Want to grab a slice of American pie? Go early, go late, and go big
This article first appeared in City AM.
Timing is everything – an old adage that can seem redundant in an era when businesses can scale and fail at such a fast and furious rate.
Yet, it remains true, no more so than when entrepreneurs are considering bringing their companies west to make it in America.
Successful international expansions and failed forays to the US are often separated by the timing of their execution.
This is especially important in technology, where the industry is evolving in dog years. Logistics and distribution are becoming cheaper, and customers are more inclined to switch brands. New markets seem more attractive, but making it work is still a considerable challenge.
For British startups with global ambitions, timing is a crucial issue to consider when entering the US market.
Our shared language and the pro-business regulation in the US have long attracted the attention of UK businesses, and yet survivorship bias leads many UK startups to underestimate the challenges of entering the world’s biggest and most competitive market.
The US is a wealthy, digital nation with internet penetration at 88 per cent and smartphone penetration at 81 per cent. The market is also sophisticated and well-funded, with some 52 per cent of the $584bn in venture capital invested globally in 2016 snapped up by US-based startups.
UK businesses hungry for a slice of the American pie need to prepare and time their entry correctly. International expansion adds a significant amount of complexity and risk to any business, and entering the US brings a new class of competitors that are often the best in the world.
The “right answer” is not one size fits all: we’ve seen companies succeed and fail by being fast or slow, early or late, big or small.
For startups that expect the US to be their primary market, it is a sound strategy to commit early and shift the majority of resources across the Atlantic, including founders and senior leadership.
This early US entry is in effect a company move, whereby the European home market will be sacrificed in the near term. The success of the company will normally depend moving early and decisively.
Companies with sizable domestic markets can instead commit wholeheartedly to growth here in the UK – validating product-market fit and building a solid war chest at home before setting out to capture global markets. At an early stage, having two offices and focusing on two markets can diminish effectiveness in both; managing funding, culture and operations on multiple fronts is often a challenge before repeatability and scale have fully taken hold.
If a company is continuing to grow significant domestic market share, this should normally remain the top priority.
The sense of familiarity one feels for the US can hide crucial industry and customer differences. Many European startups see the US as an incremental progression of the work they have done in their home market, when in most cases, a US operation is a return to square one. The expertise you have amassed at home can lead to blind spots in the US, if it steers you to make unfounded assumptions.
Founders should reject all assumptions when entering the American markets. This means questioning and testing their tried and trusted route to market, as well as their expectations of a country that seems culturally familiar, but is a world apart from the UK.
Before you take your product to the US, do your research and find out if your customers like what they buy. Do you have significant inbound requests from US customers? What do they want your product to look like?
Just as you did at home, you’ll need to test your value hypothesis. What are the features you need to offer in the US? Who is the audience that is likely to be interested? How will they buy your product?
Just as both countries are divided by a common language, to quote Bernard Shaw, they are similarly divided by a Common Law system, regulation, remuneration and taxation. Add to this list business culture shock, managing separate teams across continents and hiring in a competitive market, and it becomes clear that considerable time and resources are needed to make the transition work effectively.
This should either be an early move of the company, or one supported by a strong and defensible position within the UK market.
While every entrepreneur and every business is unique, there are some clear patterns of success that startups should heed when looking abroad. This means investigating the expansion rationale, committing resources and senior talent to the US expansion, and getting timing right.
Most importantly, go early or go late, and when you go, put everything behind the push.
For journalists in their professional capacity only. (Personal opinions may change and should not be seen as advice or a recommendation.) We do not offer investment or tax advice. Issued by Octopus Investments. Octopus Ventures is part of Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 03942880. Issued: October 2017.