You’ve decided it’s time to expand your startup internationally. The next question is: where to? Too often I see European companies taking the default routes of either going straight to the US or adding an “easy” nearby market — from Germany to Austria, for example, or from the UK to Ireland. At th…
You’ve decided it’s time to expand your startup internationally. The next question is: where to? Too often I see European companies taking the default routes of either going straight to the US or adding an “easy” nearby market — from Germany to Austria, for example, or from the UK to Ireland. At the same time a full Mckinsey-style market analysis for a company with 50 people is a little over the top. Below is a four-step framework to help you choose the right next market(s).
Before you think through your international strategy you need to work out how to define your options. Does it make the most sense to define your expansion by cities, countries, languages, ecosystems, or something else?
For example, Citymapper’s international expansion is defined around cities, not countries (big clue in the name…). Each city has distinct transit partners to integrate, a distinct set of terminology and localization requirements, and a largely distinct user base. Synergies across cities are small. Companies such as Uber and Deliveroo are also largely defined around cities (or metro areas) since supply-demand network effects are almost entirely within cities. Being big in Berlin doesn’t necessarily mean Deliveroo will be big in Munich, too.
For a mobile games business, such as Wooga, the most important difference between markets is which distribution channels predominate. They can lump together all markets where the App Store, Play Store, and Facebook dominate mobile games distribution: North and South America, South East Asia, and Europe. Taste in games is similar across these markets and the only localization required is some translation. The truly distinct large markets are China, Japan, and Korea, where partners such as Tencent, Line, and Kakao are far more important for distribution and require careful (local) cultivation. So in games there are four distinct markets that matter globally: China, Japan, Korea, and “Rest of World.”
For companies in insurtech and fintech, regulations and licensing are an important consideration in growth. Europe has made good progress here on allowing financial businesses to “passport” across borders. In contrast, the 50 states of the US all have different licensing and financial regulations. Lemonade, one of the best-funded insurtech businesses, is an example of a company with a state-by-state growth plan.
For most tech businesses, however, including SaaS, fintech, and eCommerce, the country unit is the best way to think about market growth. I will use a country-based structure for the rest of this post.
Don’t jump straight into a massive Google Sheet with every possible statistic on 100 possible countries! Instead, think through what really matters to your specific business, along the following dimensions:
Once an analyst or an intern has pulled together the data above (ideally with a score and a ranking), you need to make a decision. Discuss it as a management team, and get input from your board. Some issues are nuanced, and some challenges can make countries complete non-starters. At the end of the day, thought, this is a decision for the CEO; it should not be made by consensus. You will never get the full set of facts, so you need to make the best decision on available information.
As a side note: If you don’t have prior experience of the country, it is important you spend time there in person to get a sense of local specificities. There is no substitute for this. Sujay Tyle, founder of Balderton investment Frontier Car Group, is an extreme example of this. He visits every market in which they operate every quarter, covering Nigeria, Pakistan, Turkey, Chile, Indonesia, and Mexico, plus HQ in Germany.
Expanding into new markets takes time. Reevaluating the decision at every monthly board meeting is too short-term. However, it is important to periodically review the investment in new markets and refocus if needed. Annually is probably the right cadence, although if your market is moving very quickly, then more frequently makes sense. Do be patient. It is easy as a founder, having built your home market to some semblance of a well-oiled machine, to believe you can copy/paste that efficiency to a new market. This is never the case. You will have false starts and bad hires, and you’ll need to tweak your product and messaging.
Rob Moffat is a partner at Balderton Capital .
