Contributors: Andrea Flair Nathan and Lucy Kim, Fouad Elsaadi,
Think Global from the Start
The timing between a startup’s initial launch and first overseas expansion differs from business to business depending on multiple variables. These include, but are not limited to, financial readiness, market share in your local market, the right entry strategy, and Product-Market fit.
Regardless of these factors, startups need to incorporate a global mindset all the way from the start since continuous growth necessitates it. But if it’s something you’ll “eventually” do, why give it your focus and energy from the start?
1. Your local audience has influences from across the globe. If you’re based in Australia for example, you are dealing with a highly multicultural society with diversity in culture, ethnicity, language and values. Understanding your community and its diversity in an effort to deliver inclusive communications and solutions, puts you on the right path towards understanding and addressing problems for international markets.
2. Your competition isn’t only local. Most likely, your startup is or will be, competing with international brands even in your local market. Take for example rideshare apps in Australia, we think of Uber from the US, DiDi from China, and Ola from India. To truly deliver a unique and scalable solution, you’ll need to understand exactly what your competitors do best, and where they fall behind. Even if your competitors haven’t reached your country yet, you need to be in a position where you have a competitive advantage when they do, or when the time comes for you to expand to their market.
Therefore, keep international markets in mind all the way from planning. A global mindset can be incorporated from the start by researching competition on a global scale and exploring the cultural diversity and values of your local market which in many cases could reflect the behaviour of consumers in other markets.
When to Activate an International Strategy
In our globally connected world, there are plenty of opportunities present for your startup in international markets, and the tools needed are accessible; the wider you cast your net, the more likely you are to find a loyal customer base. At the same time, it’s a matter of focus. The focusing of the resources available to your startup, and focusing your solution to the problem of a specific target market.
With that in mind, there are times where going global first is in your best interest, and other times when it is better to wait for stars to align
When to go global from the start
In some cases, the growth of your startup calls for targeting international markets from the start. It could be due to the local market being saturated with competitors from your industry. That is, the target market has been serviced, and there are no more opportunities to gain new customers for any firms in the industry. So it may be a smarter idea to target other countries that need your business solution and happen to be underserved.
Similarly, if your solution addresses the demand of easily accessible international markets that have the same target audience, entering the international market may be more feasible earlier on, as you’d be working to optimise your solution for the same group. For example, if your startup offers a tool for musicians of a specific genre, such a group would have the same challenges and characteristics that are common enough regardless of their geographical location.
Another scenario where entering international markets from the start makes sense is where your business model relies on international operations. Take for example, overseas fund transfers, translating services, or overseas communication or trade platforms. If the startup’s value proposition relies on establishing connections between international users, going global is essential.
When to Wait and What to Wait For
Though the prospects of entering the global economy is tempting and exciting, informed decisions must be made, weighing the realistic costs and benefits of expanding overseas.
Unless you consider your local market as a testing bench only, startups should prioritise building enough momentum in their local market before expanding globally. This is done by creating a product-market fit by aligning the startup's value proposition, customers, and distribution channels to increase the odds of success.
You can measure the success and momentum of your solution in your local market by asking the following questions:
→ Do customers spread your product?
♦ Using a Net Promoter Score (NPS), a simple survey asking customers to rate from 1 to 10, can show you if people are helping you sell and recognise the product value
→ Do customers care if your business stopped selling?
♦ If you find that over 40% of users would be “very disappointed” without your product, there is a great chance that the business can be sustainable and scalable.
→Do your customers leave or stay?
♦ By creating a ‘percent monthly active’ versus ‘number of days from acquisition’, a retention curve, that is asymptotic to a line parallel to the X-axis is desirable. This would show that you have a working business that satisfies a subset of the target market.
Based on the answers of those and other similar questions, the startup can evaluate whether it is time to go global, or it still needs to focus on the local market to build more momentum.
By deciding to span out globally, there will also be more resources and funds required. Having a solid revenue base is critical, and taking the time to prepare would also be a good decision. According to VentureBeat reports, more than half of startup expansions wait until they have reached $10 million in domestic revenues before turning to international markets. Those startups took an average of 5.5 years to establish themselves domestically before pursuing international growth (source). While these numbers are based on the US market, which is a massive market compared to many others including Australia, the point here is that even though you are confident in the product and sure that it will sell in the international market, it would be wise to prepare until you have substantial revenues coming in.
Leading on the topic of finances, you would be dealing with different countries, with their own set of laws and regulations. Unfamiliarity with country-specific laws and cultural differences can lead to gaps in a business’s cost-benefit analysis. This can result in unpleasant surprises if a company proceeds with an expansion based on false premises. Venture Beat recommends budgeting the time and finances to get your international market to 10% of the scale of your domestic market and then strategizing to double both (source) (again based on the US market). By including enough time to create a reliable financial plan, despite lacking indication to show success or failure, budgeting correctly will eliminate odds of surprise and prime the business for success.
Startups are encouraged to have a global mindset from day one. This will help them understand the diverse customer base in their local market, and to handle the international competition. However, the right time to activate a global expansion strategy depends on multiple factors such as the ease of access to that international market, the similarity of local and international target audiences, your current strength in the local market and your resources. Based on that, sometimes it can be possible to go global from the start, while in other cases it would be wiser to wait until the startup has built enough momentum and revenue in the local market.
This is the first part of the Why and When to Go Global Blog. Read Part 2 here.
Disclaimer: The information provided in this blog is strictly for educational purposes to explain why and when to go global in the startup context, and it does not constitute investment, accounting, financial, legal or tax advice. It has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.