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Internationalising

International expansion is a core part of Go-to-Market fit, and one of the primary growth drivers for scale-up stage software businesses.

Differences in approach between US- and European companies 

For SaaS businesses born in Europe, internationalising is generally considered sooner than US businesses, who have historically been able to get to scale domestically for longer. The average European scale-up generates 40% of its total revenue from foreign markets  according to the European Scale-Up Report; a higher proportion than equivalent US-domiciled scale-ups. A study from Balderton found that SaaS companies opened their first international office after 4.1 years, over 20% quicker than US companies at 5.3 years.
 
Interestingly, several reports now state that a booming European scale-up market has meant businesses are heading to the US later than they used to. For example, a report from Index Ventures found that the proportion of businesses moving to the US before their Series A round fell from 2/3 prior to 2014, to just 1/3 since then.
 
The US continues to have a strong pull for founders of European software businesses (particularly enterprise software businesses, where the US is a critical end-market) but many are also emphasising the importance of growing well in Europe first.
 

“[Growing in Europe] will enable you to see nuances and learnings, and be able to raise the capital required to go after the US. You will see 10x the competition in the States, and you have to be ready for that.”

 

DANIEL EK | CEO, SPOTIFY

There are a few traditional European expansion strategies we cover, with some of their drawbacks, as well as some general recommendations and common pitfalls to avoid.

There are 5 general approaches to internationalising from a European base

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The foundations for a successful expansion

If you are planning an international expansion, make sure your company has the foundations in place. Product-wise, it needs to be ready for localisation to a new market. Operationally, there need to be documented practices that can be transferred to the new entity. The company culture needs to be internationally friendly. In terms of metrics and KPIs, set up proper GTM KPIs and dashboards to keep track of progress. Finally, make sure to have key competencies across departments such as HR, compliance, and to deal with aspects such as tax, currency and payments, on a local level. 

 

We believe that where the target for the expansion is a major geography, such as the US, it’s generally important for a founder-level employee to move to the target region. This will help move the company culture across – this is one of the most critical and challenging aspects of international expansion. Also, before packing up and sticking a flag in a new market, make sure you have spent enough time planning the operational aspect of setting up a new market. This takes longer than you think. 

 

Common pitfalls:

  • Mis-timing first international GTM leads

  • Hiring the wrong level of local territory leads 

  • Failing to transfer company culture effectively

  • Opportunistically selling to territories with strong inbound

  • Insufficient legal/operational preparation

There are many VC playbooks and articles with a huge amount of specific advice on international expansion. Some of our favourites include:

 

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