By Globalization PartnersMarch 2020
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The creation of a successful startup is a feat unto itself. Eighty-hour work weeks, all-night coding or strategy sessions, and months or years of uncertainty all become worth it when the company transforms into a successful business that offers a valuable, appreciated, and sought-after product. Nine out of ten startups fail, so making it into the elusive 10% is a feat worth celebrating.
For many startups, a natural growth progression includes expansion into international markets. Startups from smaller countries often go global relatively quickly. Startups from countries with populations under 50 million tend to reach an international audience in about 1.4 years — twice as fast as startups from countries with populations of more than 50 million, which typically reach an international audience after about 2.8 years, according to Venture Beat.
But that doesn’t mean startups from larger countries, such as the United States, shouldn’t expand internationally. It merely means the United States offers a rich market where companies can make their fortunes without looking past US borders. International expansion provides an array of advantages and opportunities for startups to seize.
What are the benefits of global expansion for startups, and how can startups best navigate the challenges of international markets? This article outlines some of the benefits and challenges of expansion and offers tips on how to approach the transition and find success.
Global Expansion Potential for Startups
Even if a startup is newer or smaller, it could still have enormous global expansion potential. Here are a few signs that your company has the potential to benefit from expanding internationally:
- A global outlook: Even though your startup’s initial market might be in the United States, thinking ahead is always beneficial. If you suspect you’ll expand your startup internationally one day, you can tailor many of your initial strategies to make the transition easier once you get there.
- A solid revenue base: If you do plan to expand internationally, it’s okay to wait until your startup is ready. Even if you have a product you think international markets will love, it’s often best to wait until you have substantial revenues coming in. Venture Beat reports that more than half of startup expansions wait until they have reached $10 million in domestic revenues before turning to international markets. Those countries took an average of 5.5 years to establish themselves domestically before pursuing international growth.
- Sound logistical planning: Having the tools and foresight to create sound logistical strategies is vital. Expanding internationally entails numerous logistical and management challenges. These can include navigating different laws and regulations, optimizing products to fit the new market, developing local sales and operations teams, and finding ways to handle human resources (HR) challenges such as recruiting, hiring, paying, and providing benefits for personnel in the new market.
- Forward-looking fiscal planning: The ability to create a reliable financial plan for international expansion is also critical to startup expansion success. Venture Beat recommends budgeting the time and finances to get your international market to 10% of the scale of your domestic market and then strategizing to double both.
- The opportunity to beat international competitors: If your company is ready for it, expanding early can help keep competitors from squeezing you out of international markets. If you know you would have robust competition globally, getting to that competition before it can entrench itself helps you carve out a valuable foothold in the market. Early expansion can help startups give themselves the best chance to compete and thrive in the crowded international arena.
Why Should Startups Expand Internationally?
International expansion for startups offers a host of opportunities and benefits. Here are a few of the benefits that startups expanding internationally are likely to see:
1. International Brand Recognition
Focusing on the home market works well for many companies because it involves less risk than international expansion. But expanding globally helps create powerful international brand recognition. When that happens, audiences all over the world become familiar with the startup and its products, which can help boost sales, drive word-of-mouth marketing, and expand potential markets even more.
2. Boosted Profits
Of course, one of the primary reasons startups expand internationally is to increase their revenue. With the right advance research and planning, startups can bring in substantial revenues in new markets, revenues which more than make up for the increased costs and risks of operating internationally. Successful international expansion can help startups solidify their financial footing and set themselves up for steady profits for many years to come.
3. Increased Long-Term Success
The increased growth that comes along with international expansion can dramatically improve a startup’s long-term outlook. In one ambitious example, a McKinsey study found that companies that had attained 60% growth by the time their revenues had reached $100 million had an eight-times-better chance of reaching a billion dollars in revenue than companies growing by less than 20% when they reached the same milestone. But even if most startups don’t grow to become billion-dollar companies, expanding internationally helps companies grow more rapidly and improve their likelihood of long-term success.
4. Access to Global Talent
Finding skilled workers is essential for any startup, and an international expansion provides the opportunity to access high-potential global talent pools. A flexible, qualified, and diversely-talented workforce is exactly what a startup needs to remain innovative and drive growth. As business becomes increasingly interconnected across the world, tapping into these new employment markets will help establish an edge above your competition.
What Obstacles Do Startups Face When Expanding Internationally?
During international expansion, startups can expect to face a few different obstacles:
1. Language Barriers
Language barriers on the international market can lead to a host of issues, such as miscommunications and loss of nuance during essential dialogues. And though English may be the lingua franca in many areas of business, to find lasting success in international markets, most startups will have to contend with local languages as well. Doing your best to learn and communicate the local language can help you in these areas. It also demonstrates your interest in and respect for the local culture. And hiring expert translators and staff members who speak fluent English helps streamline communications.
2. Cultural Differences
Cultural differences can cause misunderstandings and can even cause products to miss their target in the market. In a culture that prizes tact, a brutally honest management style is unlikely to be effective. In a culture with a community focus, marketing highlighting individual achievement and worth may fall flat. Thorough research into cultural differences can help a company improve its sales and marketing strategies and provide a collegial and welcoming workplace environment.
3. Logistical Challenges
The logistical challenges of expanding internationally can be daunting, especially at first. Startups will need reliable ways to transport their products, as well as strategies for navigating bureaucratic and legal processes such as taxation, rules and regulations, banking, and more. And startups may not always have sufficient staff to tackle these challenges. But making sure they have experienced, knowledgeable teams in place to handle logistical issues is one way startups can help themselves succeed in global markets.
It’s often helpful if at least one member of the startup has experience in starting and running another successful company. Startup veterans provide invaluable guidance along what can sometimes be a grueling and bumpy road. Startups with all-new members can flourish, of course, but it’s beneficial to seek advice from experienced mentors, especially to navigate the complexities of international markets. Startups with mentors grow 3.5 times faster and raise seven times more money than startups without them.
5. Marketing Issues
Marketing issues in international markets are often closely aligned with language and cultural barriers. Techniques that work persuasively in one market may seem overbearing in another, or the values to which a specific marketing strategy appeals may resonate hollowly in other markets. In international markets where language and culture differ from those in the home market, market research is indispensable. It allows startups to tailor their strategies to the needs and desires of their new audience.
6. Poor Product-Market Fit
Forbes suggested product-market mismatch as one of the primary factors that prevent startups from succeeding internationally. Many startups work feverishly to develop products that fit perfectly in their home markets only to discover they do not translate as well internationally. Yet if startups develop products with more general appeal, the products may prove uninspiring in the home market because they’re not differentiated enough to be a hit there. Startups can help themselves resolve this paradox in part by performing thorough market research and determining which potential markets share common needs. That way, they can define and tailor products to their potential markets from the beginning.
7. Staffing Challenges
Staffing a startup office internationally comes with its own challenges. Startups expanding globally will need to handle recruiting, onboarding, training, payroll, benefits, terminations, and more, all while also trying to devote their energies to areas like sales, marketing, and research and development. Attempting to acquire the necessary knowledge and skills to handle international human resources is one way to deal with this challenge and creating a subsidiary in the new market is another. But both solutions come with drawbacks. Partnering with a local employer of record is an efficient, reliable, and cost-effective way to handle staffing matters smoothly.
Tips for Expanding Your Startup Globally
For the best chance of success when you expand your startup globally, follow some of these tips:
1. Choose Your Expansion Market Wisely
When you’re looking to expand your startup into foreign markets, do your research before making a huge leap. Carefully consider:
- Where you might already have business contacts
- Where the local infrastructure is robust enough to support your operations
- What markets might best fit the products you’re offering
- Where you’ll best be able to navigate local regulations, laws, and tax codes
2. Start Small
When you first start expanding your startup into international markets, it’s tempting to make grand, ambitious plans for growth. But it’s often best to take measured, manageable steps first — perhaps by experimenting with a few sales before opening a huge new in-country office. Staffing that new office, for example, is likely to involve many logistical challenges, such as coordinating with remote employees, working across different time zones, and negotiating different management practices and rules. It may be best to start with a few employees first so you can learn the new techniques at a manageable level before hiring a more substantial staff.
3. Get Help with Local Laws
Local laws and regulations in your new market are likely to be intricate, complex, and different from the system you’re used to in the United States. Taxes will differ as well, and if you fail to comply with local tax codes and regulations, you may face stiff penalties. Seeking help from knowledgeable, experienced professionals who can navigate the maze is often crucial to success.
4. Learn About the Local Culture
Knowing the ins and outs of local culture is one of the first steps on the road to success for your startup’s international expansion. How professionals work, communicate, and interact can vary drastically across different cultures, and knowing how to adapt your management styles to accommodate their preferences is important for fostering a happy and productive global workforce. Training your international management team to truly understand their workers’ unique cultural differences shows you’re a company that cares for its employees, helping to create a culture of unity and dedication.
5. Perform Market Research
Learn about the new market with market research as well. Market research helps provide comprehensive, data-backed information on what different demographics within the new market might value and buy. It can also help you spot trends and make informed decisions about what methods of marketing and sales will be most effective.
6. Learn From Mistakes
When it comes to international expansion, some bumps in the road are to be expected, especially for startups. When things go wrong, remain flexible and turn mistakes into opportunities to learn and grow. By doing so, you’ll help shape your company into a more resilient organization with the adaptability and knowhow to succeed internationally.
Expand Your Startup Internationally, Quickly and Easily
Handling the legal, financial, and human resources aspects of business in the international market can be daunting, but Globalization Partners has a comprehensive solution that takes the work off your shoulders. Our experienced, professional global HR experts handle employee onboarding, payroll, and benefits, and our teams can also navigate surefootedly through bureaucratic requirements and regulations, so your startup can focus on growing and creating.
For more information regarding expanding internationally, download our eBook How to Scale Globally Without Sinking here: