Why European Startups Fail To Scale
Short answer: European startups fail to recognize that when they expand to a new market they have to adjust themselves to the rules, standards and requirements of that specific market.
Are we all alike?
Over the last few years I have helped, as a Growth Hacker, several companies in Europe who wanted to expand to new markets. Especially the US one. No matter if the startup was located in Western, Central, or Eastern Europe somehow most people did not understand that there could be fundamental differences between themselves and consumers inside this new market they were planning to enter.
This lack of understanding struck me. Moreover, they expected themselves to be a stereotypical internet user that would be representative of this new market that they never worked in.
It is never a good idea to take yourself as representative when you want your business to grow. A safer solution might be to focus on data and analytics. Especially, when entering new territory.
The European Union once had a similar outlook to the co-founders, marketers, and product managers I just discussed. They were planning to unify Europe, they even hoped to create a European culture. This plan soon changed and the EU started to ‘celebrate diversity.’
Europe certainly is diverse. Also when it comes to digital literacy, internet usage, consumer behaviour, languages, and expectations from users. Even within countries.
For instance, Flamish (Belgium’s North) internet users are a more advanced than their Walloon counterparts in the South. The Flamish are earlier adopters, are more experienced, and access English language websites or apps. Whereas some Walloon users might still hope for a Minitel comeback and tend to believe clickbait links.
Scaling within Europe
When your audience is so diverse, it is impossible to take yourself as an average user. Fortunately, there are a lot of different SaaS companies which produce software that allows you to track user behavior and adept accordingly. But to give you a sense of direction of what to look for, I will give you some directions.
Europe has, according to Wikipedia, ±50 countries. The borders of these countries have often shifted over the centuries. Countries have been conquered, destroyed, lost, and rebuilt. Some are part of the European Union, others are not. There was not one country or city everyone gravitated towards. Brutal regimes have plagued some, whereas others have enjoyed relative peace. Some countries don’t recognize each other, while others are BFF’s. All of these and more (geo)political or historical aspects have to be taken into account when expanding to new markets within Europe.
But let’s get back to a Growth Hacker’s perspective.
All these different countries (and some regions) have their own cultures and habits. This is noticeable in their digital behavior. As you have seen in the somewhat exaggerated example of Belgium.
Therefor, you need to optimize your product for your new markets. This goes beyond changing measurements from centimeters to inches or changing currencies on your website. Every aspect that affects the user experience is up for re-evaluation: UI, colors, text, language, funnels, etc.
Even your value proposition or positioning could change: what might be affordable in one country, is not necessarily the case in another. Quick example: €500.- a month for a one room apartment is cheap beyond comparison in London, but part of the higher segment in Poland. This could also be the case for your SaaS company, webshop etc.
Scaling to the US
The United States is far from a homogenous market. Just like Europe there are large regional differences. There are ‘fly-over’ states, large economic differences, and regional prejudices. Nevertheless, the United States of America only has one language (at least it is accepted to refrain from using others when addressing customers), it might be the closest a country of that size can get to being ‘one’ market, consumers generally have purchasing power, and if a startup makes it here it will spread elsewhere.
The threshold that stops a lot of European startups to successfully scale to the USA is that American consumers behave as if they have already seen and done everything. This means that if a startup does something completely new in its country of origin, it might not be anything new to the US market, or not enough to get excited about. But if a startup does something new and revolutionary for US standards the reception is generally very welcoming.
Besides being more difficult to charm American customers it is also more expensive to advertise on social media or search engines. Whereas a lot of B2C companies in Eastern Europe are talking about Euro cents, in the US a click might cost several Dollars.
A lot of the same variables might need to be examined when entering the American market as when expanding within Europe. With one large exception: text is far more important. Whereas Europeans are lenient to typo’s or faulty grammar, Americans are not and expect to be addressed in the catchiest way possible.
All of these optimizations are crucial and should be done as soon as possible. Remember, the acquisition cost for someone with a failed previous experience is twice as high as a new user with no previous experience with your company. This is not an issue if the acquisition cost is 15 euro cents, but it is a problem if user acquisition costs are 12 Dollars.
So why do European startups fail to scale?
Understanding the needs and expectations of the user or consumer are key to growth. Especially when crossing borders. Additional hurdles like trade restrictions or import taxes do not make it any easier.
But the main reason they don’t succeed to scale is because European startups fail to recognize that they have to confirm to the rules and expectations of the new market they are entering.