Investing in a European company and successfully expanding to the US is a great way to grow shareholder value at a startup, but getting it wrong is also one of the easiest ways to lose your shirt. A number of our portfolio companies at DFJ Esprit have had great success launching in the US, including at KVS, Zeus Technology and buy.at – three of our most profitable exits in recent years, and we’re starting to get a good idea of best practice.
The trick is to verify demand before committing big dollars by opening an office and putting people on the ground. I liken this to launching a minimum viable product to verify that customers want your product before you invest all the money required to build a fully featured system. Fortunately, for many companies verifying demand is pretty easy these days.
If you have a globally applicable product that is delivered over the internet with small or no up front costs you should expect to pick up some international customers as a by product of your domestic sales efforts, and that includes some customers in the US. If you don’t pick up those international customers you should ask yourself if your product is really globally applicable. This applies to most SaaS companies
The next step is then to grow that US customer base from the UK. Leads from the US can be processed by UK based telesales operatives. Hiriing someone with an American accent to work Amerian hours out of the UK office is often a good trick. The remote sales activity should usually be complimented by the CEO getting on a plane to spend time with customers and analysts in the US. Time with analysts helps with lead generation and time with customers is the best way to progress big deals in the pipeline created by the telesales activity. You should also take steps to make the company feel American in other ways. Update the language on the website, make sure any prices are in dollars and get case studies from companies that Americans will know. Get some American investors and advisors.
Then when you have a couple of good name customers and a decent US pipeline it is time to think about opening that office. Ideally one of the founders will move to the US to head it up, possibly along with the UK based sales rep with an American accent. These two people will give you continuity, but you should quickly add one or two local hires as well.
At this point it’s important to make sure that your home country doesn’t get neglected. A strong leader is required in both places and travel between the two offices should be encouraged so everybody feels part of the same team. Now is also a good time to start thinking about formally about culture and internal communications if you haven’t done so already. If in doubt over-communicate with regular all-hands meetings, brown bag lunches etc.
If the upfront cost to your customers is high (including implementation) then you won’t get those first US customers so easily and you may need to be more creative. Signing customers with a global footprint from your home country and getting them to roll you out in the US is one way of doing it. Another is to sign customers with group companies that are in the US and push them for introductions and recommendations. Selling products with high up front costs requires more face time and the CEO is likely to have to spend significant time on the road in the US before demand can really be considered as verified.
The alternative approach is to simply open an office in the US and declare yourself as open for business. The difficulty with this is that the task of the first couple of hires is really tough. Operating on their own, they have to take a product and company that is unknown in the US without any local references and sell it into customers who are wary about buying from a small foreign company. To have any chance of success the first employee needs to be a big hitter with a good network and that sort of problem invariably comes with a big salary and wants a small team alongside him/her, and all of a sudden there is a lot of capital at risk.
Much better to expand to the US with a series of small well managed steps than to jump in with two feet and a blindfold on.