Disclaimer: We sell industrial equipment, not software. Also, we were spun out of a Czech university, so it wasn’t a ‘start-from-nothing’ type startup.
We scaled a startup out of Europe, specifically – out of the Czech Republic. Our market is large, but it was not clear what market we were in when I was first recruited to the business in 2008. Mr. Steemers’ post on, Why European Startups Fail to Scale, is certainly applicable in regards to the difficulties of approaching new markets, but there were a few big changes we would make if we could go back in time.
We would do the following, but do them sooner and do them more aggressively if scaling beyond your home territory is required.
1. Go where your customers and markets are.
In my last business we had commercialized a technology that was a spin out of the Microelectronics Center of North Carolina (MCNC, now NC Idea). As we saw the semiconductor supply chain leaving the US (and realizing that it had already left the Carolinas) we opened our second wafer fab in Hsinchu Taiwan right near TSMC. Amkor eventually bought us because our proximity had allowed us to iterate faster and gain key customers.
Our current business sells into the high end membrane and industrial rolled good market. This market is a bit of a trap – rolled goods, textiles and membranes can be made anywhere in the world. (For anyone reading this, the odds are that a plant is within 100 km of you that you’ve never noticed.) Since textiles and fiber businesses are everywhere, surely the business can get all the market feedback it needs and iterate while being located in Bohemia, right?
Unfortunately, no. Thought leadership and product management for the types of customers we wanted to work with was in three locations, each of them very broad in their own right:
- The US East Coast (from Atlanta to Boston)
- Parts of Asia (Japan, Taiwan, S. Korea)
A startup should only cross borders if it is essential to growth. ROIs and plans should be carefully studied – there is never easy money when new geographies are pursued. This business crossed borders because it had to. The technology was too young, the market to spread out (and at the same time too consolidated), so in order to get access to the supply chain we had to look beyond our geography at the time.
Even if we are going to sell to customers all over the world, we owe it to them to be at the cutting edge of their industry. We’ve got to have some visibility into the major market drivers – this visibility becomes more important in longer sales cycle, slower to move industries. The penalty for failure is higher.
[Questions for Mr. Steemers – are these businesses moving around within Europe because their home markets aren’t big enough for what they do? Are they moving into a new geography (ie from Belgium to Spain) once they have product market fit in their home territory?]
We also went in to these markets because despite our simple website and market message at the time, these customers came and found us. We satisfied an urge they knew that they had, and even though we’ve come a long way, we were able to provide them with a product that met their needs despite our own challenges at the time.
The benefit from us having an office near a hotbed of membrane and technical fabric innovation is clear – a now deceased startup competitor was out of Texas that was unable to achieve scale, and it was our impression that our proximity to customers was a major advantage.
2. Do what the books say.
Read Moore’s Crossing the Chasm. Read Ries’s The Lean Startup. Do what they say.
Almost every initial hypothesis the founders of the business had about the market was wrong. There was insufficient understanding of the way our core technology worked and how customers would work with us. It was not clear how to sell them the technology that we had, and it wasn’t clear how much work these customers would want to do on their own and how much they would require us to do for them.
As a team, we re-read parts of The Lean Startup and Crossing the Chasm as part of our bi-monthly management meetings.
It is painful every time. “It is like we tried to do everything wrong.”
Neither of those books is available in Czech. When I stared with the business, the Czech Republic was one of <10 countries where Google was not the top search engine. Not only were we trying to help our team develop an understanding of the market, we didn’t have access to the right materials to help them get up to speed.
3. Find a partner and trust them.
I was the second person asked to lead our first international office (which was based in Raleigh, NC, USA) and the first non-Czech asked to take on a leadership role for global team members, and eventually our first non-Czech CEO.
That first US office lead had been a mentor of mine and had exited several companies. He was thrown such hate, suspicion and anger that he finally walked away. My plan had been to follow him, as the emotional environment was still very challenging. However, he did a great job of helping the team understand what it was like on the receiving end of a poorly-framed partnership.
Our first US sale was closed before we had opened the office. The Czech team, many of whom are our best global sales people, had done a great job. However, when we had hired personnel who were both; (i) remote, and (ii) non-Czech, we had struggled with trust issues. If you have a partner, treat them like a partner.
We’ve used this same philosophy to grow our presence through our partners all over the world, and especially in China. Take that partner and vet them for their ability to put you in front of the right accounts, and then follow their feedback the same way you did when you were first looking for product market fit.
Need a different type of manual? Do it.
Different expectations on training? Warranty? Service? Do it.
Find a credible, knowledgeable partner and then treat them as such. It helps customers work with you and it accelerates all the work you do across your business.
4. Know that everywhere (even within Europe) is different.
It has been many years since we’ve participated in a pure ‘startup’ type event, but it was clear at an early industrial technology VC event in Berlin that this was a very different world than what would be encountered in San Francisco or Sand Hill Road. Mr. Steemers nails some of these differences.
The European nations are so different from each other that they had to create the EU, a super-Federal entity to force alignment down from above. This indicates the very paradox of commercial activities between EU member states:
- Businesses in Europe know and expect a different type of market and customer when they go to another European country. [This is such an issue, that creation of entities to oversee this integration was core to the EU.]
- However, when European businesses go to a country outside of Europe, they are surprised at the differences, because there is no overhead EU governing body to state what can and must be done.
For our first pieces of machinery sold into Germany, our mechanical design and assembly teams would protest every change order saying, “No one in the Czech Republic has ever asked for that!”
Then when we started to sell into the US, China and Brazil, “No one in Europe has ever asked for that!”
Mr. Steemers nails it that some businesses fail to understand the changes when entering a new territory and/or market. But that is a broad statement, almost as vague as, “They failed to scale because they did not sell enough.”
We are by no means an example of a smashing success. We’re a small player who controls a niche market. Hopefully the four lessons we’ve listed here will help others as they encounter similar problems and encourage more dialog about how to achieve product-market-fit and grow.
Hey Fred, it’s amazing to see that you took the time to reply to my article.
I completely agree that my article leaves out certain crucial elements for scaling a business: it is a 700-odd word article. If you could instruct someone to scale a business in that many words it probably wouldn’t be as interesting, exciting, or difficult as we both describe. This topic deserves way more room, nuances, examples, and interesting anecdotes.
This topic warrants its own book. When the day comes that either of us start writing it, let’s get back in touch and help each other write it!
Derk! Your article was great. Your points on the intricacies of scaling in Europe were spot on (I should have made that clearer in what I wrote). We struggled with the same issue – however, of the issues we struggled with those specific cultural challenges weren’t the biggest obstacle. With this business it was really tough to understand what the market really was. To know the market required a series of commitments and shedding of options (just as is described in Ries’s The Lean Startup) that can be hard for a team that doesn’t have much new product experience.
We should definitely continue to develop the topic.