It no longer matters how big or small a brand is; a startup’s success does not hinge solely on rate of innovation, but also on the speed at which it scales, especially for founders chasing the coveted “unicorn” status. Today, the startup landscape is full of businesses that are ramping to $20 million in top-line revenue in just a matter of months. Increasingly, companies are moving forward with international expansion at earlier stages of the business lifecycle in an effort to tap into new customers and markets, gain access to suppliers, better serve domestic customers with global operations, achieve cost savings and more.
Data from The Center for American Entrepreneurship illustrates the increasing globalization of innovation, with flourishing innovation economies emerging in cities like Beijing, London and Bangalore. Startups understand the importance of tapping into new markets – and the most successful ones put the right strategies and structures in place to support overseas expansion long before doing so.
The Trend – International Gains in an Era of Cautious Optimism
Since 2009, the world has seen a massive expansion of startup and venture capital activity. As countries pulled themselves out of a deep global recession, a new era of innovation came into play. According to the J.P. Morgan ‘Business Leaders Outlook (BLO)’ survey, more than half of companies continue to be globally active and of those, nearly three in four expect their overseas sales to increase in the next five years. Industries where we’re seeing increasing international activity include technology and healthcare. The major factors driving international expansion for businesses continue to be access to new customers and markets, followed by access to suppliers and materials.
While the global economic outlook is more subdued due to geo-political and trade uncertainties, business leaders are cautiously optimistic as they plan for growth in the current environment.
The International Toolbox:
An in-depth understanding of the challenges and opportunities abroad helps company leaders grasp the growth and scale they seek. There are many unique decisions that business leaders need to consider as they plan for global expansion and build a long-term growth strategy. Startups can employ the following five tactics to increase their chances of success when launching an international expansion plan.
- Focus on endurance, not speed. Going global calls for structures and management processes to move quickly in new environments. A clear understanding of global and regional economics is critical to building a lasting global business. to the ability to quickly respond and adapt to changes in the region is also a key to long-term success.
- Mix local relevance with global scale. Effectively tapping into local preferences requires a deep understanding of consumer demographics, preferences and behavior within target segments. Companies drive better outcomes by staying flexible and tailoring offerings to local nuances.
- Do your due diligence. A strategy that works well in a stable and mature economy such as the US may not work as well in less developed markets. Each potential location for expansion must be carefully weighed and measured based on a number of variables, including business environment, geography and culture. Before expanding internationally, make sure to assess all the risks.
- Invest in technology that optimizes operations in new markets. Technology can propel growth and drive efficiency for startups, especially if used properly. It can also establish a clear channel of communication between headquarters and local entities early on. International expansion can get complicated quickly, but a strategic investment in technology can improve transparency, resulting in a positive impact on operations, visibility, reporting and supply chain management.
- Make strategic partnerships. Complying with local regulations and requirements can be overwhelming and time-consuming. A small oversight can result in wasted time, complications, and unexpected expenses. But finding the right banking, legal and tax partners—those who have the local expertise, as well as the global footprint—is essential to successful international expansion.
New Markets, New Opportunities:
From geo-political and economic uncertainties to costs and complexities, navigating an expansion into a new market requires advanced preparation. Smart startups with a growth mindset will continue to think about international expansion earlier in the company lifecycle, including during business plan development.
Entrepreneurial spirit often fuels border-breaking strides, but global growth isn’t without its challenges. It is crucial that startups structure their international expansions with strong foundational blueprints, creating a calculated course for success by addressing global challenges with strategic, adaptable solutions, data-driven insights and a strong market perspective before they even step foot out of the country.
Alton McDowell is co-head of the technology and disruptive commerce group at J.P. Morgan where he leads a team of bankers with a dedicated focus on high-growth startups to help entrepreneurs build their success stories. He has been with the firm for over 20 years. Alton graduated from the University of Houston and received an M.B.A. from Columbia Business School.