Should Your Startup Grow Internationally?
Most startups focus their limited resources on trying to grow their client base in their home country. This strategy makes sense. In general, these clients are often easier to get and to service. However, there are benefits to getting clients internationally. In my case, it provided many benefits including faster growth, stable revenues, and geographic diversity.
International expansion is not for everyone. However, I think most entrepreneurs should at least consider it, determine the costs/benefits, and decide if it’s the right choice for them.
My story of international expansion
When I started my company, I never thought I’d have international clients. I was focusing on growing a national company. However, something interesting happened. We started getting leads from Canadian prospects. Initially, I turned them away since we had no way to service them.
This development prompted my curiosity, so I researched the Canadian market. Meanwhile, I kept getting Canadian prospects. I hated turning business away and could see an opportunity here. After more research, we established a presence in Canada. Opening the Canadian market was probably one of the best business decisions I ever made.
Our Canadian expansion worked so well that we expanded our product line to offer debtor finance solutions in Australia. Establishing a foothold in Australia has been more challenging than working in Canada. However, there is a lot of potential if the plan is executed correctly.
Getting clients internationally can be difficult
Growing internationally is difficult. There are a number of technical, logistical, and legal challenges. Here are a few challenges to consider.
1. Do you need a foreign office?
Establishing a foreign office can be a logistical and legal nightmare. This process can easily consume the two scarcest resources startup owners have: time and money. If possible, try to handle all operations out of your US office. Adapting your US office to handle foreign sales by hiring additional staff is much cheaper and easier than trying to open an office abroad.
Eventually, you may need to create a foreign subsidiary and open an actual office. At that point you need to consult a local expert.
2. Will your clients pay?
Most commercial clients in the US demand net-30 payment terms. You can offer terms in the US because there are several ways to check the credit of a client. Ultimately, if the client does not pay, you can take them to court.
Internationally, however, things work differently, and getting paid can be a challenge. The safest way to operate is to ask for a prepayment or insist on using letters of credit. This approach limits foreign bad debt.
If you must extend payment terms, be careful and consider getting credit insurance. Some companies, like Dun and Bradstreet, offer credit reports for foreign companies. These reports are helpful, but in our experience they are not as reliable as reports for US companies.
3. Will you need to pay foreign taxes?
Foreign taxation is one of the most difficult issues to handle. Don’t assume that you are free from paying foreign taxes simply because you don’t have a foreign office or don’t have a foreign corporation. Some countries levy a tax on all sales to companies in their country – domestic and foreign. The best advice I can offer is to consult a local taxation expert.
4. Language issues can be hard to manage
Translating your marketing materials can be difficult and expensive. Get professional help when translating your documents. Even if you use the same language, your materials may need to be adapted to include new terminology and different spelling.
We encountered this issue when developing materials for the Australian market. Initially, we thought this task would be easy because both countries speak English. We were wrong! My industry has many terms that are synonymous and used interchangeably. Many of these terms have different meanings in Australia. It took us a while to figure this out. This issue led to some initial problems when we were creating the product offerings.
Consider hiring salespeople and support people who speak your client’s language. This investment is worth it. While most clients speak business English, many appreciate working with a vendor who speaks their language.
5. Travel costs
Another point to consider is travel costs. Developing a foreign market usually requires multiple visits by salespeople and executives. These costs can exhaust the resources of your startup. If possible, limit the number of visits initially. Use Skype or similar alternatives when you can, but keep in mind that personal contact is still important in many cultures.
One tip: Find local partners
One way to minimize the risks and costs of expanding internationally is to work with local partners. Usually, a partner takes a share of your revenues and acts as a local office. Partners are a good way to start working internationally and can help you a lot. A good partner helps you identify clients, manage support issues, and navigate potential contractual issues.
Obviously, choosing the right partner is critical. Perform extensive due diligence on the partner company and its principals. Engage a partner only when you are comfortable with them.