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Proactive CEOs should prioritize European expansion

EMEA is your best growth lever

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Map of Europe in blue with light shining through
Image Credits: Sean Gladwell (opens in a new window) / Getty Images

Brennan O'Donnell

Contributor

As a partner in FrontlineX, Brennan O’ Donnell is focused on helping growth stages companies expand into Europe. Previously, he spent nearly a decade at Google, where he held multiple go-to-market leadership roles in the U.S. and EMEA, building teams across both the Cloud and Ads businesses.

In 2008, I was moving to London as the global financial crisis slammed the brakes on growth for millions of businesses.

Five years earlier, I had been sent to Dublin from headquarters in Mountain View to help manage Google’s European expansion, and despite our incredible growth, the macroeconomic situation put us in an immediate defensive posture and led us to throttle back our ambitious plans.

Nearly one year ago, faced with the uncertainty of a global pandemic, companies across the world again moved into triage mode. Employees were laid off, budgets were slashed and growth opportunities were pushed down the priority list.

However, as we enter the spring of 2021, the world is a dramatically different place. Tech stocks are stronger than ever amid record-setting IPOs, vaccines are here and revenue growth is again a top priority for B2B SaaS startups.

There are ultimately three ways to drive growth in a technology startup: Extend your product offering, move into new segments or expand into new markets. Developing new products or moving into new segments may seem like a more comfortable path, but scaling a high-performing business into new markets represents massive financial upside, particularly when well-executed.

Look at some of the top-performing SaaS businesses of the past few years — 31% of Zoom’s revenue comes from outside the U.S. International revenue is 38% for Slack, 39% for Asana and 48% for Dropbox. If your company survived the past year, now is the time to shift from defense to offense and prioritize international expansion.

Your best growth lever is Europe

At $27.5 trillion, EMEA represents 38% of the world’s GDP and is the largest addressable market outside of America. Europe is the world’s second-largest B2B software market, and for more than two decades has been the location of choice when U.S. companies look beyond their own borders. With the democratization of software distribution, it’s now common for companies to discover 10%-12% of their business comes from Europe organically.

By IPO, however, these same companies average 30% of their revenue from Europe. What changes, and how do you capitalize on this massive growth opportunity in a cost-effective way? High-performing companies are making the investment today and prioritizing European expansion despite the lingering challenges of the past year.

For example, Figma, one of the most exciting companies of the past several years, announced its new EMEA headquarters in September. *Clearbanc expanded into Europe in Q4 and will be investing £500 million into U.K. startups over the next year. Nearly all growth-stage CEOs made the decision to postpone international expansion plans over the past 12 months, and for many, “testing remotely” has been an effective tactic — but it’s only a temporary solution.

The best CEOs are globally ambitious, and they know that unlocking Europe’s growth potential remains a critical step on the road to IPO.

Expand the moment you’re ready

After months of focusing on survival, it’s not always easy to recognize the right time to invest in growth. However, the key indicators that the time is right to expand into Europe are easy to identify.

First, your customer and revenue growth have stabilized and are accelerating again.

Second, your go-to-market motion in the U.S. is repeatable and scalable. If this is the case, you should also be seeing organic demand from European markets, particularly the U.K. At SurveyMonkey, I made the mistake of expanding our enterprise business globally before we had it humming in the U.S., which didn’t set the international teams up for success.

Finally, a leading signal you’re ready to expand is that you have the right leadership team and operating structures in place to support it cross-functionally. Since COVID abruptly forced all companies to adapt to distributed models, most startups are actually better prepared than they otherwise might have been to adapt to the demands of becoming a global organization.

What if you are on track, but not quite meeting all of these criteria? In that case, focus on laying the groundwork so you can hit the ground running the moment you’re ready. Start measuring and reporting country-level metrics to identify demand signals. Analyze and track the local competitive landscape. Evaluate any product development or regulatory compliance hurdles you might need to address before launching in new markets. While it’s important not to move too early, as soon as your business is ready, don’t hold back.

Experience drives success

Experience is critical when expanding into Europe. Many of the problems faced by growth-stage SaaS businesses during their expansion are both known and solvable. Our recent report analyzed European expansion data from more than 175 U.S. B2B software companies, highlighting the questions CEOs must ask themselves before embarking on an international expansion. One of the top priorities has always been hiring strong local leadership, but getting it wrong is also one of the most common mistakes.

In fact, 45% of EMEA GMs don’t survive their first 24 months in the role. Combine travel restrictions with remote employees, and hiring an experienced GM early is now essential.

Investing cross-functionally to support the expansion effort is also key. From aligning sales teams with local marketing resources to investing in product localization and remote onboarding, European expansion must be a shared priority to ensure success. Lastly, it’s important to identify adjustments that need to be made at headquarters to both empower and support in-market teams.

When I was living in London and Dublin, I lost track of the number of meetings that were scheduled past midnight, or decisions that were made at HQ without input from in-market teams with local knowledge. Fortunately, best practices for collaborating across distributed teams and managing asynchronous work are now much better understood, but launching in Europe is the time to make sure everyone is thinking globally.

The time to be proactive is now

Many investors will encourage CEOs to remain U.S.-centric this year and perhaps expand their product offering or move into new market segments. But 95% of the world’s population lives outside the U.S. The European startup ecosystem is flourishing, with venture capital invested up 80% since 2017 to $41.1 billion in 2020, and local competitors being created daily, particularly across B2B SaaS.

Once your company has a repeatable sales process, is seeing European customer demand and has the right leadership team in place, the sooner you invest in international expansion the greater your chances are of capturing the market. Just because getting on a plane might remain difficult for the next several months doesn’t mean the market is going to wait around. Globally ambitious founders recognize that expanding into Europe is not only a compelling growth lever but also a smart way to diversify their exposure to the health regulations and economic challenges of any one country.

Every growth opportunity requires investment and comes with risk. I’ve experienced firsthand the hard work required to make international expansion successful, even in times of favorable conditions. Regardless of the ongoing pandemic, geopolitical headwinds or economic downturns, the European opportunity has never been larger and business continues to move forward.

Building a global company takes a dedicated CEO who is in it for the long haul. If you’re ready to expand, don’t procrastinate. The time to be proactive and go on offense is now.

*Frontline has a financial interest in Clearbanc.

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