A smarter international expansion — Part II
Prioritize markets with the customer in mind.
In the previous post, I discussed the first component of smart international expansion — lean international launches without big marketing budgets. Like any new product launch, new markets should be fully tested and iterated upon until product-market fit is reached. Only then does marketing make sense. Too many companies today still waste precious time and resources waiting for the stars to align on their one big market launch.
In this post, I’ll go into more depth on the other common execution mistake with international expansion — the prioritization of markets. The world is a big place and the key is to spend your testing resources wisely to maximum effect. Some companies — mobile gaming companies, for example — have the luxury to take the minimum viable product (MVP) concept to the extreme. They can realistically release their product globally and double down on markets where they’re noticing pick up. For most other companies and products, however, even lean market launches require some investment, due to regulations, logistics, and other barriers to globalization.
At most companies, prioritization of market launches has always been one of those projects that strategy-types never tire of doing, a younger me included. Maybe it’s that we’re analytically inclined and love finding numbers: market sizes, internet population growth, and ease-of-doing-business scores, throwing all these things into a big spreadsheet and generating one summary score: the ANSWER. In all of this, the most critical component is missing — are customers even going to want your product?
Ever thought about asking your customers?
The best, and possibly easiest way, to figure out customer needs is via a wish list. When someone lands on your website from a country you don’t yet serve, collect their email address and promise to notify them when the service is available in their country. I first heard of this methodology a few years ago at a growth conference — Stripe’s co-founder Patrick Collison explained that they used this methodology to prioritize international launches and shrugged that they hadn’t yet figured out a more sophisticated way.
At surface level, it does seem simplistic, but over time, I realized that the beauty of this methodology is that it effectively encapsulates customer need in one single metric. Email addresses are not freely given these days. Those willing to cross the threshold of giving you theirs are essentially telling you quite a few things:
- The market is broken. The existing products and competitors in the market are not meeting customer needs. These are people in search of new solutions.
- Your product would solve it. Your product and your brand resonate with customers. These are people who like what they see.
- Market size. Ultimately the number of customers on the list from different countries gives an indication of the immediate addressable market.
It doesn’t get more complicated than that. Prioritize lean international launches by starting with the countries that have the most number of wishes. To top it off, you now have the contact details of highly motivated early adopters, who are excited by the prospect of beta testing with you, who are invested in your product, and ultimately, who serve as an excellent base from which to start word of mouth growth.
It works. Today at TransferWise, we use the wish list to prioritize international launches and we see that growth by market is highly correlated with the number of email addresses we have on the wish list, meaning we’re investing our efforts in the right places. To give an example, we recently beta launched transfers to Sri Lankan Rupee (LKR) and to South Korean Won (KRW). From a market size perspective, the two currencies are relatively equal. According to World Bank / Pew Research data, $7B in remittances was sent to Sri Lanka in 2015 while $6.5B was sent to South Korea. Our wish list data told a different story, though; KRW had over 30% more wishes than LKR. The ten months since launching both currencies show the clear discrepancy in growth, despite similar market sizes:
As the graph shows, TransferWise resonates more for people sending money to KRW than for people sending money to LKR. Maybe it’s because existing market options in South Korea don’t meet customers needs due to legacy South Korean regulations and TransferWise brought meaningful improvement to the money transfer experience, above and beyond what we were able to do in Sri Lanka. Maybe it’s because South Korean people are more likely to be early adopters of technology than Sri Lankan people. The answer doesn’t really matter — the wish list metric had already incorporated all those factors and provided the guidance needed for launching the MVP.
This methodology works because we live in an incredibly globalized world. When a London-based company sees traction in its home market, it has also inadvertently exposed itself to the 3 million foreign nationals who live in London and continue to have strong ties with their countries of origin. On top of that, the tech early adopter community is global. News, ideas, and technologies travel fast, and so do expectations. Innovative companies, even if they only provide local services, get lots of international exposure, and it’s that exposure that seeds the wish list, and eventually, the international growth.
Some of the markets on the list will certainly be harder to launch than others. The ease of doing business in a market may not be that great. You might also find, surprisingly, that a market like Iceland ranks above “bigger” markets like Germany. There will be nuances that require you to make tradeoffs, but keep in mind that customer need should always be highest priority. In fact, if you can overcome barriers to entry or make counterintuitive prioritizations against the grain of your competitors, they’re likely to serve as competitive advantages for you in the future and your customers will be grateful.
Some challenges
This methodology requires that your company is exposed to audiences from other countries.
Agreed — as mentioned, this methodology requires some exposure in order to work. Therefore it is predicated on two key assumptions: (1) you’ve reached sufficient scale and recognition in your home market (i.e. you’ve reached product-market fit), and (2) your home market is a diverse enough place to kick-start the international effort.
On the first assumption, I will stress that achieving local product-market fit is a prerequisite to expanding internationally. I’ll save more detail on this topic for another day, but suffice to say, it is a distraction, sometimes fatal, to any company to expand internationally too early.
On the second assumption, in the absence of international exposure, it will be important to find other ways to proxy in that new market what the wish list would give you, i.e. customer need. How well are the existing options serving customer needs there? How much of a step change improvement would your product be over the existing options? In these questions, you can’t hide behind desk-based research. Take the time to speak to potential users to find out.
The wishlist metric is short-term — we won’t be able to see and prepare for long-term needs, especially when clones might get there first.
The wishlist is an ever evolving metric that advocates organic and sustainable international growth. It is true that a Bogotá-based start-up, for example, would see more wishers from Latin American countries than Asian countries. That doesn’t say a whole lot about whether the product wouldn’t resonate in Asia because Asian customers have yet to hear of the product — they don’t have the opportunity to participate. That’s okay — it is still better to go with known customer need rather than take a gamble that demand exists in a larger market.
As you work your way down the list, you’ll gradually get to markets in new regions; as you start getting a foothold in those countries, you’ll get more exposure to, and also more wishes from, other countries in that region. Growth in one market enables you to invest in another. Product localization enhancements will come incrementally, as you move further and further away from your home market. This sounds slow, but it’s not. The fundamental premise of this methodology (MVPing new markets and simple prioritization) is that it removes distraction and enables a singular focus on executing quickly. The expansion is incremental, but it’s done at lightning speed and with much sounder data.
On the topic of clones and first-mover advantage… those risks are overrated. In 2012, while in graduate school, I conducted an extensive survey of prominent U.S. start-ups contemplating international growth. Based on numerous case studies of startups competing against Rocket Internet and other copycats, clones rarely can replicate the heart of the product, whether that’s a vibrant customer community or an amazing end-to-end experience. At the end of the day, as one prominent venture capitalist mentioned, “[Only] Airbnb has experience being Airbnb.”
Summing it up
When it comes to international expansion, our most valuable resource is time. Traditional approaches to international expansion just move too slowly — they spend too much of their time focused on the wrong things, and when they launch, it’s a total gamble whether or not they will see success. In my experience, it’s these two critical areas — lean testing and simplified prioritization — that frees up our time to focus on what really matters: improving the lives of our international customers.
Does your company also do lean international launches and/or prioritize via a wish list? Give me a shout! Would love to compare notes and continue improving the approach to international expansion.
