But before diving into unknown waters, you need to answer a few questions to be able to formulate a focused strategy.
What are the benefits of having a global presence? When is the right time for your startup to start working on its international aspirations? And what are the challenges that international markets bring along with them?
In our 3-part series “Scaling Internationally,” we guide you through the benefits and challenges of global expansion and the signs your startup might be ready to scale.
The right time to scale your startup
As per a report by Startup Genome, over 74% of high-growth startups fail due to premature scaling. In contrast, startups scaling properly grow up to 20 times faster than those doing it too soon. You have launched your business and established its base to get it off the ground. You might think it’s time to focus on scaling. But is it really?
Learning when to scale is as crucial as knowing how to do it. If you wait too long to scale your startup, you might miss important growth opportunities. Whereas scaling too early can unleash many organizational issues.
Here are the 7 pointers to help you identify when your startup is ready to scale up:
1. You have a sturdy infrastructure.
If your foundation for long-term success is strong, focusing on expansion shouldn’t be a problem. So, refine your business model and marketing strategies, cover your financial and legal bases, and go over everything with your team to minimize risk. It ensures a conducive atmosphere for international growth.
2. You have a good product-market fit.
Before you scale, you must see that you have a viable product that satisfies the new target market, an effective marketing strategy, and a well-defined target audience. If you don’t have a good audience base and there is not enough demand for your product in your current market, scaling in newer, unknown markets can be incredibly risky. Ensure that you have created referrals in your current marketplace to build on your credibility while speaking to new customers.
3. You have a positive cash flow.
Having a positive cash flow means there is more money moving into your business than going out. It is important because scaling can significantly increase your expenses before it starts generating revenue. Ensuring a positive and strong cash flow makes your startup ready for scaling. It would also give you the required confidence to invest in the new markets.
4. You not only meet but also exceed your expectations.
If your startup consistently performs beyond your goals and expectations, you know it’s time to expand. That is seen by having more sales, customers, profits, and revenue than projected. Given your strong performance, your network of existing customers, partners, employees and suppliers will be able to signal opportunities in the new markets.
5. You have a reliable core team.
You must have a group of dedicated, committed, and skilled people whom you can rely on in the long run. Otherwise, after scaling, your organizational management and performance will be at risk.
6. Rising demand
If the demand for your products and services is increasing and you have more orders than you can handle, it’s time for you to scale and leverage better business opportunities. Remember, this demand should not be temporary, like a consequence of a competitor dropping out or a holiday rush. Validate the market opportunity by doing a dip stick study of speaking to few customers and potential partners in the new territory.
7. Sustained profitability
If your startup has consistently been turning a profit, it means you’ll be able to perform well on a larger scale too. Sustained profitability over two-three years is a good sign to considering global expansion. This goes back to the point of having the confidence and the wherewithal to invest for the initial penetration of the new markets and fund growth.
Benefits of having a global presence
International scaling can open up your startup to numerous business opportunities and benefits. You open doors to new sales, resulting in more revenue and eventually leading to further business expansion.
New markets, larger audience
With access to new markets, your business has an increased potential to build a new customer base. Furthermore, open borders can give your business quick access to many untapped markets and audiences in different countries.
Refining the value proposition
Customers in new markets can demand new features and benefits that could potentially lead to refining your value proposition making you stronger against competition. In some cases companies have adopted new business models after entering new markets based on the learnings and adapting to the new requirements.
Global brand recognition
Targeting the home market is undeniably less risky than the international one. But global expansion comes with powerful international brand recognition. Global brands are generally considered to be more reliable with a better-quality offering.
This global brand familiarity can become a strong competitive advantage for you to boost sales and drive marketing. Salesforce is a good example of this. Way back in 2001, it expanded into the worldwide marketplace with offices in Tokyo and Dublin. It surpassed 3000 customers and generated $22.4 million in revenue that year.
Later in 2003, it expanded its global presence by opening offices in countries like Japan, Spain, the UK, Australia, France, Germany, etc. Consequently, its revenue increased to over $100 million by the year-end! The rest is history!
As mentioned above, international scaling presents opportunities for boosting revenue and profits. With proper planning, you can not only cover up the increased costs and risks of an international operation but also solidify your financial footing in the new markets and ensure steady future profits.
It also opens new avenues for funding and foreign investments.
Access to global talent
By expanding internationally, you have opportunities to hire high-potential talent across the world. A skilled and diverse workforce is immensely beneficial for business growth. With the help of a local workforce knowing the local language and customs, you can serve your international clients within the same time zone without any trouble. Having access to a wide range of new employment markets will help you remain on the competitive edge.
It is one of the greatest benefits of international operations. By diversifying operations in different geographies, you can protect your company’s bottom line against unexpected events. Different geographies are ruled by different socio-economic factors, which can significantly impact market conditions.
Successful operation in one country’s market can help your startup make up for the negative growth in another. You can further use international markets to introduce new unique products and services to maintain a positive revenue stream.
Challenges with international scaling
Scaling internationally comes with numerous exciting opportunities for significant organizational success. But it comes with multiple challenges that can sink even the previously successful businesses. Here are some of them to look out for:
The international market comes with language barriers that can hinder communication and connection. While the challenges may not be apparent in the English speaking markets, the language barrier can become a big constraint in markets such as Japan, Korea, China, few countries in ASEAN, larger parts of Europe and also LATAM.
Most startups cannot effectively reach wider, localize their brand offerings, and personalize their marketing strategies because of communication barriers.
Attaining the right product-market fit refers to being in a good market with a viable product that can satisfy it. It is a stage where a product or service becomes the go-to option for the target audience.
Most startups in less mature markets are forced early on to pursue a wider market. They also have the pressure to develop a tailored product that satisfies their home market.
The big dilemma is that pursuing one requirement hinders the pursuit of the other. If they focus on developing a dedicated product for their home market, it might not be as well-accepted in other countries. Whereas, if they focus on creating a generally appealing product for a broad market, it might not be differentiated enough to sell as well in the home market!
Similar to communication barriers, cultural differences can also cause misunderstandings in the new market. For instance, attitudes towards management roles, etiquettes, communication styles, productivity, work-life balance, diversity and organizational hierarchy vary widely.
Cultural norms can dictate how comfortably the juniors communicate with the seniors, question their opinions, speak up in the meetings, etc. Moreover, in a culture focused on community and group harmony, an individualistic culture with open confrontation won’t be as effective. Such differences can cause issues with international marketing as well.
Handling international human resources need certain knowledge and competence. Startups scaling globally have to take care of recruiting, onboarding, training, benefits, payroll, and much more while also tackling international marketing, sales, and growth strategies.
Especially for companies with brick & mortar business models finding effective and reliable transportation services for products can be hard for international startups. Navigating through governmental and legal procedures like taxation, banking, and other rules and regulations is also challenging. Startups might not have sufficiently experienced and knowledgeable staff to tackle such logistical challenges. In comparison, Technology companies may not face this as a big challenge.
To tackle these challenges, stay tuned to read the next article in our series on “Scaling Internationally” and discover the proven steps for globally expanding your startup.
If you want to fully leverage the potential of international scaling and achieve better growth for your startups, get in touch with us today to avail our global business consulting services.