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Breaking into the US market is a common goal for start-ups that want to become leaders in their field. But what do they need to do to make it in America and what could hold them back?
According to data from DealRoom, the US is leading the way globally in terms of VC investment by a good stretch, which is one of the many reasons why the desire to expand to the US is so strong for European start-ups.
But analysis from Frontline Ventures suggests that European start-ups have been delaying their physical expansion to the US ever since the Covid-19 pandemic.
“The average age of a European company putting down a physical footprint in the US has risen from four years to five, which suggests that European start-ups are leveraging remote sales motions for a longer period before setting up an office,” said Will Prendergast, a partner at Frontline Ventures.
“Sales is the primary function hired to undertake US expansion, with seven out of 10 companies analysed hiring at least five sales roles in their first 10 hires.”
So, why the delay in expanding physically? One reason could be the increased competition in the US, which can be intimidating. Another is that the explosion of remote working since the pandemic has made it easier for start-ups to expand virtually before making a more permanent and expensive move. However, that doesn’t mean it can’t be done.
Location, location, location
Prendergast added that many European founders make the mistake of assuming that expanding to the US means setting up in Silicon Valley.
“While this works for some – we found 19pc of European founders land in the Bay Area – it’s not the best option for every start-up,” he said. “Don’t underestimate the impact of a large time zone difference between the new hub and HQ and the significant operating costs of the Valley; you simply won’t have the budget to compete for top talent.”
He added that New York is a popular location for European start-ups because it maximises the time zone overlap between the US and Europe. “A five-hour time difference (EST to GMT) allows for a three-hour overlap during a typical workday. In contrast, a 10-hour difference (PST to EET) eliminates this overlap, making it challenging to build a company and establish a cohesive culture across borders,” said Prendergast.
“Companies choosing a west coast base will likely need local operations teams sooner, increasing costs faster than those on the east coast, where they can leverage home-country resources.”
Start-ups in niche markets may go a different route by selecting sector hubs in non-traditional locations. For example, Irish drone delivery start-up Manna launched its US operations in Texas with its first US trial in the Dallas-Fort Worth area.
Setting goals
When expanding to the US, founders need to have a clear plan in place. Prendergast said they should plan to make several trips per year and to have a clear understanding of the purpose of each visit.
“Firstly, have a concrete goal for each trip. For example, secure investment interest from at least one VC or close a deal with a corporate partner,” said Prendergast.
“Secondly, take the time to understand the culture and local market. This will help you build genuine relationships with potential investors, partners and customers, and evaluate service providers before signing expensive contracts.”
It’s also a good idea to front-load meetings and events during the trips so that any rescheduling or follow-up meetings can happen later in the trip if needed.
“Make sure that the timing of your trip makes sense. Some cities will empty out in the summer or winter months. Anchoring your trip around a relevant conference or event is a good starting point,” he said.
“Finally, you must be aware of US customs and border protection requirements. You can use the Visa Waiver Programme for research trips, but make sure you speak to a qualified US immigration lawyer as early as possible if you are considering a longer-term move.”
Consider the cost
While it can be tempting to dive right into a US expansion plan, having the right resources to do so is key. Start-ups need to be able to maintain momentum back at home while focusing efforts on new horizons overseas.
Prendergast added that founders almost always underestimate the financial and time costs of expanding into the US.
“Speak to service providers and peers who have made the move before to understand all the expense categories involved, and make sure you have a solid leadership team in place to sustain revenue growth in Europe,” he said.
“Europe is a cheaper testing ground than the US, so you should be achieving a viable product-market fit at home before expanding elsewhere.”
A product-market fit is essentially the degree to which a product satisfies a strong market demand. Prendergast added that a start-up’s product-market fit is unlikely to change – especially for founders who have researched the US market they’re hoping to enter.
However, he warned that a company’s go-to-market motion – the strategy for getting its products in front of potential customers – will need to adapt to local markets. “Take the time to understand US customer needs and buyer behaviour and build out a top-of-funnel lead list before committing significant sales resource to the new territory,” he said.
“Finally, ensure you have a good understanding of US regulatory requirements – compliance costs can massively impact expansion plans.”
Now hiring
Expanding to the US isn’t an easy task, but setting proper goals, considering the cost and choosing the right time and location means any start-up will be well on its way to success.
Once those steps are taken, the next task will be to think about who you should be hiring to help your start-up thrive. For Prendergast, the first 10 hires are crucial to get right as they will shape the company culture and influence growth in the new market.
“For US expansion, it’s crucial to seek candidates with a proven track record in international businesses and a knack for thriving in unstructured environments,” he said. “These individuals will be instrumental in establishing US operations from the ground up, so you need to assess for more than just their ability to sell.”
The order of hiring also matters. Thinking about a company’s go-to-market strategy will help decide who the most important people are straight out of the gate. For example, companies that are sales-led will likely want to hire salespeople to start with, while product-led companies may prioritise product marketing or customer success professionals.
Prendergast added that it’s also important to consider the level of seniority you need in your US team and when you need them.
“Generally, it is very difficult to find relevant senior talent that is equally effective at coaching and leading a new team whilst also getting their hands dirty with new business, but companies selling complex products may need a local leader early on, as their expertise and connections can be critical to closing deals and navigating a new market.”
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