US is a must if you run a SaaS startup

United States is a big country. However, the world outside of it seems so much bigger. The US does not even account for 5% of global population. It is an economic powerhouse, but it generates “only” just over 20% of the global GDP and the EU is bigger than the US in GDP terms.

Thus, one would think that it is a perfectly good strategy to focus on building startups outside of the US. Many entrepreneurs do that and are very successful, especially in areas that have a very strong local component. A highly interesting, Berlin-based case for this is Rocket Internet, who build big businesses, esp. in the ecommerce space, in geographical markets where American companies are late to the game.

This logic does not apply in software though. In software, and especially in SaaS, products go global on day one and frequently see a strong pull (and competition) from the US. The reason for this is that US is a massive software market. It accounts for almost 50% (!) of global software spend (depending how you look at it and which stats you want to believe, the number is somewhere between 40% and 50%). In SaaS, the number is estimated to be even around 60% (!!!).

Source: SaaS Report by Siemer.

With the US software market being so big, you probably cannot build a big software business if you are not successful in the US. The US market is a must, unless your software is heavily entrenched in the local ecosystem.

Consequently, almost every SaaS startup needs to think through how they are going to tackle the US market. We encourage our SaaS companies to think strongly about the US and many of them are very successful there. Also, we try to spend time in the United States (the article is not very accurate, unfortunately) and build relationships so as to best help our companies in their efforts to expand into North America.

Here come a few links to resources on the structure of the global software market: 1, 2 and 3.

Originally published at pawel.ch.