A Startup’s Guide To International Expansion

Startups can now reach international markets almost immediately at launch. Product/market fit is geographically, industry and company-size agnostic — SaaS makes your product adoption almost instantaneous.

Although this early global traction can happen organically at the beginning, the reality is that startups must be strategic about systematically scaling from a local region to any number of international markets.

To help answer how, I developed a practical guide to scaling globally (below) after spending years identifying and launching international markets with Dropbox and collaborating with dozens of other international executives from Google, Facebook, LinkedIn, Twitter and Uber.

The most successful companies understand which questions to ask and which metrics to prioritize when determining the roadmap for international expansion. As I mentioned in a previous post on scaling, it’s a matter of understanding what scale means for your business, and how to do it the right way.

In this post, I will lay out that “Phase 1″ of international expansion enables you to determine where and when to expand internationally. Before doing anything, you must understand market attractiveness, product readiness and business drivers to determine this.

In short, when 25 percent or more of your business is coming from international markets, it’s time to scale outside your home country.

The tricky thing about scaling internationally is that the globalization process requires cross-functional cooperation and alignment — engineering and product teams need to coordinate in a new way with go-to-market operations like sales and marketing.

Startups also can fall victim to an “out of sight, out of mind” mentality, where leadership struggles to balance the successes and immediacy of the local market with the resource-intensive initiatives and patience to expand to new regions.

The Framework For International Expansion

There are a few important things to know before applying for passports or work visas, lining up temporary space in “Facebook’s original Dublin office” or creating new international swag:

  • Baseline Assessment: Understand the market and where your product fits (strengths/weaknesses, regional competitive set, etc.).
  • Product Gaps: International markets require product modifications (user flow, design, communication touch points, etc.).
  • Vision: What “being international” means for your company (align the board, founders, leadership team and employees).

Using the data from your “Phase 1” diligence process (assessing market attractiveness, product readiness, business drivers), now ask the important questions to determine your expansion roadmap.

Which Markets Are Most Attractive And How Do I Prioritize Them?

The most obvious options include non-U.S. markets with high broadband and mobile penetration, favorable socioeconomics, stable political environments, accessible payment infrastructure and relatively easy regulatory and tax requirements (often English-speaking markets).

A good way to get a baseline understanding of which markets to prioritize is to look at GDP per capita compared to overall Internet population by country. Startups typically first tackle countries with a large number of target customers and high levels of disposable income. The U.K., Canada, Australia, France, Germany and Japan are good examples.

Be patient as you navigate through global expansion.

In addition, many startups use Australia and New Zealand as test markets because they rarely make up more than 10 percent of revenue at scale, and media are more forgiving of experimental ideas. You also can generally manage expansion into Canada from your U.S.-based headquarters or an east coast office.

Which Markets Are Most Challenging?

While certain regions can end up being more or less difficult depending on your particular industry dynamics, countries with difficult regulatory and privacy rights environments tend to be more challenging for any international company. Examples include China, India, Brazil and, sometimes, Germany.

Japan, while an attractive market for all of the reasons stated above, is culturally the most unique and often requires a different plan and a longer time period to develop than the other regions.

For example, rather than a company-sponsored landing team, Japan typically requires that you first hire a local GM to helm that office; one with experience and strong ties to whatever market in which you are competing.

How Do I Structure Regional Operations: Engineering, Product, Sales, Support And Marketing?

This question is common, but the answer varies depending on your go-to-market plan in each region. It’s also important to study what has worked well in your home market. B2B software companies typically need direct sales and support teams in close proximity to local customers. For companies with a direct sales model, you’ll also likely need a sales engineer or two and a marketing partner to help generate leads for the sales engine.

If you enjoy a robust self-serve model, it’s important that you have region-specific lead-gen plans and local support members who speak the native language and live in your customers’ time zone.

Remember, the leader of your regional office will be the lead of whatever function comprises the majority of the headcount. You’ll run into trouble if you hire a revenue-focused executive interested in managing a country office and you are only doing user operations.

What Does The Landing Team Look Like?

Again, there is no one-size-fits-all approach. To ignite expansion, companies like Google, Facebook and LinkedIn created small teams from headquarters and sent them to new regions, tasked with hiring a local team and growth. This is the best way to preserve and export the company culture and ensure brand consistency around the world.

Uber is the single greatest example of global expansion execution — it now operates in 64 countries and hundreds of cities. Uber uniquely benefitted from its model of first honing its regional playbook by launching in domestic markets, then exporting its plan globally.

Startups must be strategic about systematically scaling from a local region to any number of international markets.

The company essentially created an internal three-person franchise model consisting of a local GM, social media marketer to drum up consumer demand and a driver operations manager to develop driver supply. From there, each operation added resources as necessary. In most cases, Uber hires local talent who better understand the local landscape rather than relocating team members from HQ to those regions.

Are There Some Interesting Expansion Models? Who Really Messed This Up?

Pay attention to the cautionary tales of Groupon, Fab and (in its first iteration) Airbnb. Airbnb learned from its initial over-expansion and subsequent slow-down in 2013 — it has since executed with centralized operations and a more localized product and data-driven approach.

Groupon and Fab’s overzealous expansion was one of the contributing factors to each startup’s overall decline. All three are instructive examples about what can go wrong when facing well-funded competitive marketplaces with unproven business model fit.

Twitter’s go-to-market model included two unique strategies, both targeting Japan. First, it created a joint venture with Digital Garage in 2008. Through Digital Garage, Twitter created an entirely different service specifically targeted for the Japanese market. It even started charging for premium services in early 2010, years ahead of any business model in the U.S.

Be patient as you navigate through global expansion. In my next post, I’ll give you a hands-on framework to operationalize your plan, open offices, build your team and start generating revenue.