May 30, 2022
The Secrets Behind A Succesfull US Expansion: Timing, Location, And Community
"Entrepreneurs can be great Do-It-Yourselfers. After all, they spawned an idea, developed the tech, founded a company, built the team, and succeeded. I find that some entrepreneurs apply the DIY mentality to almost everything, including expanding internationally, which isn't always sage. Savvy entrepreneurs know when to identify trusted partners. Some entrepreneurs don't acknowledge that they don't know what they don't know and can have a false sense of competence."
The words are not ours. They come from Joanne Farquharson. She is the president and CEO of Foothold America - an organization that helps non-US SME's getting... Well... Foothold in America.
However, we thought that they seemed perfect to begin this second article on our series on The Dos and Don'ts of American Expansion. Wherever we ask, getting help and guidance from experienced players is a recurring advice.
It makes sense. While we share a weakness for democracy and free-market capitalism, there are still considerable differences in the market dynamics and the business cultures. Because of that, you need help to fake it and to make it, and you sure can't do it alone.
We may have gotten rid of scurvy and marauders, but you can't just pack your bag, spend your last pennies on a boat ticket to New Amsterdam, and then set up a gold-digging game immediately. You need help getting settled in America.
Seek support, built a network, and leverage whatever local resources you can get find. Take advantage of your American investors, join accelerator programs and hire locally. You need help building up a brand in the US. You need help getting the first American customers as social proof. You need help recruiting the right people in the beginning. And you need help to blend in and Americanize yourself to appeal to the local audience.
Find support and set up a proper network before you rush into it.
So what is the best advice for a European tech startup aiming to get settled in the US?
According to Farquharson it is this: "Know what you are doing in your home country first. It's not just about the tech; you need to have your operations in order. You don't want to be figuring out your processes from afar. Of course, you will have to adjust some ways of doing business for new markets, but internally, you need the right people to steer the ship from the home country."
"You do not have to be an Elon Musk level entrepreneur to achieve incredible success. Some clients have a detailed plan, ask lots of questions, gather data, and enter the market over a period of months or years. Others dive in with the same confidence and vigor with which they started their company. Have your end game in mind. Know how you expect the US market to contribute to the overall success of the company. If you have a future US stock market IPO in mind, make decisions that support that goal," she elaborated.
"Lean on your community and seek advice from entrepreneurs that have successfully established businesses in the US. Stumbling around in the dark is foolish if you don't need to." - Eric Lagier.
To Eric Lagier from byFounders, testing is the key. Not only if you want to control a ravaging pandemic, but also if you want to make it in America.
"Test the market. When you've decided to expand, you first need to research where you will settle. The US is the world's largest market, and taking on the whole country at once will not be successful. Start small and test the market," he explained.
And then he gets back to that recurring theme we mentioned above: "Lean on your community and seek advice from entrepreneurs that have successfully established businesses in the US. Stumbling around in the dark is foolish if you don't need to. This is where having investors with a presence in your home market and the United States is critical, as they can help bridge the gap and connect you with the right people. Speaking from experience, this is the reason why we established the byFounders Collective - a select global community of more than 70 successful founders and operators from the best Nordic and Baltic companies, available to support our community of founders - as the foundation of our fund."
In Silicon Valley Bank they also have experience with helping European tech companies getting settled in the US. When we talked to Sebastian Penn who is Managing Director in the bank, he told us this: “We have seen many different ways of winning the US market - strong local partners that has done it before and knows what to consider is often very helpful. But in the last many years weve also seen great European partners that have deep network and knowledge in the US already be a great help to open up the US market - and they are also very familiar with running a business across different geographies. And more and more investors and service providers have offices in both US and Europe and so are very familiar with the transition. With the right partners the journey will definetely be easier.”
Okay. So we've established a few times now that getting help is crucial. One could argue that a reader of this very article is already seeking help. Why would you read it if not to seek advice? To honor that, let's look more into some of the basics.
And what is more basic than time and place?
Timing is key
One of the most important things to consider is timing. European tech companies tend to wait longer with the US expansion than they used to. Research from Index Ventures shows that startups are increasingly holding back expansion until after their Series A and Series B.
One major reason is that it's easier to have success in Europe. The old continent has undergone a significant digital transformation in the past years. There are simply more potential buyers in Europe than there used to be. Another reason is - as previously mentioned - that it's easier for European companies to raise money remotely. That gives European tech a better chance to validate their product and their strategy before taking the jump.
You'll probably just get one shot to make it, so it's important to get the timing right. If you wait too long, there is a risk of missing out. But if you go in too early, you might not have sufficient funds and market validation. So what do you do?
"As a general rule of thumb, you're ready for US expansion when you have a proven product/market fit and an established scalable business model. Don't rush to expand until you are sure that it's the best fit for your startup. The US can be a crowded space with a lot of competition, and you can quickly run out of money, trying to make a dent in the market. We, therefore, see more and more European startups building up strong commercial momentum locally and regionally in Europe before going head to head with their competition in the US," explains Eric Lagier.
"You need to start by making sure you do your homework. Analyze your current market, identify growth drivers, and evaluate which markets (including the US) have similar or even better market indicators. More importantly, are you sure that the US is the best market for you to enter next? A lot of founders see success in their home market and immediately make the jump across the pond. In some cases, this works. In others, it makes more sense to enter an adjacent market first. For example, a startup from Iceland might first expand to the rest of the Nordic countries, then to central Europe, and so on. The key is to stay focused on your unit economics. Is the needle moving in the right direction? If so, then you may consider expanding your business to the US," he elaborates.
Sebastian Penn from Silicon Valley Bank told us that they usually see two different timing paradigms that usually get it right: “The first is that they go very early in their gestation, and that it's part of their early business plan to be in that market. They're building that part of the business and their interface with their clients in the US from the get go. The other route is a business takes its time and they really establish themselves in their home market, and they open in the US market late. This means they have an established business to fall back on and established cash flows that anchors the business before they open in the US. ”
"The other route is a business takes its time and they really establish themselves in their home market, and they open in the US market late. This means they have an established business to fall back on and established cash flows that anchors the business before they open in the US." - Sebastian Penn
Location, location, location
Another important thing you need to consider is geography. The American market might be more unified, but it's basically an entire continent, and you can spend a year's marketing budget in a day if you don't narrow down your target audience. Choose a few cities to focus on and remember that Silicon Valley and Manhattan are not the only places in the world. There are also vibrant markets in Texas, Chicago, and farther up the East Coast.
Secondly, you need to have some boots on the ground. Just having remote capacities in place isn't enough for a European startup. It's essential to build up an American office with local resources that know their way around the American market.
Many startups decide for the Bay Area, where the majority of their investors are located. But according to data from PitchBook, the proportion of VC deals taken up by companies on the West Coast fell from 62.3% in 2018 to 50.2% a year later, while the American Heartland saw their proportions increase. Secondly, the East Coast is beneficial because the time difference is smaller, which makes communication and coordination easier. In that way, European startups have a better chance of ensuring a unison company culture and coherent strategies while scaling on two continents.
Another option is running a remote team. Many successful startups, including our own and Zapier that we interviewed earlier this year, have a remote-first approach. It's a cost-efficient and flexible way to get started - especially if you already have a European framework with communications and project management tools, remote team building etc. which most tech companies already have - at least since the pandemic began in 2020.
One aspect is knowing when and where to start your American expansion. The next thing you want to focus on is making sure it's noted. That you get the attention you want and that you utilize it to close deals. We are going to take a closer look at that in our next article on how to Americanize your brand.