The Model for Expansion

The Model for Expansion

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Do you have a software company that is ready to expand to another country? There are several different ways to approach the process, each with its own benefits and risks. In this column we assess the top three models.

Model 1 is the ‘lock, stock and barrel’ option: Take your money, physically move overseas and open an international office. This is the best-known and offers a good chance at success because you are physically there, your passion for your product is present and there is no dilution of focus.

However, it is a very expensive option. Either you will need to lay out the costs for offices, infrastructure and staff yourself or you will have to rely on a funder. If you have an existing business model and product that are successful locally, a venture capital (VC) firm may provide you with the funding you need. Then, if your product is exceptional and if your budget is big enough, you can hire an international expansion company and attempt to break into a new territory. For me, that holds too many ifs.

The risks are also high: If you don’t succeed, you lose your money; at worst, you could lose your company. Also, no matter how much preparation and research you do, there will always be things you don’t factor in, whether it is a cultural gap or a legislative or regulatory issue. This is a high-risk option.

Model 2 is the hands-off option: Take your business model and sell it as a franchise to someone who will do everything for you. The advantage with this model is that there are no direct costs to you – it requires little time and no financial cost or monetary risk.

On the downside, there could be serious risk to your brand or product name. Once you have sold franchise rights, especially to someone in another country, you have little or no control over what they do, how they sell your brand or even what they are selling. They could do permanent damage to your brand in the marketplace, limiting your ability to re-enter it at a later stage.

Model 3 is a hybrid of the first two – working with partners. You will have to invest some capital and time in finding and keeping people you can rely on and who know and believe in your product. You will have to assist them in the sales and implementation process and gradually build them up to a position where they can be a remote office for you, albeit not owned by you or fully accountable to you, who can handle all the processes themselves. This option allows you to choose how involved you are, maintain some control and limit your costs.

The third model is what has worked for us at idu, allowing us to have a presence in Australia, New Zealand, the UK and throughout Africa. It won’t allow you the rapid growth you may want and there may not be dedicated focus on your product, but it is a slow, steady growth strategy.

If a venture capitalist were to offer us millions to spend trying to set up a brand new operation with no infrastructure or market understanding and no strings attached, or an introduction to one established partner already based in the country with a dedicated client base with a need for our product, I would choose the partner model every time.

Kevin Phillips
Kevin Phillips has degrees in Commerce and Accounting, and started idu Software with partners James Smith and Wayne Claasen in 1998. Kevin is a columnist for Accountancy South Africa and Tech Leader and has been featured in Entrepreneur, Sunday Times and Business Day; as well as speaking on Radio 702, Kaya FM and Summit TV.