#85 When start-ups start-up internationally
Throughout the years, I have consulted to a number of start-up companies and I have also taught a series of courses on international business that included an applied international business development project. Over time, I started to notice that most start-up companies experience the same types of challenges in international markets, and usually they are very different from those of established companies.
First, many start-ups operate in narrow niche markets that often don’t exist in their home countries, so that going international is not an option, but a built-in necessity. As early internationalizers, however, they often are still in the process of developing their technologies, products, or services. As we have learned from Igor Ansoff more than 50 years ago, it’s probably not the best thing to be in a place where new product meets new markets. Start-ups therefore must make sure that they are ready before they approach markets, especially international markets where enough will go wrong even without failing value propositions.
Second, much of the start-ups’ resources go into research and development. This doesn’t only divert resources away from much needed business development activities, but it also breeds a certain mindset that values scientists and engineers more than marketers and business developers. This often creates market myopia.
Third, when selecting international markets, start-ups with potential in multiple industries or distribution channels are often faced with the difficult decision between industry-focus (or channel-focus) and country focus. It’s hard to give good advice on this, but it’s probably the question if you’d rather know everything about one thing or a little bit about everything. While the industry focus will help start-ups to build valuable industry-specific knowledge, to establish network relationships, and to get word of mouth going, it will also mean that a lot of business development time will be spent on planes, traveling between countries. And each time, new country-specific environments will have to be dealt with. Under the country-focus, on the other hand, they only need to learn about a new, strange land with strange people once, and they’ll probably penetrate the market deep into the last, dark corners. But then again, boundaries between industries may often be more difficult to bridge than the borders between countries, and resources may be wasted learning about new industries and squeezing the last bit out of those industries that are only a distraction.
Fourth, different countries react differently to technological innovations. Some embrace them, others fear them, so why don’t start-ups avoid the latter and enter the former? Well, the innovation-ready countries are often already crowded with competitors and if they’re not, they will be. Too bad that the ones that your competition shies away, too, are exactly the ones that are skeptical of everything new. Foreign start-ups are of course hit by the double whammy – they are strangers offering strange new things. Fifth and finally, the types of innovations that start-ups create often require significant education of customers. Business developers, sales reps, or distributors (particularly when they are paid commissions and when they are thousands of miles away) are not really interested in spending years educating the market, especially not for free. They want to close that sale today so that the commission shows up in their accounts tomorrow. So, start-ups, don’t leave the creation of the pull to sales, have a good strategy around this.
I’m sure that there are things to be added to this list, so this is to be continued…
December 31, 2012 @ 12:26 pm
Sixth, when making business in a foreign country local partners become very important in my point of view. It is hard enough to set up a business in your home country, but to break into new market is much more complex. In this case it is very important to have local partners which are deeply enrooted in the country. These partners can be sales reps, counsellors, HR consulter and so forth. The type and the number of these partners, depends on the branch of the start up. These partners can give advice in case of cultural barriers, buying habits or technical, health and safety regulations.
Seventh, is more a suggestion. Only go international when you are successful in your homeland. As in the most things it is important to have a strong basement. Therefore Michael Porter’s Value Chain can be act as a checklist. Firm infrastructure, human resource management, technology development, procurement, logistics (inbound and outbound), operations, marketing & sales and service should be proper handled in the home country. Or the other way around, there should not occur any crucial problems in these fields.
January 6, 2013 @ 4:38 pm
Generally speaking, today’s globalization makes it easier to enter new markets and therefore it is important or sometimes even necessary to expand a start-up to international markets. It can pose significant challenges for entrepreneurs, but it also offers benefits.
As mentioned in the first comment partners are essential needs to become successful, especially if the new market has a more distinct cultural position than the home country.
My suggestion for eight is that start-ups need to decide about relocation. It is imperative for the CEO of a start-up to search for a suitable place to establish the company in the new country. To be able to communicate with the partners and customers directly relocation has to be considered. If deciding against it, you might get in trouble. If people from the potential market are hired for the new office they might be suspicious of your company and even of your success. Therefore it is important that somebody of the home country is present to manage the new staff. Particularly in developing countries people have to be trained and guided about the processes and vision of the company.
Nine, it is essential for start-ups to have a well-defined business model. Are they going to act global, local or glocal? The question is if you are selling the same products in the new market you are selling in your home country or if you are going to adapt it to the recent market needs. Therefore research has to be considered. If possible the best way would be to act glocal. Glocalization means that a product or service is developed and distributed globally, but is also fashioned to accommodate the consumer in a local market. This means that the product or service may be tailored to conform to local laws, customs or consumer preferences.
January 7, 2013 @ 5:10 pm
Many important facts are already mentioned but one of the most crucial facts is missing, the pricing strategy. It is an important instrument in the home market but when a company gets international it becomes a key factor.
First of all as in every professional strategy a target has to be defined. Is it a non-profit target like market share or a profit target like Return on Investment. But before setting to enthusiastic targets some points have to be considered as they influence the decision making process.
First of all there are the Cultural aspects which are highly influencing the consumer behaviour. How much money are the costumers of the different countries willing to spent. Where is the perfect market-skimming price? Also within Hofstede’s dimension you can find some important information’s. For example when the dimension, Masculinity versus femininity, is very high the consumers prefer luxury goods. Furthermore countries with a high UAI like Japan search for purity, cleanliness, they either buy new products then used and they are worried about new technologies.
Secondly the economic environments like the Competitors, the costumers or your suppliers. Gray markets will come up if the transporting costs are lower than the difference between the price of the target market and any second market.
Exchange rates are ever changing and the price can be fixed either on the home country currency or on the host country currency. If the price is fixed in the host country it means that the seller is confronted with the gains or losses.
Finally the political situation will influence the final price through Taxes, Costumes, Quotas and Licenses.
Leaving this important points behind can lead to a lack of competitiveness or at worst also to a total failure of the entrepreneurial activity in the host country.
November 17, 2013 @ 3:16 pm
As already mentioned in the article a lot of start-ups failed when they go international. I can totally agree with the four points of this article but I would like to add some of my ideas concerning the success of “when start-ups start-up internationally”.
A start-up is something new and I think that is the biggest problem. Growing is important and in our economy, it is on of the main things of success. But sometimes companies growing to fast and they have to solve problems with there structure. When a start-up go international they have to think on lot of things and the companies need a hierarchy. I think it is very difficult to build a good management structure in a young company to go international.
A article about this topic (http://blogs.hbr.org/2013/01/go-international-young-startup/) underline my thesis about the structure: “That’s why I think it’s critical for companies — including and especially young businesses — to go international earlier, rather than waiting five, seven or 10 years.” To expand and to go international is one of the most difficult things and you have to think about the risks…
But very important is that you have a good backup. If you have problems in your home-market you should not go international. For young companies it is very difficult to fight on two sides (international and in your home-market). I think to “start-up internationally” looks easier then it is!
April 21, 2014 @ 9:49 am
There is one specific type of industry, where being born international is much more easy then it is in others, namely in the online world.
Depending on the type of website/app, whether it is an e-commerce site, a social network, a video platform, a dating site and so on, it may be very easy to start international or you may have the same problems as an old-economy business that is going abroad.
When starting such a platform globally, you may face some of the following problems:
technical issues like server locations (page speed);
cost of translation and their technical implementation (e.g. with Arabic or Chinese letters);
design problems when adopting to the psychological color interpretation of different cultures (may be neccesary or not);
and much more
But just the fact, that you can reach nearly every market through the Internet, without having to change your location, build new plants or something like that gives businesses in the online world a big bonus when planning to go or to be born international.
April 25, 2014 @ 9:44 am
Certainly, the best case scenario for a start-up company in both, domestic an international market, is having properly done all homework and to enter the respective markets systematically only after having achieved the best level of Corporate and Product readiness. In order to withstand the rigors of international competition, companies seem to need a well-developed and accepted product or service, time-tested internal processes, significant financial assets, experience in international trade, and knowledge about foreign cultures and laws. Undoubtedly it takes a while to develop such resources. In general new ventures are expected to begin domestically and for their international operations to evolve slowly, but global start-ups are international at inception. De facto there do exist sometimes possibilities, situations and factors which diminish such a systematic approach as other aspects do prevail and offer unique chances for start-up companies in international business if they act flexible and quickly, but are on the other hand also capable to build up and manage their over the long-run required resources simultaneously. Sometimes even market opportunities are just given once in a lifetime and should be seized by start-up companies, even in international business.
The 21st century which is characterized by fast and immanent change and where technology is strongly impacting these changes, does also offer start-up companies efficiencies in conducting international business. Established companies, and also start-up companies do follow the path of competitive advantage correctly and most efficiently if they focus on that they are best in; on the core competencies which are difficult for competitors to imitate, which help in delivering value to customers and which enable a firm to access market opportunities. To obtain competitive advantage, a firm must have competencies that allow it to create higher perceived value than its competitors or to produce the same or similar products at a lower cost, or to do both at the same time. Core competencies are built through the complex interplay between resources and capabilities. If start-up companies have such strong or unique capabilities allowing them to gain a competitive advantage in international business, I think it can be an accepted approach (and can from case to case also have the potential to become a valuable one) if they succeed to work on their systematic path and build up their resources simultaneously. Under these aspects an unsystematic market entry mode cannot be claimed as deadly sin in international business.
If this competitive advantage cannot be achieved or striven in international business by start-up companies from the very beginning or respectively within realistic (short) time, and/or management doesn’t succeed to manage foreign market conditions and cultural diversity, such unsystematic and strategically un-orientated market entry by a start-up company has great potential for failure.
The challenges for start-up companies in international markets are for sure different compared to those of established ones, but in my opinion they might also bear great potential for managers or founders of start-up companies to be followed who need to have much more awareness, ability and skills to respond to them in the right form and at the right time.
March 14, 2018 @ 9:09 am
Why would someone start a Business in a Country where there is no market for this product?
This seems to me like an impossible plan. Startups usually have a lack of financial and human resources and should therefore not spend too much of both for travelling. In my opinion, there is only one Option: move to the Country where your market is.
It’s a different Story when there is already a decent Business established in the home market, where entering another Country can be financed from the cash flow of the home Business. But also then it is essential to have a local employee or even co-founder in the new market. There must be something who understands the culture, the legal restrictions and the market dynamics.
Take Uber for example. They started out in San Francisco – the place where the founders lived. That gave them the Option to directly talk to (potential) Clients and authorities. Once they established quite a good Business, they moved to other similar cities, but always with at least one representative living there.
Entering a market, getting to know the culture and doing Business remotely does simply not work in an efficient way.
Another example that I would like to mention here is fifteen seconds (http://fifteenseconds.co/). fifteen seconds is a Marketing Festival taking place in Graz once a year. The whole Team sits in Graz and the Festival has taken place already 4 or 5 times. This year they are expanding their Business to Detroit, MI without having an Office there. They accomplish all of this with lots and lots of Business travelling which is only possible with the Money that’s earned with the “home Festival” (and probably some venture capital).
My lesson here: when founding a Startup, instead of focusing only on the product, the market entry strategy should also be dealt with in Detail from the very early stages on – especially when there is no way of doing Business in the home market.
On the other Hand the flexibility of most Startup-Teams and products may be a real competitive Advantage, even when dealing with local competition.
Risk Analysis and firm decisions are of utmost importance here.
March 23, 2022 @ 11:51 pm
Just today, I read an article about the expansion plans of the Austrian unicorn start-up “GoStudent” to enter its 23rd market – the United States of America. When running through this blog, I think there is one aspect missing for start-ups that want to start-up internationally: market size estimation. Yes 50 million potential pupils – as stated in the article for GoStudent – sound like a massive potential. But how realistic is it to get a certain share of those potential customers?
There are numerous examples of internationally acknowledged and experienced companies and corporation that were blinded by the sheer numbers of a new market. One typical market for this is China. Yes, it does have more than a billion people and yes the population is improving the solvency on a wide scale. However, the question always must be: is the organization ready for this potential? Do we possess the cultural intelligence in our company to get along with the new challenges? Or, as the first aspect in the blog already states: Is our product even possibly attractive to locals?
I love to see startup succeeding and conquering the world with their innovative ideas and mindsets. Still, they need should know best – numbers are not everything and they are not necessarily what reality looks like.