In the past five years, I’ve worked for and with various startups across the globe. As an English as a Second Language teacher, I’ve been fascinated to watch cultures interact, see businesses grow, and be part of a global ecosystem that didn’t exist for quite some time. With the fast rise of the Internet along with instant universal connection, the ability to scale a startup has brought both tremendous growth and opportunity.
According to a recent report from Bloomberg, capital raised in 2017 falls into the following categories, all of which have a digital and vast scalable component:
Online Security & Fraud Detection
Digitization of Education
How startups can scale
Given this tremendous growth, I wanted to learn more about global startups, how they scale, the challenges they face, and how they overcome cultural challenges.
In this interview, I had the chance to talk with Eugene Levin, SEMrush Chief Strategy Officer, to learn more about scaling a startup across the globe.
Why did you decide to expand outside of US and how did that process go for you?
When you start in the US, it’s always hard to decide to expand to other markets, because your core market is so huge.
Europe was the first part of our expansion strategy. Europe always generated a significant portion of our revenue, so it was only a question of time. As a bootstrapped company we had to wait until our revenue from specific markets became big enough for a dedicated office. However, it was evident from day one that we would eventually open a new sales and marketing office there.
We opened offices in Prague and Cyprus a couple of years ago, and now we have about 50 people there. At first, it was a significant investment for us, but now we see that it was necessary to continue growing in those regions.
Also, we discovered that some smaller markets are much less competitive, and by focusing on such markets we managed to work with them quickly.
The second stage of our expansion strategy had a global presence. In Q1 2017, we launched databases for 100+ new markets efficiently covering most of the world.
As a result, now long tail markets grow faster than any of our major markets. And once those markets became big enough, we hired dedicated sales and marketing people. For example, now we are hiring people for India and Brazil markets.
I think our example shows that geo-expansion can be an excellent strategy if done right. Today, we are quite global. We even have customers in one tiny country with a population of fewer than 1,000 people.
From your perspective, please tell me about the global startup ecosystem. What does that look like from a high-level?
To have a robust startup ecosystem, you need a few things to find success:
- Transparent legal system and low regulatory barriers
- Access to risk-free capital
- Access to tech talent
It seems like these requirements are not very high, but still, we have just a couple of well-established startup hubs. Lack of ecosystem and structure can lead to unfair capital distribution. Also, better companies with stronger products don’t often have access to the capital required for scaling the business.
The good news is that in many SaaS markets you can reach ~5m ARR just with a reliable product and a small team of fewer than ten people. Once you have this kind of traction, it’s easier to get funding.
If we look closer at essential hubs, they didn’t change during the last ten years. Silicon Valley is still by far number one. Other good hubs in the US include NY, Boston, LA and even smaller cities like Boulder, Colorado. All of these places are great for IT startups.
Israel is probably the second most crucial startup hub. They don’t have a big domestic market and always do international business. Then we have London and Berlin. London used to be #1 in Europe, but with all upcoming Brexit issues Berlin will probably dominate Europe startup scene soon.
Also, China is now part of the startup hub scene. And by many parameters, China should be on top of the list. I wouldn’t recommend that entrepreneurs build a company in China unless they have years of experience and know the language.
What are four questions founders should ask before launching a global startup?
- Who are my customers?
- How can I reach them?
- Why would they pay me?
- What are some of the risks?
There are always risks related to any specific business model. For example, many fintech startups face regulatory risks when they try to scale globally. It may take hours to discuss all such risks.
There are also risks that are very common for all types of businesses.
- Lack of focus: The more markets you have, the harder it is to focus on any of them. If you have strong local competitors in some of those markets, they will give you a fight.
- Premature scaling: Usually, to go after a specific market, a dedicated team is required. For example at SEMrush 7-8 people work on every scaled market. If you go after markets that don’t make enough revenue to pay a large team, you will lose a lot of money. And, if some of those markets fail, you are never going to get a return on your investment.
- Talent: Hiring local talent or even native speakers might be very hard. It’s very common to employ the wrong person and spend years and millions of dollars until you realize it.
These business issues can put you in a position where you must depend on external capital. For this reason, this is how many founders end up owning only a fraction of their company if they are lucky to get extra funding. If they are not lucky, they may run out of business.
It can be even more disturbing because investors can push founders to scale faster when they are not ready. And, as a result, investors gain more control and founders have to depend on them.
What are some of the benefits and advantages of going global?
- Stronger product. Usually, it’s easier for a global company to build a great product. For example, SEMrush has 190 people in our R&D. There are no local competitors who can ever afford this kind of team.
- Economy of scale. Once you figure out how certain things work, you can scale them without additional overhead. For example, we doubled our revenue in many markets without increasing team sizes.
- Bigger total market. A more significant market can improve your access to capital.
- Diversification. You probably heard the phrase, ”Don’t put all of your eggs in one basket.” If you don’t depend on any specific market, it significantly reduces risks. And, fewer risks means better access to capital and higher valuation.
Please share a cultural challenge you’ve faced as you expanded, and how did you overcome it?
Globalisation is doing its job well enough and we don’t see many cultural differences today. But there are still couple problems left.
- Language barriers: First of all, you can have a language barrier. We encourage all our employees to learn English, and we provide free courses for them. One of the issues we see is that non-native speakers may be hesitant to use the language or may be scared to make mistakes. And sometimes, native speakers discourage learners to use English.
- Flat structure barriers: Also, some people might find it be hard to fit into a relatively flat business structure (we keep the number of managers at minimum). When we hire young people, who do not have that much experience, we can teach them from scratch. When we engage more experienced people who have worked most of their lives in a classic multilayer corporation, they have to forget most of the things they know about people, management, culture and need to learn how to fit into modern culture.
How do you market internationally?
For every primary market, we have a dedicated content marketing team. Each such group usually has people focused on SMM, events, blogs, webinars, and videos are primary marketing tools. We adopt a good deal of our content for specific markets and distribute through local opinion leaders and media.
One team does traditional digital marketing like PPC and email for all markets.
Today social media is a must-have. Since we design our marketing tactics around opinion leaders, Twitter is our number one social channel. Our own #semrushchat was a genuinely innovative way to boost engagement, and it helped us to get a lot of traction in social media. However, I believe we can do much more in the future. It is worth noting that even #semrushchat still has to come to many new countries.
Finally, what one piece of advice would you give to startups that want to expand outside of their native countries?
Do it as soon as you can afford it. And, if your domestic market is small do it from day one. Move to the next market only once you have profitable unit economics. Once you have good access to capital, forget about previous advice and scale as fast as you can (assuming you trust your investors).
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