23 Jul Mistakes European and Israeli startups can avoid when entering the US market
At TAC we often invest in European and Israeli startups which see a need to build a presence in the USA. Having a presence there has obvious benefits:
- A market with 320 million consumers, 100 million households and 18 million businesses, speaking one language and paying in one currency. Along with this a functioning justice system, great workforce mobility and relatively uniform customer behavior and purchasing power.
- Some 80% of all M&A in high-tech originates from within North America. NYSE and NASDAQ are by far the most active stock exchanges for tech IPOs, and venture capital availability is unparalleled anywhere in the world.
- Maybe not so obvious are significantly less bureaucracy compared to Europe, more liberal labor laws, and access to world-class management teams.
For all these reasons it is only natural for successful European and Israeli start-ups to cross the big pond. However, a lack of understanding of cultural differences and the US industry landscape often lead start-ups to make mistakes when establishing their presence there, resulting in problems, distractions, and waste of precious capital.
As partners, we have lived and worked in Europe, the US, and Israel, working in and with companies that have built a US presence, so we’re well aware of the cultural differences and of the industry landscape in the US. With that, here is our top list of decisions to avoid:
Start with hiring VPs
In the US a Vice President expects to be building a team. For example, a VP of Sales will typically not go out and acquire customers, but see it as his or her job to hire a sales team and build an organization. Even though you may already be selling in Europe, when you start selling in the US, you’re starting a new “Sales Leaning Curve” and what you need is a “renaissance” sales person, typically a Director level individual who can help you close your first customers and figure out the product positioning and sales approach. The same applies for the marketing role; best to start with an individual who can roll up the sleeves and work closely with your sales director to figure things out.
Starting with a large sales force
Sales approaches that work in Europe, don’t necessarily work in the US and as I mentioned before, you’re essentially starting a new learning curve, so it’s better to start with one sales person and grow the team as you figure out what works. As a benchmark, we believe annual quota for an inside sales person should be close to $1M ARR. Field sales reps (“feet on the street”) should have quota more in the realm of $1.5M per year. It will usually take at least 6-9 months for a sales person to reach this level of productivity, so you’ll need to carefully monitor progress and add sales capacity when you’re confident new reps can be successful.
Opening an office in the Bay Area
Startups that establish a presence in the US often think that their first office needs to be in the San Francisco Bay Area. In many cases this may not be a good choice however. You need to be clear about the most important objectives for your US presence.
- If it is to establish a sales and marketing presence and you’re an enterprise software company using a field sales approach, this is usually the North East (D.C., New York, New Jersey, Boston), but if your goal is to build an inside sales presence, go where costs are lower but good talent is available, for example in the Research Triangle Park (NC) or Austin (TX).
- Having a Bay Area presence may be important if you predominantly sell to other tech companies, or believe that being co-located with similar companies is important for the image of your company and/or your ability to develop partnerships. While these can be very valid reasons, be aware of the costs. For example a 2000 square foot office in San Francisco will easily cost you $100k/yr, whereas in Austin the same amount of space in a modern office building may cost $40K/yr.
- Think twice if you’re considering the SF Bay Area to hire engineering talent. At this time, the market for tech talent there is way overheated and salaries are sky-high. Moreover, you can find lots of good talent in other places in the US, including the North West, RTP and Austin. At Librato (a San Francisco company) we ended up with 60% of our engineering team outside the Bay Area.
Believing that local executives know better
As founders and CEO of the company you know your product best. While you obviously need to listen carefully to your new American customers to see if your product needs adjustments for the US market, differences between Europe and the US are disappearing, certainly in IT, and what sells in Europe will most likely be attractive for American customers as well. With that, you should of course learn from your US employees when it comes to understanding the local market, but be confident about your knowledge of your product and use cases. One area where you’ll most likely need a US specific approach is sales collateral, landing pages, etc. Consider having these designed by Americans, and make sure to have all content in your written communication authored by native speakers.
Mistaking Polite Encouragement for Endorsement
In the US it’s common for prospective customers, investors and even employees to offer polite approval and encouragement during conversations. Expect to hear things like “awesome”, “this is great”, or “let’s meet again”. Different from Europeans and, even more so, Israelis who tend to be quite “direct”, Americans try to be polite, in the spirit of “hey, you came out to see me, so I’ll be as nice as I can be without actually committing to anything”. Coming from abroad, it is easy to interpret this as “I’m enthusiastic, let’s do a deal”, which can lead to unrealistic expectations followed by frustration and disappointment. If a prospective client is really interested then only active follow-up will be the proof of that, whereas a lack of interest is often communicated by not responding to your emails or phone calls. Don’t get excited about a “great meeting” and assume silence to mean “no”.