One of the key questions that our Israeli portfolio companies keep asking is whether a physical presence in the U.S. is necessary for their success.
When answering this question, the first thing to realize is that the answer is not one dimensional. There is a wide array of alternatives, and choosing the right approach depends on the goals that the company is trying to achieve.
The first option to consider is whether simply staying in Israel and having frequent visits to the U.S. can be a viable solution. From my experience, this approach usually works best in situations when it is possible to effectively manage most of the U.S. interactions remotely, and face-to-face meetings are relatively rare and can be scheduled well in advance.
When this is not the case, the next alternative is hiring to fill the gap. This is a relatively straightforward solution that can help if there is a specific gap to address. One of our companies had a hard time managing its numerous U.S. customers and sign up new ones. Therefore, it made sense for them to make efforts to hire a U.S. account manager and a U.S. sales person, and manage both from Israel.
Sometimes hiring a person is not feasible given limited resources and/or the nature of the work required. In these situations, a possible alternative may be moving one of the founders. We have a company that sells data and its business heavily relies on landing strategic partnerships. Therefore, they needed a person to be on the ground representing the company’s vision and negotiating these partnerships. The only solution that ended up working for them was moving one of the founders to the U.S. to manage this crucial aspect of their business.
In cases where the gap is more profound, and there is a real need for the company to be close to its U.S. customers, the typical playbook is splitting the company. This usually means managing the sales/marketing/biz-dev functions from the U.S and developing the product in Israel. This solution enables companies to be close to their customers while at the same time have access to the high-quality engineering talent that exists in Israel. There are, however, some obvious shortcomings, including dealing with major communication challenges and facing significant managerial complexities. From my experience, this hybrid approach works better when the product is relatively stable and well defined, as this tends to reduce the interaction intensity between the two sites.
Finally, there is the option of moving the entire company from Israel. Most Israeli companies try to avoid this model as it requires them to forego the edge of hiring quality talent in Israel. However, one of the key advantages of this approach is that it enables the product development team to work very closely with the customer-facing teams. One of our portfolio companies that develops a social mobile app decided to use this model as it was the only approach that allowed them to rapidly tweak their product while at the same time being close to and learning from their customers.
The five solutions listed above do not represent the entire universe of possibilities, and should merely be viewed as a starting point for considering the breadth of alternatives. The preferred solution should then be decided by assessing how well it addresses the specific issues the startup is facing.