Some startups are envisioned as global enterprises from the very start, while others reach a point when they have to go global once they have conquered the local market. In either case, penetrating foreign markets comes with a whole bag of challenges that can be difficult to address and that can spell trouble for startup founders and any kind of C-suite they might have in place.
Today, we will be looking at some of the more common challenges startups encounter when going global and how to start overcoming those challenges.
- Language and Culture – Probably the most obvious challenge that many initially locally-oriented startups encounter are the language and culture barriers. This is especially true for startups that have a huge initial market in their native language, like for instance in Arabic with +400 million speakers. Such startups can grow fantastically in their initial market and their need for new markets occurs relatively late in their life cycle (especially when compared to startups from tiny markets).
The reason why this is such a big challenge is that the language and the culture often have a humongous influence on how a startup and its product is built. Certain concepts that make a startup’s product work in its home market might make it feel strange in a new market.
Even something as seemingly insignificant as startup’s colors can be quite important. For instance, let’s say a German startup developed an app for new mothers and the color scheme involved a lot of red. In South Africa, this color scheme would cause a lot of confusion, since the color red is associated with death and mourning in that country. Language barriers can be even more disruptive.Because of this, startup owners who want to break into a new market should do extensive research into cultural differences, as well as hire a professional translation agency that will ensure absolute precision when it comes to any and all translations that are involved in this move.
- Legal and Paperwork – Regardless of a startup’s home country and the planned country of expansion, there is going to be a whole lot of paperwork and legal work involved. While some of it can be circumvented due to the special nature that startups have in law’s eyes in many countries, there will still be plenty to take care of.
There are certain industries that are much more regulated than others. For instance, if your startup has anything to do with healthcare, you might find that the red tape involved in expanding into a new market is almost too overwhelming. The same goes for certain technologies, as well as agriculture and some other industries. And this is just federal (national) governments. As you choose your location more precisely, you have to deal with regional and local regulations.
This is true even for the world’s most liberal, business-friendly markets. For example, let’s take Texas, an American state that is definitely among the most business-friendly ones, with minimum regulations. Well, this is just a list of occupations and industries where Texas requires surety bonds.
Another thing to keep in mind is the banking system that can be quite complex and cumbersome. For example, does your bank back home have a partner in your new destination? If not, you might find it difficult to move the money around and transfer the funds you need to expand to the new market.
Perhaps the best way to deal with these obstacles is to hire a legal firm in the destination country and have them handle the red tape for you. This may be expensive, but it definitely beats stumbling around, wasting money and getting into all kinds of regulatory troubles.
- Market and Competition – Of course, we must also not forget that by expanding to a new market, your startup is going to be taking on new competition. The biggest problem is that this new competition has probably already established itself in the market and you might find it difficult to break through.
We are seeing something similar as Uber goes global and tries to penetrate markets such as China (where it already lost) and India (where things aren’t looking great).
While it will most probably be on a smaller scale, your startup will be experiencing the same problems that Uber fighting at the moment.
One other thing to remember is that this new market you will be entering will be entirely different to what you are used to at home. This will entail differences such as the aforementioned regulatory obstacles, as well as different demographics, customer wants and needs and the amount of money they are willing to spend on a product such as yours.
Ikea famously encountered enormous problems when they first tried to get in on the North American market and, since then, they spend years researching customers and markets before they venture into new parts of the world. And this is Ikea we are talking about, one of the best-run companies in the world.
- Setting Up a Team – When you venture into a new part of the world, you have to have a team that will work in the new location, unless you are simply relocating and taking everyone with you. This is usually referred to as the “landing team”, borrowing from military terminology.
As you might expect, assembling a landing team can be quite difficult.
You first have to decide whether one or more senior people in your startup (founders, C-suite) should go and who the best person for the job is. Some startups decide to exclusively hire from the outside for their landing team, finding people from the new location.
Both of these approaches have their advantages and disadvantages which can be boiled down to whether you go with people who know your startup from inside out or whether you go with outside people who will know the market and be able to provide advice and guidance for your expansion efforts.
If you decide to go with just your people, it might still be a good idea to hire local advisors, perhaps someone from local incubators or startup communities. You need someone on the ground who knows the surroundings, plain and simple.
Closing Word
Taking your startup global and expanding to new markets is one of the most difficult things a startup can do. On the other hand, for some startups there comes a time when this move is a must.
The most important thing to keep in mind is that you know nothing about this new market and that you have to do copious amounts of research before you even lift your finger.
Do not rush into anything.