I’m returning from back-to-back trips to Brazil, Saudi Arabia and the UAE
UAE
. There was one topic that just kept recurring – across a panel at South Summit, my live podcast with Hub71, and at a friend’s Annual General Meeting.
How should a startup scale across markets?
In my book Out-Innovate, I wrote that the best startups are “born-global”. They are built to scale across markets from day one.
But is this appropriate for everyone?
Here are seven questions a startup founder should ask themselves before going global.
1. What does being global mean to you?
Let’s start by first defining what it means to be born global: they are startups that are built to be multi-market from day one.
But what does this mean for your specific situation? This can manifest itself across a pretty wide range of geographies, for whom “global” is often a misnomer. On the one hand, many startups build into a second, similar country (e.g. from Spain to Portugal). More often, being born global is in fact a regional strategy (e.g. Southern Europe, South East Asia etc). Of course, a certain amount of companies expand truly globally.
One distinction that’s worth noting: in this piece we are focused on born global startups from the vantage point of customers served. However, many startups might be born global on the team side – building a remote-first organization with talent around the world.
The first step in your born global strategy is defining what it means for you.
2. Why do you want to go global?
This is critical. There are many reasons to be born global.
Is it because your total addressable market (TAM) is too small (e.g. an Israel startup expanding to the US)? Or is it as a defensive maneuver (to make it harder for other players in other geographies to stake a claim into your region)? Or is there another reason (e.g. a personal motivation?)
The first reason, TAM size, is the most common rationale for startups to build multi-market early. This can often be worth reflecting on.
3. Is your TAM truly too small?
There are certain startup markets whose TAMs are generally too small to support a unicorn alone: Israel, Singapore, Hong Kong come to mind. Others are clearly large enough, like the USA, India, Brazil or China.
The tricky part is in the middle. Markets like Canada have created single-country unicorns (e.g. Wealthsimple) with a broad surface area – covering multiple product lines together. Yet at the same time, many top Canadian startups expand to the US quite early. The same trade-off exists in Mexico, between building locally vs expanding across Spanish speaking Latin America, as well as in Europe (e.g. French, British & German companies considering pan-European expansions).
Being born global results in a trade-off: how deep you’d like to go in a particular market vs how fast you’d like to expand internationally. Therefore, a deep understanding of your local, regional and global TAM will be critical in defining your global strategy.
A related point which can help answer this question is about the nature of your network effects.
4. What is the nature of your network effects?
Some business models have global network effects. Google
GOOG
becomes more valuable as it indexes pages around the world. Facebook becomes more powerful as a platform for community as more people around the world are on it.
Conversely, others have much more local effects. Uber
UBER
is more valuable for riders, the more drivers are in the hyper-local environment. Said a different way, it doesn’t matter to me living in San Francisco how many drivers there are in Manilla.
And of course, many business models have no or limited network effects (e.g. a SAAS tool for bill payment).
If your network effects are global, you are more likely to need to build a global strategy, early. Local network effect businesses tend to lead to local winners. In the case of Uber, regional winners have popped up, Grab in South East Asia, Careem in the Middle East, Ola in India and Didi in China.
For those with no network effects, another question is more relevant.
5. Will you be pulled globally or will you have to push?
Companies that serve global clients tend to have an advantage in globalizing, even with low network effects.
For example, an enterprise sales solution that serves multinationals, will naturally need to serve a global audience. They will be pulled to other markets. This can be a great way to build your global muscle organically, and with limited investment – you’ll be getting paid to do so.
On the other hand, consumer and small business solutions serving more local needs are often push stories.
6. How steep are the barriers to entry?
There are a variety of barriers of entry to international expansion, ranging from cultural and linguistic differences to regulation.
Many consumer fintechs have found expansion from Europe into the US challenging – look at the recent retreat of N26 out of the US.
These should not be under-estimated.
7. Is your organization built to be cross-border?
To scale globally is not a simple decision. It requires building an organization, culture, product, and vision that is global.
These are not givens. They are muscles that are trained and honed overtime. So you need to ask yourself: how is your organization doing today what where are the gaps?
Going global can be a strategic advantage, a necessity, and an opportunity. But the decision should not be taken lightly.
These 7 questions will help you make that decision.
