How Soon Should Your Software or Hardware Company Go International?

This is a question that frankly doesn’t come up often enough at early-stage tech companies. There is usually an assumption that you first conquer your home market. Then sometimes WAY, WAY down the road when you are already flush and successful, it will be time for international market entry. US-based tech companies are most guilty of this often questionable thinking. But I’ve even seen companies in other parts of the world stay “local” way too long.  Even a few European companies, which are usually quite eager to enter the US market early, have surprised me. One particular European software company continued to hold back from serious US-market entry. Even though they had already acquired a significant number of US customers, essentially by “accident”!

What’s wrong with this very conservative approach, especially for US-based companies? After all, the US is the largest market in the world. It’s also far easier to sell to customers close by than halfway around the world. Then why should you use your scarce early-stage capital in a risky international expansion? This is how the thinking goes.

The problem is that you may leave significant low-hanging fruit on the table.  And at the very time that you need those customers the most. Let’s look at 4 important reasons to go international as soon as practical:

Reasons for Early International Market Entry

Early adopters needed

As an early-stage software or hardware company, you need to find early adopters of your product. These folks fit a certain psycho-graphic profile and they are much rarer than the average customer. In some markets, you may need to scour the earth to find them. The “innovators” and “early adopters” who will seriously consider purchasing a completely new product represent only about 16% of your total addressable market. So limiting your geographic scope unnecessarily only makes the job harder. Also, remember the world is a much smaller place commercially than it was even a few decades ago prior to the Internet. It’s not nearly as hard to find these important early customers tucked in faraway places as it was in the recent past.

Distribution partnerships can provide tremendous leverage for a young company

This is one of the bigger reasons to go international that newbies don’t understand. They think that with all the money they are spending to penetrate the home market, selling internationally will be even more expensive. This can be true, but it doesn’t have to be. In many markets, you can find distributors who take on much or most of the marketing and sales load. This reduces your investment tremendously and allows you to leverage their existing relationships and brand names. In many cases, this gives you a real leg up rather than “starting from scratch” on your own.

Many markets are less competitive than your home market, especially if it’s the US

Unless your home market is tiny and particularly un-competitive, there are most likely more under-served markets with low-hanging fruit. Why? Nearly every startup software or tech company thinks the same way and focuses initially on their home market. Since much of the tech business is located in the US and competes there, it’s the most brutally competitive market.

Beat your competition to the punch

Getting to a new market early can often mean the difference between success and failure. If you’re the first competitor in a country or region, the early adopters and other low-hanging fruit are there for you alone. You will get your pick of the best distribution partners and your product category will be “fresh” news for the media. Once established, it will be harder for later-arriving competitors to push you down the market share ladder. That’s true even if they are larger than you overall.

So when should a company go International? The short answer is as soon as you can do it. But what’s most important is to fully evaluate when “as soon as you can” actually is.

What to Evaluate Before Deciding On An International Market Entry

Your product must be stable

This should go without saying. But the only thing that causes a greater catastrophe than an unstable product is one distributed worldwide! Don’t do this! Be sure things are solid before venturing away from where it’s easiest to “babysit” early problems.

The product must be “market-tested” in home markets before international market entry

I’m a proponent of aggressive international business development at an early stage But there is such a thing as “too early”. Ensure you know your product has some market interest before going far away from home. It’s a pointless exercise to recruit distributors and customers in foreign markets with a product that doesn’t hit the mark with anyone. Or one that doesn’t even have a reference customer list. If you can’t gain even 10, 20, or 30 customers close to home, heading far away and seeking others won’t help.

Inventory or License only

Businesses that require the stockpiling of large amounts of inventory are one of my exceptions to my preference for aggressive early international development. That means hardware companies generally need to be more careful than software companies. Companies that distribute through retail channels or VARs need more total inventory than those selling only directly. So these companies also need to be even more cautious. The issues that come along with inventory, such as repairs and returns, are exacerbated by borders and distance. So if you’re company is inventory intensive, maybe start with one smaller market. Consider this rather than targeting a large regional roll-out, to test that everything goes smoothly before placing a big bet.

Direct or Channel distribution

If you have to establish your local foreign operation, hire a bunch of people, rent office space, etc, you generally need to wait. Most startups can’t afford this type of risk and investment. Although some feel this route is their preference due to control, it’s generally not mine. It’s quite risky and slows your international progress rate down significantly. Most companies can start by using distribution partners. This is often a good long-run strategy as well. If you’re wildly successful and feel the need for total control, you can always buy out distributors later.

English or Local Language

English is the universal language of technology. In some vertical markets (such as Enterprise IT software), English-language-only products often work fine. These are markets where you can make the fastest international penetration after proving your product in your home market. If you need local translations, they aren’t that expensive and can be done quickly. Distribution partners can often help. But make sure you don’t skimp on a good translation. Nothing will hurt your local credibility more than language that isn’t proper, or at worst, makes no sense.

Safety, Legal, or Electrical Specifications

This area can slow down the potential for fast international market development. Many countries or regions have safety or electrical standards that will require product modification or testing (and thereby investment). There are also legal aspects that need to be considered (European privacy laws when selling security or marketing software, for example.) Don’t let these stop you from evaluating your international prospects. But these factors can change the calculus of your decision-making on how soon to take the international plunge.

SaaS

If you’re a software company using the SaaS model there may be little downside to early international business development. If latency isn’t an issue for your product, you may need no specific international investment to get started. Or maybe you need your servers hosted in other parts of the world to reduce latency issues. But this shouldn’t be a huge investment and can be accomplished sometimes as simply as using a CDN. You still need marketing in the local markets. Using your own direct (albeit remote) methods or through partners. But given the potential rewards, these investments should be a small price to pay.

Process or Cultural Differences

When entering a foreign market, understand that you can’t fully comprehend the local culture or how commerce functions there. It’s important to know what you don’t know. Listen more than you talk at first. Hire an international business consultant if you can afford to. Partners can also help greatly here. If you are a savvy, experienced international business person, it definitely raises your odds when attacking foreign markets early on.

Existing Demand

Are there customers “champing at the bit” for the benefits your product offers? Or will there be a bit of an education process and a long sales cycle? Existing and obvious demand is a key bullish indicator for aggressive international business development.

The bottom line is that going international quickly can be a big boost to early growth for a software or hardware tech company. Be careful, but not overly cautious. Evaluate your specific situation and take the plunge if the odds are with you.

What’s your take on the proper pace for international business development? Post a comment or send us your story via one of the options below.

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