Expansion part 1: Before you go

Guest Blog Post by Carl Fritjofsson in Creandum
fritjofsson.com | @fritjofsson | @creandum

This post was originally posted on fritjofsson.com/blog.

Starting a company in Europe comes with its particularities. Many of the domestic markets are not large enough for big ideas, and European entrepreneurs generally quickly think about expansion and internationalization. This is especially true in the Nordics. And when it comes to expanding your tech startup, the most important market for many of us is still 🇺🇸 . Partly because of the commercial appeal of a large (and reasonably) homogeneous market with high purchasing power, but more importantly because it’s the home of most major tech platforms and dependencies. At Creandum, we have seen many times that in order to become the world-leader in your domain, you need a US presence in one shape or form. This is why parts of our team, including myself, are based in the San Francisco Bay Area where we can support our portfolio on the grounds and tactically help you grow your business into this market.

Having scaled Wrapp into 18 markets across the globe myself, as well as getting inputs and leveraging insights from our awesome portfolio founders and friends, we have been fortunate enough to have learned a couple of things along the way. And since we invest a lot of time on this topic, in a 3 blog series during the following couple of weeks, I’m going to share some of the learnings and best practices to think about when expanding your company and setting up operations abroad. The structure follows a timeline and things to consider before, during and after you set foot into another market. The outlook is expanding from Europe and setting up operations in the US, although I believe most of these learnings may work just as well when entering into any foreign market.

This post is probably the most important one — 5 things to think through and do BEFORE you make a decision and start your expansion.

❓Understand why. First of all understand that splitting up a company across multiple locations adds A LOT of complexity. Therefore it’s not something to take lightly. Don’t be vain, and just expand for the sake of expansion. Instead try to figure out what part of your business goals you cannot accomplish from your local market. What can you achieve from home? Why do you even need to expand? Are you truly a company who needs local operations or can it be managed centrally? Why do you want to go to US and not China? With global distribution channels available from anywhere, many startups can come a long way and establish a large international customer/user footprint from their domestic market.

📆 Decide when. But many of us have international ambitions from the get-go with a business requiring local operations. In such cases you instead have to start considering the timing. Don’t expand too soon. Many companies who are successful in early fundraising fall into this. I did it with Wrapp. Finding the perfect timing of your expansion is a combination of product-market-fit, organizational maturity and financing. Until you have truly proven product-market-fit with sales or user growth, there’s no reason to start thinking expansion. The reason is simply because you don’t know your business and its requirements well enough yet. With traction the benefit is that you will have data and fundamental understanding about your business, but it also help guide your prioritizations. Huge customer interest from Germany, none in the US. Where do you go? Data is reliable, and can help your decision making. Furthermore, make sure your home market’s organization is ready for expansion. Any expansion should be spearheaded by senior leadership (more on that below), which means you have to ensure that your domestic organization is able to run day-to-day ops when such leadership go elsewhere. Organizational empowerment and a fair amount of processes and structure is key. And finally, setting up international operations costs a lot of money (especially in the US). Make sure to have the financing needed. Don’t expand with a slim wallet expecting to raise money in your new geography. Make sure you have enough runway to take a real stab at it, and prepare minimum 6 months before seeing any business impact. Create a budget, and multiply it with pi to get a rough estimate.

👉👈“Feel it out”. There’s a lot you can do before you actually move over to a new market. You start by going there…not once but many times. We see this a lot in Silicon Valley where people from all over the world frequently and regularly come here to network, learn and even grow their business before they have set up any local operations. The great thing about the Bay Area is that people are very helpful, and truly wants to help you if they can. And the unique thing about the Bay Area is that you have people who have done and seen it all. Also being an immigrant is part of America’s DNA, meaning it feels really natural to connect with people here. So get on a plane and start building your network and business before expanding. Go to your target market at least every quarter. Meet with your potential partners, investors, customers and even competitors. Start to understand the market in depth. Find out how it is different from your home market, because it will be. Understand what the major challenges in your new market are. The ambition is to learn and to gain momentum locally, so you can hit the ground running once you set up shop. Pro tip in case you’re visiting the Bay Area on a budget, is to get a motel close to the airport (right in between San Francisco and Silicon Valley) and rent a car. And when you do hit me up and let’s connect!

🙋 Decide what and who. As soon as you set up a new location, you will have two teams and they will from day one start growing apart. To manage this you will require strong leadership in the new location, ideally one of the co-founders. By moving one or several people from the management team you also help bridge the cultural gap that will exist, and it signals importance of the expansion to the domestic team as well as builds trust between the offices. Don’t feel like you should optimize to move people over to the new location because of their domain expertise about the market. It is much more important to have someone leading on site that knows the company, than someone that knows the market. And don’t simply consider seniority of the person(s) to move over but also functions. It’s really challenging to split the same function across two different locations, hence, move the co-founder who is destine to build and manage the function you expect to build in your new market. Keep everything else in your home market, and make a clear distinction between what belongs where and how the overall teams will operate. Because of the tremendous competitive market in the Bay Area for talented developers, I strongly believe in keeping engineering (and probably product) outside of this region and rather focus on building your sales and marketing in this part of the world.

💬 Communicate early. Communication is the holy grail of any organization spread across multiple locations. In fact it’s the most important aspect of any company. Be prepare to communicate more than you expect. Much more. Before you expand and when you start considering these plans, be very transparent to the entire team about what lies ahead and how it’s progressing. Make sure the whole founder/management team is 100% aligned in this story. Also start preparing the organization for more asynchronous communications than previously. Different offices, different time zones and different people means there will be very different and more disciplined requirements to the company’s communications. Start to document decisions, meeting minutes, status updates, and push communications into the open and in writing. Slack and the likes are kings to facilitate this. As founders, take the lead and set an example. Get ready for the ride!!!

Best practices during the actual expansion phase follows soon. Mad shout-out to these impressive founders, entrepreneurs and friends who contributed with input to this article series: Patric Palm of Hansoft, Heini Zachariassen of Vivino, Caroline Ingeborn of Toca Boca, Christian Wylonis of Fitbay, Oskar Kalmaru of Narrative, Emil Eifrem of Neo Technology, Louise Fritjofsson of Vint, Alex Arias of Omniata, and Jonatan Littke of Lookback. I’m always available to connect and discuss on Twitter at @fritjofsson. 👊 💪