From a Modest Office to a Global Player: Why Start-Ups Should Start Thinking about International Expansion Early On
Starthaus BeratungAn international expansion guide for start-ups
Many start-ups dream of becoming a global company. Making this dream a reality involves taking opportunities for internationalisation into account early on, and identifying them. Here is a guide to help you expand your business internationally.
There are two ways of approaching international expansion: either by implementing an international business model right from the start, or starting by growing in the domestic market and then expanding into new fields later on. Both approaches have advantages and disadvantages and involve their own specific requirements and challenges.
We'll describe them for you here:
Starting globally: aim for international expansion from the very start
Service companies in particular like to start off by thinking big. This might involve, for example, digital business models based on platforms, Software as a Service or application software. There's no infrastructure required because server capacity can be scaled up as quickly as necessary.
And this brings us to the first tip:
Global expansion for a start-up tip 1: Keep your business model lean
Your user base should be as broad as possible. However, this can only happen if your product is not designed to meet country-specific requirements and if every user throughout the world can be included in your target group.
Keep your idea as focussed as possible. You'll probably start off with thousands of ideas about everything you could do. But this increases the risk you'll get lost in the detail and lose sight of the users. Product development will also take far too long and you'll waste valuable time. Leave out everything that's not absolutely necessary. This is a method known as, among other things, the Minimum Viable Product (MVP) approach.
Global expansion for a start-up tip 2: Use English in your communications
English is the most widespread business language and will probably also have first priority in your company. Things that seem obvious for the web site or for marketing also apply in other areas: do you write software for web sites or for your product? Then write the texts in English. Do you have a CRM system or use other tools to organise your company's activities? In that case, also use the English version. Sooner or later, you'll recruit international colleagues who will have to work with what you've created up to now. Getting all of that content translated first will take time and isn't necessary.
Global expansion for a start-up tip 3: Think about markets, not countries
There are many ways of finding your target group and focussing in on it, such as the persona method or a traditional market analysis. The important thing in every case is: don't let geographical frontiers stop you. If a business idea is to achieve international success, it must work for users who have the same problem, no matter whether they're in Germany, England or India. And you have to provide them with the solution.
Of course, it is important that you take a country's specific features into account (see below), but don't let these prevent you from creating your MVP. You can think about optimising your sales campaign or product for individual countries later on, once you've created your first user base.
Global expansion for a start-up tip 4: Capital is your friend
It's no secret that expansion costs money. If you want to pursue expansion right from the start, your start-up won't be able to finance it all on its own, because it won't grow quickly enough. In the worst case, your competitors will soon cotton on to what you're doing and steal your customers. For this reason, it is important that you start looking for investors at an early stage. There are a number of very different approaches to this. A sound idea is to start by looking locally, at contacts in your network.
Global expansion for a start-up tip 5: Business development is a cornerstone in your company
You need a good product. Full stop. But this doesn't just mean the product has to work flawlessly: many start-ups fail simply because the market doesn't need them. Successful start-ups tailor their ideas to what their customers need. The product that gets sold at the end of the day is almost always different from the one in the initial designs. This is why on-going user tests are so important.
To create the optimum product, you need to know your markets, your customers and your competitors, and also how your company will develop in future. It is vital that processes and procedures run smoothly in the background, particularly for international companies, even when individual employees live and work five time zones away. Many start-ups start having problems when they evolve from being a "family" to being a "company": a company with between 20 and 50 employees needs new processes and communication channels. This is where it's helpful to consider modern ways of working such as agile working practices, right from the start. For this reason, you need to put effort into your business development.
Would you like to find out more about how you could expand your business internationally?
Then register for your own workshop event, together with Start-up Scout Lena Esseln from German Accelerator! On June 23rd, she will answer your questions about internationalisation and explain how your business can benefit from early preparation when it comes to expansion. With exclusive insights from the German Accelerator program, you'll find out about the skills and tools you need to build an internationally successful, scalable company.
Internationalisation: expanding out of an existing market
As the saying goes, "A plan rarely survives first contact with reality". Only a very small number of start-ups manage to have a presence on the international stage from the start, and it is more often those with a narrow target group than those focussed on a broad end customer base. This is because their marketing involves less time and effort (even if a deft approach to targeted communication can attract a great deal of attention very quickly, for example, by using social media channels to beneficial effect).
A host of other limiting factors stand in the way of large-scale expansion: if you produce and sell a physical product, rather than using a purely digital business model, you'll be faced with hurdles such as production costs, scaling, storage, shipping and legal constraints which will restrict the market.
For this reason, a lack of capital often prevents rapid expansion abroad. However, even start-ups that start off by growing and expanding in their home country can successfully expand internationally. In this case, they have the advantage that they have already gained experience, can prove they have customers and revenue streams and know how to adapt a product to their customers' requirements.
Factors influencing the international expansion of established start-ups
So, the decision has been taken. You're also going to sell your own product internationally. Now, it's important to set the right course and bear a couple of things in mind:
1. Representation/location
One factor is the issue of location. Thanks to modern communications, many products can be sold from anywhere in the world. It's hardly necessary to have a presence in other countries, particularly for digital goods, and even many physical goods can be sent from country to country without any problems, especially within the EU.
However, it can sometimes make sense to have your own offices abroad. There are many reasons for this, for example, if the time difference is too big for effective customer support, if the product needs some explanation or has to be demonstrated, if customer relations play a major role in sales or if storage and shipping have to be organised locally.
In this case, you'll need to set up your own office. Many start-ups start off small to keep costs down, for example using co-working spaces, office-in-office solutions or representatives. The foreign trade departments of chambers of commerce and industry will often know what the best solution is.
2. Personnel
Having an office abroad means recruiting staff. In this case, we recommend you send out one of your own employees, who is keen to working independently at that location. Another option would be to recruit employees locally. However, this can be a significant challenge at a distance, especially if you want to integrate your employees in your own corporate culture for the long term.
3. Legal issues
Anyone who wants to bring goods into circulation must know about the legal situation in that particular country. Although this is much more complicated for physical goods than for digital products, there are still a number of things to bear in mind, whether its warranty obligations, the right to return or – something many start-ups often ignore – trademark law. We recommend you work together with legal firms that are familiar with legal matters in that particular country.
4. Competition
Even if you're unique within your home market, you might have competitors abroad: before you enter the market, you should ideally carry out market analysis, have a good look at countries, customers and competitors and weigh up whether and how to place your product for the best, or if you still need to modify it.
5. Language/culture
Different countries, different customs. Something that works well in one place might go badly wrong somewhere else, simply because the ethos of your product and your company don't fit in with the local culture. It's not just start-ups that make this mistake: established companies are also equally prone to it. Walmart's attempt to get a toe-hold in Germany is a famous example. The mega group failed to do so spectacularly in the 2000s, not least because of the very different corporate culture.
6. Network
A portable network is an essential thing for young start-ups. If you don't sell direct to end customers, you'll need a good relationship with the supplier, broker or the sector in general to get your products to the consumer. Recommendations and information passed by word of mouth are often the most important sales channels for start-ups. However, establishing these channels abroad is especially challenging. If you want to expand your business, you should think carefully about your sales channels and how you can successfully set up new networks.
7. Standardisation
Establishing uniform standards for organisation and communications within your company can make expansion easier. The same applies to the tools you use to structure the way you work together and to your operational processes: do you have a centralised Accounts or Human Resources department or does every office do this kind of work for itself? You could also ask your tax advisor about this.
8. Costs
Internationalisation costs money, especially when physical goods are involved. For this reason. start-ups should over-estimate the costs and then add a good bit more on top, to get a realistic idea of what the costs might be. However, there's support available when it comes to financing, for example, from the German Accelerator.
Interested in founding a company? Feel free to send us an email at info@starthaus-bremen.de or call us at +49 (0)421 9600 372 if you have any questions about your startup (idea). We have the answers.
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