First in a series of posts about European Expansion for B2B software companies
In the late 2000s I ran a big chunk of Google’s ad business in Europe, Middle East, and Africa (EMEA). Google’s global revenue was already monstrous — all the numbers were colossal. My quarterly revenue target was $350 million and my team included several hundred salespeople.
But the most striking thing was not the scale, it was the shape: 40 per cent of Google’s global revenue came from EMEA. 40 per cent! From an American company that was only a decade old.
That figure comes to mind whenever I hear a US founder defer a European expansion by saying “we’re just scratching the surface in the US” or “Europe’s not big enough.”
While very few companies ever achieve Google’s scale, the company’s geographic shape was not unusual. And for well-run B2B software companies that shape is remarkably consistent: at least 30 per cent of global revenue comes from Europe within five years of landing.
30% Global Revenue From Europe
After leaving Google, I became one of Twitter’s first hires outside the US and its Vice President of EMEA. Although Twitter’s user growth was already a global phenomenon by then, the advertiser-facing B2B business had yet to be built outside the US. Hyper-growth as a private markets darling was followed by turbulence and layoffs as a public company under pressure. The ups and downs taught me lessons I never had the need to learn at Google. (In retrospect, learning about business at Google at that time was like learning about gravity on the moon.)
From inside two of the most significant tech companies of the past twenty years, I’ve observed how high-growth American companies expand overseas. And since becoming a VC investor at Frontline, I’ve been asked by many US founders for advice on going International.
So this is perhaps a good time to share some of that advice more broadly. First rule-of-thumb: any company that describes the entire world outside the US with one word — “International” — is not yet global in its thinking.
A necessary step on the road to IPO
In a world of SaaS and self-serve, it’s common for companies with a strong product to derive 10% of their revenue from Europe without trying. Motivated customers will communicate in English, pay in dollars, and tolerate tardy customer service. Entrepreneurial US sales reps will “accidentally” book deals in Europe to juice their commission. This easy money lulls companies into a false sense of security. Europe starts to seem accessible and familiar — an easy bridge to cross.
We see this in the data. US companies are being pulled into Europe earlier than ever — often long before they’re ready. We conducted an analysis of VC-backed companies that landed in Europe in recent years and were shocked by one finding: 55% of expansions occurred before Series B.
55% Before Series B
(Spoiler alert: this is a bad idea, for reasons we’ll outline in our next post.)
At Seed and Series A stage, most US companies are still optimising their domestic go-to-market, they’re relatively lightly funded, and they haven’t yet built out their executive teams. That’s a flimsy basis on which to tackle a major new market. Upon closer inspection, it turns out that most of these premature expansions are toe-in-the-water affairs, with a couple of sales reps parachuted into a city like London as a test case.
Nonetheless, it speaks to an “action before strategy” approach that is all too common. We spoke to dozens of world-class B2B software companies that have landed in Europe in recent years and it’s striking how even the most mature did so without much forethought.
One now-public SaaS company initially located its European headquarters on the beautiful Portuguese island of Madeira based on tax advice. Now Madeira has its charms, don’t get me wrong. A subtropical climate, ocean breezes, and fortified wine are a winning combo in my book. Fun fact: it’s the birth place of the world’s second best soccer player, Cristiano Ronaldo. But as a location to build a SaaS sales and support team, it was an unworkable choice. Although the company rectified its mistake, it lost valuable time doing so.
Another high-profile SaaS company transferred an early employee from HQ to become its first leader on the ground in Europe. On its face this was not a bad decision — exporting the company’s unique office culture from San Francisco was rightly a priority. But the expat exec didn’t have enough European experience or personal networks. Believing the company’s brand was strong enough to overcome language barriers, they hired English-speaking sales reps to sell to French and German customers. While this tactic can work in the Netherlands or Sweden, it’s doomed in Germany, France, Spain or Italy. It was a false start that led to millions of dollars in foregone revenue.
“Move fast and break things” doesn’t apply when you’re making largely irreversible decisions such as selecting a European headquarters city. Many of the executives we spoke to said they tried to move too fast when they first landed in Europe, often regretting, for example, their attempt to sell into multiple countries at once. Paradoxically, given that our sample set included some of the fastest-growing US companies, the most oft-cited blunder was moving too fast too soon.
The Most oft-cited blunder
In a tech world that prizes novelty, we believe that international expansion is more about experience than innovation. Many of the problems you’ll encounter are solved problems. So it helps if you’ve done it before. And if you haven’t, you should seek advice or hire someone who has.
To help bridge the experience gap, this is the first of a series of posts to help B2B software companies expand into Europe. There are a hundred things to be done— from legal entities to office space to visas — which can be intimidating. But the worst place to start is a spreadsheet with a hundred actions. Most of these hundred things won’t determine the success or failure of your expansion.
There are only a few things that really matter. And if you get the big things right, you can afford to get a lot of small things wrong. That’s where you should start — and that’s the subject of this series of posts.