5 questions every CEO should ask before expanding into Europe
Part 2 in our series about European expansion for US B2B companies
Europe is the largest addressable overseas market for almost all American B2B software companies. With 30 per cent of a company’s global revenue at stake, the question of Europe is not if but when.
Some companies wait too long, foregoing millions of dollars in revenue by stalling or, worse still, allowing copy-cat competitors to emerge. One public SaaS company we interviewed said they delayed European expansion for several years simply because none of the exec team at HQ had international experience. Collective self-doubt led to procrastination, a mindset that changed only after hiring an experienced CRO with the confidence to pull the trigger.
However, despite occasional stories of late entry, the trend is in the opposite direction: B2B companies are expanding into Europe earlier than ever. Our analysis of VC-backed US B2B companies found that 55 per cent of expansions occurred before Series B.
We were astonished by this stat because even world-class B2B companies at Seed or Series A stage are still pretty small. Fifteen years ago such businesses couldn’t easily overcome the operational overhead of acquiring overseas customers.
Self-serve SaaS and inbound demand tactics have changed all that — they’ve made the first couple of million in European revenue much more accessible.
Self-serve SaaS and inbound demand tactics have changed all that — they’ve made the first couple of million in European revenue much more accessible
While this sounds wholly positive, it can lead to complacency — a sense that the next ten or twenty million will be as easy as the first couple. We’ve encountered early-stage companies that derive 10 per cent of global revenue from Europe without even knowing the country breakdown— their reports lump the UK, Germany, Canada, and Singapore together under “International”. For such a company there’s likely an invisible asymptote at play — until they better understand local customer needs, they’ll be unable to further grow Europe’s share of global revenue.
Such a company should just drop a few sales reps into the market to tap demand and learn more about the customers, right?
Under-resourcing a European expansion makes it a reconnaissance mission rather than a global rollout. That vastly understates the region’s strategic importance. A few sales reps in London will book some UK deals, but that won’t tell you much you don’t already know. The big questions relating to winning in Europe— e.g. do we need a channel partner in Germany, where do we open our next office, do we need Engineering? — will remain unanswered. We’ll expand on these kinds of questions in subsequent blog posts. But let’s get back to readiness.
Watching the movie of European expansion play a few times — with happy and tragic endings— led us to a simple CEO checklist. If you can’t answer Yes to each question, your company is not ready for a proper expansion.
- Is the US business humming? If you haven’t found a way to sell the product in a repeatable fashion to your ideal customer in the US, you’re not going to do so overseas. And until your US business is stable you won’t be able to dedicate enough attention and resource to Europe.
- Are we well funded? When resources are tight, it’s tempting to start with a few sales reps and/or a junior manager to “pick the low hanging fruit.” This will yield short-term revenue, no doubt. But it won’t yield a European sales strategy, let alone a coherent cross-functional view of how to win in the region. Successful expansions — ones that optimize for success in Year 5 rather than Year 1 — come with significant up-front investment, including senior people on the ground. This kind of funding usually comes at Series B or later.
- Is there demand from Europe? You probably have low brand awareness in Europe, so it helps if there exists even a small community of advocates or customers on whom to build. In the case of freemium models, leading indicators of demand are an essential starting point — where they don’t exist it may be required to “seed” the market remotely before attempting to sell there.
- Is my exec team strong and deep? It doesn’t need to be fully built out — there will be gaps of course. But it helps if you’ve got one or two execs who could plausibly still be at the table when you’re a public company. You’ll need one of them — often a co-founder, CRO, COO, CFO type — to be responsible for the European expansion before local hires are made. Note that international expansion requires a General Manager mindset, which may conflict with the functional biases of your top executives (Sales will be all about the top line, Finance may over-emphasise tax). While the payoff is huge, the expansion is time-consuming and complex and it plays out many timezones away. Without management bandwidth, you’ll be drawn into every drama.
- Is globalizing the company a top personal priority? When a startup expands overseas it doesn’t become international automatically. In fact, its default state is to remain US-centered in most ways. International expansion is not a short-term project; it is a decades-long process of globalizing the company to fulfil its true potential. Europe is just the first step. Viewed through this lens, it requires a mindset shift and behavioral changes at HQ. That starts with you, the CEO. If globalizing the company isn’t a top priority for you personally, you’ll never build a truly global company.
It starts with you, the CEO: if globalizing the company isn’t a top priority for you personally, you’ll never build a truly global company
This checklist is only a starting point.
As we mentioned in our last post, many of your B2B predecessors made the mistake of rushing to action in Europe before having a strategy — without asking themselves how to win in Europe and how that might differ from their US approach.
When considering a European strategy, a good place to start is the revenue opportunity. How big, where, and how accessible?
That’s the topic of our next post.
Frontline is a venture capital firm that invests across Europe and the US in companies that want to fulfil their global potential