The thought of expanding your business into new territories can feel like standing on the edge of a cliff; terra firma beneath your feet and beyond, the vast unknown. You’ve established a business in a home market you know and understand, profits and growth are good, so why take that terrifying leap into unchartered waters?
Once your business is profitable and domestic growth is nearing its limit, without that leap, most businesses are unable to sustain the same level of growth. But it doesn’t have to be fraught with fear.
From diversifying your markets and customer base to becoming more competitive, successfully breaking into the global market can take your business to new heights - provided you do it the right way and can overcome the challenges. One person who knows exactly how to do that is Evan Rudowski. His company, Atlantic Leap, helps digital businesses expand into overseas markets by offering a methodical, strategic approach to internationalisation.
In the early 2000’s Evan was instrumental in growing an American internet start-up and expanding it into the European market. When he arrived at the London office they had ten employees and an annual revenue of $1.2 million. Three and a half years later, they had 200 employees across Europe and an annual revenue of $30 million. What’s his secret? Here’s everything you need to know...
Why expand? And where?
The most obvious reason to internationalise your business is to tap into new markets, which, in turn, will diversify your assets, give you access to a larger pool of talent and open your business up to new investment opportunities.
Expanding the number of territories you operate in naturally gives you the potential to reach a larger customer base and achieve faster, more sustainable growth. As with many things in business, timing is everything; failure to internationalise at the right time can have negative repercussions.
‘It’s short-term thinking, which is perfectly logical for a company but sometimes means that they fail to invest in geographic or other areas of expansion that will sustain growth in the future. Sooner or later domestic growth tails off but investors still demand the same rate of growth. There are two places to get that rate of growth from: new product development or geographic expansion. If you’re not investing in those early enough, the growth curve starts to dip. If you’re investing at the right moment then the growth curve is sustained.’
‘If you’ve developed something unique and defensible, people will find you’.
If you’re already acquiring interest and custom internationally, it’s a clear sign that you should be looking at international expansion. If there’s interest in your product or services in a new territory, why would you ignore it?
‘Ocado is a good example of this. They invested in technologies to fully automate their warehouses so that they’re run by a few hundred robots and four people. Their technology is so unique and sophisticated that American companies are lining up to buy it. So, they have a bigger business outfitting warehouses for American retailers than they have delivering groceries in the UK. And that’s very good.’
But what about when you aren’t responding to demand from a specific geographical location? Where should you go? Evan believes that while UK businesses can find the lure of conquering America hard to resist, unless there is obvious demand (as in the case of Ocado) it’s not always the best initial move.
The American attitude is ‘the rest of the world can wait’; the British attitude is, ‘I can’t get to the US fast enough’.
Evan explains why, for many UK businesses, looking Eastwards rather than West can often be the more profitable, lower risk move. And, again, timing is imperative. If you choose the right territory and get in ahead of your competitors, it’s likely to put you in an advantageous position.
‘With 550 million people, Europe is a bigger collective market than the US. Although there is an additional layer of complexity around different languages and different currencies, it shouldn’t be overlooked. Within the US you can have a category with multiple competitors fighting it out for the market, but none of them are particularly paying attention to Europe. If you’re smart, you can identify that category as a growth opportunity in Europe and capture that geographic market before the Americans wake up and start paying attention.’
However, success doesn’t just come down to choosing the right country or region, but also exactly where you locate yourself within your chosen market. ‘If you put the office in the wrong place, you can end up wasting a lot of time. Are your target customers close enough to the office that you’re setting up? Industries cluster around certain cities, so you need to be in the right place for your market.’
Scaling by internationalisation
Internationalisation can help to unlock opportunities for additional financial investment, which, in turn, can help to scale-up your business. By tapping into new geographical markets, you may find new investors who are interested in backing your company.
When it comes to the type of UK businesses run by Vistage members, Evan believes you don’t need to think small: ‘Vistage member companies are certainly, in many cases, candidates for going down the same path [as big VC backed companies] of equity funding or debt funding. They’re not constrained by anything other than their imagination and, perhaps, what category they’re in.’
However, even if you can get funding, without meticulous planning, success may prove elusive. As Evan points out, you need to take a methodical approach to international expansion and make sure you have a good knowledge of your target market. ‘We use something called the MAP (Market Acceleration Plan) which examines the competitive landscape in the target market.’
Research is key. By planning and asking the right questions, you can decide whether or not your chosen location is the best choice and prepare for the challenges ahead. ‘Are there players that are likely to get in your way? Are there people who already own a share of the market? Are you going to have to fight them for it, or is there still a clear path that you can take? Are there regulatory or cultural issues that might stand in your way?’
While the ability to scale-up your business by targeting new international markets should not be underestimated, failing to plan adequately could leave you blindsided. No matter how good your product is, if you have insufficient cultural or regulatory knowledge, you stand the risk of wasting an opportunity as well as damaging your brand reputation. Evan urges businesses to heed the mis-expansion of Uber into the European market.
‘Uber took many missteps in Europe, and Germany in particular. They ran into problems with regulators, and there was also a cultural issue because German consumers were offended by Uber’s aggressiveness. They didn’t like it; it didn’t match their cultural attitude. They didn’t like the fact that Uber was competing with German taxi drivers, so they voted with their wallets and didn’t use Uber. This, combined with regulators pushing back, forced Uber to abandon the German market. As it turns out, that was just an indicator of a company culture that’s caused problems for them globally.’
Who should help you launch overseas?
You’ve made the decision to launch into a new market, so who should lead the fray? How do you strike the balance between someone who knows the company inside out and someone who has excellent knowledge of the new territory? If you have to choose between the two, which do you pick?
Evan believes there are pros and cons to both. Which person or people you select to oversee the expansion depends on the specifics of your company and the market into which you’re expanding.
In Evan’s case, he was selected to lead the launch of an American .com start-up in the UK and Europe, ahead of the local managing director. As he says ‘In this particular case, it turns out that knowledge of the company was probably more important. We were a .com internet start-up, which was a fairly new and unique company at the time. I knew the company and the way it operated, I knew the people so I was able to get things done more effectively internally sometimes - not always - but those factors ended up being more important at that particular moment in that particular company.’
When it comes to choosing people to lead internationalisation, it’s vital to remember what you’re trying to achieve. You need a long-term strategic approach, and with that in mind, a leader with marketing skills is likely to be a good choice, ahead of a sales-focussed leader.
‘I think the reason you don’t necessarily send a sales-oriented person overseas is because they don’t know the market, they don’t know the people on the ground, they don’t know who the customers are, they don’t know people’s names or how to reach them. For sales you probably want to hire someone locally who has a contact list in the local market and some experience selling to that customer base.’
So, do you need an individual or a team? According to Evan, ‘there’s no exact formula’. The number of people you need depends on the specifics of your business.
If you select someone who isn’t familiar with the new location, they may find themselves feeling isolated or struggling to learn local customs or culture. While they may have supreme knowledge of your business, it’s also vital that they feel comfortable in the new environment.
‘I couldn’t have done what I did without the help of the people who were on the ground already. There was another American who was there, hired locally, who was very was helpful and there were other local people who knew the lay of the land. I remember one dinner, early on, that I went to as the new managing director. When we finished eating, they cleared everyone’s plate except mine and I asked, “why didn’t they clear my plate?” and somebody said, “you didn’t put your cutlery at four o’clock”. I didn’t know I was supposed to do that! So, I moved my cutlery to four o’clock and they cleared my plate. Sometimes you even need help with simple cultural differences like that.’
While business founders often feel the need to lead the expansion themselves, Evan warns against the potential pitfalls. ‘It’s easier for them to feel confident that things are happening if they’re the one making it happen. But the risk is they can take their eye off the ball back home.’
If you’re considering outsourcing, tread carefully. As Evan points out, it might seem like the perfect solution but it can easily become an expensive mistake.
‘If you outsource the development of internationalisation, you can’t be sure that the people you’ve engaged to deliver can be trusted to do it - or do it well enough. They’re usually costly and hard to manage remotely, so you never know if you’re getting the truth or not. Sometimes you get lucky, and the person turns out to be trustworthy and effective. Often they’re not, necessarily, and you can’t tell because you’re not looking over their shoulder. So by the time you realise they’re not good enough, you’ve spent six figure sums.’
Although access to a wider pool of talent is often a reason for expansion, you need to know exactly who else is swimming in those waters. Before you leap in head first make sure you know who you’re competing with, and if you can withstand that competition. Remember, if you’re moving into a crowded market, you’ll be competing for employees as much as customers - often with established brands which are already known in the job market.
‘Try setting up a tech company or a tech office in Silicon Valley. Try competing for talent with Google, Facebook, Uber, every other company that’s out there. You can’t play that game, it’s impossible.’
Again, knowledge is everything. By doing your research, you can establish what the competition is for hiring staff and how much the process is likely to cost.
Decide and commit
Although expansion can help increase your revenue and open up new, exciting opportunities, it needs to be done at the right time. Some would argue that when it comes to the global economy, there’s never a bad time to expand; after all, internationalisation can help mitigate against domestic political or economic turbulence.
But expansion into new markets is costly and not without risk, so it’s important to ask questions to ensure it really is the most opportune time for your business. Why do you need to expand right now? Have you almost exhausted the domestic market? Do you have the right team and level of commitment?
All of these factors should be considered before deciding when you should internationalise. A study by Harvard Business Review found that the primary reason for companies failing to expand successfully is a lack of commitment from the whole team, proving that it’s not just about revenue and domestic success.
‘If British and European companies have big ambitions, they quickly look at their own market size and think, “we’re not going to get there if we just focus on our domestic market”, so they decide to go to the US. Although that seems instinctively correct, it can be fraught with danger.’
You may feel that your revenue is pushing you in the direction of going global but Evan warns that this can be a wolf in sheep’s clothing. ‘For a young company (because a British company is usually younger when it starts to think about internationalising than an American company), six figure sums are quite meaningful and material. That can be one thing that goes wrong.’
Rather than going on instinct or company figures, Evan advises leaving nothing to chance: ‘You have to make sure you’ve fully assessed your company’s readiness to expand internationally’. The framework he advises using was developed by professors at the Thunderbird School of Business in the US and it’s designed to remove any guesswork.
‘The Seven Tides of International Investment asks the company to consider seven different elements of readiness. If you tick all seven boxes, genuinely and objectively, then you’re probably ready, but if you only tick some of those boxes, you should think about where you’re deficient and whether you need to work on those areas, then decide whether or not to move forward. If you’re not ticking very many of those boxes, you’re probably not ready. It’s a good objective framework, and founders need that because going international is an exciting prospect; it sounds great so people sometimes let their emotion and excitement get ahead of objectivity.’
For many businesses, internationalisation is something they haven’t even thought about until they achieve some level of success domestically. However, as going global is an inevitability for many businesses, expansion into new markets should be part of the company strategy from the start. You wouldn’t leave any other part of your business plan for ‘later’, so why ignore something which can increase and sustain growth in the future?
‘The challenge for a lot of companies is that international is an afterthought. You have your long-detailed P&L and then at the very end there’s a section labelled R-O-W which stands for Rest of World and it’s just thrown in there, without any detail - you could cut that piece off the spreadsheet and the spreadsheet would still be fine.’
While it might seem like a factor you can just add in later, businesses that take this approach run the risk of getting trapped in a short-term mentality.
‘When you’re publicly traded and you have to report your results quarterly, you think: “if I can spend, let’s say, $10million and get a return on that next quarter, I should do that rather than spending $10million laying the groundwork for a return on investment in two years.” It’s driven by short-term thinking.’
Keep your eye on the domestic market
There’s no point expanding if you’re going to put all your eggs in one basket, so to speak. If you focus all your energy and efforts on moving into new territories and neglect the one you’re already established in, it’s unlikely to end well.
‘I once met an entrepreneur who built a pretty well-known company. He decided to go and open up a US office. In the meantime, their rival decided to just continue to focus on the UK and Europe. Several years later their US foray wasn’t going so well. The company hadn’t grown very much because they were investing in geographic expansion. The other company had stayed home and invested in product expansion and expanding their lines of business. The competitor ended up getting acquired for quite a significant sum. His company didn’t do so well, so he learned that he should have stayed home and invested in growing the lines of business rather than growing geographically.’
Internationalisation is a complex process; one without a one-size-fits-all formula. Every company is different and every geographic market is unique, so you need to define what’s right for your company. One thing that should be applied in any business is a strategic process. By clearly defining your case for expansion, gaining in-depth knowledge of the new territory and using objectivity over instinct, you can reduce risk and increase your chances of success.
Vistage helps leaders grow, so that they in turn can grow their businesses. Find out more about how we can help you expand your business.