Many companies move abroad seeking growth opportunities only after exhausting those opportunities at home. This was not the case with ZenCard, a Warsaw-based loyalty card integrator founded in 2013, however. A few months after its inception, the company began operating out of the Irish capital of Dublin, as part of a start-up accelerator programme launched by financial services giant MasterCard. “The company was based on the premise that we will scale up our business outside Poland, so the decision to go abroad was pretty much built in into our DNA,” says Jarek Sygitowicz, ZenCard’s co-founder and chief marketing officer. “We moved to Dublin and began signing foreign clients before our product was even finished.”
Start-ups are seldom known for their patience or aversion to risk, as proven by ZenCard, and it is not usual for them to expand abroad at an early stage of their operations, according to Neelie Kroes, head of Dutch tech hubs network StartupDelta. “More and more start-ups are born global and they start building international relationships early on,” she says.
But is such a rush for expansion a good idea? According to Kamila Stepniowska, COO and partner at US business consulting firm Linque Solutions, the answer is yes. “As a general rule there are two moments when a start-up should consider going abroad: either when it has a very stable position at its home market or at the very beginning, when it is designed with internationalisation in mind,” she says.
Ready, steady, traps
As tempting as it may be to start a company with global plans from the get-go, there are a number of traps that start-ups tend to fall into. “Many mistakes that new companies make are to do with inflated expectations,” says Ms Stepniowska. “Start-ups, especially successful ones [in their home market], expect that they will be successful abroad from day one.” Because of this, start-ups tend to overestimate the rate of potential success, while underestimating the time, money and market intelligence needed to do so. “If you enter New York and you have a track record of success in Europe, well done, announce your achievements on your website, but that is all you can do with it. Do not expect customers coming to you just based on that,” says Ms Stepniowska.
Linque Solutions CEO and partner Kaja Kwasniewska adds to the list of ‘start-up sins’ the expectation that market expansion can be done as an add-on to existing operations. “You cannot expect to succeed in a new market if you treat that as your ‘after hours’ project,” she says. “Start-ups entering new markets need dedicated teams and people with international experience.”
Yet even with a team in place, members might be ill-prepared for the hardships of expanding abroad, says Orsolya Forster, business development manager at Kitchen Budapest, a media start-up lab located in Hungary’s capital. “While working with start-ups I witnessed two kinds of ‘immaturity’ on their part,” she says. “One has to do with not being prepared business-wise, but also not being prepared mentally.” The former manifested itself in poor market-entry planning process and the latter could be seen in poor communications with teams back in the home country and frustration over the fact that expansion is not going as smoothly as expected. “I have seen promising teams falling apart because of tension and stress connected with unexpected difficulties popping up when going overseas,” says Ms Forster.
Do your homework
Falling apart is one of the biggest risks that start-ups might face when conquering new markets. Established companies struggling with overseas expansion might take a writedown or change their top management. With start-ups, things can get more personal when facing failure, and the firm might simply run out of operating capital because of the expense of entering a new market.
While there is no foolproof strategy for start-ups considering international expansion, there are things that can be done to make such a venture as pitfall free as possible, says Ms Kwasniewska. It all starts with a thorough due diligence conducted long before the company enters the market. “The whole process needs to start with market validation and checking whether there is actually a need for the product or service on the new market,” she says. “A stellar budget estimate and research regarding competition in the new market are also a must. Start-ups must also be willing to be flexible and learn quickly based on their experiences abroad.”
Start-ups might also consider taking advantage of help offered when entering a new market, whether from companies such as Linque, which for a fee help with market-fit analysis and the organisational aspects of expansion, or non-profit entities such as Ms Kroes’s StartupDelta. “We support early-stage start-ups and scale-ups in the Netherlands through trade missions. Increasingly we also work with partners that organise bootcamps where start-ups are prepared and trained in the optimal way to make connections and pitch their companies to potential investors before they board a plane,” she says.
ZenCard had access to local advisors not only thanks to the MasterCard accelerator programme, but also thanks to opening an additional office at Level39 in London, a Canary Wharf-based shared office and accelerator that claims to be Europe’s largest such entity for financial technology, retail and cyber-tech. It also gained considerable publicity by winning a pitching contest for central and eastern European start-ups in Silicon Valley in April. Luckily, between the contest and opening the Canary Wharf office, the company found time to actually bring its product to market.