When software-as-a-service (SaaS) tools first emerged in the early 2000s, the U.S. was at the forefront of adoption. With concerns around security and confidentiality, Europe lagged behind. However, over the past decade, Europe has made significant transformations with its willingness to embrace these applications.
Fast forward to today, and Marc Benioff just finished a European grand tour, gathering around 10,000 registered participants in London, Paris and Munich; bringing these events to the same proportions as those organized by Oracle, Microsoft and SAP, the three largest global software companies.
The highlight of Benioff’s trip may have been meeting the Pope, yet I was especially struck by Salesforce’s aggressive European expansion plans. Salesforce will invest $2 billion across France and Germany in the next five years, and reinforcing its professional services arm, it has acquired Kerensen, the No. 1 independent systems integrator in France. Salesforce’s financial investments and commitment to the European markets demonstrate how Europe has become the new frontier for SaaS companies, big and small.
Beyond established companies such as Salesforce, Europe can also be a high growth market opportunity for startups. As the market for cloud applications has matured, it has become easier for foreign SaaS companies to sell into Europe.
Home to 500 million consumers and representing nearly a quarter of the global spend on enterprise IT, it should be no surprise that companies see Europe as the logical next economic region to target. The CIA World Factbook estimates the 2012 Gross Domestic Product (GDP) for the U.S. at $15.94 trillion, and the GDP for the European Union at a slightly larger $15.97 trillion. In other words, Europe alone could potentially double a company’s addressable market.
But navigating international expansion isn’t trivial for U.S. companies. Answering the questions of when and how to expand abroad requires a strategic approach gleaned from the successes and failures of others. Here are three key considerations:
Are you ready to sell to and support customers abroad? In some sense, the new ease of product distribution across borders belies the complexity of figuring out how to efficiently sell to, service and support customers abroad. Usually, the model you’ve built for the U.S. isn’t the optimal one for international sales. American companies often use a combination of in-country teams and a strong, self-sufficient partner ecosystem to identify, implement and support customers across differences in language, time zone and buying behavior. While U.S. companies can take a high-touch approach to managing customer issues at home, serving customers abroad requires a well-oiled machine.
Scope out the opportunity. Europe isn’t one monolithic market, so be thoughtful about where the greatest addressable markets for your product exist. Within each distinct market, assess where your competitive positioning is strongest. The right product profile might be higher-end or lower-end than at home. Importantly, refresh your assessment of buyer rationale and requirements. Finally, identify the specific legal and regulatory issues. Matters like data residency and transit requirements as well as employment and reporting requirements are solvable, but be astute in discerning them up-front to avoid costly surprises later.
Lead with people and partners. The most important preparation factor is building the right local team. With the distance, the leadership choices you make will have a multiplied impact, positive or negative. Bring in strong people who understand the local markets while appreciating the pace and product vision you set as CEO. Partner organizations often play a larger role than in your home market, and with the right skill fit and incentive alignment, they can be instrumental in your early market adoption.
Like with all great expeditions, European expansion requires a keen strategic assessment and wise planning. Expanding abroad is an important way to magnify the size of the market you serve, and in an increasingly globally competitive marketplace, a necessary step. If the challenges of international markets make you too hesitant, there’s a good chance your competitors will be out ahead of you, passport and Google Translate in hand.
Frederic Halley is a venture partner at Next World Capital.