Choosing to go abroad with your startup is a big step. In previous blog posts, we explained why startups should think about internationalization early and answered the three big questions on internationalization. To learn more about a startup’s individual experience in choosing to internationalize, we chatted with Lorena Soto Casanova, Head of International Business at Smart City System, about the steps they go through when expanding to new markets.
How to Decide on a Country to Internationalize
When thinking about venturing abroad, most founders already have a country or at least a region in mind. Sometimes the nature of the product or preexisting demands from a particular region make it easier to put your finger down on the map. Other times you need to start your research from scratch and find out which region has the most potential for your startup. Either way, many factors have to be considered: market trends, potential market size, competitors, existing network, language barriers, regulations, tax, and legal landscape, to name a few.
When Smart City System, a startup that uses sensors and real-time data to digitize parking areas, was thinking about where to expand to in Europe, they first looked at the big markets. These were Germany, France, the UK, and Spain. Then they asked themselves, “Where is the big push for e-mobility?”, Lorena Soto Casanova, Head of International Business Development at Smart City System, tells us. They looked at e-mobility specifically because they wanted to push one specific product and not go in with the full offering. The product is a sensor explicitly developed for e-chargers, which will guide people to free e-charging spaces.
Other aspects Smart City System looked into were the industry’s market growth, in their case e-mobility, and whether the government helps implement such projects. Especially for startups in the sustainability, smart city, or climate tech sector, government incentives are an excellent indicator of the industry’s prospects, a strong leverage, and a big opportunity.
“We went in with a focus – a focus on product, a focus on a specific problem, and a focus on a solution. We saw that in the French market, companies and individuals are getting a lot of money back for purchasing e-cars. Of course, that came with a big push for installing e-charging stations all over the country, close to highways, and in the big cities. That was an opportunity for us”, explains Lorena.
How to Find the Right Customers Abroad
The strategy of going into a new market with a specific focus is as important as focusing on one country at a time. As a startup, you usually have limited resources, so you need to concentrate on one small market segment or product category rather than do everything at once. Once you’ve won your so-called beachhead market, it will be easier to move on to larger markets. What’s critical is that your beachhead market is strategically important and the customers refer you to other potential customers in the market. This word-of-mouth communication will help you succeed and grow faster. Focusing on a beachhead market doesn’t mean that you can forget about everything else, though. The chosen market segment needs to fit your broader expansion strategy and lead to larger follow-on markets.
To find the right target group, you have to ask yourself: Who is feeling the biggest pain from the problems that you are solving with your product? Who will profit the most from your solution? Who has the resources to buy your solution? Who has the power and the interest to implement your product? Having a product focus, it became apparent quickly which customers Smart City System should target. Lorena says, ”We were going for charging point operators to simplify things. They’re the ones installing and operating e-chargers throughout the country. They’re the ones that want to ensure that they get the money back for their chargers.” They kept the whole expansion project very simple and efficient: one type of product, one type of customer.
But deciding on the target customer is only half the battle. The next step is to find a way to connect with them. One of the things Lorena has learned while in the German Accelerator program was that to enter a new market successfully, you need to understand the local business culture and, in some countries, the language. With France being a country in which English isn’t the preferred language, and in addition, managed very centrally, Smart City System understood that they needed somebody in Paris, somebody who spoke the language. “We have a partner that looked up the leads, found connections, and knew exactly how and how often to contact them, all without being too assertive. Sales approaches can be so different in each country. At German Accelerator, we also learned about the sales cadence. The touchpoints are much closer together in the U.S. than they are in Germany. In France, they are even more relaxed. The cadence has to be even slower, so one doesn’t come off too pushy”, shares Lorena.
How to Decide on Pricing in New Local Markets
The pricing of your product is rarely one size fits all. Being an important component in your sales strategy, it often needs to be adjusted to the local market. The best way to get an idea of the price acceptance in your target market is to research direct competitor prices, but they aren’t always easily accessible. Another useful angle is to look into the prices of related products. For example, how much are potential customers paying for similar products, how much are they charging their clients for their services, etc.
When deciding on pricing for different countries, Smart City System understands that they can’t charge the same prices everywhere. Lorena tells us that “pricing in Romania doesn’t look like in the UK, France, or Germany. We take a look at the local pricing, even for things like parking tickets. This is to understand where the bar is and benchmark prices.” While pricing is cheaper in Romania than in Germany, Smart City System found that costs are much higher in the U.S. or Switzerland compared to Germany. The learnings resulted in having to increase their prices. “It’s not because it’s more expensive that we’re going to make our product more expensive. But it’s something that comes into play. We had to find a balance between our expenses, logistics, warehousing, and setting a price that would be taken seriously in comparison to competitors.”
Learnings from Expanding into New Markets
When in Rome, do as the Romans do! Going abroad with your startup is a constant learning curve. First and foremost, you need to understand that things are done differently in other countries. Learn about the business culture, societal structures, how people interact and build relationships. The easiest and fastest way to learn about relevant country-specific aspects is with support from local experts, like our mentors.
Lorena shared with us that their most surprising learning was how different the sales cadences can be from country to country. While in the German Accelerator U.S. Market Access program, she asked their mentor Marty Guersoy, “Are we too pushy? Isn’t it too much to reach out so often?” But their mentor Marty kept saying, “No, no, this is how we do it. It’s a high-energy society. If you don’t stay in their face, they’re just going to forget about you.” Lorena said that even though she had lived in the U.S. before, this was something she had to get used to.
Another aspect Smart City System understood while exploring the U.S. market was the need for high-quality marketing materials. Even down to things like the logo, they were advised to throw in a different color to stand out. Lorena has learned, “The U.S. is going to require a high marketing budget. It’s not enough to say, “Yes, our stuff works perfectly.” If you don’t have the punchy wording, a solid message, and emotion behind it, it’s not going to sell as well as it might in our home base. Here, in Germany, people are more engineering-oriented. In the U.S., they are like, “We know it works, but tell me how it’s going to make my life better?” They are one step ahead.”
Top Tips to Consider when Expanding Internationally:
- Focus: Focus on a specific problem, product, and solution.
- Evaluate: Research the market you’re considering to see if there is a use case for your product or service.
- Learn: Find out as much as possible about the local market, from pricing to sales cadence to accepted business language.
- Adapt: The way you do business in your home market doesn’t necessarily work elsewhere. Be open and adapt to the local business culture.
