America First!
How to make French startups grow and become international champions? this is the current hot topic in the hexagon. To solve it, shouldn’t France take a look at models that work outside its borders?
Take Israel, for example. In twenty years, this country of 8 million inhabitants covering an area no bigger than Brittany, has managed to establish itself as a reference in the world of technology. Israel counts more startups and engineers per capita than any other country in the world and only the United States and China can boast more NASDAQ listed companies.
While cultural factors, such as appetite for risk and entrepreneurial spirit, count for a large part, the strategic choices made by the companies and the government can be of much inspiration. The “Israeli miracle” is first the result of proactive public policies : the Israeli government focused on R&D and innovation at a very early stage. But on this part, so did the French government. The main difference of the Israeli model comes from the fact that its limited domestic market has pushed entrepreneurs to think outside their borders when setting up their business. A mix of international ambition and pragmatism explains why exports and partnerships with foreign companies are logged from the outset in the Israeli startups business plan. Barely established, they enter the US market where they become more powerful before rolling out to the rest of the world. This is the “America First” strategy.
In contrast, France suffers from being a middle-sized country. Indeed, French entrepreneurs firstly develop their companies in the domestic market which is large enough for them to develop and grow as local champions. They only consider going international afterwards, often starting with their closest neighbours in Europe. Digital markets are global by essence and very much subject to network effects. In order to reach a critical size in a competitive environment, the speed of execution is all important. First, the domestic market remains too limited to allow for rapid growth. Then, the choice of destination for exports is a complex matter. Europe, in particular, is a difficult springboard. In the absence of a truly common digital market, it remains a group of small markets, each with its own cultural and linguistic requirements. For French startups to be game-changers it would certainly be best off following the example of their Israeli counterparts by going to the United States, and by doing this at the outset.
It’s no coincidence that the American establishment is a priority for French tech stars. Scality, a specialist in intelligent storage and considered to be a future European unicorn, has been operating using this global model from the outset with its team split between Paris and San Francisco. Similarly, record fundraising in recent months for Actility, Dataiku, ContentSquare and Adikteev, aim at increasing the presence of these startups in the States. The Algolia search engine, which generates two thirds of its revenue across the Atlantic is already seen as serious competition for GAFA in Asia.
Why exactly this “America First” strategy? The first major answer is the size of the US market which allows rapid growth for a company, then making it possible (and easier) for the business to break into other markets, including France. In addition, the digital maturity of US companies is higher than in Europe, which increases the rate of new customer acquisition. Establishing a business in the American market also allows to break more easily the great glass ceiling for financing by triggering a chain of investments mixing French and foreign funds. Finally, there is a culture of excellence in management teams with real “war machines” staffed by top-guns in all areas of a business including marketing, sales, finance, HR, etc.
But the American adventure is as much a challenge as an opportunity. Before rushing across the Atlantic, it is essential to ensure that the target market is not already saturated, that the business has a strong and differentiated value proposition and that there is no direct competition already in place. When the lights turn to green for the United States, there’s no longer any obvious reason to spend time and resources on European markets.
In this race to critical size first in the United States, French startups can rely on many favorable factors. First and foremost is the success of a French Tech brand and the good reputation of its engineers. The second factor is the large community of French people among the headquarters of the American digital giants : they make it easier for French startups to settle in the US compared to the United Kingdom or Germany. In addition, French networks have a strong corporate presence in this key market (Bpifrance, Business France, etc.). Finally, the fact that New York emerges as a leading tech ecosystem enables companies to access the US market while managing their European R&D teams more easily than from the Silicon Valley.
