If you want to build a category leading B2B technology business, success in the North American market is close to a pre-requisite. It is also laden with risk and brings a long back catalogue of failure.
At Farview around 40% of the revenue across our combined portfolio companies is generated in North America. Unfortunately, that does not mean we have cracked the code for growth on the other side of the Atlantic, but across the collective experience of our investment teams, strategic advisory group and portfolio we have a clear view on how to improve the probabilities of success. [Nb. For reference later in the article – that sentence and positioning was written by a Brit …]
Prior to diving into the key learnings, we should qualify the Farview archetype in terms of company profile and medium-term organisational shape. Our businesses always have strong product and engineering foundations in Europe with access to the deep and loyal talent pools the ‘old’ continent provides. Expansion into North America within the Farview model is geared around revenue opportunity and quite often stems initially from customer pull vs. company push, in businesses that are already accustomed to operating beyond their initial home market. As such, the depth of transformation and pioneering requirement are a couple of notches down from high stakes cold starts.
So what do we see as the factors that can help build share in the world’s largest and most competitive technology market?
1) Embedding Knowledge, Ensuring Advocacy and Fostering Partnership
It is obvious, but the chances of embedding the good things that brought success in Europe are significantly enhanced by transplanting some of the core talent who underpinned that success.
The relocation of part of the executive leadership team to North America should facilitate the partial transplantation of an organization’s essence. Capturing the spirit of a company’s existing culture and building it into a geographical shift demands a strong internal advocate who can grasp the intricacies of the Norh American market. This advocate becomes part of a bridge that ensures cultural preservation and transfers institutional wisdom, but it needs to be connected to its other part…
Finding a North American partner for any European transplant is key part of establishing successful set-up. Whether executives are sat as peers or junior / senior is point of circumstance, but a willingness for them to combine respective understanding of how the North American market works with how the European organisation works is fundamental for success. Establishing on Day 1 a unity of purpose in two senior leaders who bring those respective knowledge pools and are aligned on the common goal, is something that can save huge pain and cost and mitigate the risk of leadership re-starts.
- The leader who volunteers and has a genuine desire to establish in the US for 3-5 year frame is one most likely be attuned to the market and employees there. They also need to be someone who will be missed by the home team – by definition, one of the best leaders.
- CEOs need to be willing to travel and put in real time in market as the only way to understand connectivity and culture challenges that have to be addressed.
- Creating a pathway and encouraging mid-level and emerging leaders to be able to relocate can be great mechanism for culture extension, employee development and long-term retention – it is an exciting opportunity for many who are at earlier stages in their careers so make it part of the medium-term offer.
- It is obvious, but global all company communications and meetings need to start mid-afternoon EU time if you want to be inclusive.
2) Adapting Products for the American Palette
The Atlantic divide is more than a physical expanse and a time zone shift; it’s a chasm of diverse market needs and customer expectations. Localization is an endeavour that goes beyond converting measurements and altering spellings. It’s about re-tuning product-market fit and crafting offerings that resonate authentically.
Divergent market structures may necessitate features and functionalities to cater to US specific use cases. Varying regulatory regimes are well known drivers of product variation, North America is of course set up very differently around areas like data privacy, banking compliance and healthcare provision. The approach to ESG is notably more geared to finding and validating hard investment return vs. delivering reporting outcomes. The relative strength of industry and vertical market backdrops vs. Europe may also require different core market focus. The eco-system of other technology partners in complex architectures very likely dictates new platform requirements plus integration and API connections. Finally, expectations around user interface and intuitive experiences make competing advocates for different front-end requirements.
Figuring out how to bend an existing product set – especially if multi-tenant SaaS – without creating a localised code branch or separated platforms is a delicate balancing act. Acknowledging that expansion into North America is inevitably an engine of product and engineering demand expansion is an underpin of building medium term success.
- Have someone in market with product management capabilities able to surface and validate roadmap needs, vs. letting sales drive unfiltered customer demand into roadmap through contractual commitments
- Add another scrum team to the engineering organisation as part of building US presence, without it there is likely too much core roadmap contention to deliver products the market will expect
3) Critical Mass Go-to-Market Strategy
North America delivers the Total Addressable Market scale beloved of financial investors. That scale though, runs the risk of masking structurally low GTM returns. The strategic imperative for success in the biggest national market, with a larger base of customers who represent bigger ticket revenue pools creates a risk of miscalibration.
Sales costs and competition are structurally higher in the US at every level. Running quota targets and key metric expectations at the same level as European markets will always deliver inferior unit returns given that cost hurdle. Locating teams out of the major coastal hubs on the east or west will certainly compound the headline cost hurdle issue, as well as likely bring additional drag from the high turnover rate of employees in the most fluid labour markets. On the opposite side, distributing teams across huge geographic territories makes establishing critical mass and best practice sharing challenging. Just as it would be normal to build specific country teams for European markets, establishing critical mass in a limited number of North American geographies is the best way to build scale and reasonable returns.
- If costs are 30-40% higher in the US and customers are 30% bigger within the same GTM motions, quota targets and commission plans need to be adjusted accordingly. Taking EU top-line targets vs. North American cost will deliver a structural degradation of GTM returns.
- If hubs can be built outside of New York, San Francisco or Boston that will likely create better backdrop for long-term scaling. Chicago, Denver, Austin, Atlanta and many others all have challenges and are also not cheap, but getting core location right is a decision worth upfront research and extended debate.
- Time zones matter. Even within the US the window to be selling is limited if you are 3 hours on one coast vs. the other. If you are connecting back to EU base then starting on EST is a big advantage for overlap
4) Shifting Tones: Crafting North American narratives
Whether or not George Bernard Shaw is correctly attributed to the quote “England and America are two countries divided by a common language” is not for us to debate here, but we would agree with the broad sentiment. Without wishing to revert to stereotypes, North American tends to operate closer to the extremes of positive and negative, Europe feels more comfortable in the nuanced shades of middle ground. It does mean that you need to adapt for what you communicate and what you listen for – both customer facing and employee facing. Being understated and modest about what your company brings is unlikely to yield great outcomes. The marketing and sales vernacular you use needs to shift if it is going to cut through, even more than swapping some ‘s’ for some ‘z’ …
Building and communicating with internal and external stakeholders in North America does require the half full vs. half empty mind-set. Thinking big and being bold creates followership in a way that does not always come naturally to the European psyche. If you want to break the world’s largest market, you need to talk the talk with conviction.
For fun, 5 Practical translations:
I Hear What You Say. . .
What Americans Think It Means: I agree.
What The Europeans Really Mean: I could not possibly disagree more. This discussion is over.
With The Greatest Respect. . .
What Americans Think It Means: He/she respects what I have to say.
What The Europeans Really Mean: You’re an idiot.
That’s A Brave Proposal. . .
What Americans Think It Means: How courageous of me.
What The Europeans Really Mean: You are insane.
I was disappointed in that. . .
What Americans Think It Means: He/she was disappointed.
What The Europeans Really Mean: I am incredibly annoyed.
Very Interesting. . .
What Americans Think It Means: The topic of discussion is interesting.
What The Europeans Really Mean: This is a completely nonsensical discussion.
5) Navigating the Regulatory Maze
Somewhat contrary to the mainstream perception of North America as a low friction, low regulation environment, it holds legal, financial, employment and tax intricacies that can easily become stumbling blocks. For firms seeking to bring over employees from Europe, visa applications can be complex and time consuming as well as subject to varying levels of administrative ease. The intricacies of employee benefits and importance of established robust healthcare plans are fundamental to delivering the right employee experience. Whilst state level sales taxes can drive huge complexity around billing processes and underlying calculations of nexus and risk. Particularly in the earlier stages of set up when in-house knowledge may be limited and too expensive, connecting into the right advisory networks and providers is essential. A meticulous understanding of local legalities and leveraging local expertise can spell the difference between a seamless expansion and an unnecessarily bumpy ride.
- Try and establish what you think the likely programme for EU/UK to North American movers is likely to be on multi-year basis. Senior executives generally have more flexible entry requirements, but establishing company level accreditation streamlines the process for broader employee participation.
- Find right localised advisers to support, trying to avoid big, branded firms whose mark-up rarely merits what may be unfamiliar and alien processes, but are often highly mechanical and rules-based ones.
6) Protecting against the Expensive Financial Realities
With the upscaling of market size and average contractual opportunity comes corresponding lift in operational costs and investment thresholds – North America brings with it a new economic paradigm. The scale of the opportunity and the specific market requirements upsize minimum viable team and operating platform requirements. European cost benchmarks may not hold in a land of heightened expenses and seeking to apply them runs the risk of falling the wrong side of quality thresholds. Investors and finance executives need to align investment tolerance with the North American environment’s financial demands. Plans that are predicated on quick ramp-ups and paybacks are likely to be ones that face equally rapid retrenchment and possibly retreat. Building the right level of in-market resources to establish credibility and then move to earn customer references is a multi-year flywheel, planning high returns in quarters is likely not realistic.
- Tracking a US P&L on a direct, fully loaded cost (pre any transfer pricing overlays), plus building KPIs below the consolidated level is key to understand the initial drag that can be tolerated, plus ensuring there is mid-term trajectory towards accretive lift.
- If there are batch-processes on any aspect of customer delivery or employee support that do not require in-market resources, push that work back into European hubs. Any opportunity to arbitrage North American revenue opportunity vs. European cost (and established scale) can make huge difference to market entry risk, but needs you to recognise the internal market and service level that are expected.
Conclusion – Adapt, do not Revolutionise
The transatlantic voyage is a transformative expedition that beckons European B2B tech firms to expand their horizons.
There is no playbook that guarantees success, but probabilities can be optimised. Day 1 plans rarely survive completely intact and should always be adapted, but never thrown away. At least for companies in the Farview archetype, US expansion is not a pivot. It is normal that things take longer and are harder than planned, but it should not drive a complete change of approach from an established and well understood European model. A motion or approach that worked in one continent will very likely prevail in another with suitable adaption. If voices for whole-sale changes of target segment, product structure, selling motions are heard when initial plans are not met, we would generally counsel to dampen them and stay closer to the original source of success.
As the European tech ecosystem grows ever stronger, we believe understanding and capitalising on some of its inherent advantages can help re-write the North American market entry story.