This blog post has been updated from its original publish date.
Lean startup is the recognized standard methodology for creating, managing, and growing startups more quickly. The Lean concept was initially introduced by manufacturing companies with an aim to help maximize customer value while minimizing waste. However, the Lean concept can be used by businesses of all types. The Lean startup concept was first popularized by Eric Ries in his book, The Lean Startup, published in 2011. You can learn a lot more about the methodology in Eric Ries’ book.
The core goals of the Lean startup approach when applied to international expansion, are to reduce risks and avoid large amounts of initial funding and expensive product launches. To achieve this goal, the concept promotes an approach where companies develop products quickly and make small, quick adjustments based on their tests. This is especially important for international expansion. Many progressive companies are no longer making large upfront investments in infrastructure and personnel to support a new product launch with massive or unrealistic expectations because the risk of failure is high if customer demand does not materialize. We are going to show you how to take the Lean business approach and apply it to global expansion, promoting the idea that you can also apply its tenets to global expansion. This article will discuss the most common ways companies reduce their risks and the costs of global expansion.
The principles of the Lean startup—experimenting with the product on the market, adapting strategies, and starting small, while learning from the market—have all provided a competitive edge for expanding businesses. Expansion failures are numerous, and while the underlying reasons vary, the most common explanations fall into the following three categories:
1. “The market wasn’t there”—there was no customer demand (yet) for the product.
2. “Our strategy was wrong”—there was a market, but we were unable to be competitive and capture a market share.
3. “We lacked the execution capability”—we did not have the right people or the right capabilities to achieve our goals.
The Lean startup methodology can help to mitigate the risks involved in the first two types of failures and help to recognize the third failure early on.
Test the Market – Validate Your Products and Services
Companies expand into new markets for many different reasons. Some have expansion goals from the early stages of their business, while others expand out of necessity to stay competitive, or because customers pull them into a new market. Whatever the reason, new markets need to be chosen through careful and thoughtful consideration. One of the key principles of Lean startup is market testing and validating all of your assumptions including your product early and often. When you are expanding into a new market you probably already have a product; however, you will still likely need to test the market, which often includes adapting your product(s) and marketing to the new market.
One way startups going through the top accelerators throughout world are being taught to test products, marketing, and other ‘unknowns’ is using a testing methodology called Empathy Interviews, which is a part of the Lean Design and Lean Startup approach where you interview your target market questions to learn more. The goal is to identify the unknowns prior to your expansion and collect as much data as possible to help you make better decisions before you spend time and money. While in-person interviews are great, Zoom or video interviews are probably easier to set up now.
Often your product will need to be adapted somewhat to be successful, this is called ‘localization’, and you can learn more about product localization through the Globig Knowledge Base. Product localization can include things such as technical capabilities, language, cultural, and legal localization. In markets with a very different culture from your own, product adjustments may be significant.
Keep in mind, many countries are not forgiving about mistakes, so it is better to have done your research and made initial adjustments before you enter the new market. Those adjustments are what you should be testing prior to, during your launch, and throughout your engagement. The faster you test your product and marketing strategies and make further adjustments, the more successful you will be in your new market.
The best way to enter a new, foreign market is with a light footprint. Some of the best ways to go abroad with a light footprint including testing before you go, considering alternative business models, working with a Professional Employer Organization, working out of a co-working space, and using a virtual office and phone number. Each of these is discussed below.
Consider Alternative Business Models – Your First Option Might Not Work
One of the cheapest and fastest ways to expand into a new, foreign market is to consider alternative business models. It is highly unlikely that creating an entity is the best initial option for most companies. There are a number of other options that do not include the time and money commitment that entity creation entails. One common way many small and medium sized businesses enter a new market is through e-commerce on their own website. Although this model does require significant logistical strategy and maybe some legal adjustments, you don’t necessarily need to send or hire employees overseas and open up shop.
Other options include hiring sales representatives, setting up distributorships, licensing your product (or service), and franchising your business abroad. Learn more about alternative business models in Globig’s article on 6 Ways to do Business in Other Countries Without Setting up an Office or Entity.
Work with a Professional Employer Organization For Hiring
Working with a Professional Employer Organization (PEO) firm is another good option to enter a new market with a light footprint. PEO firms offer HR management and benefits services and a variety of employee management services, including employee benefits, payroll and workers’ compensation, recruiting, risk/safety management, and training and development. When you work with a PEO firm you essentially create a co-employment model, under which the PEO becomes the employer of record and you retain control of your employees’ day-to-day activities.
Working with a PEO firm is very common and highly advantageous to SMBs during their initial expansion abroad. You can work with a PEO firm to send your employees abroad or to hire local employees. The biggest advantage to working with a PEO firm is in the sharing of legal responsibilities, meaning you will not face the threat, impact of, and difficulty with compliance with foreign laws and regulations alone. A good PEO firm will help you stay within the confines of the law. Furthermore, because PEO firms have so many “employees,” they have access to large networks, which often means more access to and lower costs for employee benefits, such as group insurance. For this reason, some companies, particularly small companies, work with PEO firms even within their home country.
Work Out of a Co-working Space Without Long-Term Leases
Often, during their initial expansion, companies send only a single or a few employees abroad. Rather than setting up an office of their own, many of these companies will start out working from a co-working space. A co-working space is ideal because it has everything you need to get started with your business. Most co-working spaces rent desks or small dedicated office space, which include the use of conference rooms, phones, printers, Internet, etc. Co-working spaces also offer great opportunities to network with other businesses and entrepreneurs. Some companies even have their employees work from home to help keep costs down.
Utilize a Virtual Address and Phone Number Instead of an Office
A virtual office is a great way to get mail and phone messages abroad without being physically present at that location. A virtual office provides communication services, including phone and address, to individuals and companies without the expense of a physical office. Most virtual offices include mail collection, generally a shared receptionist who signs for and accepts letters and packages, scanning and storage, and disposal services. Furthermore, many virtual offices offer phones services that include a live receptionist, an automated answering system, or call forwarding services. Virtual offices are popping up worldwide.
Many different types of companies use virtual offices. Online sellers who sell through their own website and sellers who use an e-commerce site, like Amazon or eBay, are often encouraged or even required by law (or the e-commerce site) to provide their buyers with a local address for returns and exchanges. Startups, individuals, and SMBs often use a virtual office when they don’t have the budget or need for a physical office. You can use a virtual office even if you do not have a local entity or as your registered address for your local entity. In fact, many companies use a virtual office abroad so they have the appearance of being a local company.
With international expansion, the risks and cost of failure are high, so it is important to get it right. Furthermore, because some other countries aren’t forgiving with failure, you need to get it right the first time. You can help to reduce the risks of failure by executing a well thought-out expansion strategy and you can help to alleviate the costs of a failure by employing a Lean expansion strategy. The tips above should be used to help you to create a Lean expansion strategy.
Related Articles and Content You Might Like:
Globig’s Lean International Expansion Framework
Language Localization for Germany
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