Expand your B2C business into the US by dividing and conquering

One of the most common questions European founders face is when to expand and open a physical location abroad. Opening a physical location in a new market can be an expensive endeavour and there are many an example of companies who have entered the US underprepared, underfunded and at the wrong time — only to then retreat back. The largest costs associated with launching in the US are typically the cost of talent and marketing — both of which are typically higher than in Europe.

Oliver Birch
May 22, 2017 · 7 min read
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Photo by Clark Street Mercantile

To identify the factors critical to success, we reached out to and carried out over a dozen interviews with founders of European B2C businesses who have expanded into the US market. From these conversations, there were a number of insights that emerged. These B2C businesses typically sell directly to their customers through either app stores, organic online traffic or through performance marketing such as google AdWords and Facebook social ads — or a combination of the above.

From these insights, we have drawn out the key questions that a European B2C founder might consider.

Product Market Fit: Have you done all you can from Europe to get US product market fit?

Companies that did not have this critical mass of user traction and who opened offices and hired staff pre-emptively found themselves in the very expensive position of having a team of people to support a product that was still not yet refined to the US market — when these refinements could have been done from the European base.

Companies that successfully moved over often also had an established understanding of their US unit economics before making any significant investments. Whilst having a location on the ground may make logistics easier and means that goods do not need to be shipped internationally, it is important to keep the fixed cost base low for as long as possible before expanding.

Questions to ask:

  • Have you done everything possible from your base in Europe to generate traction in the US?
  • Do you know your US unit economics?

Market Dynamics: Have you considered the differences between Europe and the US markets?

On entering the US market, European companies can often encounter a highly competitive landscape with many fast-moving and well-funded rivals. As such there can be the problems of over-saturation of the market and already powerful brands controlling customer mind-share, resulting in potentially unstainable acquisition costs or requiring modifications to business models.

Questions to ask:

  • Do you understand the competitive landscape of your industry in the US?
  • Is your platform/product best-in-class in the Europe?
  • Do competing business models exist in the US that do not exist in the EU?
  • Who are the competitors in the market? How are you differentiated from them?
  • Is there a fundamental difference in the market for your product or the nature in which this product is sold in the US and EU?

Route-to-market: Do you have an understanding of how to reach US consumers?

Likewise, because costs of advertising in the US are generally higher than in Europe, it may be the case that some channels are no longer profitable and you may have to find new channels to sustainably reach new customers. In a number of cases, companies found that their unit economics would not stabilise and kept rising to the point that they had to eventually shut down their US operations.

Questions to ask:

  • Have you worked from your home base to determine how messaging to US consumers is different to EU customers?
  • Which channels will you use in the US?
  • Do you understand which segment of US consumers you want to target? How big is this segment?

Access: Proximity to large tech companies

Questions to ask:

  • Could you gain an unfair advantage by building a close relationship with Google, Apple or Facebook?

Hiring: Have you considered who you need to hire?

As such, a B2C company looking to hire their first employees in the US should think very carefully about what roles they are going to hire for and how to track the performance of those roles. Being able to track performance of the roles is important so that you are able to properly incentivise staff with low bases and large bonuses.

The head of international roll-out for a travel website commented that they held off launching in the US for as long as possible until they were in a position to send their best people out there (and their European operation could cope with the loss of these people) and had practiced international roll-outs in other geographies. Before sending over this US launch lead they got to a position of having comfort that they had product market fit by doing experiments from their European home base.

Questions to ask:

  • Who should lead the US office?
  • What will be the impact on the home territories if this person is engaged in the US market?
  • What are the roles that you think you need to hire for in the US?
  • Which of these could realistically be done in the EU at first?
  • How will you track success of the US roles?
  • What US functions can be outsourced?

Summarising

  • It is often possible to determine if you have product market fit in the US by running experiments remotely from Europe;
  • There can be some advantages to moving to San Francisco to be near the HQs of large internet companies for B2C businesses;
  • When making a first hire, a B2C business should be very careful with who they hire. They are likely to be considerably more expensive than an equivalent in Europe and it is possible that the role could be done from Europe — as such founders should set success metrics for US hires;
  • Just because something works (messaging, channels, key words) in Europe does not mean it will work in the US — extensive testing from ones home country should be done before a move over to the US is made; and
  • Companies who move over successfully typically have a good idea of their US unit economics before they do so;

We would like to thank the CEOs, US country managers and founders of the following companies who contributed to our research: 3D Hubs, Secret Escapes, Graze, Depop, Ava Women, ROLI, Vivino, BitBar Technologies, TVTY, Wingit, Yplan, Barnebys, Booking.com and Eve Sleep.


Want some help asking the right questions to help your business to succeed? Get in touch with our experienced team at Octopus Ventures.

Octopus Ventures

Practical support and insights from the team at Octopus…

Oliver Birch

Written by

Working at @OctopusVentures seeking unusually talented entrepreneurs, based in NYC

Octopus Ventures

Practical support and insights from the team at Octopus Ventures, a multi-stage London VC backing unusual talent intent on global impact.

Oliver Birch

Written by

Working at @OctopusVentures seeking unusually talented entrepreneurs, based in NYC

Octopus Ventures

Practical support and insights from the team at Octopus Ventures, a multi-stage London VC backing unusual talent intent on global impact.

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