Cross-cultural Start-Ups ... What are Keys to Success?

Jim Lapinski President / Founder at Rarefide Consulting

June 30th, 2015

I'm coaching young entrepreneurs starting companies in developing countries.  Start-ups in our own North American culture are challenging - far more so in cross-cultural, developing settings.  What have you found to be essentials for success?  And how would one go about doing what you might suggest?

Benjamin Olding Former Co-founder, Board Member at Jana

July 3rd, 2015

I haven't seen a difference.  Or I guess what I should say is that what I have seen is entrepreneurs more focused on potential differences than focusing on what is the same.  So, I'm not actually saying there aren't differences - but I am saying those differences are almost entirely a distraction to the real problems of creating a startup.  So mostly the challenge is to keep your focus, even in a cross-cultural setting which offers even more stimulus to think about than usual.  I don't mean to downplay this: keeping that focus is really hard.  Cross-cultural differences are both real and interesting, which makes them very easy to lock onto and talk about endlessly.

If you are a cofounder, I believe the only things you should be focusing on are cash flow and team.  Obviously you're going to need to do a lot more than that, but I do think anything you are doing should be consciously in service of those two ideas, either short-term or long-term.

The biggest challenge I have initially with coaching around cash flow for developing world markets is market size intuition.  Entrepreneurs in North America, whether they realize it or not, have some intuition around the traction needed in their business to raise money.  Unfortunately, this does not translate to significantly smaller markets. 
This has zero to do with differences in culture, but the difference in culture enables them to be distracted by the difference in market size (and the resulting significance on fundraising).  They chase after milestones that would be significant for an economy the size of the US, but fairly meaningless in a market the size of a developing world country.  

The way out of this is to rely on analysis rather than intuition - it just means you have to be more analytic than you normally would think you'd need to be.  I start by forcing them to memorize the GDPs of the countries they are familiar with (US, Japan, UK, Germany, etc), then the countries they are hoping to build a business in, and then - so there's some kind of translation - the US states that are estimated to have the equivalent GDPs as the countries they are in.

GDP has basically nothing to do with a startup's potential market size, but to 0th order I do believe it helps give a sense of relative market sizes.  Roughly speaking, the US economy is 15T, the Indian economy is 1.5T, and the Kenya economy is 70B.  The state of Kansas has an estimated economy of 110B.  So, how significant is it really to be showing adoption in Kansas and waving your hands that it will "totally work in the rest of the US?"  Really?  So why is there (literally) zero adoption in NY and CA?  

"Well, we haven't launched there yet..." would not be the right answer in the US, and I think people have an intuition for that.  They know that while they can start in Kansas if they really want to, they need to show at least a little bit of traction in some larger markets - or at least more evidence than just self-confidence - if they are going to go to investors claiming they have the potential to reach the entire US market.  The more common choice, of course, is to start with the larger markets and make the argument it is going to scale into the smaller ones.  Still might not be true, but at least there's already some evidence it's working in the larger markets.  For some reason, the developing world being so different culturally enables entrepreneurs to ignore some basic math here.  Investors do not have this distraction.  

So, what I see happening again and again is entrepreneurs investing in getting traction in a small market, believing this is sufficient evidence for an investment where the thesis is that their product or service will eventually scale to a large number of developing countries, being disappointed when people dismiss them, and then having kind of an attitude about investors not willing to consider startups focused on developing world markets.  The attitude is neither justified nor helping - nor does the problem have anything to do with culture.

After cash flow, I see the same distraction of cross-cultural differences on hiring.  Since the culture is unfamiliar, there is this sense that perhaps people work in a different way.  Perhaps they do - but throwing up your hands and turning off your ability to read people when hiring is no solution here.  Self-doubt is not actually helpful - focus is.  I've seen this doubt come in two forms - the first is the idea that an entrepreneur has to hire someone from the culture they are focusing on or else they won't be successful.  This really discounts people's ability to learn.  In fact, if anything, I find it more likely someone can make a good hire from a culture they are comfortable with who can learn what's needed than they can making a hire in a culture they are uncomfortable with.

And this is the second trap: why is someone so uncomfortable making a hire in another culture?  It's the idea the entrepreneur is not qualified to evaluate people coming from a different culture, both at the time they are hiring them and then after they are working.  They probably aren't... but self-doubt is making this even worse.  You have to be willing to learn and evolve if you're going to start a business.  You can't say "well, I don't know how to hire here, so let me just hire the first person who seems ok and give him or her six months before evaluating them."  You have to be willing to learn how to hire people in a different culture - you make a judgement call and you learn why it's wrong.  If you start with the premise that you cannot learn how to do this because you are not from there, you are setting yourself up for massive failure.

Realistically, the way to learn is to make mistakes - and that means knowing how to fire people I'm afraid.  So, from a coaching standpoint, I start by making them teach me the legally correct way to fire someone in the country they are hiring in before they make their first hire there.  You need to be willing to make mistakes - and you need to know the consequences of those mistakes before you start.  If you can't afford mistakes, then you need to be looking for another way to get a job done than a direct hire.

Look, I realize I probably sound like an ignorant jerk, claiming Kenya might as well be Kansas and emphasizing knowing how to legally fire people over learning how to manage people cross-culturally.  However, I do think this is hard-won knowledge...  it's too difficult to create a startup as it is - adding on special cross-cultural requirements is going to make it too challenging.  You have to pare it down, focus on the core of starting a business, and build from there, with the understanding you will have to learn as you go in *any* startup - you're less special than you think just because you're building a business (or some part of your business) somewhere else.  

Entrepreneurs can't let the "developing world" aspect of their business become an excuse for losing focus on their responsibilities of cash flow and team.  This is not an academic exercise - the goal isn't to be right or optimal or even culturally sensitive; the goal is to build a business.  Get in there, use the tools and culture you have right now, stay focused on numbers, move forward, learn.  If you hang back, stay away from hard numbers and try not to engage because it's a different culture (and who are you to have opinions about others that might be wrong or insensitive), you're not going to get much done, except maybe by accident.  

You're going to be wrong a lot and that's going to have to be ok.  You learn by being wrong - you become sensitive by realizing your insensitivity.  You fail by losing focus.  Focus.

Jochen Schuppener Intercultural Coaching & Team Development

July 5th, 2015

In my work as an Intercultural Coach/Advisor I always point to business veteran Richard R. Gesteland. I have been working abroad and in an international context for over 20 years and find Gesteland's claim still to be true.

Rule # 1 : In international business, the seller is expected to adopt to the buyer. 

Rule # 2: In international business, the visitor is expected to observe local customs

Karl Schulmeisters Founder ExStreamVR

July 4th, 2015

Focus on what you know, not what you think you know

Jochen Schuppener Intercultural Coaching & Team Development

July 6th, 2015

In my work as an Intercultural Coach/Advisor I always point to business veteran Richard R. Gesteland. I have been working abroad and in an international context for over 20 years and find Gesteland's claim still to be true.

Rule # 1 : In international business, the seller is expected to adopt to the buyer. 

Rule # 2: In international business, the visitor is expected to observe local customs