Expanding a business to a new international market is a big challenge to tackle for any company. Depending on which market your startup wants to enter, you will not only face new business challenges but also cultural differences that can lead to further hurdles. The endeavor requires a lot of commitment and many dedicated resources. The good news is, that you’re not the first one starting this undertaking so you can benefit from the learnings, experiences, and best practices of companies that already expanded internationally.
If you’re founding a new venture, you want your business to solve an actual problem – if no one faces this problem, you will have a hard time finding customers for your business. Also consider that different markets have different customers with varying needs, demands, and interests.
When you are working on your business idea, you should think about where your biggest market could be right from the start. Thomas Hohenacker, CEO and president of Cleverciti Systems, participated in our Silicon Valley program in 2017. “If you want to launch and market your products in the U.S., you need to understand how this country works,” he claims. Of course, this doesn’t only apply to the U.S. but any market you are trying to enter. You have to make sure that you know enough about the market’s unique local problems, and how your product or service addresses them. Just because you are founding a company in Germany doesn’t necessarily entail building a Germany-only product. If the market potential for your business idea is bigger in a foreign market, you should target your product development to the needs there. Your product design will most likely require changes and will need to be adapted to new local markets once you are going international.
The most obvious element is probably the language, so put some thought into the decision of what your primary language should be. Different countries also have different regulations, quality standards, as well as environmental conditions which will affect your business and product. The earlier you think about these things, the better off you will be because internationalization is not a short-term but a long-term choice. Keeping these things in mind will help you build a scalable business and avoid costly mistakes later.
Many companies underestimate the impact of their competitors: knowing your competition is key because your competitors will know about you and they are probably going to use that information to adapt their products and be more aggressive. Basically, you don’t want your competitors to be quicker than yourself.
Understanding your competitors’ products is also essential to actually building a competitive advantage by finding your core competency, the one thing that makes your business unique or superior to others. Having a core competency means that you have the right resources and capabilities to increase the value of your product or service and differentiate from the competition. This is what allows you to expand your business successfully.
Expanding a business comes with a lot of work – not only once you are on the ground in a foreign market but also in advance. As soon as you and your team have decided to scale your business abroad, you should start preparing the basics. “When you get off the plane here, you want to be as well prepared as possible as it’s pricey and fast here. It’s a little bit like planning a trip,” says Christian Busch, Program CEO of German Accelerator New York, who has accompanied multiple companies since 2016 during their expansion process in the U.S. market.
First and foremost, market research will be your and your company’s new favorite and biggest pastime. You really want to understand the market as best as possible before you go over and actually spend time on the ground. Find out which competitors are already active abroad, which organizations are interesting for you as potential partners or customers, and who do you want to meet. Both the U.S. and Asia are relationship-driven markets and many of these relationships can only be made on the ground; however, you can do the initial outreach and try to schedule meetings from Germany, before stepping foot into the market. As we all know: business people are always busy and you don’t want to waste time. Try to find existing networks that you can leverage to make new connections in a timely manner. Hire a native speaker familiar with the local business rules and manners and form an “internationalization task force” who can help with looking into prospects and opportunities. Prepare your website and communication for the foreign market, as well as working on other fundamentals.
Planning your resources will be another big part of the preparation phase. Analyze the budget you have for the expansion and also consider how you can split up the manpower to keep your business in Germany safe while taking the next step into a new region. If you need to relocate part of your team, consider any legal conditions such as visas. Especially for the U.S. you should apply for a visa around six months before you actually want to go over. The process is much quicker for Singapore, which takes about eight weeks if you are applying for the entrepreneur’s visa (EntrePass). Of course, you can also enter Singapore visa-free for 90 days if you hold a German, EU, or U.S. passport.
If you’re seeking to enter a new market, you need to be transparent about your plans. Make sure your major stakeholders are aligned around the undertaking and include your co-founders, board, spouse, investors, and also your employees in the process. If you make it a secret, you make things more difficult also for yourself and the risk of failure increases tremendously.
Especially if you are the one actually going abroad, stakeholders in this case also include your personal environment: you should discuss your plans with your partner and family. In fact, you don’t want your friends to think you just “disappeared” because you left home for some time, changed to a foreign sim-card, and haven’t told anyone about your plans.
Your team at home can be your safe space to bounce off ideas and get feedback to develop your foreign business. These are the people who are familiar with your company, values, and products so instead of excluding them from your internationalization plans, you should leverage their knowledge and experience. Encouraging them to share their thoughts can help you push your business to the next level.
Another challenge to solve is the change in your and your team’s mindset: your startup is going to be an international company. This means that your team will work remotely to some degree, the company culture will change, your business will most likely serve various customers with different needs, and the number of competitors – and the pressure – will grow. You will have your core business at home, but at the same time you’re building a new one abroad. Claus Karthe, Program CEO of German Accelerator Southeast Asia says: “Trust becomes crucial when a startup goes overseas – suddenly there are two potentially conflicting parties in two very different locations and that can be complex to navigate as a team.”
Strong and regular communication and transparency with the entire team are crucial – regardless of where people are located! This helps you prevent misalignment within the executive team around the whole internationalization process and it also allows you to stay informed about what is going on back in Germany. Even though the technical developments have facilitated remote work, it’s still not easy for a team to work in different time zones on different continents around the world – you and everyone at your company have to learn and respect that. Schedule regular check-ins, implement a communication tool and cadence if you don’t have it already. Avoid the typical headquarter versus location behavior, foster the team spirit across continents, allowing for a new – more international – culture to be formed together.
Another important aspect to consider is to be aware of the cultural differences not only for your business and product but also for your team. Sophie Chung, CEO and Founder of Qunomedical, participated in our New York program. She explains how her company deals with the diversity of their employees and the essential principle of their team’s work: “Diversity comes with a lot of challenges. If you combine a bunch of people with different educational backgrounds, cultural backgrounds, different ways of growing up, ages, genders, sexual orientations, or religion – there has to be some friction, and friction can be bad and good. One of the principles we work on is to be able to agree to disagree and that is something we’ve really tried to uphold and live.”
When you first set foot in a new market, it makes sense to bring over one or two people from your team at home. People working for you already know your business, you know that you can trust them, and out of loyalty they are highly motivated to help push your company to the next level. When thinking about whom in your team to send as the ‘boots on the ground’, there are some important criteria to keep in mind.
A co-founder or trusted member of the senior management team, together with someone running the show from the operational side will make a powerful couple to get started abroad. International experience is a clear advantage, too. Keep in mind that your team needs to be prepared for this change! Especially a founder leaving his usual role means various substantial changes for the entire organization. If he or she is flying back and forth all the time trying to fulfill both responsibilities as a founder managing a team at home while also attempting to set up shop in a new market, the endeavor is doomed to fail – “helicopter expansion” is not going to work out. If you are the one going abroad, you have to trust your team and appoint someone strong to run the show at home.
After you have made your first steps abroad, you should start hiring quickly because you can benefit from some valuable advantages. Individuals with local experience usually have a better understanding of the new market and allow you to adapt faster to the new market and conditions. They can serve as a mirror for the foreign culture allowing you to test new approaches within your own company, and they will bring their own network introducing you to the local ecosystem quickly.
Expanding to a new market is an investment and you must dedicate enough passion, time, and money to the initiative. In fact, this means that you will lose money in the beginning. To keep your company alive, you need to make sure that your core business is strong and running. The home market is what’s providing the cash flow to guarantee liquidity, pay your employees, and also satisfy your investors’ interests.
International expansion is a huge commitment for any company, not just for a startup. CEO & Founder of HoloBuilder, Mostafa “Mo” Akbari-Hochberg, participated in the Silicon Valley program in 2015. To put it in a nutshell, he quotes from Star Wars: “Yoda once said: ‘Try not! Do, or do not.’ That is the most critical thing. You do it or not, you’re committed to it or not. You’re either on the bus or off the bus. There is no place in between.” International expansion requires a lot of resources, both from a financial but also workforce and time perspective. It’s just too costly to do it halfheartedly and thus, scaling a business comes with risks, not only in terms of whether you will be successful on an international level but also whether your company can survive in your home market.
The hardest problem you need to tackle first is to make sure that potential customers in the new market face the same issues as the customers you already have. You have to validate your product-market fit or pivot your product to cater to the issues in the new market. You also have to find the right sales channel to actually reach these new customers and you have to do all of that quickly.
The most important thing that investors care about is whether you can grow the revenue of your organization. How fast and how many sales you achieve as a result of market expansion is the one factor people will use to judge whether the undertaking is successful or not, and this is what you should focus on right from the start. Analyze how you would gain pilot customers, how to sell the first units of your product, and how you can ultimately compete with your competitors abroad. Success in expanding to a new market will also add to the reputation and value of your company in your home market as well.
If you are determined to enter a new market, it is crucial that you acknowledge new insights and learnings by having an open mindset and being eager to learn. Actually, your main goal for the beginning of the expansion process should be to learn – about the new market with its customers, about your competitors abroad, about your business itself. Be hungry to receive feedback, take it as a gift and think about it. Just because your business model is successful in your home market, doesn’t mean it will be the same elsewhere.
Nicolas Leonhardt, CEO and Co-founder of Wagawin, one of our 2018 alumni of the Southeast Asia Program, had learned this lesson during their program participation: “Don’t be afraid of change. Although we had a great product, we realized that we could improve the way we sold our product in all markets. This meant redefining our value proposition not only in Southeast Asia but also back in Germany.”
The most dangerous thing many startups do while planning an expansion is not being open-minded enough and relying on a “plug and play” approach. There is a little truth to Einstein’s saying: “Insanity is doing the same thing over and over again and expecting different results.” Obviously, international expansion is simply too costly to make mistakes again and again.
Every expansion is about the hustle. You want to make sure you meet the right people and you want to make sure you learn and move quickly – both the U.S. and the Asian business worlds are much faster than in Germany.
Americans think big. If they develop a new product, they will work quickly and try to sell the beta version to the first customers. In Asia, ‘survival of the fittest’ is second nature as they are in an environment where their economies are still developing or only recently advancing as a developed economy. The Asian business landscape is one that is agile and startups are generally more prone to risk-taking and are willing to go to market with a simple product and continuously iterate. They would lose out in terms of speed to market if they take time to develop the perfect solution before even allowing it to be launched. Germans instead are very detail-oriented, great engineers, and valued for highest precision.
To put it straight, German Accelerator Mentor Ram Srinivasan said, “German companies are great at innovating but really poor at scaling.” So, it’s time for you and your startup to get started and do your homework – the secret sauce to scale your company successfully to the next level is a mix of ingredients: speed, persistence, and lots of hard work.