COVID-19 has flattened the world even more: much of the business that used to be done in person is now being done on video calls. Nowadays where your startup is based is less important than the value it provides. This means entrepreneurs should be thinking globally from day one.
Go big or go home
As early stage venture investors, we are evaluating whether a startup could become a potential multibillion-dollar business. One major factor is a founder who wants to go big and expand their project across multiple countries. The second major factor is geography and the number of possible customers there.
Sometimes entrepreneurs tell investors they are aiming for 100 percent of their small local market. But who cares if you want to be the leader of fintech or digital dating in Latvia or Denmark? It’s probably decent business, but your market potential is very limited and, someday, a strong global competitor with massive resources could swoop in and destroy you completely.
Here’s how our venture math works: we know that we need one massive hit to make up for all the losses in our portfolio. That’s why, as investors, we prefer ambitious entrepreneurs with plans to go big and succeed globally.
How to develop a global mindset?
Having great role models and a community is the way to go. You are the average of the five people you spend the most time with. This is absolutely true in whatever you do in life. I found that, in general, awesome founders want to be with other awesome founders.
This was the biggest factor in evaluating founders when I was running the 500 Startups accelerator. It was selecting top founders from all over the world, getting them all in a group, and forcing them to work together in the same office for 3-4 months. The founders drive each other and help raise the bar for each other. This used to be the value of Y Combinator and other top accelerators in the pre-COVID world.
In the post-COVID virtual world, organizations like the On Deck Fellowships, a 10-week virtual program where you have access to a network of founders from all over the world, provide similar value.
You can listen to podcast interviews from top and upcoming founders, join a virtual community, and find role models. I firmly believe this could help you program your brain. If you are smart and extra motivated, you will succeed no matter what, whether you’re doing business live or virtually.
Why do international expansions fail?
The main reasons are lack of thoughtfulness, lack of research, and lack of and planning. This stems from overconfidence and naivete. International expansion is hard. Even well-established companies and brands can mess up badly and sabotage themselves at this stage.
Every new market should be treated as though you’re starting from scratch. I should know, because I did this at Yahoo for over 10 years. However, despite my international experience, a strong brand, and relatively extensive resources, my hit rate was only 60 percent of successful new market launches.
Another big reason international expansions fail, and this is especially true of startups, is that they expand into a new region way too early. I have not seen a startup successfully expand abroad without first getting to series B. You need to have playbooks in place and your core business working well before you can expand internationally. Otherwise you run the risk of not getting enough traction in the new market while also losing momentum in your main business.
Introducing complexity into your business too early could do severe damage, or even deal a death blow, because of entrepreneurs losing their all-important management focus.
What are the risks and opportunities?
Going global is a high-risk, high-gain move, and something you have to think carefully about before you embark on the journey. Don’t do it just because you think it is what you are supposed to do, or if you are being pushed by your investors, who may not know more than you do.
Expand when you are ready. And when you are, fully commit to it from all levels: board, top executives, full company. It is almost impossible to become a truly diversified and highly valued company without a good portion of your business in many different markets.
About the author
Martin Liao has been a pre-seed and seed stage investor for more than seven years. He closed over 414 deals, and a third of them with founders outside of the U.S. Marvin is a former partner of 500 Startups. Previously, he was an executive at Yahoo for over a decade.