By Sheridan Tatsuno, Executive VP, TruNorth Global; Partner, DFM Ventures
The U.S. is probably the most competitive market in the world because of its openness and rapid innovation. Offering great products and services is not enough, even for U.S. companies. For newcomers, the challenges of language, regional and cultural diversity, and state and local regulations can be bewildering. What is the best way to start growing your business in the U.S.? What are the pitfalls?
Build Local/Sell Global. For young companies, I recommend developing your products and services initially at home to maintain R&D control, minimize costs, and get user feedback. Keep your engineering team at home since U.S. costs can be very high. In late 2010, Rovio’s Chief Marketing Officer Peter Vesterbacka said Rovio did all engineering in Finland since Silicon Valley salaries were about three times higher, about $180,000 vs. $60,000 for a comparable engineer. Rovio had a hard time competing with Google, Apple and Facebook in attracting top Silicon Valley engineers since they have a wide choice of higher-paying jobs. By contrast, Finnish engineers are more loyal, especially due to the massive Nokia layoffs.
To minimize costs, do your engineering initially at home and hire sales and marketing managers in the U.S. Listen carefully to your U.S. marketing/sales team and avoid “remote control management” where your headquarters makes all the final decisions. A San Jose State University professor found a 85% failure rate among foreign companies deciding marketing/sales from home. Financial and legal issues can be handled by local firms. In terms of finance, legal issues and marketing/sales, “do as the Romans do.”
In 1994, I advised Nokia’s digital phone launch team, which consisted of about 50 young people between 21 and 27 years of age, on the consulting team of Strategos, headed by London School of Business Professor Gary Hamel. They had little or no experience marketing overseas, so I advised them to hire the top marketing managers in each target market, train them in Nokia’s technologies, then do what they suggested. Nokia was doubtful about their chances for success since no Finnish electronics company had ever succeeded abroad. But they listened to their offshore marketing managers and become #1 in 3.5 years, beating Motorola, which sent shock waves through Silicon Valley. So it is possible for newcomers to dominate global markets in several years with the right products and brilliant marketing and sales.
Rovio is the latest example. Peter Vesterbacka said Rovio thinks big and global. They want to become the next Disney, so they’re building the Angry Birds franchise into movies, webisodes, theme parks, etc., like Disney did. Recently, they launched a Star Wars version with Lucas Entertainment.
Minimum Viable Company – What is the minimum you need to get started? Initially, you can set up operations by traveling to the U.S. for up to 90 days to find an attorney, accountant, and a marketing/sales representative or manager. Your marketing/sales rep can work from home. If you want local visibility, you can rent a desk at one of the many incubators or accelerators, which charge around $300 to $400 a month for a desk and access to WiFi, conference rooms, and events. Local startups can suggest the best deals. Don’t waste your money on trying to look impressive. Save your money for airfare and showing your product at the many local events. Make sure to collect business cards and always follow up immediately to build your visibility and brand. Think lean!
Professional Service Costs – Legal and financial advisers can be very expensive, especially for large firms that charge up to $500 or more per hour. To minimize your costs, ask local entrepreneurs and professional associations who can recommend small firms or individual professionals, which can cost half as much.
Marketing/Sales Expenses – These costs are variable since everything is negotiable. Although you can find marketing/sales reps willing to work for commission-only (success) fees, it’s easier to find a rep if you pay a retainer of $2,000 to $3,000 a month, plus sales commissions. For startups, you can offer stock options, typically 1% to 10%, which can be “vested” (given) to the rep over four or five years. Determining sales incentive programs is probably the most challenging since there is so many options mixing base salary, sales commissions and stock options. Get advice from other entrepreneurs to get a feel for the incentive rates. If you hire someone, there are plenty of HR (human resource) firms that can quote you current salary rates.
Even for U.S. companies, finding and keeping great marketing/sales people is very difficult but U.S. professionals will work initially for less money if you have a great product/service and they have much freedom and autonomy to set marketing/sales strategies.
Important Qualities for U.S. Success – Listening carefully to local marketing/sales managers like Nokia initially did and acting boldly like Rovio are critical since U.S. companies are much louder, bolder, aggressive and fast. Think of the U.S. like the Olympic Games; only the top teams win. To survive, let alone thrive, you must listen, be bold and constantly innovate. Avoid becoming smug like Nokia. Complacency kills!
Podio of Denmark is the latest success. I met its CEO a year ago when he searched for angel funding, but I told him it would be difficult to raise if he had no local presence and team. He marketed himself actively and was recently acquired by Cytrix in less than half a year. Not all startups can get acquired that fast, but if you have great products, you can always find buyers in the U.S. since we have so many M&A (mergers and acquisitions) firms and aggressive companies seeking hot technologies.
Going public is much more difficult, even for U.S. companies, so plan on generating sales fast and building incrementally. Your goal should be to build a solid company, not just seek M&A or IPO. Most U.S. companies remain private to maintain control.
Solid Business Model – The biggest error that foreign entrepreneurs make is to focus exclusively on their products and services, not business models. U.S. investors want proven business models that have been validated by customers, either three or four enterprises or several hundred thousand consumers. Without market traction or validation, it’s very hard to raise angel or VC funding. So focus on finding customers first!
Initial Startup Costs — To get started in the U.S. market, allocate at least $20,000 for air travel (2 trips), lodging (couchsurfing with friends is best to save money), event fees, and marketing/sales retainer salaries for six months. Your goal should be to find corporate clients or generate consumer sales as fast as possible to validate your business model. Ask startups about their costs; many entrepreneurs are fairly open since they want to learn best practices from other startups.
If you’re not getting customers within two months, immediately revise your product plans and tailor your product or service based on customer feedback. Don’t waste time trying to raise angel money until you get positive feedback. Basically, think like a “lean” company: move fast and keep your costs as low as possible. For ideas, ask startups from your city who are expanding into the U.S. how they’re doing.
Entering the U.S. market is only for bold entrepreneurs and companies who are willing to work hard, minimize their costs, and work closely with their customers. You can succeed if you constantly revise your product or service until you get positive feedback, then start building since investors will become very interested.