International Expansion for Startup Companies
Every startup company is looking for its edge, and as our world gets smaller, many times that edge comes from a business strategy that includes international expansion. Whether it’s looking for additional consumer markets to tap into, finding the best workforce, or outpacing competitors, there are many reasons why startup companies should consider a global strategy.
The big concern that we hear often from our startup clients is almost always, “Is international expansion the best use of our limited resources?” We can’t answer that question in bulk because every company’s international strategy has different implications, costs, and potential benefits. What we can do is help guide startups in their planning/discovery process to understand more fully the implications of going global.
What to Do :: Agile International Expansion
We have been reinforcing with all our clients the idea of Agile Global / International Expansion. What this means to us is that you do not necessarily have to dive in head first; buying hard assets, setting up a subsidiary company, and renting space in that county (which may not even be a financial option for startups). We have been encouraging companies to focus on getting great and locally compliant employees in country that can serve as eyes/ears to really drive the understanding of that country forward as a company; get someone there who is actually bought in to your company. This person(s) will help you identify opportunity and confirm/deny your international strategy. With that being said, let’s go through some steps that startups should consider:
First Step; Define a Clear International Strategy (See this post for more detail)
Even if you are Agile in your efforts you still need to take the time to have a clear strategy as you start. As a company you need to understand fully the major points of operating in foreign nation. It’s almost better to consider the international operation as it’s own internal startup; too many companies get tempted by an opportunity and find themselves in country without a clear strategy which ultimately leads to failure.
- How is the strategy internally funded? (Great article by Fast Company HERE)
- How long is the runway with that funding?
- How is the initiative staffed?
- How will time zone issues affect your staff? Will you be at risk of losing internal staff due to odd working hours; burnout?
- Do you use contractors, Foreign Subsidiary as a Service (FSaaS), or create a foreign subsidiary?
- What are the tax implications?
- How can you keep the initial footprint as light as possible (to reduce risk)?
- Risks vs. rewards?
- Do you have buy in from entire team? (This is the most important factor; success hinges on how committed the entire executive team is the strategy.)
Second Step; Evaluate the Local Labor and IP Law Implications of the Country
In all of our more general articles like this, we we always warn our readers about Labor and IP Law and in any country they are targeting. We have heard of many companies, especially those considering using contractors versus full time employees, who have serious issues around protecting their IP in other countries. We put together an article about the Top 5 Most Common International Hiring Compliance Traps that goes into this in more detail. The big take away is that using contractors in country can be a huge liability to your IP protection because of local labor law and lack of enforceability.
Third Step; Evaluate the Cost of Exiting that Country Due to Failure
Many companies don’t take this into consideration and it is particularly important for startup companies considering their limited resources. Depending on the method in which a company decides to establish themselves in that country (contractors, FSaaS, or by foreign subsidiary) the teardown cost can vary greatly. Using contractors and FSaaS is the lowest cost option at close to zero, but tearing down a foreign subsidiary can cost up to three times the dollar and time amount it took to establish it. It is very important to know the cost of a potential failure for a startup considering it might eat enough resources to kill the company.
Final Step; Get the Right People on the Bus In Country and Keep Them
We mentioned earlier the idea of buy in from everyone on the team, this applies to the people you have in country as well. These people, if they truly buy into the strategy you established in step one, will be your greatest assets. You will not be able to predict everything that will go wrong or right in the country you are expanding into and the people you bring on board need to understand what it is you are trying to accomplish in order to identify opportunities and threats. When you do find the right people it’s also important to make sure your compensation and benefits ensures that you don’t lose these people. We find that many of our clients who end up using FSaaS or International PEO actually had contractors who were demanding to be full time employees.
What NOT to Do :: A Few Tips
1) Don’t Be Reactionary!
This is in direct response to the first step above (see International Small Business Journal for more details on both these points). Many companies both established and startup fall victim to a singular “hot” opportunity that dictates their aggressive move towards getting established in a foreign country. These types of situations typically lead to poor planning, poor understanding of the risks, and disagreement in the executive team (Step Four) which ultimately leads to failure. Take your time, leverage your resources, and come up with a plan all team members agree with.
2) Don’t Leave Free Money on the Table
You would be surprised how many emerging markets have massive pools of grant or minimal interest capital available for development. This type of capital is difficult to find, but is available in almost every enterprise vertical. Our friends over at Konektid specialize in this type of capital discovery for international strategy and would be happy to help; it’s definitely worth a phone call.
3) Don’t Assume Your Domestic Business Model Will Work Internationally
As we said before in step one, you should really treat your international expansion plans like a second far smaller internal start up. You would be surprised how many companies hit serious speed bumps because they assumed what works here, works there.
4) Don’t Do It Alone
Find great partners who can help guide you and show you how to not reinvent the wheel. International expansion is a common practice these days, Velocity Global and other partners can help eliminate pain points before they even happen.
Originally posted at the Velocity Global Blog here.
