Three Years Of Experience Going Global. Entering US, Brazilian and Turkish Markets

Kostantyn Makarov, CEO of the email-marketing company SendPulse, shared his experience of entering the foreign markets of the US, Brazil and Turkey. Each country offered unique challenges that the team had to overcome.

SendPulse was part of Batch #2 of Starta Acceleration program in New York back in 2016.

Identify target countries

Picking the first country was a no-brainer. The global email-marketing industry is valued at approximately $80 million, with the US accounting for 40 percent of that business.

Competition in this market is fierce — our analysis found that there were more than 100 competitors in the US alone. However, a success story with some amount of sales, even if it is smaller, is essential for a potential exit and an investment attraction.

In addition to our Russian and American markets, we decided to actively expand into countries with fast-growing economies, large populations and a good number of small businesses — both BRICS and MINT countries met these requirements.

Research

For the longest time, we had an up-to-date English version of our website. We weren’t really investing in foreign-based service development at that time — the website was enough for attracting occasional foreign customers, some from our target countries.

Our support team has always worked 24/7, and every employee is fluent in English. Overall, we were ready to try our luck with expanding abroad. So, Winter of 2016, when we became participants in the Starta Accelerator in New York and opened our US office, we recruited new employees and started our experiment.

At the same time, by diving deeper and studying the available information on our target countries, we decided to also expand into Brazil. We weren’t planning to immediately open an office, but instead, to hire a country manager responsible for organizing the work. After a few months of taking our business to Brazil, we entered the Turkish market — and this time we used our already tested algorithm.

But it’s not that simple: employees, laws and culture.

Of course, we faced multiple challenges when going global. When we had just expanded into the US, we had a major personnel problem. Just like a lot of other Russian-speaking entrepreneurs, we thought that hiring our former compatriots, living in the US, was a great idea. It seemed like it would be convenient to speak the same language as the employees. However, in practice, people who have lived in the US less than 10 years were not able to work as effectively as Americans.

To start with, Russian-Americans, as a rule, want more money, taking advantage of the fact that they already understand the culture. They claim that without their help you will fail, “you’ll be harassed with a shakedown”, or they might use your poor English against you, but the quality of their service is much lower — they are aware you will not complain or sue them because you don’t know how to.

In Brazil and Turkey, we also hit our fair share of bumps in the road. First, it is really challenging to sell a B2B service, like ours, in a fast-developing economy. In the US, email-marketing has been used for quite some time, and everyone understands and knows how and why to use that tool, but in Brazil and Turkey competition is much lower. As such, business owners are not forced to use additional marketing resources since their companies are already growing.

The government also adds to the complexity. Let’s look at Brazil — it has one of the harshest labor legislations. Companies are required to provide significant benefits to their employees: travel, nutrition and long vacations.

When we were recruiting a development partner for SendPulse Brazil, the average applicant was asking for 14 payments a year, with a $7K monthly salary (the compensation wishes ranged from $5K to $20K a month and up to 17 payments per year). Some also asked for a luxury corporate car with fully covered expenses, trips to New York with business class seats, free meals, compensation for the travel to work and up to two months of vacation, including a visit to the Rio Carnival.

The tax laws of Brazil are also complex — companies pay both the turnover and sales tax. There is a choice of a tax scheme, but it does not provide flexibility.

Also, the country has a strictly controlled cash flow, especially when talking about currency. All payments and bills between companies go through a single accounting system called Boleto Bancario. It makes it easier for the clients to pay in local currency, the Brazilian real. However, we can bring our profit to the parent company only by paying a substantial tax, making it easier for us to spend reals right where we earned it, in Brazil.

An example of a Boleto invoice: it’s tough to figure the system out, so there are a lot of online step-by-step resources like this one.

When working in Turkey, the most unusual thing is the mentality of local businesspeople. The influence of Eastern traditions is very strong, and a particular significance is assigned to negotiations. Turkish entrepreneurs always call the office to talk and try to bargain, even though our website clearly spells out our pricing plans.

Our results

It’s not that difficult to start working abroad — you just need to translate your website, run your ads on AdWords, and voila, you are already on the new market. The real challenge is to actually make money — localization and advertising are not enough. For a full operation, you will have to solve many problems: finding employees, learning about the intricacies of new legislation, and bridging the cultural gap.

Our US sales now account for about 10 percent of total SendPlus turnover and it’s growing at the overall growth rate of the company. Brazilian and Turkish revenue is even more modest — but there we started with practically nothing, so we are having a higher growth rate than on our home turf.

5 tips for expanding abroad

• Understand in advance how much you can earn — It was crucial for us to understand how profitable expanding into one country or another could be. We studied the GDP per capita, the number of small and medium-sized businesses, and our competition in the local email-marketing industry — including the presence of competitors and their development level.
• Consider your level of English — It’s clear that everyone in the US should know English. Truth to be told, it’s essential for any market, even for corresponding with your staff. Our Brazilian country manager studied in New York and worked in the US, so it’s easy to communicate with them.
• Hiring a country manager is the most important part of an expansion — During every exit, we go through hundreds of resumes of potential employees and we have a big list of questions that we ask as a part of our selection process. The answers help us not only pick our candidate but also to get information about the development level of the industry.
• Localization is not an exit to a new region — We came to this conclusion because of the experience we had with our previous projects. One of them had a website translated into 16 different languages — and it failed. You need to actively work on the market for at least a year. This is the only way to get the insight into whether you should stay in the market any longer.
• Write off your expansion money right away — An exit to a new country is a big risk, every market has its own unique challenges. You should treat your exit expenses as an investment in your own experience that will not bring immediate returns. For example, we spend about $500K for each expansion — you can’t truly evaluate your prospects for a lower amount. Even so, it is not still not clear whether it will pay off, but at least we will know for a fact if this market suits us.