One question that start-up leadership teams often ask is not if, but when they should take their business into other countries. I’ve had three different start-up founders ask me this question, in one form or another, in the past week alone! Let me start by saying that a founder’s sheer enthusiasm for going global is highly contagious. It’s really hard to argue with, especially for anyone who, like me, is a fan of international expansion to begin with. Throw in the excitement of what is clearly a disruptive technology or a world-changing product with some financial viability behind it, and, well, whose eyes wouldn’t light up?
But as eager as a company can be to go global, it’s important to do it in a way that’s strategic. All too often, founders believe so deeply in their creation that they want the world to know about it NOW. And who can blame them? The unfortunate result is that they end up taking their business across borders in a way that isn’t strategic enough. This manifests in two forms: 1) They go into international markets too early in their journey, or 2) They go into too many markets at once. Either way, it can be a really big distraction if they try to do business everywhere, at the same time, before they’re truly ready. In some cases, going global too soon can even sink a business or harm its chances of long-term success. At a minimum, companies can risk blundering their entry into high-potential markets where they could have become a leader, if only they had done things a bit later, or slightly differently.
Often, “market pull” factors make this idea even more tempting for early-stage companies. They can already envision their company as a huge global success. What’s more, they know there’s a huge global market out there for what they are doing. Then, when their core belief in their business and its global potential is validated by partners, early wins, or others in a new country, they get even more excited about the possibilities. This makes them lean into international even further. They are highly motivated to beat the competition, follow the money, show their investors what they’re capable of, and get entrenched in every market as early as they can. Again, who can blame them?
Unfortunately, I’m often the bearer of some news that, while tough for start-up founders to hear, is helpful in the long term.
- The bad news? If you even have to ask the question of whether or not you should go global, you’re probably not ready yet. (Sorry!)
- The good news? If you limit the scope of how and when you go into new markets, you’ll have a much stronger (and easier) path to global success.
The Five Conditions for Optimizing Your International Expansion
I’m a huge believer in the possibilities that international expansion can open up for a business, but to make this growth more strategic, here are five conditions I’d suggest you try to meet. (Okay, if I’m pressed on it, I’ll say you should at least try to meet 3 out of these 5!)
1. You’ve established strong product-market fit in your core market.
When I say, “product-market fit,” I don’t mean that you have a nice group of customers, no matter how impressive their brand names might be. On the flip side, I also don’t think you have to solve every mainstream adoption issue in your home market before you go international. I embrace the Marc Andreessen definition of product-market fit, which is essentially that your growth is on fire, you’re flooded with customers, and you can’t hire fast enough. The sales engine is buzzing. Your flywheel is spinning. Your product is “flying off the shelves,” so to speak.
I also believe that if you’re crossing the chasm, you should be on a clear trajectory to the other side of the chasm before you start moving into other countries. The reason? I believe tech companies cross the chasm in every new market they enter, going through that process again and again. You’ll often get a boost and maybe some “halo effect” once you’ve crossed the chasm in your home geography, when you go into similar markets. But the less in common a new market has with your domestic one, the harder that leap will be for your company to make.
2. You understand your market, globally.
Here, I’m not talking about understanding your customer. (That matters too, but for different reasons.) I’m talking about the economic definition of the market for what you’re selling. I find many founders confuse and conflate these two things, but it’s important to understand the market size in a quantifiable way, as well as which segment you target in your home market. What is the true market size? Not just the potential market, but the actual amount customers spend on what you’re selling today? And how does that break down by country, and even within countries?
Knowing the size of your market in each part of the world, or at least the major economies you would consider selling into, is critical. Amazingly, companies can make it very far without knowing this information, particularly if there is strong demand for what they’re selling. If they are growing fast and furious, they might not even take the time to do this foundational research. (To quantify your market, use this market entry framework).
3. You’ve done your homework on a few top countries.
Once you understand the market size, you’ll need to zero in on a few countries to do a deeper dive into those markets and understand how they tick. Here, I don’t necessarily recommend focusing on the markets that are the largest. What you want to do in the early stages is ideally start out with markets that are aligned, and therefore, easier to enter. This will help you build an expansion muscle gradually, versus exhausting all your muscles by overextending your company in too many directions at once. While there can be a lot of complexity involved in market selection, you can use data sources like the ones I’ve listed here in order to figure out which markets to enter.
Market selection is a much bigger topic, one that should be addressed with care and consideration. Avoid going with a gut feel, or worse yet, “[So-and-so] said [country] is a good market based on past experience.” No two companies are alike. So while other companies’ experiences in a given country are useful to learn from, they may or may not be entirely relevant for the specifics of your business.
4. You have clear and measurable financial targets.
I am surprised, routinely, by how many companies miss this one. They want to go into a new country, but have zero idea of how much revenue they want to obtain there. They might have a few local customers and are encouraged by the signs they’re seeing, but they don’t know what market share they currently occupy, let alone what is reasonable to obtain in one to three years’ time. Perhaps they just roll it into their global sales target, or a regional target. But that’s not strategic enough. Put a stake in the ground and give your company a clearly stated local revenue target and financial goal. If you know your market size, and you have a fair idea what revenue local competitors are earning (this data is public in many countries), you should be able to come up with a clear target for your business there too.
5. You have a detailed understanding of the costs involved.
This is another big one that takes companies by surprise. Usually, companies focus on the sales side when entering a new country, with zero idea of what their operating costs will be. At the most basic level, you need to know what it costs to employ people to do the jobs that need doing in your company and whether or not you’ll need to hire those people in another time zone, or who speak another language.
Often, companies focus on the localization aspect when thinking about potential costs of entering a new market. Perhaps they expect that all other aspects of an in-language experience can magically handle themselves. But unless you have a highly automated and robust self-service offering, it’s unrealistic to think that localization will be your only major cost when going into a market that doesn’t speak your home market’s language. More likely, you’ll have net new headcount costs and the burden of finding people to fill roles for a bunch of parts of your go-to-market motion, as well as covering in-language operational pieces like legal, billing, renewals, collections and so on.
In short, you’ll need to think through the costs not only of localizing your product, website and content, but how you’ll deliver (and fund) every aspect of your local customer experience. You might think you can do this with the resources you already have in place, but with new countries come new time zones, languages, currencies, payment methods, and much more. Even if time zone and language are not blockers, it’s unlikely the people working in your home market know all the local details, or can learn them fast enough while they’re still focused on growing your core domestic business.
Bottom Line: Don’t Do Too Much Too Soon
While the five conditions listed above are meant to provide some cautionary guidance, in the real world, most companies actually don’t check off every single one of these boxes before they start going global. In fact, some companies dive in head-first when they see their growth taking off, and yes, they have indeed managed to make it work, albeit with a fair amount of stumbles and bumbles along the way.
What I’ve outlined here are the ideal conditions for taking your business into new local markets. They’re not essential in order to build a global business. They’re simply recommended. However, if you want to grow your business in the smartest, most cost-effective way, and with the least friction, these conditions are all ones I strongly encourage you to meet before you wade too deeply into international waters.