#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…

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