It used to be that international markets were the domain of mature and well-established companies and that international sales represented the final step in a progression of sales that started locally, moved to regional sales, and then moved to national sales. Once a company could develop national sales, they could then manage international sales. For startups, though, that path can be very different. Much like the disruptive technologies, products, and services being developed by startups, startups are disrupting the model of when to go global.
Unlike traditional manufacturers that typically focus on building sustainable long-term value and manageable growth, startups, to be viable and successful, need to find streams for revenue and rapid growth. More and more, international sales represent an important stream. Why are startups thinking globally earlier and differently than traditional manufacturers? Part it of might be because the functional distances between companies and customers have shrunk, because B2B and B2C platforms are making connections much easier, or because the cost of market visibility is so much lower than before. A big part, however, seems to be that startups just don’t draw that big of a distinction between domestic and international sales and are willing to pursue growth opportunities regardless of national borders.
While this is generally a positive, there are risks involved in pursuing international sales. While international markets can represent significant sources of revenue and growth, the risks and costs, both actual costs and opportunity costs, can be more acutely felt by startups with their limited staff and limited resources, so knowing when to go global is an important decision for a startup.
The experience and global focus of the founders is an important component of the decision of when to go global.
While there isn’t an exact formula for when a startup should consider going global, we do know there are several factors that can determine when the time is right. Firm life-cycle, level of financing, firm infrastructure, experience and global focus of founders, and industry sector are all factors to consider as a part of the decision-making process of when to go global. From a life-cycle perspective, it’s important for a startup to have moved beyond their iteration phase when they are contending with a minimally viable product and still may have pivots to their business model. At this point, international sales are likely to be a distraction and take away valuable resources better utilized in reaching their scaling phase. Because of this, a marker for readiness to go global should be the scaling phase minimally or the take-off phase when resources can be focused on pursuing growth.
As equally important as the life-cycle factor is the level of financing. Market development is not without its costs so it’s important for a startup to be sufficiently capitalized so that market development costs do not come at the expense of more essential needs. According to a study by the International Trade Administration, a critical benchmark to going abroad is reaching Series A or B financing or an equivalent level of financial capitalization. Similar and related to level of financing is infrastructure.
To successfully pursue international business development requires dedicated resources and staffing to support market entry. Activities such as market research, regulatory and licensing compliance, export logistics and international customer support services will need staff paired with the appropriate resources committed to supporting the international efforts. Therefore, staffing capacity and technical resources will be an important check on the firm’s level of readiness.
Also, the experience and global focus of the founders is an important component of the decision of when to go global. Having well learned lessons to draw from, founders with previous experience in scaling are more likely to be able to expand at earlier stages in the life-cycle. Founders with previous experience are more likely to have international markets in focus from inception and so are more likely to have a business model that can adapt to the various contingencies of the global market. Without a commitment to pursue international markets from senior levels, startups will find it difficult to acquire and commit the necessary resources.
Lastly, the industry sector of the startup is an important component of the readiness decision. Industries and technologies can face very different levels of foreign regulations, barriers to entry and market development cost. The lower the levels of regulations, barriers and costs, the less difficult and less costly, in terms of resources, it becomes to successfully begin to develop international markets. Therefore, the decision to go global can typically be made sooner by startups facing lower levels of regulations, barriers, or costs than by those startups facing higher levels of regulations, barriers, or costs.
Again, there is not an exact formula to know when a startup is ready to go global. Each startup is unique and will face its own unique circumstances. Startups that are more likely to be successful are ones that have made a considered review of where they are as a company and what their objectives are and have made a good business decision as to whether or not the expected returns from international markets justify the use of their limited resources.
The good news for startups is that there are a great number of resources at the local, state and federal level that will help guide startups through the decision-making process to pursue international sales and that can provide resources to add to or to extend a company’s resources. Startups should reach out to their innovation ecosystems, small business development centers, state-level export assistance programs, and, at the federal level, their local office of the U.S. Commercial Service to advantage of the resources and programs available to them.
Steven Murray, Senior International Trade Specialist, U.S. Commercial Service – Pittsburgh, Steven.Murray@trade.gov