Internationalising your business: How, When & Where?

On 2nd October Cruxy & Company, Smedvig Capital and Silicon Valley Bank co-hosted an event delving into international expansion, with a focus on the US market. Opinions came from a diverse panel consisting of an investor, lawyer, strategist and Tech CEO with recent US expansion experience.

In a morning full of punchy opinions and in-depth insight, here are some of the key takeaways:

When to go

When considering international expansion, every business should ask ‘is now actually the right time to do this?’ Internationalising is a huge management distraction and lots of teams approach it too early. It is imperative that the core business is developed first. If businesses approach expansion before getting proper traction in their home market, investors may ask questions: Is the home market in fact not as big as previously thought? Why is it not being penetrated more successfully? Does this in fact mean that the product-market-fit isn’t perfect?

‘In 2016 we purposely raised our Series A for international expansion. Our traction in the US market showed promise, generating 35% of the business. But we took advice and waited 9 months before we incorporated the business in the US. We did this because we had things to work on in the UK first to ensure the business was as strong as it could be before focusing on a new market’.
Jon Cornwell, CEO, Newsflare

How to pay for it

Raising in the UK is far more likely than the US until you have significant US traction and / or a founder in the US. If you are US fundraising, then the main difference between UK and US is quantity — both in terms of number of VC’s and the money they are trying to deploy.

‘There’s a big question mark around using advisors in a fund-raising process. In the US a general view is if you’re raising less than $10m advisors are seen as a sign of a weak founder — they should have the hustle to know the right people. But when raising more than $50m, advisors are appropriate. The in-between is a grey area and varies case by case.’
Jon Lerner, MD, Smedvig Capital

Where to go

Diligence is key to success. You need to put in the work beforehand. There are no shortcuts. Map out the Total Addressable Market. Analyse the pros and cons of each territory. Do you in fact want a central hub as you will likely travel a lot? LA might be ‘sexy’ — but are you ready for the extortionate costs? Think of everything conceivable and then weigh out everything against each other. Don’t be attracted by the “bright lights”.

‘Lots of businesses we meet say ‘we go wherever our customers take us’. This is a fragmented and unfocused approach, so will make it very hard to understand what you’re trying to achieve.’
Carrie Osman, CEO, Cruxy & Company

What are the legal practicalities

The two common early stages of expansion are both relatively light touch. Firstly, selling remotely to US customers, which typically doesn’t require the creation of a US company. Secondly, hiring freelancers/contractors, which also typically doesn’t require a US company. When you look to hire US employees or relocate employees to the US, then it is time to incorporate a US company and put in place your US advisory team — tax, banking, HR, insurance and legal. Forget most of what you know about the logistics of doing business in the UK, particularly around tax and employment; the superficial familiarity of the US masks the fact that doing business in the US is vastly different from doing business in the UK or elsewhere in Europe.

‘Employment in the US generally operates on an at-will basis, so employees can be fired on the spot with no notice period, like you see in the movies. However, claims by ex-employees are one of the most common types of business disputes in the US, so it’s best to be thoughtful about this process and use severance pay and separation agreements to avoid potential litigation against the company.’
Daniel Glazer, Partner, Wilson Sonsini

The founder’s checklist for effective international expansion

  • Make sure the business is at the right scale to make an impression in the new market
  • Do the necessary research to understand which market works best for your business, whether that’s Europe, the States or Asia
  • Learn about the new locations culture and how to ‘speak their language’
  • Take people from the UK as culture bearers but support with local talent, ‘cross over people’, they’re invaluable for navigating networks and understanding cultures
  • Do as much background research as possible on potential hires to ensure they’re strong candidates, not just good at selling themselves — US sales people are particularly good at self-promotion but find an exceptional one and it will be game changing
  • Use resources available for support on the best route to expansion, from the more obvious e.g. Advisors, to the less such as the Department for International Trade
  • Plan and allocate time and resources appropriately to ensure workload is shared between the management team and the wheels don’t fall off the home business
  • Steel yourself for a roller coaster!