“Many companies expand too quickly,” says Jon Fjeld, executive director of the Center for Entrepreneurship and Innovation at Duke University. While selling overseas extends your company’s reach, he says, you don’t want to move into international markets too soon and use resources you need to continue growing on your home turf.
Here are 10 key questions to ask before going international:
Have I built a solid foundation at home?
Make sure your business is stable on a day-to-day basis before pursuing overseas markets, Fjeld says. For instance, you should determine whether your business could function well in your absence. Companies also “need to have the distribution running smoothly enough so that they don’t have to focus on it constantly,” Fjeld says.
Do I have the bench strength for international expansion?
You will need to assign one or two senior employees to your international effort. So, you need to determine whether you can afford to move people from their current responsibilities, as well as whether they bring – or can quickly develop – the necessary skills for overseas sales and marketing.
“At minimum, you’ll need someone who is going to be accountable for the export sales part of the business,” says Tom Moore, deputy assistant secretary for international operations at the U.S. Commercial Service, the country’s trade promotion arm, in Washington D.C.
Will I find the talent I need in another country?
If you decide to expand, finding local talent can be a challenge. Some countries simply do not have enough of the skilled labour companies may need. You also will be competing with established companies that know where to find talent and how to recruit local candidates. One potential source: local educational institutions such as engineering programs and business schools.
How will I need to adapt to the local culture?
Some countries such as France and Japan expect companies to adapt to the local culture, says Carl Theobald, chief executive of Avangate in Redwood City, California, which provides e-commerce capabilities to small and medium-size companies.
That may mean customising your product or service to meet local customers’ tastes. At the very least, you will need to put your marketing message in the local language and make sure the meaning translates correctly.
Do I understand the cultural implications of the sales process?
Closing a deal abroad can be a vastly different experience than you’re probably used to, says James Hunt, adjunct professor of entrepreneurship at Georgetown University’s McDonough School of Business.
“Some cultures struggle to say, ‘No, we aren’t interested’ in a product or service, which means you can have an extremely long and costly sales process that never leads to a sale.” Such behaviour is especially prevalent in China and the Middle East, he says. To avoid this problem, look for customers who have bought similar items or services in the past, Hunt says. And sometimes it’s better to cut off talks if they lag for too long.
Have I sized up the local competition?
Understanding your competitors abroad can provide insights into how – and whether – to expand. But many companies don’t take time to figure out whether similar products and services are already available in a new market and what they would need to offer to compete successfully.
Spending time abroad and speaking with potential customers can help to avoid costly mistakes.
Do I need an international partner?
For many companies, it’s critical to find a local partner when expanding overseas, Moore says. Partners can help facilitate sales, while keeping costs down for the home office. Forming a partnership takes time – often, a year or longer – and requires plenty of due diligence to find the right fit, Moore says.
The U.S. Commercial Service offers a matchmaking service to help U.S. businesses find appropriate international partnerships abroad.
Am I financially able to sustain an overseas expansion?
Expanding internationally requires a start-up-like period that’s longer than many entrepreneurs anticipate. “You have to expect to lose money for a while,” Fjeld says. So, you not only need enough capital to make the initial investment, but you also should have a long-term financial plan in place, he says.
You will likely need to update the plan to reflect actual revenue and expenses as you ramp up in the new market. “It’s not something you are going to turn a profit on right away; you have to be there for the long haul,” Moore says.
Where’s the potential for red tape?
Expanding beyond the domestic market can mean lots of extra paperwork, especially for medical and technology companies. With such a variety of regulations surrounding exports, it’s important to understand what’s required for your particular industry before attempting to expand abroad.
Medical-device companies, for instance, require extra documentation, including proof that the U.S. Food and Drug Administration regulates its products, Moore says. “Sensitive technology companies may require an export license.”
Should I simply expand my online presence?
For some companies with a strong website, it may not be necessary to establish a physical presence abroad. You may be able to offer overseas shipping and expand payment options without the hassle of extensive tax regulations.
“Selling online through an e-commerce partner with international capabilities is far easier and much less costly than building a local presence,” Theobald says. But at least in some markets, you would need to develop websites in another language that accept the local currency. Online shoppers “are more likely to buy when the experience is in their local language [and] local currency,” Theobald says.
The Art Of Pivoting: How To Know If The Time Is Right
Keep the vision, change the strategy to serve the market according to what they really need.
The word “pivoting” has become as over-used as the phrase “disruptive innovation”, but much like innovation, businesses have been pivoting for many decades (if not centuries) before the word became an everyday verb. You only need to look at Twitter, which started as a podcasting business, or Nintendo, which started by selling vacuums, or even Youtube, which was supposed to be a dating site for some inspiration.
These businesses may have all changed their product, service, or even target market in a major way, but they survived and have been thriving ever since. They kept their vision of achieving successful sustainable businesses, despite a change in strategy. And that, my friends, is pivoting: Keep the vision, change the strategy to serve the market according to what they really need.
Ask the right questions to your market: Are you solving a problem?
If you haven’t done user testing, user interviews, focus groups, or called anywhere between 10 and 50 of your highest value possible clients, you might want to take a step back and get that done to define if you actually have a problem to solve.
Many founders start by speaking to a handful of family members, and a handful of friends about their business idea, and are met with unbridled excitement and encouragement that you would expect of people in your life who unconditionally love you.
The reality is, these people have to live with you everyday – they don’t want to risk offending you and shattering your dreams. They basically have to tell you that your idea is great. Get tangible proof from real-world customers or clients that they see the problem you see, and that the problem is as big as you think it is.
Set your vision
What are you really trying to achieve in your business? In other words, what is your “why”? If you set this in a very clear one liner, you will quickly realise that there are many ways to achieve that vision, if you are able to take emotion out of the equation.
This will take you away from the detail to the big picture. For example, a vision along the lines of “To save people time” could be achieved in hundreds of different ways, and your current offering could be tweaked to increase your market size and save people much more time than your current offering, even if it wasn’t that idea you initially got so excited to tell your dog and three cats about.
To paraphrase Eric Ries of Lean Startup, pivoting is simply a change in strategy, not a change in vision.
How do I know when to pivot?
If you’re going through difficult times in the business, I would recommend going back to the most important people in your business – your clients / customers. Get their thoughts and opinions on what’s working; what’s not working; is your offering solving their problem adequately; what would they like more of, etc.
Finding out how to improve your offering from your existing client base will almost certainly not only help you retain your existing client base, but also grow a new client base by helping you solve the problem more effectively. This process can also reveal if your clients see something in your product that you didn’t – ie.to help you pivot. You will find out what your target market really wants and what your product could be if you weren’t so attached.
This requires extreme open-mindedness, and willingness to implement your learnings, even if what your market wants isn’t as “sexy” as your initial offering. On the flip side, if you can keep improving your current offering without changing direction, and if you still have cashflow and clients in the pipeline, it may not be necessary to pivot yet.
Pivoting is often necessary when the current offering reaches a glass ceiling, it’s impossible to close sales, and when cashflow becomes a problem. However, if you realise that your offering is so far removed from what your customers want that you would have to change your strategy and your vision – that, my friends, could be the time to quit and apply the learnings to the next venture. The key lesson from that eventuality is to do more extensive product-market fit research in the beginning next time, and make sure your product is meeting an actual market need.
What if things were different?
I have an experiment for you to apply within your own business. Remember, open-mindedness is essential to break through the glass ceiling:
- What if you kept the exact same product / service, but changed your target market? What would the new target market be?
- What if you changed your product / service, but kept the same target market? What would your new offering be?
- What if you kept the exact same product / service and the exact same target market, but pursued that market in other cities or countries? If your market were the whole of Africa / North America / Europe etc, would that make a difference? Is it feasible? What would have to happen for it to be feasible?
- What if you changed your business to a social business? Would partnerships with NGOs open new opportunities in the market?
- What about the impact you could have and the exposure this could bring to your business?
I highly recommend creating a “what if” business model canvas or pitch deck based on this alternate reality for each of the questions above. This could be a fun activity to do with the team on a weekend away over multiple cups of warm coffee. Good luck, and remember, there is no shame in adapting your business to provide people with what they really need.
An Innovative Culture Absolutely Requires This Unique Capability
What you need is a ‘chaos pilot’ on board at your company. If you don’t have one, think about adding one.
In my line of work, I have the privilege of mentoring and working with start-up entrepreneurs who often offer unique and remarkable ideas that, in my opinion, have the potential for significant commercial impact.
Unfortunately, many of these ideas end up in the dust heap of forgotten businesses that never get traction.
Why do so many great ideas fail? The reality is that many promising new ideas are derived from products or services or systems that have yet to be considered. They are disruptive in nature and typically exist only in the abstract.
Dealing with these ideas therefore demands a unique set of skills that differ from general management capabilities typically associated with running a company.
In a recent article at Harvard.com, Nathan Furr, assistant professor of strategy at INSEAD and coauthor of Leading Transformation: How to Take Charge of Your Company’s Future, explained that a critical, and often missing, element for innovative teams is the capacity to function in the abstract. Furr referred to this capacity as negative capability.
To understand the concept, consider what Robert French of the Bristol Business School has called “positive” capabilities. These skills, as they pertain to new ideas, have been connected with successful general managers, because they can:
- Understand the complexities of new ideas
- Understand and manage the process by which new ideas are executed
- Understand and manage the necessary roles within an organisation or team needed to execute on new ideas.
These characteristics are typically technical skills that involve structure and discipline. They are valuable for managing any company, especially one operating in a business environment requiring constant innovation. Such innovation is needed to iterate new and bold ideas, but these skills alone are not enough.
The reason is that, to stay ahead and execute on a regular basis, new ideas, especially disruptive ones, often take a team and the entire organisation into unchartered territory where there exists no precedent, historical structure or “road map” to guide them. In these cases, positive capabilities based on structure fall short of execution.
As French explained, this type of change “always arouses anxiety and uncertainty,” and teams that are unprepared tend to move toward avoidance tactics – defaulting to known structures, which then lead to the collapse of the new project.
For that reason, it is critical to have members on the team who can handle uncertainty and unknown outcomes and also have the fortitude to pivot when necessary. These types of leaders are what Furr calls “chaos pilots.” To be an effective chaos pilot yourself, you need more than technical management skills. Here are the three other skill sets he lists:
1. Divergent thinking
To think divergently, Furr explains, individuals need to be able to synthesise a multitude of information and “uniquely connect new information, ideas, and concepts that are usually held far apart.” This skill requires the ability to stay constantly focused on a mission while constantly processing new information.
Leaders who operate as divergent thinkers often surround themselves with talented individuals who can handle the day-to-day operations; that capability frees up the leadership team to collaborate and collect valuable data.
2. Convergent action
According to Furr, great chaos pilots do more than just take in new information. They “execute on new ideas in order to create something tangible.” In other words, they synthesise all the information and leverage it to effectively execute on new ideas.
Far too often, entrepreneurs fall short here, getting consumed by FOMO (fear of missing out) and failing to prioritise, or at least balance, output time with input time. Doing so creates an entrepreneur with a wealth of information, but ultimately provides very little value.
3. Influential communication
Finally, thinking divergently and being able to “connect the dots” are great skills, but if a chaos pilot is unable to communicate new ideas effectively and, as Furr states, “inspire other leaders and decision-makers to believe, support, and act on a novel idea or opportunity,” the idea will stop short of execution, no matter how well synthesised.
Over the years, I have been a part of innovative teams (at times leading them) whose sole priority was developing new ideas for clients. I recall a few times leading those teams through a comprehensive mind-mapping process meant to spark new ideas. In these situations, we inevitably would stumble on a truly remarkable idea or two, but like our team, those ideas weren’t rooted in a stable and established process; sometimes they weren’t comparable to what we were already doing.
Our ideas would also sometimes get lost in the insecurities and anxiousness of the group and never even be presented.
Great management skills are clearly needed to lead a company and execute ongoing operations effectively, but to consistently generate and see great new ideas through to execution, it is critical to have an effective change manager – or chaos pilot – on your team. And while these skills cannot be taught, they can be learned and nurtured through experience and an environment that encourages and supports risk taking and failure.
This article was originally posted here on Entrepreneur.com.
How I Built A Company The Lean Way – By Using The Scientific Method
Starting a company is one of the most irrational acts you can do as a human being. That’s why employing hypotheses and experimentation is crucial.
In the past five years, the cloud management company I founded has grown from a one-person business into a global employer of over 300 people. Recently, VMware, the most important provider of infrastructure and technology in our industry, purchased us – an exciting milestone as we look to the future and continue to execute on our vision.
In spite of all the twists and turns I’ve experienced, there’s been one thing I did right in the early phases of building this business: Committing to continuous experimentation.
When I left my previous company, I had an idea of where I could bring the most value in the market, based on my previous experiences in cloud computing. But I’d also been inspired by Stephen Blank’s The Four Steps to the Epiphany and indirectly by the Lean Startup movement. As a result, I knew I would start my business from the top down: By devoting myself to a market (cloud management) and to the scientific method for entrepreneurship – dispassionately testing all assumptions and hypotheses, and following where they led.
So, where did I begin? And where do you begin? Here are the steps.
Develop your initial hypotheses
The process of entrepreneurship starts with a set of hypotheses to identify the product or service you will bring to your customers. A good hypothesis is that it answers critical questions regarding your initial business concept that can be proven only through experimentation.
I started my own journey by putting a poster on the wall and using sticky notes to capture the critical hypotheses I needed to test. Every two weeks, I selected a set of hypotheses and designed experiments to prove or disprove them.
En route, I thought about the ecommerce company Zappos – a supporter of the Lean Startup movement – and its initial hypothesis that people would buy shoes online. For the file-sharing company Dropbox, the hypothesis was that users needed a radically simplified way to share files. For the coffee retailer Starbucks, it was that Americans would embrace the Italian coffee culture.
Design an experiment
Next, choose a set of hypotheses to test, and design an experiment to test them. A good experiment should eliminate all ambiguity from the hypothesis to the answer. It should also prove or disprove the hypotheses with the least possible investment.
I was inspired at this stage by stories from entrepreneurs like Dropbox’s Drew Houston, Zappos founder Nick Swinmurn and Starbucks’s Howard Schultz. To prove his hypothesis, Houston didn’t invest in building yet another file-sharing app; he instead created a video that demonstrated the ease of use of his idea for Dropbox and how it could be a differentiator.
Similarly, Swinmurn didn’t choose to buy inventory for his new online shoe store, instead, he took pictures of shoes. He posted them on a website and purchased the shoes from the store only after receiving a customer order.
Schultz, meanwhile, chose to cram his early concept for delivering Italian coffee culture to American consumers into 300 square feet, inside another retail store.
Experiment and observe
My experiments ranged far and wide – from driving an advertising campaign, to creating an A/B test website, to performing customer interviews with large financial institutions, to delivering professional services.
For example, one of my sticky notes asserted simply that, “Cloud cost management is a feature and not a market.” The experiment I designed to prove or disprove this statement was built around helping five local businesses optimise their cloud costs.
As an early-stage entrepreneur, you have to be willing to conduct these sorts of tests to determine what works, what doesn’t and how you can identify real and durable problems in a market. You need to to take risks, to be willing to fail and understand that you’re always learning.
Dropbox’s own critical video experiment resulted in its beta user requests growing from 5,000 to 75,000 users, validating critical hypotheses without investing in a single line of code. Starbucks’s first store attracted 1,000 visitors per day to a location that had previously never seen more than 200. Zappos’s website resulted in actual sales of shoes, which were fulfilled with purchases – at list price – from a local store.
Discuss results with advisors
Before starting the company, I created my own informal board of advisors, who included a venture investor, two technology CEOs, a business development executive and a technology founder. All were dedicated to my success, with no strings attached.
I met with them for coffee throughout the experimentation process, and always discussed with them what I was learning. Having talented colleagues to provide feedback and advice frequently produced new insights.
Rinse and repeat
Once you secure answers to your first hypotheses, it’s time for you to go back to the drawing board and create new hypotheses, design another experiment and test it. A hypothesis without an experiment does no good. You gain the most knowledge when you’re testing the ideas you propose.
Start the business
I equate the start of my company to an experiment I called “the sale.” After several months of developing hypotheses and running experiments, I had a good sense of where I could add strong and durable value for customers in the market. But what I hadn’t tested was price.
I hypothesised that a prospective customer would need to be willing to spend $50,000 annually – roughly the average price required to sustain the business model – on my product, to support the inside sales-driven model I was projecting. So, I designed an experiment around cold calling a handful of prospective customers and trying to convince them to purchase my minimum viable product for $50,000 per year.
In the process of being rejected, I hoped to learn about the additional features these companies needed to justify purchasing a product at that price point.
As part of the exercise, I first spoke with the CFO of a fast-growing technology company. While the CFO understood the problem I was addressing, he had almost no input on features, and no interest in paying for a solution. But then he surprised me by asking for another call the next day with his vice president of engineering and members of his team.
The assembled team not only had deep knowledge in the area in which I had built my MVP, but had already built many of my features themselves.
By the end of the call, the vice president of engineering made the surprising statement: “Sure, we’ll buy.” When faced with the potential for a sale, the first instinct of every good engineer is to do exactly what you shouldn’t: keep talking. Instead, I proceeded to explain how the CFO was hadn’t been convinced the previous day, and that maybe the engineering VP should talk to him before agreeing to a purchase.
“Our CFO is in the room right now,” the VP said. “We’ll buy. Just send us the contract.”
As I hung up, my excitement at having a first customer was tempered by the reality that I had no contract to send, nor a business entity under which to extend it. Since my experiment had been designed for failure, I hadn’t given much thought to what to do when confronted with success. Thus began my next challenge: Creating a business entity and onboarding a first customer – fast.
Reach a conclusion and communicate it with peers
Starting a company is one of the most irrational acts you can do as a human being. You are taking great personal and professional risk for an unknown outcome. While there is no foolproof way to manage this uncertainty, there is a way to minimise the risk: cContinuous experimentation in the presence of customers. My company exists as a direct result of a commitment to experimentation, a route you should seriously consider when you start down your own entrepreneurial path.
This article was originally posted here on Entrepreneur.com.