Key Tips for Early Stage Technology Companies Internationalizing
The issue of when to open an overseas office used to be like children thinking about who to marry; they didn’t really fret over it until they were older. However, this later-stage question for U.S. companies has increasingly been popping up earlier in a company’s life given the realities of increasing competition, online selling and the growing rapidity of business cycles. Some products demand it, too, such as companies offering cloud-delivered software or other products that are sold worldwide, and as a result effectively international in product scope from day one.
For many American companies, “internationalizing” often means opening their first non-domestic office, which will usually be in Europe given that region’s 550 million strong, lucrative market and high demand for products. Therefore, having a better handle on when and how to launch a European office is important for C-level executives, who can have a variety of good reasons for looking overseas.
The time-zone issue is an obvious concern. Supporting customers in Europe from the East Coast (five hours away) or the West Coast (eight hours away) is problematic, particularly if on-site, hands-on assistance is needed. Companies might well find lower-cost overseas support teams for these customers outside Europe but will these workers have the language abilities, depth of skills and precise product experience available in an advanced region like Europe?
Sometimes, executives are attracted to launch their first office abroad for other reasons. Given the challenge in finding and retaining talent and the current U.S. immigration challenges, establishing an overseas office filled with seasoned professionals can make sense. And consider Europe’s newly adopted General Data Protection Rule, which mandates a new approach to handling the personal data of every EU customer. Many U.S. companies realize they need to have an office closer to these customers for optimal GDPR compliance.
While the specific product and services being sold will drive the internationalizing decision — some companies begin such planning when they receive their first major round of funding — typically, companies have $10-20 million of recurring annual revenue and more than 50 domestic employees when they launch their first overseas operation. Having about 15% of revenue coming from the EMEA region is another guideline.
Most significant is for a company’s product to be at a point in its life cycle where it is well developed and proven in U.S. markets, with an established sales and support model. However, every product requires research and planning, and so will the successful establishment of a first overseas office. Here are two key elements to keep in mind:
Picking a location
A common mistake is setting up teams dotted across Europe creating an unnecessary administrative burden and long run hassle – this can be eliminated by consolidating in one well-chosen hub. Selecting a hub with a young, well-educated population — ideally, one that attracts workers from across the EU — is important. Professionals there should understand both the U.S. work culture and ethic as well as the European way of doing business.
One of the key elements that is on the mind of every tech company is the- ability to scale: how fast can I ramp pan-European teams? It helps to find evidence from other companies who have recently established such teams and speak with recruiters in the markets.
Consider ease of access to markets and, particularly, the business climate. Ideally, the location will be business friendly with flexible labor laws, attractive tax policies and solid relationships between government, companies, research institutes and education bodies. A thriving local economy is another positive factor. How to find this optimal place? A good approach is talking to U.S. companies already in a location under consideration or find out where competitors have located, then talk to them.
The importance of that first hire
The office’s first hire is instrumental in setting the tone, culture and success of the office. This person should have leadership experience, a track record in the company’s product area and EMEA region as well as a deep understanding of the nuances of different markets. The right pick will be attuned to developing a corporate culture that reflects that of the home office while embracing the local culture and the backgrounds — likely diverse — of this satellite office.
Cultural awareness should be an overriding issue for companies setting up their first office. Steve McElfresh, now the founder of “people engineering” consultancy HR Futures, recalls when he headed HR at San Francisco software analytics firm New Relic during the time it set up its first European office in 2014. The company had chosen Ireland as its location for various reasons, particularly because “It had the best talent pool at a reasonable price,” he says, “especially in light of the high cost of labor compliance requirements in much of EMEA.”
Even though Ireland is an English-speaking country, McElfresh was still tuned into the nuances of culture and language when hiring the all-important first few managers there for New Relic. He found similarities in recruiting processes when compared to the United States but still chose to present a “local voice” in his recruiting.
“I had two people on staff who were Irish nationals,” he says. “They worked out of our Silicon Valley office and one of them did a great deal of networking with people in Ireland to help with the recruiting. They had local contact information so that people could feel that we were as local as possible.” Not only did this help attract high-value early managers but it was useful in later finding the diverse staff that is ideal for a European office. “We were able to readily recruit people who were native born of other EU countries — Italy, Spain, Germany and so forth to work in our Dublin office,” he reports.
New Relic went on to expand this office based on its solid foundation. This EMEA headquarters grew to 100 people by last year and will eventually increase to 300. The company, like others launching an overseas office, was driven by finding good value in its employees along with people who were highly productive to accommodate scaling up the operation over time.
Typically, companies should plan for and monitor a three-year ramp-up of an initial overseas team, examining costs, skills and other key factors along the way. Having a crystal ball to track potential disruptions like Brexit and political unrest in countries under consideration would be helpful but it’s more important not to delay the launch of a European office in order to fuel a company’s forward momentum.
Author: Alan McGlinchey, IDA Ireland