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You have already validated your business model in your country, conquering the local market, and now you're thinking about taking the leap by expanding internationally. It's a fact that almost every entrepreneur dreams of establishing a company abroad.
However, challenges are around the corner when trying to reach foreign markets. In fact, even industry giants have failed in their international journey by thinking they could replicate their entire business model to another location.
So then, what lies behind the unfruitful process of positioning a business abroad? The answer is a lack of product/market fit. This is one of the leading causes why companies, regardless of their size, fail when targeting new territories.
A common mistake for founders is to be overly confident as they have mastered the local market and mistakenly decide to expand based on that presumption. Therefore, if you plan to get onboard an international journey with your startup, you must first figure out some aspects and define the product/market fit for the targeted location.
Product/Market Fit is a concept mainly used by startups, but as we mentioned, large companies can benefit from implementing it when targeting foreign markets. Simply put, it is when your product fits the market and your target customers recognize the product's value.
According to the famous entrepreneur and investor Marc Andreessen, "Product/market fit means being in a good market with a product that can satisfy that market."Another popular definition of the concept is brought by the author of The Lean Startup, Eric Ries,"The moment when a startup finally finds a widespread set of customers that resonate with its product."
As you see, there isn't one standardized definition for PMF, and you'll find that several other thought leaders have explained this concept from different angles. So, if customers are ripping out the products off your hands, and you've turned them into promoters of your brand, you've achieved PMF.
However, this doesn't necessarily imply that the same will occur abroad. In a nutshell, you can't expand internationally without a clear value proposition for that new location and without insights about how your product serves the customer's needs in that market. For that reason, you'll have to outline new hypotheses from scratch to validate or introduce adjustments to your business model and make it work abroad.
You have made it in the local market, and now you think it's time for international expansion. But first, you need to consider the following variables to avoid the common pitfalls of the process and make a successful landing in the targeted location.
You have already validated, or not, the hypotheses of your business model in the local market. However, when taking your company abroad, you'll have to perform market research and outline new ones. Even if you choose a location that uses the same language as your home country, you'll have to understand the cultural differences and use that as a starting point for new hypotheses.
It's crucial to define or make adjustments to your existing ideal customer profile, as customers' habits and behaviors are not the same everywhere. You'll have to implement market segmentation to refine the hypotheses, which is essential when you target large markets like in the US. That way, teams will work aligned with the goals of that new target customer.
Unfortunately, this is one of the biggest mistakes in the international journey of many companies. Avoid falling into the trap of translating the same value proposition to a new market. Bear in mind that what works well locally may not work abroad.
First, you'll have to identify your potential customers' goals, pain points, and desires in the new market to fine-tune your value proposition. Then, you need to ask yourself a question and come up with an honest answer. How well does your current value proposition really fit your new targeting customers?
If you plan to land in the vast US market, narrowing the focus is vital. Trying to sell for everyone ends up being nothing for anyone. So, start with a narrow focus and dig deep to become an industry expert in the field. Research your main competitors and their go-to-market strategies to find your ideal fit in the new location.
Related Read: Deadly Sin #1: Something For Everyone Is Nothing For Anyone
Finding the right partners is key for a successful international expansion. Partner with accelerators and incubators, as they will lead you through the process, providing their expertise and knowledge of the market.
Their programs usually include legal and tax consultancy and also work with governmental associations. Furthermore, they can also help you build a supportive network with other founders and industry experts.
Taking your business abroad is a challenging journey where efficient use of resources is essential to succeed. By defining a product/market fit between your ideal international customer and your product/service, your company will be on the right track to expand internationally, avoiding costly pitfalls.
However, if you're still unsure who your target client in the new market is, you find yourself struggling with the initial pricing, or you can't figure out how to translate your value proposition, you need a strategic partner.
Base Miami's Market Fit program has a proven methodology that helps accomplish in 3 months what usually takes companies 18-24 months while building the initial ecosystem relationships. Partner with us today and start answering those unverified guesses before taking the leap to the US market. LET'S CHAT!
Three years ago, I moved from Silicon Valley to the burgeoning Miami startup ecosystem. When I left San Francisco, I wrote an article called "Will the last person leaving Silicon Valley, please turn out the lights."
It was about whether startups should still be settled in the Bay Area. My conclusion was that once upon a time, it was absolutely necessary. However, the world and the way businesses scale and grow have been experiencing a significant transformation since then.
As a consequence of my decision to move to South Florida, a wide array of reactions popped up. I've been asked questions like "Are you retiring?" to "Going to live the party life?" throughout these three years. But indeed, those inquiries weren't a bit close to my goal.
I then continued as a consultant, working jointly with international startups entering the broad US market. In line with this, I also became co-founder emeritus at Base Miami, a market entry accelerator, continuing with my labor mentoring local companies.
Nevertheless, much water has gone under the bridge since I moved in 2018. Miami has become "a thing." What many people thought was a moment became a full-scale movement. Shortly after, Silicon Valley people started to look at South Florida with keen eyes.
High-profile investors like Keith Rabois, General Partner of Founders Fund, Blumberg Capital founder, David Blumberg, Jon Oringer, and also NYC private equity firms, settled in Miami. In fact, earlier this year, Keith Rabois tweeted, "I have met more new interesting people in Miami in 3 weeks than all of 2020 in the Bay Area." An influential statement from someone who built his career based in California.
Moreover, there were many tech startups, especially in Fintech like NovoPayment, establishing in the area. In this context, Miami became incredibly welcoming to new investors and companies who wanted to be part of this booming tech scene.
And to show that the commitment to the tech ecosystem growth is real, local authorities got involved in supporting VCs and startup founders. By the end of 2020, the movement burst with a tweet by famous venture capitalist Delian Asparouhov stating, "ok guys hear me out, what if we move Silicon Valley to Miami?". Immediately, Miami mayor Francis Suarez picked up the gauntlet and replied, "How can I help?". Since then, the tweet has had more than 2.3 million impressions and put the city in the spotlight.
But, in this scenario, Covid-19 has been an additional catalyst. Unlike other central locations like New York, Florida stayed open during the pandemic. As a result, the state maintained solid profitability numbers that compared well with most lockdown states.
To give you a holistic view of the tech ecosystem development, I would like to share the thought process of a LatAm entrepreneur. Base Miami recently hosted a panel where Matias Rivera Larrain, Co-Founder & CEO at Fz Sports, shared his own experience and thoughts with us.
During the talk, Matias made a recap of the key variables he analyzed to land and expand his company in South Florida. He prioritized access to capital as seed funding is a crucial stage for startup growth, time zone alignment, the quality and cost of living, connectivity with Latin America and the rest of the US, and the networking opportunities in the area.
The resulting discussion was yet illuminating and inspiring. His explanation was compelling as he emphasizes that friends and colleagues are moving from SF to Miami. As an engineer, every step in Larrain‘s process of moving was thoughtful and analytical.
Today, the question I raised three years ago is more relevant than ever: "If you are an international startup coming to the US, does your startup NEED to be in Silicon Valley, and does it still make sense to land there? Are the PREMIUM costs worth the move to the San Francisco Bay Area?". Miami may not replace Silicon Valley, but it's growing towards being the next tech hub for LatAm startups, and Latin founders are already joining the movement.
Starting a business usually comes with several challenges attached. However, those concerns become more relevant when trying to take the company abroad. The US market is vast, and the competition for people's attention is fierce. New companies, business ideas, and concepts come up every day.
Breaking through the clutter to engage the audience is not easy. Therefore, entrepreneurs who look to scale their businesses internationally will land in a crowded marketplace regardless of the industry.
In this context, how do you face the crowds and set yourself apart to get the attention of your target market? Well, there are ways to become the go-to option in the market, positioning your business a step ahead of the competition.
Positioning your product in a new market is not only about being different, but also about being better. Why is this so important? Because most entrepreneurs mistakenly think that the best way to succeed is to mimic what other established and successful businesses do. But, they end up having the opposite effect on their company.
So, how do you position your startup in a market with so many competitors within your industry?
This should be the first step on your list before taking your business abroad. You have to outline a competitive landscape map to get valuable insights into your competitors’ and consumer needs.
In fact, this is an excellent strategy for detecting the aspects where they fall short and determining what your target audience is not getting from them. Moreover, by conducting a market audit, you'll evaluate whether there's an actual need for your product or service.
Results will help you make the necessary adjustments to successfully position in the market, saving you time and money. If you want to learn more about conducting market research, don't miss Base Miami's article below.
Related Read: How to Do Market Research for Your Startup?
In a crowded market like the one in the US, you have to provide value from the very first day. You have to dare to be different and better to gain traction over your competitors. In fact, you should be able to answer a fundamental question, why should the audience choose your products?
With a Value Proposition, you should explain how your product fills a need and what makes it better than your competitors' products. Grab the consumers' attention with a Point of Difference (POD), create a unique spin to convince them that you are the brand they are looking for. To develop your value proposition, you can start asking yourself some basic questions like:
People these days value simplicity more than anything else when interacting with brands. As a result, they don't want to deal with companies that make the processes difficult. So, the challenge here is to make things simpler for your customers.
If you have conducted proper market research and know who your competitors are, you can understand how customers interact with those brands. Then, you can analyze in which processes you can differentiate and offer a more convenient experience to your customers.
Customer retention is key to position in the market. Unfortunately, most companies put their efforts only on getting new customers, which is necessary for startups. Still, it doesn't have to end there. Your business needs happy clients that buy from you again. In fact, studies show that it's easier to sell to existing customers than to sell to a new one.
For that reason, you should use metrics to track customer retention rates. Therefore, show your customers you care about them, allowing feedback and rewarding loyalty. Go above and beyond with customer service in your company. You'll strengthen the client's experience, creating a loyal customer database.
Word of mouth and referral marketing are powerful tools to help your business stand out from the crowd. Encourage people to talk about your products online. This is a smart move to sell your products because, in fact, you're not selling them; your customers are!
On the other hand, recommendations also make your business more trustworthy. People these days trust recommendations from friends or family over any other type of advertising.
Moreover, they research the internet for reviews and details about the product before making a purchase. So, encourage user-generated content, share customer testimonials, ask for reviews and ratings, generate a buzz about your brand. Then, let your customers do the selling for you.
You can't avoid landing in a crowded market. But you can use these tips to cut through the noise in the extensive and competitive US market. Positioning will make you set apart from competitors and also be worthy of recommendation. However, scaling a startup internationally requires exploring these points in depth.
That's why, at Base Miami, we provide advice and support for companies that look to take their companies into the US. With our Market Fit program, we help you build your initial ecosystem and understand how your business will develop in the US, where your product fits, and how to sell it.
Get in touch with us today and plan a smooth landing in a new market full of opportunities. LET'S CHAT!
One of the most important decisions entrepreneurs face when settling a new business in the US is what type of business structure works best. This aspect related to taxes and paperwork is a crucial factor that will determine the company’s success.
Therefore, if you are in the process of assembling a business plan, you have to learn more about the four main types of organizational structures. This step will determine the benefits and liability implications for the company.
We'll point out all you need to know about business types to understand their differences and help you choose the right one for your startup.
According to the Internal Revenue Service (IRS), there are four main business entities to establish a company: Limited Liability Company (LLC), sole proprietorship, corporation, and partnership. Each one has its own legal and tax return implications.
Moreover, a great advantage for business owners is that the legal structure may be changed as the startup scales. But, what determines what structure is the perfect fit for a company? There are several elements involved like the business size, scalability, growth goals, liability, and the need for capital investment. Let's have a look at the most common types of business.
This business structure is very popular among entrepreneurs because it's a hybrid entity that combines partnership and corporation features. One of the main advantages of this scheme is that personal assets are legally separated from business assets. This serves as a shield for any eventual lawsuit providing liability protection for business owners.
Moreover, unlike other structures, an LLC has no limitations regarding the number of shareholders. And on the other hand, taxation is more flexible than other business entities, but it's attached to the company size.
This is the simplest type of business structure, and it's ideal for those who want to handle an enterprise alone. Here, there's a single business owner who manages all the operations and is liable for the company. This means that the owner gets the profits but also its debts (not so good, is it?).
On the flip side, a remarkable tax advantage is that the business profits can be included in Form 1040 for personal tax returns. Moreover, even though the registration procedure is quite simple, it places your assets at risk in the eventual case of debts or legal claims.
And last but not least, raising capital under this scheme can be difficult as many financial entities don't feel comfortable partnering with a sole proprietorship.
This is the most complex business structure by far and encompasses different types like C, B, and S corporations, among others. However, it's not only about the complexity, but also it's more expensive than other legal schemes.
Simply put, a corporation is a separate entity from the owners and members. Therefore, shareholders are not liable for any legal claims against the company, but of course, they will be responsible for their investments.
What makes this option more advantageous than others is that raising capital from numerous investors is way much easier.
A partnership is an organization owned by two or more persons and it’s one of the most utilized business structures. This scheme is split into two variants: general and limited partnerships. The first option is the easiest and less expensive one. Thus the responsibilities are shared in equal parts by all members.
On the other hand, the limited partnership has one unique partner in charge of running the business while the other individuals get a fraction of the profits. This gives partners limited liability in the company.
Due to its complexities, the limited partnership scheme is not the best option when starting a new business. In that case, a general partnership is a less intricate process and companies are more likely to get funded when there is more than one owner.
The aim of picking the right entity type when entrepreneurs launch a startup is to choose an option that flows organically with the business goals. When you outline a business plan, it's essential to determine which of these four legal schemes suits your company's vision.
To achieve that, you first need to know your business purpose and the expected growth. Without clear-cut projections, you won't be able to make the right choice and skyrocket your company. Yes, it may feel like the weight of the world on your shoulders making such a decision.
But the counterpart is that you can change the business structure at any time, and you won't be stuck forever in the initial choice. So, hands-on, it's time to analyze the options we outlined in this guide and put your startup and ideas in motion.
Understanding how the vast US market flows and its legal implications can be complex. Thus regulations may vary according to your business size, among other factors. For that reason, our Market Entry Bootcamp at Base Miami may be the perfect fit for your company's development and expansion in the US.
We not only introduce you to the Miami business environment but also provide key legal resources for a successful launch in South Florida. Don’t know where to start? Contact us today and learn how we can help! LET'S CHAT!
We have seen it all too many times over the years. Going straight into execution sales mode is one of the commonest ways companies waste time and money entering the US market.
Faced with the challenge of market entry companies often consider one of two strategies:
Unfortunately, neither of these approaches work in the early stages of market entry. Worse, it usually takes a lot of time and money for entrepreneurs to learn that lesson. The US is an expensive place, time is money and companies often burn hundreds of thousands of dollars over many months pursuing a “dead-end” strategy.
There is another approach that actually works. Companies need to re-test their value hypothesis and product-market fit, in the US, before they proceed to one or both of the steps of “hire a sales guy” or “find a partner”.
Why? Because validating the market enables companies to test and adapt their assumptions about the business model and adjust their plan accordingly.
Instead of just “jumping in”, the first step is to reduce risk, so companies and investors don’t commit time and money to a strategy that doesn’t work. The goal is to ensure that your company is “flight ready” before it “takes off”.
So where do you start? This ebook will go through the five steps you need to make to ensure your startup is ready for expanding your business internationally.
Suggested: Want To Scale Your Business For International Expansion?
You’re interested in taking the giant leap, and we get you. For a business owner and entrepreneur, there could be nothing better than taking your company overseas. On top of conquering a new market and its clientele, expanding internationally comes with other many advantages. Let’s take a look at some:
New markets mean a new customer base, and with new customers come more revenue streams. Going global allows your business to cater to a different customer base with other wants and needs. So, if your international market analysis is correct, you should be filling a demand not yet too exploited.
Expanding to a new territory opens the door to accessing local, high-quality talent that your company may not count on thus far. Embedding your business in a new culture means hiring local talent to help you navigate the challenges more smoothly.
Few things are so important nowadays as establishing a substantial presence for your brand. Credibility is a crucial factor here, and going global helps you achieve that goal. Customers see that you really mean business and that you’re thriving, thus increasing your brand’s credibility.
When you establish your business in a country, you need to find a way to gain a competitive advantage. Going international helps you do just that. Although you will most likely find some sort of competition abroad (direct or indirect), you are still gaining a competitive edge over your local competition.
Based on our experience with hundreds of companies, we have identified several distinct stage gates that companies must complete to progress through a successful “land and expand” journey. At each stage in the journey, fundamental questions are answered and major risks are eliminated.
In this phase, companies get initial exposure to the market, build out their network, gain insight and prepare their market entry strategy. They engage with potential customers, partners, and other industry insiders to learn about the market and how and where they fit in.
Done right, this effort takes in the order of magnitude less time and money than putting people on the ground to just go out and try to sell for a year or two. At the end of this phase, the company has:
A repeatable sales model is one where you have figured out how to create happy customers through a consistent, repeatable, profitable, and scalable sales process. Most companies never get there.
When it comes to sales channels, most entrepreneurs think that “more is more”. The reality is the opposite. Less is more. Most successful companies get more sales from a single channel than the sum of all other channels. Sadly, most companies never find that one successful channel. Instead, they continue to invest in multiple channels in parallel until their cash runs dry. This is a “throw stuff at the wall” strategy. It burns your cash and wears you down.
In our experience, the fastest way to get to a sales model that works is through systematic, methodical trial and error applied to a highly targeted sales model.
Once companies have achieved a repeatable sales model with consistent growth and retention metrics over a period of time, US growth capital is within reach. Companies can expect it to take one and a half to two years in the US before they are able to raise US venture capital.
The step-by-step journey above works because it systematically de-risks each step of the journey before increasing the level of investment of time or money. The first phase for instance requires no people permanently on the ground here, no immigration lawyers, recruiters, etc. The second phase requires a founder or executive on the ground but no sales team, PR firm, etc.
In this model, companies don’t move from one phase to the next unless they have hard evidence that shows they made it successfully through the stage-gate. Instead of scaling pre-maturely, they scale when they have proven the model on a smaller, less expensive scale.
It all starts with reviewing what you already have and there’s no better way to understand your company’s business model than with a Lean Canvas Model. The Lean Canvas Model is Ash Maurya’s adaptation to the original Business Model Canvas, first introduced by Alex Osterwalder. According to him, it’s “a one-page business planning tool that gets read.”
Maurya’s Lean Canvas solution is to break down your startups’ fundamental whys into a one-page template that can be used for any business type and be read in under 20 minutes. It packs everything you need - and possibly more - in a template that’s easy to read, fill, and update.
The Lean Canvas Model is ideal for startups, and, as a startup founder, it is crucial that you understand its importance and how to build one for your business. There are nine categories or blocks in the Lean Canvas Model Framework. Each needs to be filled out following this particular order:
Approach this block with your customer’s problem in mind (which is the following block to fill). These two are intrinsically connected. So keep that in mind when completing this part of the template.
Start by asking yourself questions about your business like:
If you have a multi-sided platform, you will need to create separate Lean Canvas Models for each case: supply and demand.
Suggested: How to develop an ideal customer profile ICP?
What are your customers’ top three pain points? Describe their needs as simple as possible so that anyone can understand them. Avoid technical jargon at all costs.
When thinking about your customers’ problems, think about their existing solutions too. Who is already out there doing something similar to what you offer? How are they solving their customers’ needs? The key here is to conduct market research on your competitors so that you may identify your unique value proposition.
To write a great value proposition statement in under 200 characters, think about the benefits that your customers will have received from using your products. So, this step involves going back to the first few steps:
Your high-level concept is like your elevator pitch. You’ll need to break down what you do into the shortest, most clear sentence possible so that it can be used for VC pitches, press releases, and all sorts of communications. If your sentence is too long, it means you still don’t have a clear grasp of what you do and what you offer.
Go back to your customers’ problem and think about how you’re going to solve it. Exactly write your solution so that anyone may understand it.
You have established that your business solves a real customers’ need, and you know exactly how you’re going to solve that need. Now, you need to select the channels you will sell your product and acquire new customers. Up to 3 channels are right; more can be counterproductive.
How are you planning to charge for your services? This block aims to clarify that. Choose your revenue streams of preference.
Once you finish your business idea validation process, you will have a clear picture of your fixed costs. But if you want to jump ahead, you can start by writing down the expenses you know you have and leaving the minutiae for later.
Having clear metrics will help you analyze what’s working and what needs adjusting. So, define which metrics you will be tracking. A good example can be measuring the number of purchases, abandoned carts, the number of signups, etcetera.
Last but definitely not least is your unfair advantage. This is the most critical step of the process because it’s what will differentiate you from your competitors. Defining into simple and a few words what makes your business unique and better than your competition is tricky and requires some serious thought. However, once you do, that’s when the good stuff starts happening.
To understand the new market, it’s important to deep dive into it. And the best way to do it is by looking at those in your same competitive niche. What are they doing? What’s working for them? What’s not?
The goal here is to map the existing ecosystem landscape to identify the relevant players for your niche. You want to base this decision off on their product/service and positioning. Take a look at the graphic to give you a quick idea of how to do this exercise:
The Petal Diagram is a new way to look at your competitors and assess them when you’re trying to create new markets or resegment existing ones.
Like our fellow, Becky Bausman, Senior Vice President of Communication Strategy at Duarte, Inc says “The diagram places your unique company or product in a center circle, and then surrounds it with petals, each one containing competitors in a distinct category adjacent to the company. It forces the person using it to look at the problem of competitive differentiation from each of several distinct perspectives.”.
An empty Petal Diagram may look something like this:
And after completing it, it could look like this:
Now that you have your business model, market research and competitive landscape you’re ready to define your positioning and create your offer: That is your value proposition and pricing model.
A Unique Value Proposition (UVP) is what makes your company different, find the best way to describe yours with a WOW! Statement that creates interest in you and your company.
Pricing is about knowing your customer, knowing your product, knowing your market, and keeping an eye on the competition. Be ready to calibrate and re-calibrate!
As an entrepreneur looking to "sell" your startup to potential investors, you want to wow them with your pitch. And how do you do that, you may be wondering? The answer is not with an Elevator Pitch; the answer is with a WOW! Statement.
The WOW! Statement concept was first introduced by the venture capitalist Bill Reichert in his viral article Getting to WOW!. Bill came up with this new solution to pitch a startup after witnessing countless CEOs bore potential VCs with the classic elevator pitch. So, we can say that WOW! Statements are "the elevator pitch 2.0".
The three keys to coming up with a dazzling WOW! statement is to keep it simple, clear, and compelling.
By simple, we mean simple language (everybody should understand what you do, even if they don't know the niche or jargon) and straightforward explanations. By Clarity, we mean to avoid technicalities and any specific jargon that may throw the listener off.
And to be compelling means to generate curiosity. You need to provide a solution to a problem that clearly stands out. What makes your business different and revolutionary? Being original with your proposal will give you the best shot to instill curiosity in your audience.
Sanity Check
At this stage, we are ready to see if everything we gathered and created resonates clearly with the market. We call this process a “sanity check”, and it ́s one of the toughest things so far as you need a network to support you. The goal here is to reach out to ten ecosystem players to validate your assumptions.
First, prepare the questions you need to confirm. Then you need to engage with these ecosystem players, which can be other entrepreneurs, chambers, associations, trade show organizers, et cetera. Based on the feedback you receive, go back to your Lean Canvas Model and offer sections to adjust them accordingly.
Now it’s the time to get all fancy and ready to show off. The US market is very picky, so you need to “look” your best. This is why you need to revise your branding as it will drive all your communication and how you present yourself as a Company. Look at your company name, does it resonate with the US Audience? What is the story you want to tell? How do you want the US Audience to know you?.
Next, is to look at your US landing page. This is especially important because if an American goes to your website and sees all the content in Spanish and that your headquarters are in Medellin, you could be losing prospects.
If you want to go to the US market, you need to show a US office, speak like an American, and act LOCAL.
You will need contacts in the US, partners, employees, people that can lend you a hand. So, it is advisable that you do some outreach campaigns. Where you do them is optional, but some of the most common channels are E-mail, Linkedin, Phone.
Look for connections in common on LinkedIn, nothing beats a personal connection. When you reach out to people always be human, personalize the messages. If you’re not on LinkedIn yet, what are you waiting for?
Build your lists for outreach heavy on the prospect and partners side, but also include time for you to prep your trip to the US. Define a date and start building your agenda to meet your initial network in person ideally. Nothing beats in-person networking.
Cold Outreach is working less and less each time so the more you can leverage connections the best, but don’t drop the Outreach as it’s still a tool to add value to your initial efforts
Base Miami has over 20 years of experience in the US tech landscape. Founded by Latins that have scaled their businesses in the US, we have the know-how and network within the thriving Miami business Community to support Latam tech Startups with their US business launch to avoid costly mistakes and achieve in 3 months what would take them 18.
Charly Esnal: [00:00:00] Hello, friends, Charlie here from Base Miami wanting to welcome you to our video series where we'll be discussing all things related to expansion into the US market. And today we'll be having a chat with Lizbeth Flores. She's one of the partners at PAG law. Liz holds a Juris Doctorate from Harvard law school and a bachelor's degree in government, Magna cum Lauder from Harvard University.
And she has over 16 years of experience advising clients and complex cross-border transactions. Her firm PAG law has advised, hundreds of tech companies across Latin America and including market leaders like Mercado Libre, Opening English, Mural. Compare online, 99, and many others. And many other lawyers who were previously entrepreneurs as well, of founded companies such as Idear, the LAB Miami, Miami angels.
So, well, thanks Liz for being with us here today.
Lizbeth Flores: [00:00:57] Thank you for having me.
Charly Esnal: [00:01:00] Great. So, Liz, let me start by asking you this. We work with a lot of different entrepreneurs from Latam and many of these companies are looking for that initial NPT set up and support. So what is the approach that you take with entrepreneurs when they are saying: “Hey, I want to open my company in the US”.
Lizbeth Flores: [00:01:18] We try to keep it as simple as possible. And it's obviously much easier if the structure of the company in Latin America is very simple. So when we have a potential client who comes with a Latin American company already formed and they want to form a US holding company, and the Latin American company has various classes of stock with various rights, et cetera, it becomes much more complex.
So what I would advise to any entrepreneurs in Latin America who see a future establishing a holding company in the United States is to keep things as simple as possible. If possible, all common equity, no special rights outside of the ordinary, special voting rights, et cetera.
Of course, in some cases, it's unavoidable because you might have an investor who insists upon special rights. But any level of complexity really makes the transfer into the United States more complex and, as lawyers, you'd think we would like things to be more complex because we are fees, but it makes sense happy when we can do something, very quickly, efficiently and inexpensively for our clients.
Our clients are entrepreneurs and we would rather that they spend that money on growing their business rather than on legal fees. So that's why I always, I always advise keeping it simple. But at the same time, don't try to do it yourself. Definitely get legal help from folks who have done this before and who will steer you down the path of keeping things as simple as possible.
Charly Esnal: [00:02:47] Hmm. Yeah. That's cool that you had entrepreneurs also in the firms, so they know the grind that it takes and the money and that time is limited. So, that you can guide them on making it easier for them. And you just said something interesting, like, what are some of the pitfalls that companies make in this stage when they are setting up the company? What are the mistakes that you have seen?
Lizbeth Flores: [00:03:13] Well, I always say we make a little bit of money when we form companies from scratch. We make a lot more money when our clients have tried to do it themselves. It is very important to have good legal and accounting advice from the very beginning.
I'm just amazed. I have clients who do rounds in the millions of dollars, but yet they don't want to hire a US accountant. And then something comes up in a future round. One of the VC funds does diligence and finds there's a tax issue that could have been easily avoided if they had spent a couple of thousand dollars on an accountant.
Same goes for lawyers. I always say your legal structure is the house where your company lives. So unless you are a professional architect or a builder, you probably don’t want to build your own house because it's going to fall on top of your family. Well, it's the same for a legal structure. We have a lot of clients who tried to cut costs by doing things themselves from forms they found online and it gets very messy, costly, and time-consuming to try to unwind anything that was done improperly.
But at the same time, there are some things that clients can do themselves. And we will always point our clients towards those things that we feel that they can handle by themselves. For example, oftentimes forming a single-member LLC is really not complex at all, and it can be done through online sources, such as Clerky or a rocket lawyer, and things like NDAs tend to be very formulaic.
So we like our clients to save money. We want them to feel like when they are using us, we're adding value. So if the client wants to save, we can always point them towards things that are very easy and cookie-cutter, but there are certain things for which you do need lawyers’ help.
Charly Esnal: [00:04:59] Hmm. Awesome. That's good to know then that you're not going to just charge them for doing things that they can do themselves if there's some of them. But that you can overview that and say, okay, you know what? Yeah, maybe you can do this on your own time. But, but then this no, this, you need us for that.
So let's see. What is some of the legal support that they will need on an ongoing basis? In terms of compliance or, HR that kind of thing for the day-to-day.
Lizbeth Flores: [00:05:30] Well, we always advise, focusing on the things that venture capital funds are going to focus on when they do their diligence because that might seem very far off in the future, but certain things if done right from the beginning can save a lot of headaches and a lot of needless explanations that you're going to need to make to a potential investor. So the protection of intellectual property is very important. It's very important that from the beginning all the founders, employees, anyone who touches the intellectual property science sign what's called a confidentiality and inventions assignment agreement. We put them together for our clients that frankly, there are forms online that are great.
Anyone who comes into the company needs to sign one of those from the get-go because a venture capital fund will come along and they’ll be very concerned to make sure that they are investing in a company that has protected its rights to its intellectual property. And sometimes it's just too late to go back.
For example, if you have a founder who leaves the company and hasn't signed one of these documents, which again is very cheap and easy, and can be found online and take about five minutes to sign and review. Then, oftentimes, it's hard to find that founder or they don't cooperate and they won't sign it. And that will raise a red flag for the venture capital funds. So you want to save those headaches.
Charly Esnal: [00:06:49] Awesome. And, in that sense, when they're getting ready for either an angel investment seed investment or actually a VC round, how would you help prepare them for that?
Lizbeth Flores: [00:07:03] Yeah. Well, the number one thing is to have all the legal documents in order and well-organized so we can do that as lawyers.
We have a lot of founders who just don't want to touch the legal documents. And it's very important for the founders to know what they have, what their legal documents say. Take the time for the lawyer to answer any questions that you might have and have them very well organized. Sometimes, our clients to save money will want to collect their own signatures. And that's fine, but send a copy of the signed document to your lawyer and definitely keep everything in an organized file. It will just save so many headaches when you have investors down the line doing diligence.
Charly Esnal: [00:07:46] Awesome. I wanted to ask you... maybe this is a tough question. I don't know if you can answer it, but it's in terms of rough numbers of investments that an entrepreneur should plan. For legal fees in their initial 6 to 12 months in the US, it can be rough. But it's like, do I need $10,000 a year or $100.000 dollars a year in legal fees to survive those initial months?
Lizbeth Flores: [00:08:08] So, assuming the company has kept things simple in the home country as far as not having, a lot of crazy rights given to their investors and different classes of stock, et cetera, we can easily keep legal fees between, I'd say $4.000 and $5,000 for the first six months to a year of entry into the United States and that includes a formation of the US company. The flip of the Latin American shareholders into the US company and basic documents you need to get started. The confidentiality and inventions assignment agreements, some basic vesting agreements for the founders, et cetera.
So it doesn't need to be a lot. And again, if the founders don't do it right from the start, it could cost a lot more to go and fix that situation later on.
Charly Esnal: [00:08:57] That's much less than what I thought, so good. And, now more on a personal level, I'm dealing with entrepreneurs from Latin America all the time, and you've helped a lot of very large companies to also smaller guys.
So, if you had to give one piece of advice for entrepreneurs that are considering moving to the US and, and bring their business to the US, what would that be? Just one kind of big advice.
Lizbeth Flores: [00:09:21] It would be, I think humility is very important. And, as entrepreneurs, I'm a small business owner myself. So, if we don't come in with humility, certainly being an entrepreneur teaches us humility. The market is always changing. There are always people to learn from and people who will, willingly, give of their time. There are so many resources out there. So I would say an openness and a willingness to learn and understand that the way things work in the home market isn't always the way things work in the US or other markets. So just, being willing to constantly learn, adapt and take advantage of the resources that are out there. I think to me, this is the beauty of having a small business and being an entrepreneur, and growing a business. It's an opportunity to constantly learn, to constantly get exposure to very smart people in the market, and learn what people are doing with their companies.
So I would say, looking at it as a learning experience and being able to grow from those who have come before.
Charly Esnal: [00:10:23] Awesome. It's funny because we do have a presentation that we do. A webinar that it's the “7 deadly sins of US market entry”. And one of them, when we talk about the team, is the importance of being coachable and having that beginner's mentality. Especially with entrepreneurs is tough sometimes because they've done so much in their own market and they had such success that sometimes they get a little bit hard-headed like I know everything and I know my market.
And when you get to the US it's like, no, you don't know anything. You have to leave anything that you thought that you knew in your country and start from scratch in the US so, I agree completely with that beginner's mentality to keep it when you come to the US. Yeah.
Lizbeth Flores: [00:11:05] So I think the pandemic has really taught us the importance of that beginner's mentality. When the pandemic started, I think the assumption for a lot of people was that everything was just going to go away and the investment would stop and things would come to a halt, but what's resulted in has actually been a great opportunity for many tech companies. But in my opinion, the companies that have been able to thrive are those that have been able to rapidly adapt to the changes, rapidly see what's going on in the market, and pivot.
Charly Esnal: [00:11:38] Yeah. And it's funny because COVID is a lot like, I would say, one of those things that startups kind of have to face all the time, that it's constant change. Things can change so rapidly that you need to have that mentality, as you said, to be constantly adapting to the changing environment.
So it's cool how it all worked out. Well then, that was that for the questions that we had thank you so much for everything that you shared with us today. I hope our entrepreneurs learned more on how to start their US entry the right way also what to take into account and not to make those mistakes that you mentioned.
And, and now they know also that they can contact you and your firm for any kind of support in those initial steps in the US it would be our pleasure. Okay. Thanks, Liz.
Lizbeth Flores: [00:12:33] Thank you.
The issue of expanding your business internationally, especially to the USA, is that a lot of it is guesswork. Validating your hypothesis takes a lot of time and money too. The good news is that expanding your business to the US is possible, even if you take the long and winding road to get there.
But what if there was a way in which you could cut times significantly and save a lot of money? Is soft-landing in 90 actually doable? The answer is hell yeah!
At Base Miami, we have created a unique proven methodology called Market Fit, which allows companies to accomplish in 3 months what usually takes 18 to 24. Today, we would like to share our methodology with you because we believe in the power of helping the community. So, get your favorite note-taking system ready because we are about to shed some light on some pretty juicy information!
Entering the US market can be daunting. We know that from experience. After all, at Base Miami, we are Latin entrepreneurs that have soft-landed in the US and grew exponentially from there. So, everything we say, we say out of first-hand knowledge.
Let’s cut to the chase here by saying that your US expansion planning and launching ultimately comes down to five simple steps: discovering the market, validating it, story creation, engaging the market, and process adaptation. Yup, by following those five steps you could be looking at a whole new market and the chance to skyrocket your business model.
Ready to learn how we do it? Let’s get to it then!
The first step is kind of like brainstorming. It’s about forming assumptions about your business model and figuring out HOW to go market in the US with your product or services.
Here you’ll need all hands on deck. You want your team to de-construct everything they know about your current market and start thinking fresh. The US is a behemoth of a market and it’s entirely different from that of Latin America. So, everything you think you know, erase it from your mind.
Once you’re in the zone, you want to start your research. This is the step-by-step process we follow with our clients:
1. Review your current business collateral e.g. pitch deck, product demonstration, marketing materials.
2. Lean Canvas Business Model: Lean Canvas is the tool we use to model key business and go-to-market assumptions.
3. Petal Diagram: This is a method to determine company positioning in the competitive landscape of adjacent, overlapping, or alternative solutions.
4. Provide a market research piece into the US ecosystem for your industry e.g. Trade Shows, Industry Associations, etc.
5. Provide access to US research reports into your market, industry, and competition.
Related: Entrepreneurs and Innovators Need Lean Canvas Models for Their Business: Learn Why
Now that you’ve got your assumptions and your initial research into the US market, it’s time to validate everything. This step is crucial to reduce potential risk, avoiding investing money and time into a strategy that won’t ultimately work out.
So, validating the market consists of 3 steps:
1. Top Ten Questions: It’s a document articulating the biggest anticipated risks and unknowns around the market entry.
2. Creating a target list of industry experts within your network.
3. Hosting 2-5 Feedback Sessions with Industry Experts.
This will give you the necessary information to discard wrong assumptions and fine-tune the right ones.
Now it’s time to build your brand in a way that meets US standards. Because you’re entering an English speaking country, every branding and marketing piece needs to be specifically tailored to accommodate English-speaking customers.
In order to build a strong, cohesive, US branded presence online, we guide our clients through these steps:
1. Wow! Statement: A short yet powerful articulation of your target customer, value proposition & positioning.
2. Slide Deck - to present the company to customers, partners, and investors in a US-centric way.
3. Company One Pager: a one-page summary to introduce the company and help it get meetings.
4. Ideal Customer Profile: a precise demographic of who we are targeting in the US Market.
5. Target List: list of potential customers & partners we want to reach to test go-to-market assumptions.
6. Outreach Script & Plan.
7. Website adaptation advisory: you may need to make changes or have a US-specific website.
8. Review of Revenue and Pricing Model.
Related: How to Dazzle US Investors with a WOW! Statement
Once the target list and outreach scripts have been created, you can begin to reach out to your network. The goal here is to get warm introductions to those companies and individuals and schedule meetings with them. These “customer discovery” meetings will help you turn business assumptions into “hard” facts and adapt the go-to-market approach as needed.
*(This part of the process, we typically do with our team at Base Miami. But you can do it yourself alongside your team and there shouldn’t be any hiccups.).
Last but certainly not least is modifying your sales collaterals. The goal here is to reflect your “latest and greatest” understanding of the customer and the market.
After adapting the approach and all the collateral, you should have a pretty solid idea of your new target market and the strategy you need to follow to penetrate it. At Base Miami, we have followed this Market Fit program with many clients and we are always stunned with the before-and-after results.
It’s pretty common for business owners to believe that, because they have massive accounts as clients and a fair understanding of the market they navigate, that it should be the same for the US. When in all honesty, it can’t be further from the truth. The US market is one of the most highly coveted markets in the world, and it’s not without reason. The US has its own rules and standards. The approach to penetrate the market should be a carefully-thought-out process, rather than pure guesswork.
With this guide, however, we wanted to share with you the proven-track methodology that we have successfully implemented with companies like Digibee, GEGO, and Ionosys. If you follow it to the letter, you will be at the least, with one foot inside the US market. The rest it’s taking the plunge, setting up shop, hiring the right people, and getting those clients to start generating some pipeline.
If you’re interested in this process and would like to benefit from our expertise and industry players’ network, you can contact us for more information on the Market Fit program. We can conduct a quick assessment of your business to see if you would be a right fit for it!
In a recently published ebook on The 7 Deadly Sins of US Market Entry, we called out Team as the seventh and last of the Seven Deadly Sins. In this article, we will elaborate further:
“Companies cannot outsource the job of figuring out the market and getting to a repeatable, profitable and scalable sales model. This will usually require the presence of one or two founders in country. “Hiring a sales guy” before you figure out the market almost always goes wrong. The right people to figure out the market and the sales strategy are the founders. Sales guys - and channel partners - come later. They execute on a proven strategy.”
Venture capital is a blessing – it let’s you do things faster. And venture capital is a curse – it let’s you do things faster. Faster than you are ready to.
One of the worst things you can do with venture capital is to build a team before you have figured out what game you're playing. As an international company, when you set out to enter the US market, you will have to revisit some of the territory you may already have completed in your home market. Lets recap on the phases you need to plan for a B2B Startup.
1. The Search for Product Market Fit
What is the problem you are solving, does it actually work, and will someone pay? You already did this at home, but unfortunately, now you have to do it again. Because it may be different. Product Market Fit means finding one customer, one use case, one value proposition that will work over and over again.
Most companies we have worked with have not done this. Not even in their home market. Even companies doing two or three million dollars in annual recurring revenue have not done this. In the US, it is crucial.
2. The Search for a Sales Model.
What sales model will enable you to find that one kind of customer prospect over and over again and take that prospect through a consistent set of steps (sales funnel) that will yield a predictable result (happy customer).
3. Scaling the Model
How can you scale that model to get many happy customers?
Too many companies think they can stay in their home country and outsource phases (1) and (2) above to “a sales guy”, “a partner”, “a distributor”, “an agency” or similar, and leave it to them to solve the customer and sales riddle. That doesn’t work.
Before you bring in someone from the outside to sell, you need to figure out the fundamentals above: Who is the customer, what is the value proposition, how much will the customer pay and what is the repeatable process that will turn the right kind of prospects into the right kind of customers. This is what is mean by “Figuring Out the Game”.
If you don’t know the game, there is a huge risk that you will recruit the wrong players – no matter how talented. LeBron James is an amazing basketball player. Given the rules of basketball, no one does it better. That doesn’t mean he would be the ideal guy for your ice hockey team. Coming to the US, you are likely to “pivot” in the early stages. Each time you pivot, the “game changes”. The founders need to figure it out.
“Figuring Out the Game” is a challenging process. It takes time, it is painful, and for a long time, it offers few or no rewards. That is a job description for “owners”, not players. The founders need to figure out the rules before they can determine who to hire. When you hire a sales team before “Figuring Out the Game”, bad things happen.
Unfortunately, I am the owner of some personal battle scars I got while learning this lesson. At one of my startups, we had successfully raised venture capital. We were rapidly spending that capital to build a product no one really needed. We were not aware of that fact at the time. As the product was nearing beta, we proceeded to the next step: hiring a sales team to sell it.
We recruited a “hired gun” sales VP from a bigger company, and that VP went ahead and did what sales VPs do. He hired more sales guys. With a team of sales guys to sell a product no one really needed, we proceeded to burn through a ton of cash. We had recruited the team before figuring out the game. That was an expensive mistake.
Remember. Figure out the game. Then hire the players
Download our FREE ebook “7 Deadly Sins to Avoid When Entering the US Market.” DOWNLOAD NOW
In a recently published ebook on The 7 Deadly Sins of US Market Entry, we called out being undercapitalized as the sixth of the Seven Deadly Sins. In this article, we will elaborate further:
“Most international companies are undercapitalized compared to their US peers. Many entrepreneurs think venture funding is just around the corner when they come to the US. The reality is that it will take 18 - 24 months from the time you set up business here until you have achieved the milestones required to raise a venture round from US investors. That means you need to find the capital at home to fund your US market entry - at least for the first couple of years.”
The US has the magic ingredients for rapid growth: Market, Capital and Talent. Comparing venture capital around the world underscores the relative imbalance:
“… according to the European Investment Fund, VC investment in startups has grown four times to €23bn in the last five years. While this is encouraging news, Europe is still tiny in comparison to its two neighbors: the U.S. and China. According to research from Atomico, an investment fund, Europe invested around €23bn in venture capital in 2018, whereas the US invested $130bn and China $92bn.” - (Forbes, May 31st, 2019, Raising Venture Funding In Europe Vs. The U.S.)
That makes the US something a “promised land” in the minds of many international entrepreneurs. There is a huge mass of VC and an accessible market with no significant legal, cultural or linguistic barriers to entry. If only they bring their company here they can tap into that wealth of venture capital. Unfortunately it’s not that simple.
To raise a so-called “A-Round”, you need to gain significant customer traction. To get significant customer traction, you need to be in the US, figure out a go-to-market and use trial and error to see what works. That takes time. Usually a year and a half or two. That costs money. But money was what you wanted to raise here? That’s what’s known as a “Catch 22” situation.
Essentially what that means is that you have to raise money to raise money. That is not a tautology. You need to raise money in your home market region to fund the time and effort it will take to raise a follow-on round in the US. So US funding is almost never a source of capital to get started in the US. And any home market traction is rarely considered substantial evidence to get you a US venture round. You have to do it here.
Now back to the question of “bringing a knife to a gun fight”. Even if you raise money at home and use it to fund your US market, you may be funded, but you might still be underfunded. Good ideas are usually pursued in more than one place.
Often we have seen companies from abroad facing US competitors with more than 10X the capital. This is for the simple reason that they have been in the US the whole time. So they have had more time to grow the business here and they have raised US venture rounds. These are generally bigger than non-US venture rounds.
Hailo vs Uber who we mentioned in a previous article was a prime example of this. By 2014 Hailo had raised around $100M USD. By comparison, Uber, at the same period in time had raised around $3B USD. (Fortune, October 14, 2014, “Why a taxi app with $100 million in funding failed in the U.S.”)
Download our FREE ebook “7 Deadly Sins to Avoid When Entering the US Market.” DOWNLOAD NOW
In our ebook on The 7 Deadly Sins of US Market Entry, we called out we called out the failure to think through customer acquisition as the fourth of the Seven Deadly Sins.
“Most companies think they can enter the US by “partnering” their way to sales. This is almost never true - at least not in the beginning. The one who needs to figure out how to sell your product here is YOU. Once you have “cracked the code”, and only then, you might be able to find partners to sell it. .”
Thousands of companies have made this mistake. And it is an easy one to make.
Mature companies, with well-established product categories can often find partners to represent them in new markets. Especially if they have a “faster, better, cheaper” version of a product that already has significant and proven market demand in the new market.
Such partners will often “localize” the product, which might include preparing local language marketing, approval and other details of taking the product to market.
For startups, this is mostly not a viable go-to-market. Startups enter markets not with established product categories but with new and disruptive solutions. That is the opposite of a mature category with “significant and proven market demand”.
Even if you have sales in one country, that is no guarantee that your product will achieve market fit in the US. Uber vs. Hailo was a classic example of this.
So many things that can go wrong. Distribution partners sell things for which there is proven demand. Even if you have 100 business customers in your home market, that’s not you.
The sad truth is, you will need to re-prove your value hypothesis and market fit, in the US, before you can get someone to take on your product and amplify your efforts to get it to market.
As an entrepreneur with sales in your home market, that may sound like “starting over”, and in some sense it is. Once again you will need to “hack” the fundamentals around customer problem, solution fit, pricing, channels and other aspects of the business model. As Yogi Berra put it, “It’s déjà vu all over again”.
To get partners in the US, you need market insight. You need to understand the market. You need to understand WHO will buy your product, WHY they will buy your product and HOW they will buy your product. And how you best reach them. Gaining true market insight is hard. And it takes time.
Partnering comes later. To get partners in the US, you need market proof. What kind of proof is that? The best proof you can get is happy customers. Preferably a bunch. That means you will need to sell directly to customers first. At least until you have some solid reference accounts.
Unfortunately, there is no shortcut to doing that. There is no one to outsource it to. No one else fit for the job. Distribution partners will not do it. Sales people for hire cannot do it. It is a job for the founders. Just like when you proved the business the first time in your home market. It’s a job for… YOU.
That said, there is a role for distribution partners. Later. Much later. It’s best to think of distribution partners as a multiplier. Partner channels are a way of expanding on a sales formula that is already working. Not a way of figuring out what works. Once the founders have figured out how to sell, you can recruit sales people inside and outside the company to scale your efforts.
Before that, to get your product into the US market and get to a repeatable sales model, you need to plan on one or more founders coming to the US and doing 1 – 2 years of solid groundwork.
Download our FREE ebook “7 Deadly Sins to Avoid When Entering the US Market.” DOWNLOAD NOW
In our ebook on The 7 Deadly Sins of US Market Entry, we called out ignorance of competition as the third of the deadly sins. In this post, I will elaborate further. The sin was defined as follows:
“Most good ideas are being pursued by more than one company. In many cases there will be a US competitors who are better funded and have been in the market longer than new entrants from abroad. Companies need to understand the competitive landscape and find the right position in the market to succeed. Underestimate this challenge at your peril.”
Thousands of companies have made this mistake. And it is an easy one to make.
In a relatively small home market, you might well be the only company offering a new innovative product or service. You might have the whole market to yourself. As the sole innovator in your space, it might be easier, than in a “noisy” market, to get meetings with potential customers, get pilots and close deals.
But if you bring your company to the US, you will find that most good ideas have more than one company pursuing them. In the US, there might be several other companies doing what you are doing. They will most likely have been doing it longer since, unlike you, this is their original home market. They will almost surely be better funded, because funding rounds are bigger in the US than most other markets.
First of all, figure out the “lay of the land”. What competitors are there, who are they targeting, and how far along are they. Since they are most likely privately held companies, you will not be able to get information on their revenue levels. However, you can get information on what funding round they are at and how much they have raised.
If they have raised a B round for example they are probably pretty far along on their growth path. You can get information on how much they have raised, when and from who on Crunchbase.
What do you do if you have serious competitors with lots of money? It means you need to think harder about how and where you can find market fit in the US. You will need to “niche” the market in a way that differentiates you. If you are a security company and your competitor is targeting biotech, maybe you target some other vertical with high security requirements.
Or should you avoid the US altogether? Actually, that seldom works. In most cases, a really successful, really well-funded competitor will get to your backyard sooner or later. Consider the global reach of Uber, or Netflix, or Amazon. At one time they operated only in the US.
While home-grown US companies may get to their first $100MM in revenue in the US alone, eventually they will turn to other geographies for expansion. As a company operating alone in your home market, you can run, but you can’t hide. Better to find your specialization and differentiate your company sooner rather than later.
The worst thing you can do is the “ostrich strategy”. Burying your head in the sand doesn’t work. It is just waiting for the inevitable to happen.
“Me too” companies will not succeed in the US market. The market is highly competitive, and not a good place for “generalists”. Your spreadsheet may say that all you need is 2% of a multi-billion dollar market to succeed, but that is not how the market works.
“Me-too” companies will struggle to gain traction and eventually get shut out and shut down. If you are “me-too” with your current strategy, you need to “niche yourself” and find a specialization where you can excel. Sooner is better than later. If you can successfully niche your market, and dominate your new subspecialty, you will create value in your company and have complementary value to companies dominating other niches.
Companies are often told to “think big”. In fact, this is one of the cliches of Silicon Valley life. But companies who succeed are the ones who find a space they can dominate. They are looking for 70% of a market, not 2%. It is OK if that market is initially a small one, as long as it leads to a big one. Facebook started with Harvard, then Ivy League schools, then other schools, then …
Most other successful companies followed a similar pattern. Amazon with books, Tesla with roadsters.
So when you look at your bigger, better funded competitors, think small. That will help you to eventually win big.
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In a recently published article on The 7 Deadly Sins of US Market Entry, I called out lack of “Customer Problem Fit” as the second of the deadly sins. In this article, I will elaborate further. The sin was defined as follows:
“Often the problem companies solve in their home market doesn’t exist in the US, or exists in a much different way. Hailo from the UK learned this the hard way when it brought its ride hailing app from the UK to NY. It left the US again a few years and many millions of dollars later.”
Thousands of companies have made this mistake. And it is an easy one to make. You are selling in your home market with several million dollars in annual recurring revenue and hundreds or even thousands of customers.
Validating the customer problem and the solution happened a long time ago for you and your company. You identified a real problem in your home market. You built a solution. Your target customer was and is willing to pay for it and you have been growing ever since. It is easy to assume that this will work the same way when you come to the US. But it often doesn’t. There are many examples of this.
A company we worked with a few years ago had developed a unique scheduling optimizer it was selling to home health agencies in its local market. The software enabled really effective matching of patients and caregivers taking into consideration specific caregiver skill sets, language, culture, location considerations and more.
But in the US it turned out that scheduling was not the main problem. A bigger problem than scheduling caregiver resources was FINDING them. There were too few people available agencies were more concerned with being able to fill the required time slots than anything else. They were in pitched battle with one another for resources and they were constant afraid that their employees and contractors would leave to work for someone else. This required a so-called “pivot”, which the company was able to make in advance of market entry.
A better known case is the ride hailing company Hailo. The consensus is that this UK based company failed in the US because what worked in London didn’t apply in NY. In NY, finding passengers was not a big problem for drivers. Anyone who has ever tried to get a cab in NY has learned this the hard way. But this was the core of the value Hailo offered drivers in London.
In NY, the problem Hailo solved in London was not important. The problem in NY was finding a RIDE. That was not a problem for drivers. That was a problem for passengers. Uber solved that problem by bringing a previously untapped “army” of cars and drivers into the market. This solved the real problem in NY and many other US cities, and Hailo and its taxi-centric solution eventually exited the market.
Coming to the US, the inclination of most international founders is to assume the problem they solve exists in the same way. This is a dangerous assumption. As the Hailo / Uber war shows, even the dynamics of a market as ubiquitous as taxis don’t work the same way everywhere. Heavily regulated markets like healthcare, financial services and education are even more likely to have significant differences that can that can require major adjustments to business models.
A saner approach when entering the market is to assume that the target customer, the customer problem and the required solution will vary from what you have seen in your home country. Revalidating the customer problem and the solution fit is an important step to take before you go all-in on sales and marketing.
In fact, you should not assume that any of the elements of your “business model canvas” will be the same. When working with companies, entering the US from other markets, we usually start things off with a step-by-step process to re-test the entire business model. We use the lean canvas to do this, but you can use other models as well. The main thing is you need to do it! . If there are significant differences in the US market, you will want to figure that out sooner rather than later!
Download our FREE ebook “7 Deadly Sins to Avoid When Entering the US Market.” Download Now
In a recently published ebook on The 7 Deadly Sins of US Market Entry, I called out “Too Broad A Field of Focus” as the first of the deadly sins. In this article, I will elaborate further. Specifically, the sin was defined as follows:
“In their home markets, which are small compared to the US, companies are forced to diversify across multiple industries, use cases and even product categories to generate sufficient revenue. This is a losing approach in the US where competition forces narrow segmentation. The US is a specialist’s market. “One stop shopping” as a competitive strategy usually doesn’t work here.”
The US market is vast. For most, if not all, international entrepreneurs, their home market is much smaller. This gives rise to the strategy of selling broadly across many segments.
This is not something entrepreneurs do because they are foolish; it is something they do to survive. A “niche” segmentation in their home market would result in too limited a market and doom their initiative from the start.
When they come to the US, the natural inclination of most international founders is to continue the “sell broad” strategy they started out with. This is a poor strategy.
A Nordic company that offers a cloud platform for producing customer testimonials identified their Ideal Client Profile as “pretty much everyone”. By everyone, they meant any company of a certain size that has a marketing organization and can benefit from testimonials. They explained that the solution is “horizontal”.
Another company, out of central Europe, offered a Customer Journey SaaS platform. They entered the US selling to multiple use cases across multiple verticals. Customer Journey was also “horizontal”. Both companies struggled to get to a repeatable sales model.
The problem is, when you try to be so general that you offer something to everyone, you are not really offering anything compelling to anyone. A perfect fit is compelling. Not a “one size fits all”. One ideal customer profile, one value proposition, one use case.
For me and the team I work with, it is fairly unusual that we see a “perfect fit” approach. Recently we did though, and we were immediately impressed. A diagnostic lab testing company from Latam were narrowly targeting late-stage cancer patients and a limited number of cancers. They had gained 85% market share in their home market. By focusing narrowly, they had succeeded in completely dominating their market.
A narrow focus is the key to market domination, and it’s the path to investors’ hearts. Think big, yes. But bite off a piece you can chew. And chew it thoroughly. As was pointed out almost 20 years ago in Crossing the Chasm, each market niche is a “bowling pin” on the road to market mastery. Facebook started with Harvard. PayPal started with supersellers on eBay. Tesla started with the roadster. And so on.
There are many synergies that come from a narrow focus:
The end result of these synergies is that the sales process becomes repeatable and selling becomes more and more predictable over time. It gets easier with time because each sale builds on the foundation of previous sales.
Let me finish off with a story. Many years ago, commenting on my company at the time, one of my venture investors remarked to me that “1 x 50 <> 50 x 1”. I thought that was kind of odd. Was he a “commutative-property-of-multiplication” denier? But then he went on to explain.
From his perspective as an investor, having 1 customer in 50 industries was not the same as having 50 customers in 1 industry. The latter was far more valuable. It showed that you had figured out how to sell in a repeatable way. “1 x 50” on the other hand showed you had done 50 different things to sell to 1 customer instead of 1 thing to sell to 50 customers.
Bonus: you don’t even need to choose THE very best segment to sell to. The simple act of limiting your focus to a single value proposition for a single Ideal Client Profile will put you ahead of most of the companies out there.
Download our FREE ebook “7 Deadly Sins to Avoid When Entering the US Market.” Download Now
With its geographical proximity, the US - and Miami in particular - offers an ideal destination for Latam companies to land and expand.
So if Miami is an ideal beachhead for Latam companies coming to the US, what could go wrong? The short answer is “everything”.
The team at Base Miami has seen it happen many times over the years. Companies come and spend a year or two trying to figure out the market and get customers. Time goes by, everything costs more and takes longer to succeed.
In their home markets, which are small compared to the US, companies are forced to diversify across multiple industries, use cases and even product categories to generate sufficient revenue.
This is a losing approach in the US where competition forces narrow segmentation. The US is a specialist’s market. “One stop shopping” as a competitive strategy usually doesn’t work here.
Often the problem companies solve in their home market doesn’t exist in the US, or exists in a much different way. Hailo from the UK learned this the hard way when it brought its ride hailing app from the UK to NY. It left the US again a few years and many millions of dollars later.
Most good ideas are being pursued by more than one company. In many cases there will be US competitors who are better funded and have been in the market longer than new entrants from abroad.
Companies need to understand the competitive landscape and find the right position in the market to succeed. Underestimate this challenge at your peril.
Most companies think they can “partner” their way to a sales model. This is almost never true - at least not in the beginning. YOU need to figure out how to sell your product here first. Once you have “cracked the code”, only then might you be able to find partners to sell it.
In the US, you can’t recruit partners to “figure out the market” for you. Partners sell stuff that already sells. Figuring out the market is your job. You need to plan for that and fundraise for that.
In many industries, the ecosystem is different. The healthcare industry in the US for instance includes healthcare providers, insurance companies, the federal government, state and local government, patients, and businesses.
It is much different from healthcare systems in most other countries. The healthcare ecosystem will affect many elements of the business and distribution model for health-tech and life science companies. Regulatory differences compound the challenge.
Most international companies are undercapitalized compared to their US peers. Many entrepreneurs think venture funding is just around the corner when they come to the US.
The reality is that it will take 18 - 24 months from the time you set up business here until you have achieved the milestones required to raise a venture round from US investors. That means you need to find the capital at home to fund your US market entry - at least for the first couple of years.
Companies cannot outsource the job of figuring out the market and getting to a repeatable, profitable and scalable sales model. This will usually require the presence of one or two founders. “Hiring a sales guy” before you figure out the market almost always goes wrong.
There are great entrepreneurs, investors and accelerators everywhere. While local accelerators may do a fantastic job taking their companies through “Demo Day”, we believe entrepreneurs in most ecosystems are operating at a distinct disadvantage once it is time to scale.
Download our FREE ebook “7 Deadly Sins to Avoid When Entering the US Market.” Download Now
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