When Should You Expand Internationally?
Expand too early and you risk distraction. Expand too late, and you risk more competition. So when is the best time?
When you’re in the early stages of building your company, you should concentrate your efforts in a single geographic market, wherever you’re starting from. Hire locally, work with people you know and meet customers in person. That’s the best way to make progress on finding product / market fit.
There are three stages to international expansion:
1. Tactical inbound (Low-hanging fruit)
Some inbound opportunities will arise ready to buy from you on your existing terms and with whatever support is available. They know they’re outliers and they won’t push for anything special.
2. Reduced friction (Some assembly required)
You have inbound opportunities, but there’s effort required to get customers to convert. You may be able to shorten sales cycles with modest investment in localized content, case studies, deploying native language speakers or offering extended support hours.
3. Proactive market development (Heavy lifting!)
This is when you make a serious level of investment to open an office in a new region to accelerate your growth. This may be driven by the size of the opportunity or the desire to get ahead of competitors.
Many companies make the mistake of jumping to the third stage of growth without adequately testing demand with the more modest investments of stages 1 and 2.
Once you have product / market fit and a repeatable sales motion, you may want to consider expanding geographically. For most software companies, the US is the largest market, so it may make sense to relocate a portion of the team there. It’s difficult to build a large company without a major presence in the United States. There are good arguments to consider locating in Austin, Boston, DC, Detroit, New York, Seattle. The San Francisco bay area is no longer the only choice. It’s expensive and difficult to hire there. Still, there’s a good concentration of talent, ironically much of it from elsewhere.
For companies starting in North America, there can be a tremendous benefit to expanding overseas into Europe, Latin America and Asia Pacific.
I recommend holding back and operating from your main location as long as possible before expanding into other countries. You want to make sure there is enough market demand and closed deals before you embark on international expansion. It’s expensive and time consuming and without proven demand it can be a costly mistake.
The good news is it’s easier than ever before to sell SaaS products globally without in-country operations. English has become more common in most major markets. And people are much more accustomed to purchasing software in US dollars than ever before.
Translating your software, your marketing materials and pricing in local currencies for major markets can be helpful, but you don’t need to get it all done before you start selling abroad. You can get pretty far sticking to English and USD pricing.
Ironically, the US is completely provincial in this regard. To sell into the US, you need to translate everything into English and price it in USD. Don’t just rely on Google translate either. Make sure your materials are written by a native language speaker.
Product / Market Fit First
The US is a large market, so my advice for founders is different if you’re in the US expanding into Europe or if you’re in, say, a European country looking to expand into the US.
For companies founded in non-English speaking countries in Europe, it can be helpful to expand into the UK or other large European markets to get more experience under your belt before expanding to the US. I suggest waiting until you have at least $2-3m in ARR before attempting to build a presence in the US.
Companies starting in the US have a much bigger initial market, so it’s better to wait until you have somewhere between $5-10m ARR before expanding internationally.
The first thing to do, before launching a physical presence outside your home turf, is drive lead generation to build momentum. The two easiest ways to do this are to run paid search, e.g. Google Ad Words and webinars. If your current operations are in North America, expand ad words into major English speaking markets such as the United Kingdom and Australia. The second thing to consider is offering webinars at times that work for international markets. Unfortunately, there’s no time that works for Europe, Australia and North America. So start with UK & Europe, which is the largest market.
You can round-robin your international leads to sales reps at headquarters. Concentrate on major markets and ignore those from far flung regions like China, India, Russia. They are simply a distraction. If you happen to have local staff who speak different languages, that can be helpful. Otherwise, Google translate works surprisingly well. UK and Australia are easy markets to get started with since they speak the same language and operate a lot like US customers.
Don’t even consider staffing an overseas location until you’ve proven there is demand in market. The best way to do that is to build the pipeline and close some deals. Run the operations locally until there are so many opportunities it’s overwhelming and obvious that you can build a business in country.
I strongly recommend a one-region-at-a-time approach. If you try to expand into Europe, Asia Pac, Latin America and Timbuktu at the same time you will likely fail. Worse still, there will be so many variations being tested, you won’t know why you’ve failed. It’s far better to tackle just one new territory at a time, starting with the biggest market first. For companies based in North America, that means expanding into English speaking Europe & UK first.
The risk of expanding too quickly is that if you do not have strong product market fit and a repeatable sales motion, international expansion will be a huge distraction because you will spend a lot of time setting up legal entities, bank accounts, getting an office, recruiting, translating, etc. The risk of expanding too late, is that you may leave yourself susceptible to stronger competitors, especially in the US.
As you look to open an office in a new country, consider how you will shape the culture in a new territory. For companies outside the US, this usually requires one or more founders to relocate to the US to create a new headquarters. You may choose to keep some or all of Engineering in your home country, but to sell into the US market, you need to build a go-to-market team in a major US city.
To be clear, this is a massive step for any founders and not to be taken lightly. Relocating a team, even a small one, is an exciting endeavor. US investors, naturally will want this to happen and they will have strong opinions about where to locate. The opportunity and talent available in the US can be a tremendous boost to any company.
Getting Closer To Your Market
I was an advisor to application security management company Sqreen.io that started in France. The founders CEO Pierre Betouin and CTO Jean-Baptiste Aviat raised their seed round from Point Nine in Berlin in 2016 with an eye toward future expansion in the US. They were able to close several early customers in France on the strength of their reputation as founders of the offensive security “Red Team” at Apple.
They built a global company from the beginning, using English as their primary language and hiring diverse teams early on. Customer interest was strongest on the west coast of the US, so Pierre traveled to San Francisco for ten days every two months, building contacts and following up with potential customers.
In late 2018, when it became clear they had a large opportunity in the US, the whole team relocated to San Francisco for three months to participate in YC. This enabled them to meet a large number of prospects and investors in a compressed time. They raised a small sub $1 million round with French and American Entrepreneurs to ensure that they had local expertise they could draw upon as they expanded. Subsequent to YC, they raised a larger series A round from Greylock in 2019.
Pierre and early go-to-market employee Lucas Masson stayed in San Francisco to build their US operations, taking care to keep a balance with the mothership in Paris. Pierre continued to travel regularly between Paris and San Francisco. They also rented condos in San Francisco to facilitate visits from employees and ensure collaboration across locations.
The company grew much faster with operations in the US than they would have otherwise. They were in closer contact with key customers, and this helped drive important roadmap decisions.
Sqreen received an attractive acquisition offer from Datadog in 2021 and made the decision to sell in lieu of raising a Series B. Although Sqreen could have remained independent, the timing of the acquisition was fortuitous. It’s safe to say that as a public company Datadog has weathered recent market turbulence better than many private startups.
Mitigating Risk As You Expand
The biggest risk in starting up a new location is that it ends up isolated and ineffective. What’s worse, is it then becomes a drain on operations, distracting you from your core business.
Unfortunately, I’ve seen companies stall in their international expansion many times because the new operations were culturally adrift from the startup. You open the office with great enthusiasm, there’s an initial flurry of hiring and PR. And then… crickets. Sales are slow. It’s hard to stay in touch across time zones. What are they up to? Why aren’t they getting results?
Then there are more frequent visits from the founders and executives, reassurances that it takes time to build new markets, glimmers of improvement, but still, not quite the traction you hoped for.
The best way to mitigate the risk of a failed international expansion is to relocate an early employee to the new office. The candidate should live there 4-6 months, coming into the office every day to help bake in the known best practices from headquarters. Their job is to run experiments in the new market and tune things as necessary, sticking as closely as possible to what has been proven in the US.
Your ambassador must be a fully trusted employee with good judgment and a well-rounded perspective on sales, marketing, support, product and more. They are there to build the local muscle and connective tissue so that the new operation can operate in parallel with the headquarters. Independent and fast moving, but not wholly different from what has worked in the US. Your ambassador might be in product, marketing, or sales. They should be hands-on with their full focus on making the new operation a success.
Once you’ve got some proven demand and closed some deals, I recommend hiring a local customer-focused team. Keep it small with a minimum of overhead.
It’s easy to get excited about the potential staff up too quickly with marketing, HR and more. Instead, I recommend putting a small team focused on Sales and Support, with a local operations / office manager to handle everything else. Having local, in country support can be a distinct advantage when closing mid-market and enterprise customers. If your product is technical, you’ll want to have local technical talent, in the form of a system engineer. That person may do double duty to do some post-sales technical work also. For everything else, rely on talent from your main office.
Once you’ve got enough revenue coming in to justify your initial hires, you can hire additional people to accelerate your growth. That would typically be to build localized case studies and run local marketing events. Since your international operations are still very much a startup, you need to hire generalists who can wear many hats.
Expansion As A Competitive Weapon
Zendesk was founded in Denmark in 2007 and raised its first outside funding from Christoph Janz of Point Nine in 2008. A few months later, the company raised Series A funding from CRV and moved to the entire team to the US. Sometime after that, Michael Hansen, the first employee, set up a UK support team, staffed by recent university graduates.
In the early days, the entire business was based on Product-Led Growth. Prospects signed up for a trial and then bought over the web via credit card. The company provided great support, but there were no sales people. The idea was that by delivering a great customer experience, word of mouth and great software would do the job. That worked well enough to break through to $5m in ARR.
I joined the company in late 2010 as Chief Operating Officer, with the charter of expanding Sales and Marketing. We started hiring US sales reps and within 90 days, the first cohort were hitting or exceeding their quotas. This put us around $7m in ARR and we took the next step of expanding sales internationally.
We knew there were several small local help desk tools in the European market and we didn’t want them to gain traction outside their core market since it would make our life harder. So we hired a former colleague of mine, Matt Price, in 2011 to run our international operations from London. Matt had worked in the US previously, and had experience running sales and marketing for US-based startups previously. Our European investors Chris Janz and Index Ventures were helpful, especially with customer and partner introductions.
About six months later, we expanded into Asia Pacific. Our expansion in the UK was going well, but this was faster than I would have normally done. However, we had a unique opportunity. Michael Hansen, who was now running partnerships wanted to move back to Melbourne where he had a home. Michael was a startup guy through and through and he embodied the soul of Zendesk. He was kind, fun, friendly, smart, customer-focused, demanding and no-nonsense all at the same time. That said, Michael was a cowboy and had little tolerance for corporate bureaucracy. So I knew there was some risk in putting him in the job that he might quit or get fired at some point.
Both Michael and Matt were great leaders of their regions. They hired well and understood the spirit of Zendesk and what we were trying to achieve. Both regions became entrepreneurial hubs, driving growth and innovation in the company for many years.
Some markets, like Japan, were tougher than others because of the entrenched business practices. But our growth in Europe and Asia Pacific regions enabled us to continue to more than double the business year over year, faster than many SaaS companies that waited longer to expand. In subsequent years, both our UK and Asia Pacific operations expanded to include product and engineering, creating more job opportunities and enabling us to tap into more talent than we could in San Francisco.
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Great post. Perhaps it's a "the grass is greener" mindset, or "the pot of gold" at the end of the rainbow, but I find too many founders seeking to expand globally, before they are ready.
Some years ago, I was recruited as CEO of a young start up. Part of it, was my experience with companies like this and their space. Part of it was they were headquartered in Paris and had intention of expanding aggressively in North America. The challenge was, they hadn't solidified their GTM strategies and their abilities to support customers in Europe. They were still struggling to figure out the formula.
Expanding to North America, at the time, would have been the kiss of death. They would have outstripped their ability to support Europe and NA. They hadn't even locked in the formulas for success, so would have been entering without the appropriate experience base.
We deferred the expansion to NA for 2 years. We expanded wildly in Europe, then went when we were ready.