The UK is home to millions of SMEs and startups, and although the vast majority of these operate solely on home ground, the international landscape presents a unique set of opportunities for businesses looking to expand overseas. With this in mind, UKTN hosted a roundtable session in association with Kreston Reeves, an accountancy firm specialising in helping companies go global.
Chaired by UKTN editor Yessi Bello Perez, the session featured key industry experts and influencers: Michael O’Brien, Kreston Reeves‘ head of technology and head of North America business; Russ Shaw, founder of Tech London Advocates; Zoe Chambers, an early-stage investor at Octopus Ventures; Daniel Glazer, a partner at Wilson Sonsini Goodrich & Rosati; Daumantas Dvilinskas, CEO of TransferGo; Leonard Austin, CTO and founder of Ravelin; and Michael Altom, general manager of UK and Ireland at Virtuo.
Getting the basics right
Attendees were keen to expand on the topic of company culture and the need to get it right before scaling abroad.
“Scaling culture internationally is the biggest challenge for us,” said Dvilinskas. “We also struggle with finding trusted recruiters and the right talent. To overcome this, you literally have to fly out and meet people face-to-face. There’s no other way.”
Shaw agreed that creating and then exporting the company’s culture was a key ingredient for international success:
“Having a shared vision with the team, regardless of where they are in the world, is really important. Good founders and good entrepreneurs are not only able to articulate this vision, they also make sure employees understand what it is.”
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Glazer weighed in, too. “For example, entrepreneurs looking to crack the US need to realise that culture cannot be outsourced. There are many different ways in which companies can scale overseas, but one has proved particularly fruitful.”
“One pattern which has been disproportionately successful is when companies send a senior executive or a founder to lead the expansion into a specific territory. If you then combine this with someone who possesses local knowledge such as a mid-level or senior sales person, you’re able to create an integrated culture and scale the team from there.”
Altom spoke about Virtuo’s recent market expansion, a process which saw the team put a lot of things on paper. “We re-considered our values, our vision, all the things some may consider ‘fluffy’.”
Some scaleups go wrong, Shaw went on to add, when they fail to recognise and understand what customers abroad really want and why.
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“Understanding the customer is key. I would recommend that entrepreneurs consider using some of the VC funding they receive early on to figure that out. Explore your market and think about what your research is telling you. Then, feed this back to your workforce.”
It’s only natural for UK tech companies to eye opportunities overseas, but O’Brien pointed out that it was crucial for founders to consider how much time and effort is required to break into a new market:
“You need to ensure a business runs well on its own before expanding elsewhere. Have the right team in place, make sure things are going well before you embark on a new adventure.”
Expansion is also a costly exercise, Shaw added. “You need to have money in the bank it isn’t cheap.”
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Launching a business in a new territory requires careful planning and in-depth research, particularly around the new financial and tax regulation the company will have to navigate under and adhere to. It’s also important for founders not to lose sight of the fact that each market comes with its own specific issues and challenges.
Austin, who is moving to the US to launch Ravelin, spoke about his own personal experience and commented on the practicalities.
“The US is a big place, with considerable time differences across the country. To work around this, teams must be managed cohesively, ensuring everyone is on the same page.
“Founders also need to be committed to the task at hand. A lot of businesses make the mistake of just hiring a salesperson when they are looking to expand. In our case, there are five founders. I don’t have children, so I am commuting back and forth to launch the US team. This way, the people we hire in the US don’t feel like they’re not heard, because I have a strong connection to the main office. It also means that I can rectify problems after seeing them first-hand and It allows me to bring the culture to the US with me, which is very important.”
Researching the competition
Austin also spoke about the need for founders to know about their competition prior to launching abroad.
“In the US, there is more competition and those companies would have probably raised more money than you. It’s crucial for founders to have a clear idea about this and think about how they are going to spend their cash.”
Chambers touched on the different ways in which she’s seen founders approach international expansions. Some founders like to experience the market, learn as they go along and then retrofit accordingly. Others attempt to de-risk the expansion upfront through careful consideration and resourceful planning.
“What we do know for certain is that the US is a 10x bigger market. Luckily, though, it seems people are doing a much better job when it comes to expanding overseas than they did, say, five years ago,” she commented.
Glazer concurred, noting the positive change in terms of the conversations he’s had with founders over the years, but warned entrepreneurs not to be fooled by the seeming similarities between the UK and US markets:
“The US may seem superficially familiar to entrepreneurs in the UK because of the apparent lack of language barrier. The size of commercial opportunities there are massive, but don’t confuse the size of the opportunity with the ease of doing business.”
As with every other territory, the US is characterised by specific socio-political and cultural differences which determine the way in which business is done.
“Trying to sell is tough, but more so if you are up against a US seller. The US is undeniably, heartbreakingly expensive,” Chambers warned.
Participants agreed that Series B rounds are often seen as an inflexion point in a scaleup’s trajectory. Raising at this level typically signals growth and founders often seek to use some of the capital to expand their business.
Altom said there was an unspoken pressure to crack the US, whereas Dvilinskas argued that some entrepreneurs underestimated the opportunity afforded by expanding across Europe. Shaw raised China as a potential market for UK tech businesses.
“China is a tough market,” Shaw said. “You need a partner there who can help you and you also need to realise expanding there is a lengthy process.”
Brexit: A problem?
But, what about Brexit? As UK politics continues to pave the way for increased uncertainty, is it sensible for companies to continue on their quest to expand abroad?
Austin said the issue was two-fold. “Brexit is both a blessing and a curse. The exchange rate can render companies’ products cheaper. The problem arises when you try and hire overseas and the talent is suddenly 40% more expensive because of the exchange rate.”
The impact of the UK’s impending departure from the EU has been widely reported, with many entrepreneurs in the space fearing an immediate shortage of talent and technical expertise as a result.
“Hiring overseas talent is an issue, especially when it comes to engineering talent from Europe. You definitely get people saying no to coming to the UK because of the uncertainty around Brexit.”
On the flipside, O’Brien said, there may never have been a better time to consider expanding abroad:
“Going internationally can also help to spread your risk, and perhaps the uncertainty caused by Brexit, is the right impetus to do it.”
Chambers also highlighted the a clear advantage of the current climate. “UK companies may also become acquisition targets as a result of Brexit.”
As with many things in business, expanding overseas can be challenging but also extremely rewarding. Despite the myriad of challenges that await, tech companies should not lose sight of their ambition to grow overseas, but the impetus is on founders – and their senior teams – to drive expansion efforts based on thorough research and a strong, personal commitment.