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THE TABER REPORT |
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June
2005
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"It's
a small world... but I wouldn't want to have to paint it." The world is a surprisingly small place, and vendors who do not expand early risk being blindsided by nimble or more powerful competitors. That said, companies must be successful in their home country before they can possibly hope to win internationally. This strategic duality is at the heart of this month's Taber Report. "Strategy
is for amateurs. Logistics is for professionals." International Expansion
For most of my readers, "international expansion" means growing your business by going outside the US. But for about a third of you, it means coming from the outside and gaining a foothold in the US -- for you, click here. Many US high-tech companies start looking overseas very early -- during their first few million dollars of revenue and VC funding. Deciding when and how to expand depends on company-specific issues of strategy and tactics. Even so, there are some generalities that apply almost universally. Step zero (this is a high-tech audience, right?) is to make your international push for the right reason. If you haven't figured out how to grow in your own country, making a big overseas push is likely to be folly. Get your business solid at home, then work internationally to extend your lead. Note that the total cost of sales and marketing overseas is significantly higher than in the US. So, it's usually a bad plan to try to rapidly expand or fix the US operation at the same time you're establishing international sales operations -- the management bandwidth requirements can become a real problem. A company's first international step should almost always be northward. The Canadian market is very similar to the US and has similar commercial customs. Canadians are easy to do business with. Even better, the Canadians aren't so badly burned out on marketing tactics, so lead generation can be quite reasonable there. Most of Canada's commercial decisions are made in four metro areas, three of which are very close to the US border. Canada can be effectively covered from US offices, and for a number of reasons the entire Canadian operation can be run out of the Chicago sales office. If you pursue the Canadian market without opening an office there, the cost of revenue will be comparable to the US. However, do not put your "second string" team into Canadian opportunities: in IT, Canadian customers are usually better educated and more methodical than their US counterparts, so they will immediately notice a weak SE or sales rep. The next step will almost always be to the UK or Australia. If for no other reason than language and legal/commercial heritage, these countries can be "opened up" with relatively minor changes to your product, contracts, and pricing model. Both these countries have relatively centralized economies, and most commercial decisions are made in 3 metro areas. So, deciding where your in-country facilities should be is fairly easy. However, I do not recommend that you actually establish operations overseas early on. The costs -- both outlays and executive bandwidth -- are surprisingly high for most companies. You can easily spend $500 K before you see the first real deal...and I've seen far worse than that. Instead, early on I recommend identifying local agents for the UK or OZ markets. These agents (sometimes in the guise of resellers, distributors, software houses, VARs, or SIs) are hungry, and they treat selling as their business opportunity. Choose the right ones, and they'll put in an amazing amount of energy and ingenuity into promoting your product locally and pursuing beachhead customers. To make these agent relationships work, they'll need 50% or more of revenues as their margin. This is actually a bargain, as the costs of marketing and selling often exceed 50% of revenues in the early stages even here in the US. The whole point of agents is that they do all the work of finding, closing, and supporting the customers. Further, you'll typically need to grant some sort of an exclusive territory for a year or more. If you design your territory strategy carefully, however, this is no problem: agent #1 gets the UK government sector, #2 the telecom sector, and so on. But making agents successful is more than just a matter of territory and margin: you have to manage them and give them access to all your sales and marketing tools. It works well to give them some access to your SFA system and to create an extranet site or portal for them. An important ingredient to international success is a high quality web site. Yes, you'll want to have foreign-language versions of your site up as soon as you try to open up a country. Make sure that you buy the international versions of your domain (e.g., www.yourcompany.fr) as soon as you know you're going into that country. You'll want to work with your in-country agent(s) to arrange for local website hosting, and it's best to have them help you with translation even if you already speak the language. Eventually, as an agent brings in more revenue you'll want to modify the relationship so you can start a local sales operation. These transitions typically take a year or more, but the timeframe is less important than maintaining their sales productivity until your own team gets going. I
recommend using agents in the European Union and Asia to start with as
well. The details will vary country by country (particularly in Japan),
but the economic pattern is the same. However, as you move beyond
English-speaking countries, you will need to make significant investments in
product and marketing modifications. This is not just a matter of
internationalizing the product, localizing the documentation, and translating
data sheets: the thought barrier is as important as the language
barrier, yet it is much more difficult to detect. Expect that your
marketing materials and sales techniques will have to be re-thought from the ground up,
particularly for the Asian and Middle-Eastern markets. Two words sum it
all up: assume nothing. For vendors outside the US, the American market is obviously huge, innovative, and fast moving. Although the Indian, Chinese, or European Union markets may have more consumers, the US is the prestige market for virtually any industry. However, what's not obvious from the outside is that the US -- arguably the most open market in the world -- is still hard to break into. For foreign vendors, the single most surprising thing about the US market is its sheer size and decentralization. Sure, most of the Fortune 500 are still headquartered within 100 miles of New York city. But purchase decisions are usually made at divisional or organizational levels, and than can be nearly anywhere in the country's 3.5 million square miles. Significant travel is required for penetrating virtually any US industry, and there is no obvious "perfect location" for your US sales office. If you're clever, it's possible to run your first year's sales operations by setting up a phantom sales office that has a US address and phone number, but is actually a pre-existing operation in Canada or Western Europe. Since the sales team is going to be living on a plane anyway, you can avoid a lot of complexity via this "remote control" tactic. Even as you start your US-based operation, it is very important to keep your entire sales, marketing, and support organization in one location until you are able to grow US sales to $5 M or so. Check out some previous reports (3 separate links) for more details on this. Before you invest one dollar in American offices, personnel, or marketing effort, you need to have a web site that looks, smells, and reads like a US company. In the US market, the smart prospect will disqualify you long before you ever even know they exist...via your web site (or lack of it). As I point out in other Taber Reports, it is almost impossible to spend too much on your website. Nothing about the web site can give away your location -- even British spelling and punctuation will betray you. Choose a US-based web design firm, and have the site hosted here. Make sure that the phone number redirects to a high quality line, and that the voice mail (or the person) they reach really sounds American. In B2B markets (particularly high tech), price and technology advantages are important... but they won't make the sale. For foreign vendors, it's critical to have references of customers in production. US customers believe references that are immediately relevant to their situation, so their order of preference seems to be:
SFA, the forecast, and other fantasies -- coming in July
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must be US-based even if you aren't.
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