products to those dynamics. Companies also need a team that can handle areas like licensing, taxes, copyrights, and brand guidelines, to name a few. Consider hiring people who have native market familiarity, both culturally and linguistically.
What Percentage of Revenue Comes from Global Markets?
It’s different for all companies. A 20+ years old company could have about 30% international revenue. Some startups may start small, and some may achieve a 50:50 market share in just four to five years. Some companies even have larger global revenue than what they get from their US markets.
What Mistakes Do Companies Make When Expanding Internationally?
Here is something that teams trying to expand internationally often don’t realize: the companies that were not their competitor in the domestic market may well be a competitor in the new market.
In that case, this leaves the teams to figure out how to compete, market against them, understand what customers they’re attracting, etc. because they most likely are not used to competing against these companies.
Forward-thinking entrepreneurs file patents and secure trademarks in the countries they intend to expand into early to protect their intellectual property and assets.
Another mistake that investors have seen companies often make is entering more culturally nuanced markets without a partner or ensuring that they are well-aligned with their partners. Companies must do their due diligence and do thorough market research and compare partners to ensure a successful partnership.
It is important to look at various partners’ track records and search for ones who have experience in the appropriate industry as well as the local markets the companies plan to enter. This will help avoid contracting with partners who will not add value to the expansion process.
How To Achieve Successful Partnership
Companies should work on entering the international market first, initiate marketing, and create demand before getting into a partnership. After that, they should look for VARs (Value Added Resellers) and distributors to help fulfill orders efficiently. But David warns companies not to depend entirely on the partners.
Using VARs and distributors in the early stages to help companies enter the foreign markets is recommended because they know that market very well. It is difficult to get any new customers without VARs or system integrators, so it makes much sense to work with these partners in the target countries.
However, in most product categories, many of them are just “order takers.” They're not there to create any push into the market. So unless the companies are doing due diligence — initiating marketing and creating demand in the new country — then there is no use in having an order taker who will just fulfill orders and not be the best way to actually “sell” for the company in that market.
Word of Advice to Companies Looking to Go Global
Companies will never achieve the ambitions of being a global leader unless they do go global. So companies must take steps to prepare for the expansion plan, such as getting a partner to help with the infrastructure for managing multilingual localization. Planning a global expansion strategy during the product development stage, and not after, is critical.
Of course, there are many challenges in achieving successful global expansion, but the growth opportunity is massive. It will also be an accelerator to the companies’ existing domestic initiatives.
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