Expanding to the US: has Covid changed the rules?
Expanding to the US: has Covid changed the rules?
The recent pandemic has undoubtedly transformed how companies work, and distributed, remote working is here to stay. How does this new reality influence the crucial decision many venture-backed companies have to make: whether, when, and how to expand to the US?
Tosin, OV investor and co-author of our US-expansion guide, Question the Questions, and Sarah Ruth, OV Talent Lead in the US, sat down with three seasoned entrepreneurs to discuss this topic in a recently-held virtual discussion. By drawing on their experiences expanding to the US before and during the pandemic and advising other companies, Dee Coakley of Boundless, Djalal Lougouev of Ometria and Mike Hann of Poq offered a compelling view of how COVID-19 has shaped entrepreneurs’ expansion considerations.
1. Pre-Covid, could a company have realistically sold in the US without setting boots on the ground?
- Generally, no. Before the pandemic, it was near-impossible for Europe-based companies to sustainably sell to US customers without a US presence. However, there are exceptions to this rule, and these depend on a number of factors, namely the nature of the product, type of sale and length of sales cycle, stage of the business, revenue status, and ideal customer profile. For example, one company that sold a product of lower value contracts couldn’t justify the cost of building a strategy and hiring boots on the ground. For another company with high-value contracts and an enterprise target customer, developing a US presence was essential to building relationships and selling to US customers.
- For many European companies looking to expand to the US, their Go-To-Market strategies relied heavily on physical engagement, notably around trade shows. These venues were ideal for meeting prospective buyers, discovering new vendors, and developing relationships in the market. The lack of these during the pandemic has posed a major challenge to many sales functions.
2. Given the current situation, what then is the future of the trade show or conference in the near-term and how can companies find sales and networking substitutes?
- Trade shows won’t die, but there is a credible argument that their significance will diminish. Industries have seen a significant transition into digital interactive events as a substitute for in-person trade shows. However, with this shift has come new opportunities for smaller, upstart companies. Now, one’s email or phone call to a prospective customer is on the same playing field as those of a Salesforce or Adobe, when in a pre-Covid trade show those large companies would have spent $1m+ on a booth and marketing, overshadowing a smaller company’s $50K booth.
- That said, potential customers are now being overwhelmed with digital propositions of all sorts: emails, events, webinars, etc. Understanding your target customer’s needs and how your digital communication to them can stand out is more important than ever.
- Now, more than ever, developing a community matters. Gathering a high quality, curated group of individuals within one’s target market is immensely important for marketing, and will be a key channel for successful businesses over the next couple of years.
3. One of you unsuccessfully attempted to expand to the US pre-Covid. Why did it not work the first time that, once chainged, led it to work the second time? What broader learnings about expanding to the US during Covid could one learn from such an experience?
- The first unsuccessful expansion attempt focused on trade shows and physical presence, optimising on financially intensive ways of targeting customers and competing against large American competitors. Having more American people on the ground and a better understanding of the markets proved the difference maker in the second attempt. Then, the company executed a Go-to-Market strategy focused on fully understanding details about specific customer segments in the US and identifying alternative sales channels that would be most applicable to these segments.
- In both cases, the choice of where to expand to—New York— before and during the pandemic remained the same. The fact that many of retail brands that are prospective and existing customers are based in New York as well as the city’s large base of potential later-stage investors informed that choice. Moreover, an established understanding of the New York market developed in the company’s first expansion attempt, informed the decision to double down on New York.
4. The question of where to locate the company’s US presence is a significant decision point in the expansion process. How has the question of location in the US changed in light of the pandemic and the rise of virtual working?
- In this new reality, it is much easier to have distributed teams, removed from the central office or a major city. Before the pandemic, one founder’s US sales team struggled to make decisions at speed when a team member lived away from the New York office. In the current paradigm in which the company’s sales are done remotely, this challenge is gone, both because customers are receptive to remote sales and the team has better adapted to remote communication.
- That said, where a company should locate in the US should depend on the sector, target customer, and, ultimately, the customers’ sales decision-makers: where these decision-makers are based (or moving to), whether they are concentrated in one location, and how they buy. For example, if they are re-locating from NYC to places outside of the urban hubs, they will likely have a lower expectation of executing sales in person or will be more inclined to get on a plane if need be. But if they remain in NYC or relocate to another major hub, they will have more of an expectation that you will come to them.
- One thing to consider here beyond customer preferences is how you onboard your team and maintain a team dynamic and culture. How would you effectively bring on new, remote hires, for example? Also if your return to the office is a hybrid arrangement, with team members coming in a few times a week to work together, it will be very difficult to maintain that standard if everyone is spread across the US.
- Finally, it’s worth noting that there can be an element of prestige that comes with locating your office in a major city. In some cases, a New York zip code, for example, communicates being in the heart of commercial activity, which could be of value depending on the company or sector..
5. Let’s say that a company has expanded to the US before the pandemic with an eye towards focusing on the New York market only. As a result of the pandemic, it is now considering scaling to other parts of the country: perhaps hiring at a lower cost or targeting potential customers outside of New York. Does the ease of working or selling remotely now make this a good idea?
- The calculus here depends on what the company’s ultimate objectives for expansion are and what the timeframe for achieving those objectives is. Clearly defining the broader objective here—whether to raise a fundraising round, or increase revenues, land a particular set of customers, or something else— is essential. Thereafter, assessing whether scaling across the US early drives forward the company’s ultimate objective, or detracts from it, is key to determining if it is a good decision to make.
- Given that executing more and more functions remotely is the norm in today’s world, trialing and iterating has become much easier. Therefore, companies can more easily test the scaling decision without the need to commit wholeheartedly. Basing a plan on what you know today, and being willing to adapt with new information, is key to surviving in today’s business climate.
- It’s worth noting that if a company raised its last fundraising round before the pandemic, its expansion was likely based on a pre-Covid plan. Adapting the business in light of the pandemic could have a serious impact on the team’s ability to achieve its original plan. Therefore, communicating ongoing developments and managing expectations of investors, management, and the team is key here.
6. Is it better to hire someone in the US, or take your best salesperson from the UK (or wherever you’re coming from), and move that person to the US?
- Don’t underestimate the’ founder magic’ on which the company built its European business. You can have the best US salesperson hired, but customers in the US, particularly the initial ones, as well as your US team may still need your presence as the founder .
- Another important point is to ‘double up’. If you’ve got a resource in the US that you brought over from Europe, double them up with an American version of themselves and both of them can learn off each other.
- Finally, if you move a valuable resource from the native country to the US, make sure you manage expectations of your board accordingly, as performance in the native context might dip.
7. In conclusion, should a company view the US as less exciting, just as exciting, or perhaps more exciting to expand to now compared to a time pre-Covid?
- The wave of digital transformation happening due to Covid has actually made the US an even bigger opportunity. For many industries, the total addressable market for many has expanded as digital customers are in greater need of the technology to speed up their digital transformation and traditional brick and mortar businesses are now expanding into the digital world.
- Competition-wise, the current situation has leveled the playing field in the US. If you’re sitting in a rural area in the UK right now, you have every bit as much of a chance as someone in New York or San Francisco of getting your cold outbound email seen. Given that there’s a finite window of opportunity here, expanding to the US now seems more appealing than ever.
- Finally, the opportunity for employees and hiring in the US is massively expanding. As many of the very large US tech players have gone almost fully remote, hiring in tech is witnessing an evolution as many now view hiring as “locationless”.
Our thanks to all participants for their time and invaluable insights.