Getting a foothold in one’s home market can be tricky enough, so for many companies the thought of setting their sights overseas might not immediately resonate. While it might seem better to consolidate domestic growth and then start looking further afield, for many companies makes sense to set the wheels in motion now.
Reason 1: The growth imperative
However rapid one’s growth, the domestic market is limited.
It will inevitably level off as the market matures, and international expansion is the best, some might say only, way to push past these plateaus. Investors are in it for the long haul and a decent company valuation hinges on a plan of attack that is sustainable for years to come. The way for a company to prove it’s ready for a future levelling-off in domestic growth is to have a strategy for overseas expansion already in place: have one foot on the dock and another on the ship.
Consider Airbnb. Founded in San Francisco eight years ago, the company enjoyed exponential growth following its first international ventures in 2011 (the acquisition of German competitor Accoleo, followed by the establishment of a further office in London), with the company valuation soaring to $24 billion. By Jan 2012, the accommodation network had set up European further offices in Paris, Berlin, Milan, and Barcelona. The result? 748% growth in the UK, 719% growth in Spain, 946% growth in Italy and 425% growth in France. This level of scale makes shareholders sit up and take note, and wouldn't have been possible solely in the domestic market.
Expanding globally isn’t a distraction from a company’s goals, but a powerful means toward achieving them.
Reason 2: Competition
Foreign markets aren’t going to sit still until a company is ready to enter the market. The longer a company puts off expanding, the greater the opportunity for competition to emerge overseas. And once a competitor is established, a company’s prospect of acquiring a decent market share – at least without significant additional cost – diminishes considerably.
A startup may think its business model is a one-off, a true original, but there is plenty of tech talent on the ground in Europe with the ability to develop similar (sometimes better) platforms, apps and services. And there’s nothing to stop them doing so. The classic example is Berlin-based Rocket Internet. Over the past 25 years, the founding Samwer brothers have amassed a net worth of $1 billion by quickly developing services in Germany and elsewhere that blazed trails in certain categories even before US-based players could make a move into the market.
In some cases, these savvy siblings have ended up selling their domestic businesses back to their American counterpart. In 1999, they sold their German-language auction site, Alando, to eBay, the very company upon which the site was modelled, for $50 million. Amazon, PayPal, Pinterest and Groupon have all found themselves buying out local competition to get a foothold in overseas markets. It’s an expensive way to expand.
Establishing roots overseas now will allow a company to build momentum in foreign markets before local competitors start gaining ground.
Reason 3: It takes longer than one would think
Any company serious about building a European operation is going to need eyes on the ground. This means, at the very least, hiring a local general manager or sales director.
However, assembling a team on another continent is no small feat. Time must be invested to find the right people, and then to wait for them to become available. Most C-level employees in Europe take a period of notice between jobs known as garden leave. During this time – which can last upwards of three months – they’re dismissed from their place of work, but remain contractually bound to their former company and unavailable to work for competitors. This needs factoring into an employer’s game plan. Even when an overseas team is finally assembled and ready to work, they’ll need time to adapt to the startup’s culture and to learn its business processes.
And that’s not all. While it’s possible that demand for a startup’s service is already taking shape across the pond, it’s important for a company to remember that not all markets are tuned to the same wavelength. It’s worth it for a company to put the hours into market research to get a handle on European, and even country-specific, nuances that might have an impact on its expansion strategy. Cultural acclimatisation is also an issue. Whether it’s language barriers or the more subtle social quirks, intercultural competence is crucial when expanding to pastures new.
In short, expanding internationally is going to take time. It makes sense to get ahead by starting now.
Expanding internationally is imperative for sustainable growth – the words investors want to hear – and European markets offer ample opportunity to do just that. Atlantic Leap has an extensive business network in Europe that can help a company to land and expand. Get in touch today to set the wheels in motion.