When it comes to expanding your software company, there is a whole plethora of routes you could take, and several factors to consider. There is no one set formula to successfully expand your business into new territories, but there are certain considerations that will help determine the best course of action for you. From tax laws to market demand to language barriers, this article will help you devise your SaaS expansion strategy, starting with the most important question of them all: are you even ready to expand?
When to expand your software company
Given the remote and seemingly transferable nature of SaaS companies, it can be tempting to run ahead and set eyes on international markets before you are even ready. However, expanding prematurely could be catastrophic for your business, and so taking an honest and critical look at your company’s readiness is key.
Here are some indicators that you are ready to expand into new markets:
Proven success in your home market
Proving yourself in your home market is a vital step before embarking upon expansion. Have you achieved what you initially set out to achieve in your home market? If you have surpassed your initial milestones in terms of revenue and market share, and have successfully turned your operation into a well-oiled machine, you may be ready to set sail.
If, however, your business is struggling to hit its milestones, you must carry out an in-depth analysis as to why that is before proceeding. Perhaps the problem stems from a flaw in your product or maybe an operational issue. If you fail to address these obstacles in your home market, chances are they will be transferred over into your new market, setting yourself up for an even bigger failure.
25% or more of your business is coming from non-local markets
A good indicator that you are ready to embark upon expansion is if a significant portion of your revenue is being generated from non-local markets. To be generating 25% of your revenue non-locally with minimal effort signals a strong demand for your service. At this point, you should be assessing more closely where that revenue is being generated from, which locations offer you the highest chance of success, and devise a plan to expand into that market.
You are solving a global problem
Determine whether your product solves a global problem, or if it is confined to your local market. Digital payment platform, PayPal, is a fine example of software solving a global problem. Founded in 1998 in California, today PayPal operates in 200 markets and has plans underway to tap into Chinese cross-border payments.
It should be noted, however, that solving a global problem does not guarantee success, particularly in today’s volatile market. App-based bank, Monzo, provides a solution to international payments but has struggled throughout the pandemic due to the halt in tourism and consequent lack of demand for their product. They have made 231 people redundant and have had their valuation cut by 40 percent after seeking £70-£80million in funding to see them through the difficult period.
Solving a global problem is a strong start, but also consider the durability of your business in a post-pandemic world.
How do you decide where to expand to?
If you are confident that the time has come to expand into new markets, the first stage is in determining how you would like to expand. Depending on your product, expansion may mean opening up to new languages, cities, or simply to new countries. For the purpose of this article, we will speak of your expansion in terms of tapping into new countries.
It is important to undergo a full data-led analysis of all potential countries, taking into account not just the market value, but cultural and regulatory differences too.
1. Market buoyancy
Assess the market activity in your shortlisted locations. If you’re a B2C SaaS company, what is the average wage of your target customer in said location? If you’re a B2B company, what is the average spend of your target clients? What are the average turnovers of similar companies?
2. Competitor research
Find a market where you can expect demand. Perhaps there are similar companies that failed to succeed when expanding into this country. Will you meet the same obstacles and can you overcome them? Can you bring something different to the arena that is going to disrupt the current environment? What are your competitors doing better than you?
1. Product transferability
If your product is able to successfully enter into a new market without any alterations, you are already off to a head start. Oftentimes, cultural differences can cause a need to modify the product/service in some way.
2. Political and economical climate
You will want to expand into countries with a wealthy economy where the GDP has been growing steadily each year and where corporate tax rates are low. Similarly, avoid countries where there is significant political unrest. A recent article by Globalization Partners listed the top 10 countries for expansion based on these factors.
What are the risks of expanding your business?
With any expansion, there are associated risks. To give your company the best chance of success, you need to assess and plan for as many risks as possible before launching your expansion. Granted, you will always encounter problems and cannot foresee every possible obstacle. However, taking preventative measures to avoid risks is better than having to take reactive steps as and when problems arise. Damage prevention is better than damage control.
Local competition
One of the biggest challenges of tapping into new markets is positioning yourself to disrupt the pre-existing market leaders. You will need to assess the current landscape, and which companies currently own the majority of the market share, and how you can compete. At the same time, do not underestimate emerging companies.
Time difference and travel
Time difference and travel can pose a real problem to expanding software companies, particularly in the post-covid era as we continue to manoeuvre travel restrictions. For example, Monzo appointed a new CEO in May 2020 who was based in California, having to start work at 3am to communicate with his UK team. Being unable to physically meet his new coworkers, the CEO had to build relationships digitally via platforms such as Slack and Zoom.
Translation
Translation is not just an obstacle because of the costs incurred. Occasionally, words and phrases won’t directly translate into another language. Where a company may use humour and idioms in its advertising, these will likely need to be completely overhauled and redrawn from scratch since these idioms often do not even exist in another language.
Regulations
Understanding local regulations can be one of the most tedious tasks of expanding into new markets. This is made even more difficult if you do not have the help of local expertise. Failure to meet regulations, such as with tax and licensing, can have a detrimental impact on your business. In addition to enlisting the support of a local expert, use resources such as The World Bank’s Doing Business publication which assesses both supportive and constraining regulations of different countries in relation to business activity.
Pricing
If you price your software at the same rate as your home country, you run the risk of overpricing your service, or not charging enough. In a recent survey, 27% of companies say pricing is the most difficult consideration when expanding internationally. When tapping into international markets, it may be necessary to attune the cost of your product to suit the local market.
Localising marketing
Your marketing will need to be localised, including website text, translation, paid ads, social media and blogs. You may also need to use new channels for your marketing depending on the country. For example, using the popular VK platform in Russia for paid ads as opposed to Facebook will yield better results. Localising your marketing can be a laborious task but it must be a core element of your strategy.
Lack of talent on the ground
Not having a local team on the ground can serve as an obstacle to your expansion. It can prevent your business from fusing with the local culture and increases the chance of knowledge gaps in your business. Expansion into a new country will be made more challenging without the help of local expertise.
What can you do to maximise chances of success?
Use data-based decision-making
Use data to guide your decision-making process. From demographics to turnover to market demand, data will foresee the holes in your plan whilst simultaneously uncovering unexpected pockets of opportunity.
Secure funding from investors
As part of your strategy, it may be necessary to gain funding from investors or crowdfunding campaigns to facilitate your expansion. Funding from investors and crowdfunding can significantly support your expansion. In 2015, app-based banking service, Revolut, secured over £1m in a crowdfunding campaign via Crowdcube from just 433 investors.
Invest in partnerships with local companies
Consider taking on joint ventures or partnerships with companies already established in your target location. Working with localised companies is a great way to open the door into a new market, gain knowledge, attune to the culture and drive growth.
Make a Senior hire
Behind every successful company is a strong leadership team. Making a Senior hire locally in your first year is going to propel your expansion forward. Hire an executive from a SaaS background who has proven success of growing software companies, knows how to manoeuvre local regulations, and has a relevant network.
Expanding in the age of technology
The demand for software is high and will continue to grow exponentially. However, social, economical and political considerations will always need to be scrutinised before expanding. For those who have been successful in mobilising a SaaS company in their startup location, there has never been a better era to expand your SaaS company into new countries than in the age of technology.
If you would like to discuss how we can help source the right talent to your business, or for more information about the market, please get in touch for a confidential discussion.