Why Startups Should Still Think About Internationalization and How to Best to Make Use of the Current Situation
With a looming crisis on the horizon due to the coronavirus pandemic, many companies are in survival mode and are focusing on existing customers. Given the current climate, should startups still internationalize or focus on existing markets? Are there ways startups can make the most out of this situation?
We posted these questions to our #GAmentors, Jordi Castello, Co-Founder of Letgo, Dr. Bert Grobben, CEO of Budding Innovations, Samer Hamadeh, Founder & CEO of Zeel, and David Segura, Angel Investor and Serial Entrepreneur to get their insights, and to share how they have adapted, or would adapt their businesses to the current crisis.
For startups that were considering entering a new market pre-coronavirus and are now in survival mode, why should they still think about internationalization now?
Bert: As we have done in our business, it may be better to assume that this crisis mode will be for an extended period of time and that the choices we make now should be fitting with that longer-term timeframe. With that in mind, we should stop looking at the current situation as a crisis, but rather a ‘situation’ we need to adjust to and to learn how to thrive in it.
You should never internationalize just for the sake of it, but the key is to tap into markets that you can reasonably reach, and where your product and/or service shows a good market fit. This approach is still valid today.
You should continue to consider entering markets where your products and services show great business potential. Markets that require the least adaptation cost, and represent a lower operational cost to enter should be prioritized. Right now is not necessarily the time to spend on creating new products or offerings, but rather expand what you have as efficiently as possible. Companies that can do this will likely gain a competitive edge over others that don’t.
Jordi: Drop-in business activity, cutback of travel, and canceled meetings are part of the new reality for startups and for any company today. The most adaptable companies will survive. Expanding a startup into international markets provides organizations long-term risk mitigation and the possibility to avoid fluctuations and business cycles specific to a single market or region. Successful international expansion reduces one’s dependency on the strength of a single domestic market. It also opens a broader pool of resources such as venture capital, advisors, and strategic partners.
However, every expansion, international or local, requires financial resources. It is important to secure funding and consider raising capital for the move. My recommendation is that before planning for internationalization, the essential step is to make contingency plans or take bold action: Adjust forecast, capital spending, and headcount if your company has not yet charted a course to financial independence.
Samer: Depending on what your product or service is, there may be no better time to sell overseas. However, doing so doesn’t mean you have to set up an operation abroad. You could ship your product to other countries. You could deliver your service in an alternative way. Let me give you an example from my company, Zeel. Once COVID-19 and sheltering in place hit, we immediately went into pivot mode, launching Virtual Wellness that includes group and 1-on-1 guided stretches, mindfulness, and yoga. We’re selling this service to existing as well as new corporate customers and reminding all customers that their employees overseas can now use the services, too. So far, we have serviced people in countries we’ve never touched, including Australia, Germany, France, and China.
How should these startups best make use of the current situation to scale into new markets/ internationalize?
David: The way I see it, internalization is still a viable option – even in the time of the coronavirus. For one, you can service foreign markets virtually through a variety of digital and video-based solutions. While it won’t be as easy to get “your boots on the ground,” it is still viable to launch overseas if your plans were already in place.
Bert: The way you operationalize expansion may be different but not impossible. With travel being the current apparent restriction, there are other ways to get a foothold in a new market: leverage platform partners, gateways, and local well-established partners to collaborate with. If you can’t physically move to a market, be there digitally and work with a partner that can physically represent you there.
Do your homework thoroughly and do it remotely. Take advantage of digital tools to ensure any expansion preparation phase is done efficiently and that you have all elements in place to trigger the execution of your expansion. If restrictions ease, you will be in a better position than ever to move ahead, and if they don’t, you are ready to work in partnership with locals to achieve the same. Either way, be prepared to run out of the gate when the situation evolves.
As a serial entrepreneur, what would you say are the top 3 things for a founder to consider when they start thinking about international expansion?
Understand what your new customers will value: Recognize and react to foreign customer demands. How will your products and services be of value to your new international customers? What about the acquisition cost of new customers? Sometimes local partners or hiring local experts can help. For example, your company can make contacts and establish alliances with local suppliers, universities, research centers, and maybe competitors.
Benchmarking and competitor analysis: The purpose is to gain a level of insight that allows the company to evolve the strategy based on competitor insight. As you are defining your medium to long-term strategy, you should also do in depth-research about your competitors.
Apply a “glocal” strategy – think global, act local: Utilizing your global experiences and then customizing and tailoring your services and products in such a way that would appeal to local markets. Use country-specific advantages, adapt technology to local markets, and hire better technical talent to be considered in your expansion plans.
International expansion can present an exciting opportunity for unprecedented growth for your business. That said, to ensure your long-term success, you should consider the following:
Firstly, have you recruited full-time or part-time team members in the local market you want to expand into? While it is possible to take on a new challenge in pursuit of growth, you would be well-served by recruiting team members that understand the local culture and business environment.
Secondly, Is this your second market, or are you sure you need to pivot to a new ground? If you have established growth in your home country and perhaps other similar markets and want to still expand further, that is great, provided you have a solid foundation. Your company should have traction, product and market fit, and a great culture before you venture forth into foreign markets.
The only other exception I can think of is when a company is based in one market, and they decide it would be better to refocus or move operations to another market or country. This doesn’t happen often, but if you think it is the right choice for you, then try and be sure.
And lastly, do you have a high-risk tolerance? Are you very curious? If you want to expand into new markets, you have to be comfortable with change – even dramatic change. As long as you like exploring new cultures and meeting new people, international expansion should suit you well.
The top three things which are essential to consider are, having a subsidiary funded with significant capital to financially support the operations for two years. It is valuable and important to hire a General Manager who comes from within the company, preferably an employee or investor willing to move from the home country to the international country to launch operations, including raising more money, working with local government, and hiring locals. This person hopefully comes from or knows the foreign country well and understands local customs, pricing, and norms.
The last point is to consider if you have thought carefully about whether your product or service translates well and what tweaks are necessary, legal or otherwise, for it to do so. One example highlighting the importance of local adaptation is the story of automobile manufacturer Chevy Nova, flopping in Latin America because “no va” means “does not go.”
At German Accelerator, we continue to empower German startups to scale globally and we believe that to stay competitive, it is still important to identify new markets and opportunities for expansion but execute when the timing and funding are right. It is never too early to start building your future, find out how we can support you, and how you can start your expansion journey now, from the comfort of your home.