Trade Secrets

Targeting the North American market

By Nitin Dahad

Many European technology start-ups eye the USA as a potential market for their products or services. Some do it because they think it's the place to be because their competitors are there, whilst others actually see it as a market for expansion as a result of receiving a few potential customer leads. In this article we explore some of the key issues that need to be considered when you've made the decision to target the USA as a potential market, and highlight some common mistakes.

1. Land of opportunity?
2. Cultural differences
3. Marketing differences
4. Look local
5. Plan for the long-haul

1. Land of opportunity?

Many European entrepreneurs see North America as the land of opportunity, the place where you can make your millions if you work hard enough. It is true that the USA is one of the biggest and most open markets in the world. For some companies, international expansion comes naturally as the business grows. It's important to consider why there is a need to expand into the USA, and whether there is really a market there for your particular product or service. Are most of your customers located in one cluster, such as silicon valley or route 128, or are they spread out across the states? It may be more appropriate to expand in Asia first, or to try and get more out of any existing European markets.

In the technology industry, it is a commonly held view by many executives that they should be in the USA because that's where the business is. Historically, this may be true, at least in terms of number of potential customers, but for many specific applications (e.g. mobile comms, smart cards, digital consumer etc), the markets are bigger in Europe and the Far East.

However, if you've properly identified potential business in the USA and you want to expand there, then there is one golden rule that should be remembered at all times - look at expansion into the USA as another start-up within a start-up (see The Chilli Value Test).

There are however, some unique market differences that should be considered.

2. Cultural differences

This is true of any new market, but many businesses make the assumption (and mistake) that, because people speak English, doing business in the USA requires the same skills and style as in England. But there are significant market differences - which can easily result in total company failure. For example, you need to be prepared far more than in Europe as far as contracts and legal issues are concerned. Hiring the right lawyers and making sure your contracts are failsafe can be one of the most expensive and time-consuming aspects of USA market entry. Just hiring experienced US staff, won't completely remove all the challenges.

The networking culture in the US is different, and people can be slicker and smarter about marketing themselves, which makes hiring the right team a daunting task. Everyone, it seems, is an expert at something, and their professionally written CV can look very impressive. US professionals change jobs more often and are experts at preparing well-polished CVs that look ideal for your enterprise [Editors note: maybe that's something that Europeans could improve on - being able to better market themselves]. So although they may be impressive, you often need to look at the substance behind their experience. And don't hesitate to call on references. It may worthwhile using local executive search firms, as they can see some of the things that would be difficult for a European to notice.

The scope of marketing yourself and your company can also appear very different, but that's because people have a natural tendency to talk everything up. So being positive and abandoning traditional European cynicisms when trying to impress that first customer can be crucial. People like hype, but once you get there, they like you to prove something behind the hype.

Before trying to enter the market, it really is important to spend some time over there to understand these cultural differences. Go to the trade shows, go to the networking events surrounding these shows, and attend one or two important conferences in your sector. Then the differences in culture will become obvious - from how you interact with people to how far you can go in terms of the way you present your company. In the USA, networking is an important part of the business culture, and your first break could easily come from your success at networking.

Once you've developed a relationship, it's important to have regular meetings with partners/potential customers. The North American approach is often to meet every now and then, and in between, keep the relationship warm with regular teleconferences and videoconferences - last year the use of web conferencing grew by 70 percent in the USA, possibly partly due to the after-effects of 9/11.

3. Marketing differences

The North American market is not a homogenous market - although the size of the market might be huge, it is split into a number of regional and vertical markets. There are clusters of influence. For example, if you're targeting financial services, then you might be looking at operations on the east coast; the automotive sector is centred around Detroit and also southern California. And of course there's silicon valley, in California, where you'll find the major movers and shakers in technology, although if you're specifically looking a telecoms then there are pockets on the east coast, Texas as well as parts of Canada (e.g. Ottawa).

An important part of the initial stages of the marketing process is how you describe your company in just a couple of minutes, once you have an opportunity to meet up with key influencers. So polish up your 'elevator pitch', which should be in two parts - a sentence or two that sums up your business and the reason for its creation/existence, and then if given the opportunity, also a sentence or two summing up your credibility in driving the business.

4. Look local

While this is true of conquering any local market, the need to look like an American company is more so in the USA. In order to get close to your potential customers, they need to have some confidence that you're a serious player that they can do business with and not just a fly-by-night company that only wants to take their money and run. So having a presence is important.

Beware the costs of maintaining such a presence. Everybody wants to be a 'senior exec', with high pay and a nice office, even though what the business really requires is a couple of hungry sales guys operating from a low-cost serviced office or their homes. A remote office will always try to do its own thing, so controlling them from HQ in far-off Europe will be difficult. One well-known British company had to completeley shut down their US operation to alleviate this problem, and start fresh again. So a solid general manager, with clear accountable goals and objectives is essential.

One approach to establishing or even identifying the need for a presence is to hire a strong business development manager, and/or product marketing person, who already have good contact books (the 'Rolodex'). They can help identify your prospective customers and define your market entry strategy, as well as develop local partnerships that could lead to your first customer. (Editor's note: The Chilli will cover third party relationships and partnerships in a separate article, especially in terms of how to make it real, rather than just an e-mail agreement between two parties that does nothing for either.)

The way you market yourself needs to be slicker than what you might normally expect to do in Europe. The message can be more upbeat in the USA, and it can change rapidly in a market where companies frequently change their image as they grow.

As far as influencing the media goes, the USA has a different culture to Europe. In Europe, opinion is driven by the trade and national press, especially the news analysis-driven media. But in North America, references are so much more important, and if you can't go to the analysts first with your latest and greatest announcement, then you might as well forget about getting any coverage in the press you hope will cover your story. The trade analysts can be much more influential in the USA, so you need to ensure you take advantage of this, since the press often look to the analysts to guidance about a particular story.

But before the announcement, there's something even more important: have at least two or three local reference designs that you can talk about. It's no good telling the press and analysts about the latest contract you have won in Sweden, as the Americans will be wondering why it has any relevance to them and why you wasted your time telling them. So make sure you have that all-important reference that is based in the US or Canada.

5. Plan for the long-haul

As mentioned before entering the USA is like doing another start-up. So that means you have to be there for the long haul. It's generally considered that you have to plan on writing off at least two years until you make significant impact - at least six months to build the infrastructure, six months to build up some decent reference accounts, and up to a year longer to get the marketing message out.

On this two-year plan, it's fairly obvious that you should already be in a cash-positive or profitable position in your local market. A rush to get there without this foundation may mean you are unable to sustain the additional cash burn rate that you're likely to experience while tackling the US market.

This article is based on both practical experience of the author as well as a recent workshop on 'Succeeding in the United States' held at the UK Technology Partnering & Investment Forum" earlier this month in London.

© Chilli Publishing Ltd 2003

17MAR2003