I’m an entrepreneur trying to change the world from Copenhagen, Denmark. I am also Portuguese and follow both entrepreneur scenes closely. When I went to Denmark I found that not only the Portuguese would complain about being periferical, that their economy was too dependent of a giant neighbor… The Danes did it as well. [1]
“Test market” is a common notion on subjects related to Economics, Management, Concept Strategy… On technology, it is frequently said that small countries are naturally good test markets, when some environmental variables are average or above average within a specific industry (say Mobile penetration when the product/service to test is a mobile app).
But on my world (Web concepts and Web startups) and in my opinion, there is no fucking thing as being periferic. Or saying it differently: it shouldn’t.
Being international since day 1 (and not giving a damn about being periferic) may be the new order for Web Entrepreneurship, and geographically periferic countries do need one.
I’ll try to outline some factors that can contribute to better business models that are internationalization-driven starting from key foundations:
- You can keep an internationally-driven model even if task/objective specifics end requiring geographical focus
- Executing a vision is about validating it and engaging with your 1000 true fans for early traction: “test market” is that group of that is often unbounded geographically (ie, your vision may underly a consequent opportunity for periferic countries)
- Your business concept/model can be built to benefit from the inexistence of geographically-driven constraints. Building it while focusing on removing those constraints may enable a simpler, broader and more game-changing concept
How does this happen “along the way”?
Finding the solution for a local problem is thinking local (and small)
You are an entrepreneur and your goal is to find solutions for problems that affect a group of people. The wider that group, more interesting and game-changing your idea will be. Fact: Periferic countries are small, that’s why they suffer from it. If they are small, maybe you are just not thinking big enough and your efforts wont impact as many people as you may thing at first. Think about it since the beginning.
Go trough your problem’s pain: is it something that other people in other countries experience as well, even if differently? What are the differences? Could you address those differences by creating a concept that solves those as well? Simplicity drives great concepts because they tend to address core needs and avoid complex paths toward a solution. Could the differences be ignored toward simplifying it?
The guys at 37signals often mention their strategic options about not doing specific features or taking specific business options because that makes their product more complex, hindering their ability to 1) solve the problem they are focusing on and 2) achieve scale with as little resources as possible: in the same way, local problems end introducing complexity and inefficiency toward simple, effective and scalable models.
User acquisition efforts are lower on local markets
Think about your favorite web concepts: If you started them today, how much would it cost to get the first 1000 users on a local market vs globally? These 1000 first users are early-adopters, reachable because of their interest in the solution for the problem you are trying to address: if your vision is not bounded to a geographical area, don’t force one.
If you are building a concept solving a problem for travelers, you can reach them anywhere: it is very likely that you’ll find better early-adopters outside than in your local market anyway just because their potential size will give you diversity. Obviously, if you are trying to solve water shortage on your gramma’s village, then there’s no point on reaching people outside that village.
At one point after product-market fit, it is important to focus on scale and business dynamics or scale strategy may dictate a strong focus on specific target areas to enable real traction there but you should clearly make a distinction between local focus and potential barriers to bounderless business models. Moreover, that focus should always resist the geographical temptation since it goals is to enable your business model and vision: if they don’t tip “geography” anywhere, don’t force it. In a way what I’m saying is that strategic elements will be internationally-driven, even if some tactics or actions act locally.
Most scalable web concepts have their user acquisition and retention efforts highly dependent of core value proposition and low-friction tactics (like viral loops). Do not introduce those barriers there.
Global = more complexity
Software developers know that it’s cheaper to detect errors, problems or miss-specifications sooner because later fixes will be more expensive to solve. This is the same reasoning behind the need to build product-market fit focusing on a global problem before scaling.
If a specific business model has some variables introducing complexity when looking at it globally, not considering them initially will drive a product-market that may only be valid locally. Wider focus may require a new round of validation. Could your problem be “internationalized” and simplified to avoid the need for double validation?
It may also be that the complexity in going global is a warning sign that the model is more complex that it should be. Twitter is simple in the US or in Japan and it simplicity allow it growth.
Global is too big
Are you focusing on a market that is too small to start with anyway? Key objective is to build a model that works (called product-market fit). Without it, you have a bad limb before running a marathon.. Product-market fit happens in small-sized contexts, before scale. Achieving product-market fit just to start all over since consequent scale can’t happen due to geographical complexity is a waste of time.
Avoiding global variables early on can be dangerous. IKEA entered the US market without realizing that bed sizes where different there. When your business model and vision is about optimizing costs by building a lot of the same (economies of scale), the US market ends going against that by requiring different bed versions to be built. IKEA defined many furniture standards and if they considered it earlier, they could set new standards toward reducing geographical conflicts . The end result was that they somewhat failed their first entry but forced their cost-driven focus anyway (because it is core to their unique selling proposition): to do it, they initially addressed only a fragment of their potential customers (the ones buying new beds) while ignoring others (the ones that just needed accessories for their current beds). The US market was just simply too big to be ignored and this had an significant economic cost.
You speak English dude!
Unless you are using google translate to read this 
, English is a language you understand (not saying my English is perfect here 
.
Use it! If you have a web startup, and English is not your main language you are either a very specific case or you are not addressing your potential market. US-based concepts do start with a big addressable market but Canada, Australia, UK, India are natural markets to them and they leverage that since day one. You can too.
One example: let’s say that you sell ecommerce solutions: you even have a english version of it but you blog (or any other of your communication/marketing) is in Portuguese (damned, i see too many cases like this). You are automatically killing a large percentage of potential users that probably have interest in your product and showed up for free. You could argue that doing in English would remove some potential users that do not read or are not comfortable in English. Do it both! you can also argue that doing in both languages takes time so the questions is about how much is that time worthed vs how much do you loose by not doing it. Business is about putting resources to use to deliver more than they cost, and that should be the reasoning behind. It may be dificult to calculate the potential of doing it in English as well, but a rough estimate around potential audience (English speakers vs Portuguese speakers) may be enough.
If you are Portuguese, for instance, you can address a market speaking Portuguese, English and Spanish (>50% of the Internet Usage by language while americans can only address 35% without outsourcing). After Chinese, Portuguese and Spanish are the languages with more growth potential since they are the main languages of very relevant emerging countries. [3] This is huge. Take advantage of it. Enable your concept to benefit from the initially marginal benefits from it, since along time your foothold will be bigger.
Starting by doing business in different languages has small costs. Most web-based businesses have minimal technical barriers for multi-language: as soon as you adopt one extra language, adopting 10 more has marginal effort. Most web-based businesses won’t require support in other language since English is good to start with, even if not optimal. Most web-based businesses can implement language-driven tasks efficiently (TIP: Hiring student helpers or outsource cheaply on a pay per action basis to give support a different language is mostly a variable cost).
Let’s take the example of LinkedIn. Linkedin was always in English, until a internationalization strategy took place. But LinkedIn is all about the social graph, ie, the connections existing around each user. But my connections include people from different countries! By focusing on English only, LinkedIn allowed the existance of Viadeo (France) or XING (German). If LinkedIn created several languages to remove translation as an adoption barrier (which is relevant on those countries), those competitors had to provide real value that was local, value which is not as core as LinkedIn’s core: connections. Viadeo and XING have a strong foothold since the built networks are hard to move to a different system and LinkedIn is trying something close to brute force to enter those markets (ie, spending money). The cost of removing the barrier introduced by a English-only site at the beginning was minimal, even if they only focused their marketing and sales on a specific language. On the other hand Hi5 is a good example how multi-language early allowed a strong foothold that facebook is now trying to fight.
Yes but I rather want to be #1 on my local market, creating barriers to entry there
Fine, some cases can highly benefit from it, but that shouldn’t be a reason to build barriers to a global reach. Remeber, focus locally without removing the internationalization-driven enablers. You may benefit from it later.
Some american concepts are expert on this when they don’t allow foreign zip codes or phone numbers: a simple detail on a form may have later consequences on a potentially interesting, even if initially marginal, customer base.
My team is too small, we can’t afford to focus on multiple markets
It’s not about your focus, it’s about what you do to enable internationalization from happening.
But make that a good thing. As a startup, you’ll never have time for everything anyway, so your #1 objective is being efficient doing what you do. Automating processes that remove complexity from your work is key and some of those processes are likely to be geographical.
Optimizing complexity can be done within the global constraints. Payment gateways are a good example since you can get one that is optimized for a specific country (MBnet in PT, Dankort in DK) or you can get one that is optimized to different countries and currencies, even if sacrificing some initial profit margins. That’s why PayPal works and is the first/easy choice: their core offer (online transactions) is ubiquitous across boundaries. That’s also why people usually start with PayPal but later add others in parallel, optimizing the inherent transaction costs.
And who are your key stakeholders? If your objective is being more efficient with what you have, could you ask your early-adopters to help you in the process? They are lead users because they (are either your friends or because they) share your vision. Allow them to stand by it! Create features allow them to make some work fo you. Remember that monetary rewards are nothing compared to their passion: if their passion is yours, they’ll promote you, manage you community forums…
OK, but what about…
Yes, obviously this may not always be the case. Like everything in life, “It basically depends”. It’s about the concept fundamentals, and sometimes those are geographically bound.
Groupon may be the best example of the need to scale focusing on geographical regions first (Groupon offer city deals and consequently their cost structure is very dependent on Sales people that work locally) . [2] On cases like this, product-market fit is local and scale is a matter of replication trough different regions.
B2B is often associated with high operating costs (sales, account management..), often geographically bounded. The question here may be: is your concept being modeled smart enough? Could you build a model that removes those costs from the equation at all? SaaS (Software as a Service) introduced new ways of doing business that way, for which Salesforce is a key success case.
Any concept with an almost infinite number of existing competitors/similar concepts is likely to be in a fragmented industry where geographical focus can be one relevant differentiator (I am thinking of Accounting tools and many services like Marketing or SEO [4]). That’s ok, but those concepts will always serve a limited market size and are not built to scale. Some can be adapted to scale after, but that adaptation is all about the same enablers I’ve been mentioning all along.
So wha’da’ya think?
Notes
[1] I am using the word “complain” since most people use it to justify “bad stuff”, often within contexts of self-pitty (social, personal, corporate… different levels of self-pitty. I am also using it because i hate the fact that people use it!
[2] I had the change to argue this with different people, specially with VC’s and consultants using the classic “it doesn’t scale” tagline. Groupon is the classical example that non-scalable models can scale on the web. To do it, they are hiring madly, but scale is achievable and when done based on a product that offers premium value-added, the “doesn’t scale” blabla isn’t as relevant
[3] Often, English didn’t even broke into that market. Orkut is the top social network in Brasil, not Facebook.
[4] A SERVICE is usually limited by cost/hour and is highly dependent on how many hours you’ll work. That’s the biggest constraint to scale (which is slow, harder but not impossible as Groupon proved it).
