You are a startup that has done fantastic in your home market. Congratulations. Can you repeat it in new markets? This post focuses on how to think it through, focusing on 4 critical levers.
1) Metrics — GDP and per capita income (GDP divided by population) are highly quoted statistics, partly because they are easier to measure and calculate. But they have significant limitations since they ignore how much you can really buy in a country and how much the income distribution varies. For instance, PPP ie purchasing power per parity shows a vastly different reality:
Just this single metric elicits many questions. Many European countries are rich but should you expand into them first? What is really the middle class in India? Brazil is famous for high engagement around consumer products, how much should you expect around monetization? Our world is lumpy and also fast-changing, there is really no room for preconceived frameworks that were once true. Actionable advice to a startup: bottoms-up analysis is key because if you focus on the wrong metrics you will very likely fail.
2) Pricing — Deciding on the right pricing similarly requires building the right model. For instance, drug companies famously charge very different prices in different markets. Some of it is driven by regulation, politics including subsidies, or philanthropy and a fair bit can be ascribed to economic reality. A drug that is thousands of dollars is out of reach for the majority of the world, especially when you don’t have insurance. But at least when it comes to drugs, the huge cost is R&D, the marginal cost of producing it is significantly lower. So a company can build an effective strategy by charging high prices to a small population and low prices to a large population. And there are also considerations around patents, branding, cross-selling and upselling, to mention a few. Actionable advice to a startup: do not simply apply the framework that worked in your home market and do not balk in paying for local knowledge to get to an optimal decision.
3) Idiosyncrasies — Canada will reimburse as much as 50% of your engineering costs if you hire locally. Singapore doesn’t have capital gains tax. The US will almost always require you to get medical license in every state before you can provide a service nationwide. Japan has its own photo size preferences. In Brazil people often leave voicemails over WhatsApp rather than typing. The map below about the unicorns in 2017 is an imperfect representation around how how lopsided the world is in terms of growth and opportunities:
There are indeed thousands of norms that are rarely written anywhere than only a local expert is aware of. Much of this knowledge should come from your investor either directly or indirectly. Which is why a fundraising process should be about mutual diligence — the VC getting conviction on your business and you getting conviction on the VC having the knowledge, contacts and proactiveness to help you when you need. Actionable advice to a startup: if this new market is very significant for you then absolutely get local investors, they will be worth their weight in gold even if it means compromising on some terms.
4) Built-In Localization — In 1999 Nasa lost a $125M Mars-bound satellite, which was supposed to be the first weather observer on another world, because engineers didn’t convert English to metric units. In this particular case the collaboration was within two groups within the same country, operating on different norms. Compound this issue a thousand-fold when you are taking your product globally. Do you really need to hard-code something in your code or can you have it as a variable with a different value in the future? Is this UI element replaceable? Can there be a placeholder around the message users will get, so it can be adapted quickly within a different set of laws? Refactoring is already painful, slapping internationalization on top of it is virtually guaranteed to be a painful process that will sap away time and energy. Actionable advice to a startup: absolutely focus on surviving into a first market first but build the product as much as possible to be globally extensible from day one.
Originally published on “Data Driven Investor,” am happy to syndicate on other platforms. I am the Managing Partner and Cofounder of Tau Ventures with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (I call it gl;dr — good length; did read). Many of my writings are at https://www.linkedin.com/in/amgarg/detail/recent-activity/posts and I would be stoked if they get people interested enough in a topic to explore in further depth. If this article had useful insights for you comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are my own.