When Should a Startup Think About Global Markets?

The Boston Business Journal recently noticed a trend of European entrepreneurs coming to the U.S. early in the lives of their companies, or establishing U.S. beachheads in Boston. Which has me wondering: How soon in the life of your startup should you be thinking about going global?

Is it enough to concentrate on being a hit in your home market, or is that single-country focus really a risk?

It’s a well documented fact that barriers to launching a new company have dropped significantly in recent years. That also means that copycats can quickly clone the best new ideas. If you aren’t quick to enter new markets, someone else will be – and with your idea.

An interesting case is presented by Birchbox, the subscription commerce pioneer known for delivering boxes of cosmetics and beauty products to customers each month. It’s a great idea, but one that’s easily copied. In 2012, a two-year-old Birchbox acquired French clone Joilebox. Terms were undisclosed – but whatever they were, it must be galling to have to buy back your own idea. Today, Birchbox faces another European clone, this one better funded than itself: Glossybox.  In my mind, the question is raised: Should Birchbox, with an easily replicated business model, have moved into Europe much more quickly?

My startups have each been in U.S. financial services, where regulation can sometimes make even state-by-state expansion problematic. I don’t have experience of wrestling with this question directly, though one of these companies had a successful exit via an overseas acquirer.

My own view, based on observation, is that startups need to begin planning to go global right from the start. They don’t need to be global from day one, but they need to be aware of developments in their industries coming from the U.S., Europe and Asia, so they aren’t blindsided by new competitors. Also, you don’t want to bake something into your product or process or the DNA of your company that will need to be undone at great cost before you can go overseas.

I’m not minimizing the challenges of entering new markets: language, currency, time zones, rules and regulations, and culture, just to name the most obvious. International expansion widens your potential customer base but also multiplies the complexities of managing an early stage company.

I put the question to several entrepreneurs and investors. Here are their answers.

Christopher Mirabile, Managing Director of LaunchPad Venture Group. (Read Christopher’s blog here: http://scratchpaperblog.com/)

Christopher, as an angel investor, do you want to see early-stage companies thinking of international markets? Why or why not?

Early on, thinking about it is helpful because it helps you understand your market size and your value prop – is this solution common to the entire human condition, or is it less applicable in the developing world, for example?  Is this product going to be of interest mainly in one industry or context, and does that industry exist elsewhere?  How big is the ultimate market for this solution?

Which startups need to plan overseas expansion early, and which should wait?

The ones facing a land-grab situation where the idea is obvious and the first person to do it in a locality wins may want to consider it, but they should verify that it will translate, rather than just assume.  Trying to expand globally before you are ready is bad enough – failing at it because you didn’t do your homework is even worse because it drains financial and execution resources from your home market.

Should most startups plan on going global right from the start?

I would say focus and execution are critical in the early days of an enterprise. Nail it before you scale it.

What are the drawbacks?

Lots of hidden complexities (tax, regulatory, language/internationalization, cultural issues, monetization issues).  Be great somewhere instead of a failure everywhere.

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Stephanie Kaplan, Co-founder, CEO, and Editor-in-Chief of Her Campus Media (www.HerCampus.com)

Stephanie, when do you recommend startups begin thinking of international markets and why?

Once you have a solid grasp on your home market, not necessarily having saturated it but having attained the bulk of it, it can make sense to think about how your model can be applied in other countries, and whether this can be done with relative ease.  Or, even earlier than that point, if an opportunity to expand internationally presents itself and seems like something you can handily get your arms around, you may just want to go for it.

When did Her Campus start thinking about overseas expansion?

Her Campus has had an international presence for a couple years, which was initiated when we received applications from girls at international universities who wanted to start Her Campus chapters at their schools.  We reviewed these on a case by case basis just like we do with all campus chapter applications, and gradually launched our first international campus chapters.  We have chapters in England, Scotland, Wales, Australia, Canada, the US, and Puerto Rico.  Our recent acquisition of HerUni, the UK girl’s go-to guide with chapters at 40+ universities, cements our position as the leader in the female college space in the UK as well and gives us a real foothold there far beyond what we had before.

What are the benefits of going global for you?

Going global allows us to acquire more traffic by launching new campus chapters that in turn serve as publicity agents for us at their schools.  As our traffic in other countries grows, it also allows us to bring on new clients by working with advertisers, based either there or here, that are interested in marketing to college women in that country.

How are you approaching the challenges?

There are some real differences between the US and UK university systems, so we are learning more about what the college process and experience are like in other countries to inform how we work with students there.  We need to first focus on building up our international traffic, and then we can think about building out an international sales team to bring on international advertisers.

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Charlie Cameron, Founder and Managing Director of Hub Angels (http://www.hubangels.com/)

Charlie, how do investors view U.S startups that are planning to launch in several markets relatively early in their development?

When U.S. investors are evaluating early-stage investment opportunities, they usually want to see a U.S. entity (a Delaware corporation) and a focus on the U.S. market. Investors are looking for reasons to say yes or no, and going overseas too early is one reason to say no. This makes it difficult to raise capital for an early stage company to go overseas.

Why?

It’s just much harder for U.S. investors to evaluate those opportunities. Investors want to talk to clients and prospects and language and time zones are a due diligence barrier.

Hub Angels, for example, won’t look at companies if their primary market is overseas or if the company is located out of the region. We will, however, occasionally consider companies that were founded overseas, but only if the U.S. market will be their primary focus, the founding team is relocating to Boston and they have a US entity as a parent corp.

Are there other drawbacks?

Currency, regulatory regimes, complex labor laws, language, time zone differences, inability to easily meet with the team, follow on funding opportunities, etc., remain a disincentive for startups to set up shop overseas.

Aren’t there advantages to being first in each market?

My advice is to prove the model here. If you are a U.S. startup, scale first in the U.S. market. Don’t dilute your efforts.  As an early stage company, you don’t have the bandwidth or capital to manage two markets at once. Splitting your resources and talent between two markets multiplies your execution risk exponentially, drains financial resources, etc. Don’t try to boil the ocean.

Clones:  Yes, clones are a risk for many companies, especially for internet/media companies which don’t have technology where patents are truly protective. Dominating a market segment can be a reasonable strategy.  For tech companies, you can’t stop many clones but, it you dominate a space, you might become the “standard” and/or a large company might acquire you. Many times clones develop after another company is successful, e.g., eBay, Zipcar and Facebook.

Are there exceptions?

There are always exceptions. For example, a number of US-based life science/medical device companies go to Europe to do trials, get the CE Mark, sell product in Europe and use some of that data for their US-FDA application.  It provides both revenue and data.

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What do you think? Should you plan to be in several counties right from the start? Does it make a difference if your home market is France or Germany, rather than the U.S.? Feel free to join the conversation in the comments section.