Startups · International Expansion

Why are web startups slow to expand abroad?

Nishant Dogra UI/UX Designer at Blog Sparks Network, Inc

December 8th, 2016

When Yelp realized that Europeans may want to rate small businesses as well as Americans, they were confronted with Qype, a fairly direct knockoff started in Germany about a year after Yelp was founded. Because their business depends so heavily on how many reviews you already have it'll be hard to take them on.

So Yelp missed an opportunity somewhere during year one, but hey, it happens. They were busy and you can't do everything at once.

What strikes me as stranger is the businesses that have existed for several years, but still don't look across US borders. I was also surprised that Lulu wasn't set up for it (they shipped from Spain, slowly and expensively) and there was no local equivalent in sight.

All right, all right, setting up a supply chain for mailing physical widgets in lots of confusing little European countries is hard. So let's look at a business that deals in purely virtual goods: Wufoo. I can't find a Wufoo-like thing that'll speak the local language to me. At all.

Now you may object that Wufoo takes payments, and figuring out how people in lots of confusing little European countries like to pay their bills is not easy.

Which brings me to the last category: web startups that provide some really cheap service or content and that fund themselves largely by ads, or by the expectation that some large company will buy them out and figure out a revenue model later (if ever).

What do people in The Netherlands,as an example, tend to use for small-time blogging? Blogger? Wordpress? Nope. Something called web-log.nl

Now don't get me wrong. I respect the entrepreneurs that started web-log.nl . They probably did a fine job, for all I know.

But there is an obvious missed opportunity for the US firms. Or is it just too hard?

Mike Robinson

December 8th, 2016

Excellent question, Nishant, and one I can speak to from experience.

On the one hand: ANYONE starting a technology company today should think globally from day one. Technology is global - period. Any time I put together a financial model or business plan for a new venture, the model is global and assumes >50% of revenue from outside the US (AT SOME POINT IN TIME).

On the other hand: when you are a bare metal startup, you are 100% focused on finding product-market-fit so you can book revenue and pay salaries. With bankruptcy constantly snapping at your heels, you tend to make some sacrifices on product - and globalization is an easy sacrifice to accept. This applies not only to American companies but also to UK companies, Japanese companies, Chinese companies, etc.

Your first and foremost concern as a entrepreneur is to make your company self-sustaining. If your local market can produce enough revenue to support your company's growth for 5 years, it's easy to just focus on that. On top that, investors and advisors will lobby for "laser focus". So even if you are inclined to "think global", you will face a lot of resistance to spending money, time, and energy on marketing overseas until you have already built a dominant business in your home market.

When companies take the "start local" approach, their ability to translate that success into a global phenomenon is directly proportional to their barriers to entry. Not to pick on any one business, but if your idea is to start an app that connects dog owners to dog walkers then the barriers to entry are quite low. You should expect that while you battle for dominance in your home country someone else is also achieving dominance in their home country. So, if you subsequently want to be the Global Leader in Dog Walking Apps, your path will be through acquisition as a roll-up play of many different properties. Conversely, if your app has some seriously difficult "secret sauce", you may have an opportunity to get traction in your home market, then take your unique technology to other countries with different languages and customs.

Interestingly, there are some in-between examples - like Uber. No offense, Uber, but the actual technology involved in connecting riders to drivers is NOT rocket science. However, there is a large marketing and investment barrier in terms of recruiting enough drivers and riders to achieve critical mass in any one geography. Uber has done a brilliant job of proving the model in one geography then raising enough money to quickly colonize many new geographies. This is a great example of global thinking from day one, with deep pocket investors who can support global aspirations.

David Albert Founder & Principal at GreyGoo

December 8th, 2016

Purely anecdotal and just my opinion being an entrepreneur for the last 20+ years: I don't think most startups and smaller tech/online companies in general consider doing business outside of US borders. I assume a lot of it has to do with not understanding culture, language, laws and market dynamics. I also think it's difficult to gauge market potential and project revenue. I think the reverse is true for companies expanding to the US. As startups mature they absolutely try to expand--look at efforts from Google trying to crack China for example.

Terri Friel CEO Doctus and Member International Advisory Board of Cracow School of Business CUE at Cracow University of Economics

December 8th, 2016

I have experience with international products from my P&G days and I've studied and taught international business and the NAFTA over 23 years.  Here's the problem, most start ups don't know how to get started.  They are stymied by their lack of knowledge, links and experience overseas.  Many US citizens don't even own a passport.  If they are not adventurous enough to visit for a week, imagine what doing business might seem; an enormous mountain.  What they do not realize is the the US Commerce Dept has support in many countries and can help any small business get started and understand the laws and limitations of the location.  Once a company takes that step to consider overseas sales, they then have to confront the barriers; language(s), culture(s), laws and border control issues that are different and expensive to understand much less prosper in.  Finally, maintaining overseas sales/support is no small task.  You need customer service people that are fluent  on the phone which in the world of speaking a 2nd language, this is a very high level of fluency.  Finally, you need to make sure your product operates as those clients expect and that can require anything from tweeks to major overhauls.  It's easy to say it's culture, but the first culture that prevents this is probably our own!  

Benjamin Van As Benjamin Van As - Advisory prof & Entrepreneur

December 8th, 2016

Hi Nishant Starting a business in one location can be challenging. Juggling the responsibilities of getting a startup off the ground, taking it from concept to operations, fine-tuning the product and value offering, and turning it into a profitable operation takes time and effort (depending on the market you compete in). Geographic expansion or even just product expansion before your startup has systems, controls and people in place, and before it is ready to scale and support, can kill it,or at least can add significant complexity and cost which it might not be able to absorb. Before entering a new market, you need market intelligence about your target market - competing products, substitutes, industry regulations, etc. Being on top of your game in one geographical area does not imply you will corner the market automatically in another. There could already be embedded competitors, market preferences could be very different (imperial vs metric, left-hand vs right-hand drive, stick vs auto etc), there are language differences and now you need to recruit helpdesk technicians who can speak Polish/Croation/Swahili, different operating hours, additional management expertise, etc etc. Over and above this there could be different business ethics.

Benjamin Van As Benjamin Van As - Advisory prof & Entrepreneur

December 8th, 2016

Continued ..