Before launching in a new geography, you must carefully evaluate the opportunity. How similar or dissimilar is the market? While differences always exist, can you apply anything you’ve learned domestically in the new region?
These are just a few of the questions B2B startups must consider before embarking internationally. To ensure your company doesn’t underestimate the requirements and challenges of going global, here are several pre-flight checks to do before putting your expansion plan in motion.
Understand the rules of engagement
Make sure you understand the local market’s selling environment for what you’re selling. For enterprise solutions, do they buy in big annual purchases or on a monthly basis? Do they buy from distributors who also sell hardware and services? Do they like to treat purchases as capital expenditures? All of this can vary from country to country.
Germany has a mature and well-established buying process for vendor selection and enterprise technology procurement. They will engage with you in a very structured manner and will expect things to be well packaged and presented as part of the selection process. Other selling environments can be like the Wild West. In Russia, the last man standing (after a vodka-infused evening) might very well get the deal.
Be aware of government involvement
With the exception of Western Europe, governments or government agencies do most of the technology buying. While this isn’t a hard and fast rule, it’s definitely common in emerging markets. If you’re selling software — or hardware — in markets such as Eastern Europe or parts of Asia, you will most likely be selling to the government because they have the most technology spending in those regions.
Startups working with foreign governments can expect longer sales cycles and IT budgets that can shift depending on which political party has power, causing last-minute changes in purchase decisions. The U.S. government’s views and policies on a particular country can also have unexpected sales consequences.
Don’t overlook future benefits
An expansion plan shouldn’t be just about driving top line revenue growth. You need to consider all potential benefits. Many foreign governments look favorably on companies that make investments in local jobs. Don’t automatically assume that you’re too small, either. Even small startups can hire 5, 10, or 15 people for local support. Viewed by countries as job creation, you can use these positions to your advantage when you’re entering a country — for example, with tax incentives.
Picking a geography is not all sales related; a geography may offer you something you want later down the road through lower operating costs or increased development and support opportunities. If you locate development in Ireland, you get tax incentives for your business. With development and support in India, you can reduce labor costs and get favored status with the government.
Forge a strong local partnership
You need a strong partnership on the ground with the local business community so you can rapidly engage with buyers. Even for cloud services, you still require a strong local partner you can trust. Local partners must know the environment and have an established business relationship with the relevant business community. Startups should also look for a local partner with proven success selling a similar type of product. Even if you plan to use a direct sales force in the future, international entry points need local contacts.
To source reliable local business partners, look at companies that sell into your space, including larger or medium-sized companies that sell into adjacent spaces. Additionally, many large multinational companies maintain extensive partner lists on their websites by geography. As well as being strong local operators, these companies will also be accustomed to doing business with U.S.-based companies.
Review your balance sheet
Expect to get very little revenue for the first year in any new geography, and plan your expansion accordingly. Look at your balance sheet, look at your capital structure, and look at your cost structure to determine whether you have a 12-month supply of cash to fund your international plan. If you don’t have a 12-month supply of cash, don’t waste your resources because achieving international results takes time. It’s a lot of hard work, not a three-month endeavor.
Ensure product readiness
Finally, can your product be appropriately used in the international destination? Although cloud-based solutions make language issues easier, businesses still must consider and take care of necessary translation requirements. Businesses must also think about how customers in the target country will use their product and whether there are any cultural differences that might affect product usage.
When you enter an international market, you must ensure that you can sustain and grow the business in that location. There’s an expectation that you’re going to be there for a while. By doing the above calculations, you can be more confident in the viability of your expansion plan and its long-term chance of success.
Suresh Balasubramanian is CEO for LiveHive, Inc. He has more than 20 years of operations and senior management experience in the software industry. Before LiveHive, he served as CEO for Armor5, and GM worldwide at Adobe Software.