Land & expand in Europe with Samsung NEXT
Samsung NEXT partners with innovators to build ideas into products, grow products into businesses, and scale businesses that can leverage the Samsung ecosystem. For our startups, the differentiating aspect of NEXT is that it is truly international organization with offices in leading global startup ecosystems, including Silicon Valley and New York in the US; Tel Aviv, Israel; Berlin, Germany; and of course, Korea.
One problem we are particularly passionate about solving for our startup partners is assisting with the launch and scale of operations by leveraging Samsung resources.
International expansion is not the right decision for every company. Ideally, you should have a stable position in your home market, with a proven product and business model, as well as a critical level of organizational maturity that can handle the stress of resources being stretched across multiple geographies.
To ensure success, you should be willing to allocate significant resources, management focus and build out the required organizational structure. Finally, you should have a clearly communicated internationalization strategy that aligns with your vision and is fully backed by your investors.
But if you are ready to expand to a new global market, why should you expand to Europe? There are two primary reasons that typically justify European expansion for startups:
- Grow your business. You’ll gain access to new customers, potentially with less competition than in your home market.
- Grow your product organization. You can tap into European talent pools and open research or engineering offices to hire new talent.
Before providing recommendations on how to expand, we should have some appreciation of the challenge in doing so. The European Economic Area (EEA) consists of 31 states with a population of more than 500 million and a GDP of $20.882 Trillion in 2018 (Source 1, 2).
Although the EEA provides free movement of persons, goods, services and capital within the European Single Market, including the freedom to choose residence in any country, each member state has a variety of specific regulations, languages, cultural differences, and a high degree of economic diversity. For instance, Malta’s GDP is only €14 billion whereas Germany leads with €4 Trillion. Meanwhile, Internet penetration rates can be as high as 97 percent in Denmark but only 66 percent in Bulgaria. (Source)
Traditionally the easiest initial launchpad for U.S.-based companies are English-speaking countries such as the U.K. & Ireland, but more and more, we’re seeing companies also consider the larger technology hubs of mainland Europe.
Even prior to Brexit, cities like Berlin, Paris, and Amsterdam have steadily increased their competitive offerings relative to the U.K. Each offer unique differentiators including access to a skilled and international workforce and proximity to relevant customer segments (e.g. manufacturing).
With that in mind, if you are a U.S.- or Israel-based company and are looking to expand to Europe, how do you begin to tackle this challenge?
Mapping opportunity vs. complexity
For companies that want to grow their business in Europe, focusing resources on the right country or countries in Europe is crucial.
So which countries do you target first? A good starting point is to design your expansion strategy by mapping countries by size of opportunity vs. complexity, measured as a function of competition and regulatory environment. Another way to frame the question is to look for locations at the intersection between proximity to your customers and talent hubs.
Next to the obvious data like purchasing power, market size, and number of competitors, the European Commission’s Digital Economy and Society Index (DESI) is a great source to help you get started. It is a composite index that summarizes relevant indicators on Europe’s digital performance and tracks the evolution of EU member states in digital competitiveness.
DESI covers the following dimensions with additional data and in-depths:
- Connectivity (broadband infrastructure and quality)
- Human capital / digital skills
- Use of internet services (i.e. penetration rates for online video, games, music, video calls, e-commerce, and online banking)
- Integration of digital technology in businesses
- Digital public services (e-government, e-health, modernization of digital services. etc.)
- Research & development (both public and private)
The gist is that Denmark, Sweden, Finland, and the Netherlands have the most advanced digital economies in the EU, followed by Luxembourg, Ireland, the U.K., Belgium, and Estonia. Romania, Greece, and Italy have the lowest scores on the DESI.
Another valuable source to understand the European technology landscape is The State of European Tech Survey (here’s the 2017 edition) published by Atomico and Slush conference. Among other topics, the report covers talent distribution, main technology hubs, the fundraising landscape and regulation, highlighting that founders in the southern European countries of Italy and Spain are the most challenged by regulation, whereas the Baltics and Nordics seem to offer more founder friendly regulatory environments.
On a more practical note, you should consider the flight connections between your main offices and your European headquarter, as well as more broadly access to main transport hubs. You should also consider your key stakeholders (e.g. investors) and early employee networks, as it’s often easier to build on top of an existing network rather than start from scratch.
Go where the talent is
If you are opening an R&D or engineering office, focus on the large technology hubs. Europe is home to the largest share of the top 100 AI research institutions worldwide with universities in Paris, London, and Zurich all ranking high on the list.
If you are looking to open a blockchain development office, Berlin should be considered along with London, Paris, Amsterdam, and Moscow. Overall, the top five cities with the highest density of professional software developers are London, Paris, Moscow, Madrid, and Berlin. Germany has the highest pool of talent in the EU with more than 800,000 professional developers. (Source)
Data from Glassdoor suggests that the attractive big cities also come with costs: The median software engineer salary can range from 59,7000 USD in Berlin to 15,000 USD in Bucharest, Romania. (Source) Another handy tool to plan your costs is StackOverflow’s salary calculator that allows you to find typical salaries based on experience level, location, specific technologies, and education.
You can’t get your first hire early enough
Overhire and get your first key hire six months before market launch. We’ve seen too many examples where the country manager started literally working a week before launch. Give her enough time so she can understand the business model in your home market, can spend time familiarizing with colleagues at HQ, and can systematically test the core marketing and product assumptions in your new country. Look for generalists that understand the depth of your business and are comfortable ploughing a lonely furrow.
The only viable reason to ignore the advice above is when the competitive environment is really strong and you are in a winner-take-all market you risk losing to local competitors. It was Airbnb’s brush with a European copycat that prompted the company’s sudden expansion into Europe, which turned out to be a strategic masterstroke, as Brad Stone reported in his book Upstarts.
Expanding abroad means committing to change at home
Opening new offices, serving more and different customers, and accepting payments in multiple currencies will have a significant impact on the existing organization. Make sure to prepare yourself for it.
Specifically, create a global mindset and increase visibility for non-U.S. operations early on (i.e., over-communicate), as otherwise it will be challenging to get enough buy-in from teams at home. You want to ensure that you’re allocating enough resources and attention for non-U.S. features.
Everybody needs to get a feeling that the company is more than one office, and small changes can make a big difference. For instance, having clocks in the main hall for all offices can make everyone aware of the different time zones an organization is working across. It’s also crucial to invest in tooling and solutions for running a distributed workforce, such as video call equipment, real time collaboration software, and other communication infrastructure.
Together with your newly hired country manager, you should map all your core processes, marketing materials, product features, and systematically ask yourself what changes need to be implemented to cater to your new markets. In most cases you’d keep 70 percent to 80 percent of what works in your domestic market and double down on the remaining 20 percent to 30 percent of changes.
That said, there can be significant differences in go-to-market strategy if you enter a market as a first- or second-mover. In most cases, you’ve been a first mover in your domestic market with a respective strategy to educate the market and growing your market share. Coming to Europe, you often face local competition that will force you to rework your go-to-market strategy more heavily.
If internationalization of your business is a top priority and it should be treated as such in your organizational structure, let the international offices report directly to top management at the start. Prepare yourself to make changes to your leadership team upfront to ensure the responsible person has enough bandwidth to handle the new tasks properly, rather than as an afterthought.
If your organization is not too big, it often makes sense to bundle the responsibility of international expansion with your the person responsible for overall business development. This ensures that you have a single decision maker who will manage the trade-off between vertical and horizontal expansion.
Finally, if you are a founder looking for a partner that can help you grow and scale across the globe, reach out to us.