Have you ever heard (or thought) the following? “We’re an early-stage software company. We’ll attack our home market first, then consider selling software internationally later.”
Wrong answer! (In a lot of cases, anyway). I have worked with a lot of SaaS, infrastructure, and mobile software companies in my career and I hear something similar to the above all too often. This happens especially often when the lead founder or CEO comes from a technical or other non-sales/marketing background. But this attitude is often unfortunate and in some cases can stunt or kill a company that should have otherwise made done very well. Let’s take a closer look:
Selling software internationally is often underutilized
That’s because there truly is low-hanging fruit outside of your home markets, my friends. And if you leave it out there long enough, your competitors will grab it instead of you. I’ve sold an incredible amount of software in secondary markets such as Australia, New Zealand, Norway, Denmark, Finland, Sweden, Switzerland, Netherlands, Belgium, and many others. For example, back in the early 90s, I started up a business that created and sold a completely new and novel Systems Management product.
By the middle of our second year of operation, over 40% of our revenue was international, all while spending just a small fraction of our marketing budget outside of the US. More recently I’ve worked as an advisor and interim executive with a large number of software-based businesses. Many if not most of these clients were not giving international markets much attention prior to my involvement. In almost every instance we were able to make a material impact on the business with minimal incremental investments internationally.
I realize that some people will question all of this–but it’s true. Every circumstance is different, of course, so this may not be possible in all cases. But especially today, the world is a much smaller place. It’s so much easier to do business in far-flung places than ever before, particularly in the SaaS and other types of software where supply chain logistics aren’t a concern. Since so many software businesses are based in the US, I’ll use the example of US-based software-based startups and international markets to dig into this a bit further. But the advice applies broadly, wherever your software company is based.
Contrarian approaches can yield an advantage
- First of all, it’s important to understand that the US market is the largest in the world. But because of this, it’s also the MOST competitive and difficult world market to penetrate. US-based early-stage software companies can access this low-hanging fruit relatively quickly for a number of reasons. First, in the software business, there aren’t the risks and costs associated with inventory that you would find in a manufactured goods business. In fact, if your business is SaaS-based, all supply chain issues essentially go away (with the exception of maybe putting your product on a few different servers worldwide to limit latency issues). In a software-based business (vs. physical goods such as electronics) the costs and risks of international sales expansion are still there, but they are greatly reduced to such an extent they aren’t really a strategic issue for software businesses. If you fail, you’re not left with a large inventory of products built to electrical or safety standards that make them unsalable in your current markets. The biggest downside is usually just wasted time and a small amount of money. I’m not downplaying wasted time in an early-stage business, that will sting. But it pales compared to the large inventory write-off you may experience in a hardware-based business (along with the same amount of wasted time).
- Next, most of your early stage software competitors have the attitude outlined at the beginning of this article that “selling software internationally” is something to do later on, and are contentedly pounding away in their home market.
- In addition, it is far easier to adjust prices to local markets and set up segmentation fences through localization in the software business, than it is in a hardware business. This is especially true for a SaaS business. In addition, if you are a US-based company, there will be some symbiotic overflow effect from your US marketing efforts, since the US is still the center of the software world and gets some attention from potential international buyers and distribution partners.
- And last (but definitely not least) is the unique attribute of secondary markets: the ability to find really good distribution Partners. Now you might say “Why recruit partners and give them part of the cut if I can do it myself these days? Especially if my product is SaaS-based? Because these partners will have a large head start on you (and your competitors) in their markets, providing existing momentum, brand recognition, and often an existing customer base, not to mention local resources that you can leverage to maximize your penetration quickly. And make no mistake–you can market and sell on your own worldwide via the Internet these days (and should!). However, local folks on the ground in remote countries with intimate market knowledge and existing personal connections in the market that you don’t have will often still give you an advantage. Local knowledge and “on-the-ground” operations have always provided sales leverage; I don’t see that changing anytime soon.
The “obvious” first step in international software sales isn’t always optimal
We’ll come back to this last point in a minute. But first, let’s go back to our usually typical US-based software startup. However, the CEO of this company is an exception, being rather bold compared to his peers. He decides he will dip the company’s toe into international markets. So where do they go first? Why, the UK, of course! It “feels” the most like home and Brits speak “somewhat” the same language as in the US. And indeed, it is the most similar market to the US in this way: The UK is usually the SECOND MOST COMPETITIVE and sophisticated market in the world!
This makes the UK difficult to crack and especially to find the type of partners you’d like to have in international software distribution. That’s because the market is so developed that potential partners are almost strictly demand-fillers (much like in the US). To add to this misstep, from a cultural and marketing/distribution perspective, it is quite different from the rest of Europe and no longer even part of the EU common market. So this step doesn’t even provide quite the initial learning experience you’d like to get when moving on to continental Europe.
The advantages of good sales partners in secondary international markets
So let’s get back to that unique positive attribute of the types of secondary international software markets I mentioned earlier in this article, the ability to find good partners. I’ve highlighted “partners” because it is so important to find the right partners and then treat them well. What you are looking for is to find a distribution partner who will proactively ACT ON YOUR BEHALF to the greatest extent possible in this local market. Someone who will put out the effort, expend their own capital in sales and marketing, and be just as committed to the product’s success in this market as you are in your home market.
This isn’t easy to find–but it’s much easier to garner good international software sales partners in these secondary markets than it is in the highly developed, larger markets such as the US and UK– and the payoff is still very high if you get it right. Find the best potential partner possible, then structure the deal to get them excited. Give them high discounts, provide extensive sales and technical training, and some co-marketing dollars if you’re at the stage that you can afford it. Give them at least a short-term, informal exclusive in their territory. Set the deal up so that they aren’t competing with other distributors of your product or even you–just your common enemy, the competition.
If you do this right, you often will have created a revenue generation machine that will work for you for years to come–often with very little ongoing investment. This partner channel could hit the ground running and be humming along for a while, even while you’re still heavily investing and pounding away to become fully established in your own home market. This is contrary to what many will tell you, but I’ve found it to be true in many cases. I have personally done it many times across a variety of markets and software-based products. I could write much more about this topic — it’s NOT simple. The devil is always in the details. But I’ll stop here.
What have been your own experiences with expanding a business early on by selling software internationally? Leave a comment to let us what YOU think!
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