WHEN are you ready to expand internationally?
Expanding internationally is more expensive and complex than expanding domestically. Expanding too early, without sufficient funding, people, a product that has been proven with diverse customers and against international competitors can lead to missteps that can be costly and time-consuming.
In my experience, ISVs that are ready for international expansion have, at least, the following characteristics:
- They have a profitable domestic business
- They have at least 10% market share in their domestic market
- They have a track record of winning against international competitors
- They have at least three internationally recognized brand name references
- They are willing to invest in people and infrastructure for at least 12-months even without new market sales
What would you add/delete to/from this list?
I think this very much depends on where do you start from.
If you are located in a small market and within a large free trade area, such as EU, there is really no much point to wait for some certain moment to expand. Even more so if your solution doesnt require extensive localization and your team speaks the language that your customers would understand.
If you have specialized solution that solves important business issue, the time to think about expansion is before your solution is ready. You see - people do not care if you are in other market as long as your solution solve the problems they have and they feel they can trust you.
Even more so if it is SaaS based solution.
You should start informing your newsletter recipients and followers on the social networks as soon as you have solution concept in mind. Posting on your company's LinkedIn page regularly is a good idea. Also take opportunity to speak at industry events about what you are preparing.
Do not oversell, but try to communicate your vision for the solution, talk about business needs it solves and so on. Chances are you will get important feedback and insights which will help finetune your solution and you might also get extra customers waiting for a trial of a beta version.
If you wait until the solution is really ready - it is already too late.
Because to prepare a Go-To-Market strategy would realistically take a month, preparing marketing content and setting up marketing automation for the buyers journey would easily take another month or two, so would setting up the website and other digital assets needed to launch.
As a result, you will set yourself back for perhaps as much as half yeara . The time that your competitors can catch up and take your business opportunity while you are struggling with a cash flow. McKinsey research showed that one can loos up to third of total revenue of delaying launch for a half year.
When to think of expanding internationally was one of topics we discussed at workshop How to plan start-up growth in B2B? we made together with MS for their start-up community. See one of the slides below.
Let me know if you would like to get a copy of the full slidedeck.
I personally find that too often companies invest in smaller markets instead of focusing on larger markets - or keep on growing in their domestic markets! It’s often a bit too tempting to start in a country that they love instead of crunching a real business case. Seen it many times and always try to give them another perspective! There are many countries that are better as vacation destinations -and that’s cheaper than betting on them as your new business market.
I also think that European partners should consider North America earlier, rather than working through all 28 EU countries with 28 different flavors...
And US partners should think through if they can increase market share domestically before they invest in new geographies!
I think companies first should become successful in one market and then use the learnings to go after bigger markets. I agree that companies shouldn't wait for saturation in one part of the world before going to another.
I wouldn't, however, recommend to go after US or UK market in the first place, unless there are really compelling reasons to do it or tons of VC money to burn.
Because these are some of the most mature and competitive markets there are and marketing costs are some of the highest.
Below is an illustration of Google Pay-Per-Click cost in various geographies (source). Because the cost of digital advertising is set by auction, the higher competition leads to higher costs.
I would recommend companies to do analysis of their likely costs of customer acquisition in various geographies and choose what they are comfortable with.
For many non-US companies it may be best to finetune their marketing model in lower cost countries before going all out in the US.
For one of our customers we did research on various countries using criteria such as:
- Population number (is market big enough?)
- GDP per capita (do they have money?)
- Internet penetration and infrastructure (can they use SaaS product?)
- Google and FB usage (can we target them with well known ads network?)
- English speakers as % of population (will they understand us?)
- Advertising costs (can we afford it?)
- 3g/4g coverage (will mobile app work?)
It turned out some South-East-Asian countries were some of the best markets to try and even if it turned out not to work, the cost of experimentation would be so low, as it was absolutely worth giving a try.
I realise I'm somewhat late in responding to this thread, but the other factor I would take into account (with South-East Asia, although it's true everywhere) is cultural awareness. I've worked extensively in and with South-East Asia over the last 25 years and there some factors that companies often don't appreciate!
Thanks for adding to this thread! Never to late!
My take is that it is crucial to understand, embrace and be part of the local culture. That's why I always suggest to hire people locally. Or even better in most cases, build a partner strategy and recruit great local partners.
Absolutely. Having some understanding of the cultural differences yourself makes working with local partners a lot easier though.
I worked with a European CTO who was trying to get some information from a divisional CIO in Singapore some years ago, and was getting increasingly frustrated. I suggested he phrase the request in a different way, and he got the reponse he wanted.
Absolutely agree with you, expanding internationally is not easy at all and necessitates all the five requirements you mentionned above. But in my humble opinion, inclusion and diversity are also keys to international expansion. By that, I mean engaging people from from different languages and different cultures for it is tremendously difficult to remove them from old habits even though your offers are more valuable. It's not specific to some company strategic planning but it is rather related to the human instinct of preservation.
Inclusion and diversity, absolutely.
The quote about "seek first to understand, then be understood" immediately popped into my head reading your post 🙂
Going international is often better done through local partners (unless your solution is easy to sell through the cloud). Recruiting motivated and skilled local partners creates a winning atmosphere!
Thanks Per. Yes, agree. I find that partners are great to acheive rapid market reach and that's why, in my experience, some 80% of ISVs expand through partners. But this GTM model surrenders some control. If an ISV wants control and their revenue model allows it, going direct can be an option.