Wednesday 24 January 2018

Startup survival guide: ditch the Ireland-first mentality and go global to maximise impact

Too often, Irish startups focus on the local market before an worldwide one. In the latest edition of his candid diary, Richard Rodger explains why he has chosen to go down the international route

Putting global ambitions at the heart of your business plan can pay off in a variety of rewarding ways. Stock image
Putting global ambitions at the heart of your business plan can pay off in a variety of rewarding ways. Stock image

If you're an Irish startup, you should go after the global market from day one. It's tempting to just focus on the home market to begin with, because you know the Irish market, you have connections, and you know the unwritten cultural dynamics. You can make sales. And the travel is much easier.

But focusing on the home market first is a classic Irish startup strategy I am rejecting. That strategy would be: go after the local market, validate your offering, maybe even sell to a few multinationals based here, and then expand overseas.

I have decided not to do this, and recommend that you don't either.

While this strategy has worked in the past, and while I think it would probably still work today, my view is that it is no longer optimal.

When you run a startup, you have to care about the optimal allocation of your scarce resources.

You need to maximise the impact of everything that you do. You're going to waste so much making mistakes that you have even less ability to execute than you think.

Gaining a foothold in the Irish market but thereby reducing your overall growth rate is not optimal.

It's also important to emphasis that having a global-first strategy does not preclude you from having Irish customers. Customers are customers. But it does mean that you deliberately seek international customers first and build your marketing and route-to-market on the basis of that strategic decision.

This startup diary is not a retrospective. It is about decision-making in real time.

This particular decision, to go after global markets first, is a judgement call.

Perhaps it is wrong.

I can assure you that it is controversial and that not all of my advisers agree. But I don't argue the case here to be right. I argue the case to document my thinking and learn from the consequences.

As I see it, there are three arguments for the global-first strategy. First, you can charge higher prices. This is logical when you think about it. You want the least price-sensitive customers with the most pain. If your search space is the entire planet, you'll find more of them then you will at home.

To charge higher prices, you need credibility. One way to get credibility is to … charge higher prices! This is just basic human psychology. We value that which is valuable - and what more evidence that your product is valuable than a high price?

This takes a little nerve, as you'll get a lot more rejection. But if you have a real value proposition, if your product really does solve a pain point, then there are customers for whom it is valuable.

You might accept that, but still doubt that big companies will take a small Irish startup credibly. But how small are you really? I mean, you manage to attend international tradeshows, your website prices in US dollars, and you "happen to be in Boston next week for a meeting, so let's make this work!"

If you are executing a global strategy, you're doing these things anyway. Let me tell you from personal experience that if you're willing to turn up in person outside somebody's office, the deal is half won.

Yes, the flights will be hell, but you have to play the cards you're dealt. People see what they want to see, and by demonstrating that you have the resources to give a potential client the attention they crave and deserve, you win them over. It might be all of your resources, but at least they are deployed optimally.

The second argument is that going global early forces you to build a real business.

Your greatest enemy is not the 800lb gorilla entering your market and crushing you on features. Your greatest enemy is yourself.

It is easy to rationalise decisions that limit your growth. They are safe, you know the score, you're staying alive, it's all good in the comfort zone.

I see a lot of startups that end up half-dead like this. It's takes so much energy to service existing customers at such low margins that there's nothing left over for growth and scaling.

You need to create a 'forcing function' to subvert your caution and fear. A forcing function is something that makes action inevitable. You set things up so that you can't go back, you must succeed or die in the attempt.

The most famous example, beloved of business book authors, is Alexander the Great's burning of his fleet of ships before attacking Persia. With retreat impossible, the only choice for his army was to fight ahead to victory.

Irrespective of the historical veracity of Alexander's antics, burning his fleet was an effective forcing function. It left him with no choice. In the same way, choosing to go global forces you to spend precious resources building a business that can stand up to international scrutiny.

Everything from your website to your marketing, your foreign currency accounts, to your travel expenses policy, needs to be geared towards international sales. Once you've spent the money and time, you can't go back. Because the reality is that if your Irish startup is to be successful, it will necessarily be internationally focused.

This is the position I'm putting myself in-this is where I exert effort.

The third argument for going global is cash flow. Large companies that are happy to work with overseas suppliers (that's you) have professional accounting departments that pay invoices on time. It is a sad fact of the Irish small business scene that getting your invoices paid on time is difficult. You can expect to be making many phone calls, and relying on pester-power to get paid. Ironically, I think is sometimes because we prioritise our international suppliers and pay them first.

Big companies are difficult to do business with. There's a ton of paperwork to get set up in their systems. You need to negotiate "master service agreements" and meet all sorts of gnarly legal conditions.

But if you do the paperwork, you will get paid, on time. This is wonderful for cash flow. It gives you the ability to plan ahead safely. I can't stress how much easier this makes your life, knowing that the money will be there.

It allows you to grow faster, as you can push harder by investing more in building your product. Last week I showed you a simple tool for forward cash planning. This only works if the cash comes in. You can also use big companies to fund your startup. Frankly, you can just ask them for money upfront, once you've established credibility.

Ask for substantial prepayments to fund new features that they want. You'd be surprised how often this works. If you've shown you can deliver, then you can make this happen. Decision-makers often have timing flexibility within annual budgets. If you're lucky, they might even need to burn down a budget allocation to avoid cuts next year.

Since many big companies have large cash reserves, they often have a policy of taking advantage of early payment discounts.

There is a standard discount term, especially in the US, known as '2 and 10', that is worth putting into the terms of any invoice. You offer a 2pc discount for payment within 10 days.

Now, instead of waiting 30 days, or 60 days, you get your money almost immediately. Try it and see!

Finally, an update on how I'm getting on with my newsletter (which is, remember, my the minimum viable product we're currently forming). This week we have 177 subscribers and a 30pc open rate. I've hired an ecommerce and social media expert to promote the newsletter, as we're still aiming for 500 subscribers by year end.

This means I'm doubling down on the newsletter strategy. This decision is justified by the fundamental reason for the newsletter - to provide value to a core group of potential initial users. Once we have the first version of the system out in March, we'll see how this all plays out.

Richard Rodger is the founder of Metsitaba. He is a former co-founder of Nearform, a technology consultancy firm based in Waterford

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