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Market Expansion - Ready to Add a New Market?

We no longer think locally and most companies nowadays operate across multiple markets.

For tech companies to remain competitive, they must expand globally.


More than half of companies that received investment in the last 12 months are focused on global growth.

Over the next five years, tech firms with a presence in five or more markets will increase dramatically according to Velocity Global report. Companies with the most interest in entering the new countries are SaaS and Big Data but the list is long. 



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21 March 2022  \\ Growth                           Author: Patrycja Maksymowicz

We no longer think locally and most companies nowadays operate across multiple markets.


Crunchbase indicates there are 344 tech startups worth $1 billion or more in the US, and there are more than 70 tech startups worth $1 billion in Europe alone. Almost all of them operate internationally.


Vistra reports that the UK is the number one destination for businesses expanding in the US, with sales reaching $607 billion. But it’s not only the US companies that are interested in the UK. 


More than half of companies that received investment in the last 12 months are focused on global growth. Over the next five years, tech firms with a presence in five or more markets will increase dramatically according to Velocity Global report. Companies with the most interest in entering the new countries are SaaS and Big Data but the list is long. 


For tech companies to remain competitive, they must expand globally. Tech firms, in most cases, are entering a new market in order to increase customer base and increase efficiencies and scale as well as to gain access o new talent. 


But as much as its tempting to grow exponentially and globally, its also a challenge and bares its risk. So how to ensure your company is ready?


The most common challenges are recruitment, employee immigration, and tariffs. These remain significant hurdles while more tech businesses struggle with regulatory compliance as well. Communicating with clients, finding the right people to represent you can derail your market expansion.


We have identified a few key areas to focus on and points to think of. 

The very first question you should ask yourself is why you want to do it. Are you really ready to add a new country? 


You should get to clear product-market fit before expanding internationally, only ten explore how to move onto the next stage as pivoting your product once you have expanded across multiple countries is exponentially hard.

The common mistake here is deciding you have a product-market fit too early. 

Startups should have global goals, but they shouldn't plan on covering multiple regions at once.


We have had companies who have only started in their domestic market and they already were interested in expansion, in such cases, it is usually too early. 


A business that grows internationally will require a lot of attention from its founder, so you need to have the right management capacity to handle it. In addition, you need to have enough resources for tech, marketing, and customer service.


Do you have a sound expansion strategy? 

Rather than taking the default expansion strategy of an opportunistic approach, your startup should set a sound plan once it has decided to make global waves.


Have you tested the market? 

Test out a new market to see what works. Learn from your successes and mistakes. Work on your playbook. 

Potential investors expect solid research and proof of your points. The more solid your research, the higher your valuation could be.

Let’s take a look at these numbers: 

  • 9 out of 10 startups don’t make it.
  • 20% of startups fall apart after a year.
  • 30% of startups close within two years.
  • 50% of startups shut their doors within five years.
  • 70% of startups dissolve within 10 years.

This is primarily due to an inability to offer products for a specific market. This brings us back to the need to ensure product-market fit. 


Will international expansion increase the company valuation? 

At series A+, valuations are a combination of many variables, including internationalisation as only one of them.  Due to the trade-off versus short-term growth, adding another country does not always appear to add value.


Are you really ready to scale? 

Preparation can also take the form of picking software and systems that can scale.

Check if what you use can be used in the market you’re expanding to. That involves your accounting software, your CRMs, project planning systems, payments… 


Do you have the right experts locally to support you? 

Think of your setting up a local finance team. Legal advisor, consultants.  They will be able to tackle the regulations of that particular market. 

 

Do you have the right budget to invest in your expansion? 

The next step is to think through the main challenges and costs of international expansion. It is surely imperative to consider the cost of regulatory approvals, which is a particular issue in fintech and healthcare, as well as product localization, simple translation, new content, new data sources, and new functionality. Sales, service and operations teams need to be funded on the ground, too. 

Costs of hiring a new team as your startup grows in the new market. Go one step at a time find people who can do multiple roles and help you scale faster.  You want very strong utility players who can do more than one thing, especially at the beginning.


So, do you think you have most of all it takes to expand? 

Companies approach us often saying they're starting out in a new market and are prepared to pay a commission to help them and they'll pay us once sales pick up. In essence, they want us to invest in their market expansion. But that's not the way things work. 

Set aside a budget to expand, don't start too early.

Set aside a buffer as your initial assumptions may be too conservative. Budget enough cash and time so that your international market can reach 10 per cent of the size of your domestic market. Then double both numbers.


Globalization is on the rise and will continue. 


The advantages you have for international expansion are many, multinational clients or partners, your technology platform, capital, and market insights.

 

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