Back in 2005, I was on the phone with a good friend of mine from college, Aaron Patzer. Aaron had an idea for a startup. His idea was to make managing your personal finances a cinch.
I thought it was a very much needed idea, but I saw one major hurdle standing in Aaron’s way.
He was living in Austin, TX, which at the time had some startups and investors, but not nearly the ecosystem of Silicon Valley. I persuaded Aaron to move to Silicon Valley where there would be more technical talent, investors, and a vibrant ecosystem he could learn from.
So he packed up, moved to Silicon Valley, and a few months later I joined him in founding Mint.com.
About a year later I started Femgineer, and shared the origin story of Mint.com. I had a reader reach out and thank me for sharing everything I had learned in building, launching, and scaling Mint. And then the reader wrote:
Poornima, it seems like to start a tech company you have to live in Silicon Valley, but that’s not such an easy feat. It might be easy for you and Aaron since you’re Americans, but I live outside the US. Getting an idea off the ground, then getting a visa, and moving to the valley will take me a lot of time and resources.
Is there any way I can get started building in my native country or do I have to move to Silicon Valley?
At the time, I felt badly because I didn’t have an answer for the reader, but understood their predicament, as an immigrant myself.
Fast forward to 2014, Dave McClure, who had been an early investor in Mint.com invited me to be an entrepreneur-in-residence at 500 Startups in Mountain View, CA. 500 Startups at this point was making a number of investment in companies across the world. Dave wanted me to advise companies in each accelerator batch, which consisted of about 30 to 40 companies each quarter, half of which were international.
As I was advising companies, I started to learn what it takes to go from an idea in one country or market to building a global product. I also uncovered a number of myths in the process.
Myth 1: Go global first
Founders want to fast track their efforts and reach a global market as soon as they launch, but this is actually a bad idea because you’re trying to serve a lot of different markets. Each of these markets has their own culture, custom, and of course regulations. It takes time to learn each of these and adapt a product to meet the market’s needs.
Instead, founders should start by going local first, even if they are in a small market, and focus on getting traction there. Traction being paying customers.
Case Study: LinguaTrip
LinguaTrip is a marketplace for language learning. They connect people who are interested in learning a foreign language to schools where they are taught. The co-founder Marina Mogilko founded LinguaTrip in Moscow, Russia.
One of the reasons Marina and her team started LinguaTrip and catered to the Russian market first was because there were a lot of people who had been impacted by the economic recession there, especially millennials. They were finding it very hard to emigrate.
Getting a student visa is an effective way to emigrate, but of course, they need to learn how to speak the new country’s language before they can emigrate and some countries like the US require immigrants to pass the TOEFL exam.
LinguaTrip helps customers find language learning programs across the world, and facilitates the visa acquisition process.
The problem they are solving isn’t unique to the Russian market, but starting there and establishing a strong foothold has helped them to understand the needs of their Russian customers. They have been in the process of opening up to additional markets, but for each market, they take the time to understand the nuanced needs of customers in those markets.
I was introduced to Marina in March of 2015. As a language learner myself, I totally got the concept for LinguaTrip, but I had to convince my fellow investors at 500 Startups that this was a worthwhile investment.
What stood out to them was the fact that LinguaTrip had traction in the Russian market and the problem they were solving impacted people across the globe.
Case Study: Glam St
Glam St provides virtual makeover software to big brands such as L’Oreal, Shisedo, Lancome, YvesSaintLaurent, and more. The founders Agustina Sartori and Carolina Banales had humble beginnings in their native country Uruguay, which has a population of a little over three million people.
The technology behind Glam St relies on a lot of advanced computer vision techniques, but before building Agustina and Carolina focused on attracting customers. They knew it would be hard to do business with big international beauty brands, and proceeded to focus on attracting brands that had a strong regional presence.
Once they had attracted an initial customer, they dove into development.
Uruguay is a tough market to seek investment in. Knowing this Agustina and Carolina started to look at other options in their region. They came across an opportunity to join Startup Chile, applied and were accepted.
It was through Startup Chile that Agustina and Carolina were introduced to 500 Startups.
By the time I was introduced to Glam St it was 3+ years old, and had a number of international beauty brands and prominent retailers like DutyFree.
But the duo continued to face challenges. American investors wanted them to have a visa and incorporate their company in American before they would invest, but they need the capital to do those things!
500 Startups being an initial investor and helping them through the process helped them to secure investment and get a visa.
It’s been a four year journey for the Glam St founders.
Myth 2: Follow a Proven Path
As you can see from both LinguaTrip and Glam St there is no proven path to going from an idea to a global product. And while I tell people to focus on the local market, what I actually mean is to focus on one market. That market doesn’t have to necessarily be the one you are physically located in, but it should be one market.
The advantages of focusing on one market are the following:
- Reducing your burn rate because customer acquisition costs can be high when you’re focused on multiple markets.
- Addressing the nuanced needs of customers in that market, and through that creating early evangelists. As a startup, you can only build so much, and if you try to target customer in various markets you’ll need to change the product to meet their needs. Maintaining the product becomes cumbersome quickly. It’s better to focus your efforts on targeting customer in one market, meeting their needs, and then as you start to monetize and grow, diving into other markets.
Case Study: Headout
Headout provides last minute bookings for tourists in markets such as New York City and San Francisco.
The co-founder Varun Khona, and his team were based in Bangalore, India. If you’ve ever been to Bangalore you know that this not a very touristy city. It’s more like the Silicon Valley of India. Large tech companies build their Indian or Asian subsidiary there.
Hence, building a mobile app for tourists didn’t make sense in this market.
Varun decided to turn his attention to focusing on a large market with lots of tourists: New York City.
He began his journey by building in Bangalore and applying to DreamIt Ventures in New York City.
It was through DreamIt, Varun had been introduced to me at 500 Startups.
When I met Varun, they had done a great job of building traction in New York City.
Their next challenge was to scale to other cities, but they understood that tourism in each city was different. They took the time to learn what they could keep in their product, and what they would have to change for each market.
Even after raising a significant amount of seed funding, Varun and his team kept their product development team in Bangalore, India. It helped them to keep costs low and attract skilled technical talent.
Myth 3: Stuck in your country
A lot of founders feel stuck in their country and unable to make progress due to the political climate, and think that emigrating is their only option.
However, having a strong understanding of your local market can work to your advantage.
The key criteria to know better than any large multinational company is the following:
- The local culture
- How locals adopt technology
- The local competitive landscape
- The regulatory environment
- Investment potential
Companies who know all of this are indeed outperforming a larger global competitor.
Take for example Uber, while Uber has strong international brand recognition, it is losing marketing share to a number of local and regional startups.
In China, Didi Kuaidi is beating Uber with 78.3 percent market share. In India, Olacabs is winning with 80 percent market share. The same is happening in South Korea, Japan, France (Blablacar), Germany (Mytaxi), Russia (Yandex), Israel (Gett), and Turkey (BiTaksi).
Myth 4: Sit back and wait
Some founders may not be convinced and think they should just sit back and wait for an opportunity to head to Silicon Valley and garner investment. But they’d be wasting time.
Startups founders need to start building and bootstrapping their businesses. It’s true that investors like 500 Startups are looking for companies to invest in abroad, but without some traction in one market, they aren’t going to be seen as a viable investment.
Myth 5: Support comes to you
While investors are branching out, it’s still a challenge to get on their radar.
Your best bet is to team up with regional players who can help you get started and then make introductions to larger accelerators and international investors like Glam St did with Startup Chile.
Myth 6: You need to move your local team to Silicon Valley
Once you get investment it can be tempting to move them to Silicon Valley, especially if you feel pressure from investors. But it would do you a disservice. The cost of living can be double, triple or even quadruple where you’re based, and the technical talent pool is still limited.
Keeping your development and operations team in your local country is a great way to keep them focused and keep your burn rate down.
You’ll instead want to think about creating a strong remote culture.
Myth 7: Money flows in Silicon Valley
With all the hyped-up talk of a bubble and unicorns, one might get the impression that investment is easier to attract in Silicon Valley, but there has been a gradual pullback in recent years.
Your best bet is to focus on attracting paying customers and controlling your company’s destiny. It will also give you leverage when it’s time to negotiate that term sheet.
Myth 8: Sink or swim
Startups take time, so the theory that you have to go fast and win or fail fast isn’t necessarily true. When you start by bootstrapping and focusing on one market, you might go slow, but you’re more likely to survive and grow.
It can take years to establish a strong foothold in one market before you’re ready to move into another, but as a founder, you need to give yourself the time to understand that market and its customers before jumping into servicing another one.