Landing in US is difficult – reality check for entrepreneurs

Jos Scheffelaar is CEO and cofounder of the Boston-based Launch in US Alliance, where he helps startups land in the US. According to him, conquering the US market is more difficult than most European companies realize. In this interview by Jonathan Marks he explains why it is so difficult.

 

Jos describes himself as “Dutch American”. He graduated from Delft TU in Electrical Engineering, then worked abroad in Belgium, Denmark, the US and Japan before moving permanently to New England. He is now settled in Boston where he met a German-Swiss VC and cofounded a company to help foreign companies build a future in the USA. He has worked with Dutch universities including Leiden, University of Amsterdam and Twente.

He is one of the organizers behind a two-week MIT immersion program for international entrepreneurs, that is currently being spun off as Kendall Teams. This program is not just another bootcamp, but actively introduces companies to appropriate potential investors, partners and customers in the Boston ecosystem. At a special Venture Café Rotterdam briefing on March 10th 2016 he shared some useful pointers with Jonathan Marks.

“From our vantage point on the East Coast, we have seen many European companies set out to conquer the US, bursting with confidence. They have convinced themselves they will be the next big thing in their industry, riding the US expansion to world domination. Yet, in high tech, there are still very few real success stories to tell. Let me share a few insights which may help companies be more successful.”

1.   Get to the point – what is driving your team?

“Because Americans are bombarded with commercial messages from electronic media 24/7, the US investor/entrepreneur learns to read between the lines. They are able to spot something genuine amongst the sea of public relations and spin. The more experience you have, the faster you are able to spot whether the company in front of you is authentic and whether there is a real business opportunity. “

“There is a different culture of doing business in most countries. And it has become more important that companies planning to scale up into a foreign market realize this”

“Dutch companies and entrepreneurs often don’t understand this cultural difference. The Netherlands is a nation of traders, but I often encounter modern companies who are poor in clearly explaining their purpose. You need to explain to US counterparts in 30 seconds exactly what you do, why anyone should care and why partnering is part of a growth strategy. I still see too many companies explaining the advantages of their solution without ever explaining what they do.”

“The soundbites need to be ready, well-presented and clear, because you never get a second chance to make a first impression. And especially the VC’s have a razor sharp filter for BS as well as a giant informal network. Never forget that “every day is demo day”.”

2.   Don’t underestimate the local competition

“I find US business partners are more open in their discussions. They communicate informally because they simply want to engage with people who are capable of making fast decisions. Don’t use informality as an excuse not to prepare!

I often detect a different level of ambition across the Atlantic. I once offered a Dutch company a unique chance to take part in a MIT programme, but got turned down because it clashed with the Queen’s Day holiday back in the Netherlands. In countries like the US, twice the size of Europe, people often move thousands of kilometres because their company has moved or they get a better job offer.

Failing to adequately fund marketing, media and sales activities is a fatal mistake that Europeans make over and over again. Company founders are usually technologists and they still view Marketing & Sales with suspicion, distrust and as a necessary evil. They underestimate the importance of exposure in this age of Twitter, Snapchat, Bloomberg, The Verge, TNW and Forbes Magazine. While that approach might work (poorly) in Europe, it completely falls apart in the US, with its pervasive media environment. Underfunding M & S will make it impossible to hire the right talent in the US and only marginal performers will want to work for the company under those conditions.

3.   Get your papers in order

“I believe the U.S. Department of Commerce promotes the mobility of companies to come to the US and the Department of Homeland Security is doing everything to keep foreigners out.

Hiring a good immigration lawyer is crucial for success in obtaining the right US visas. The large law firms who built a business helping wealthy SME’s are in trouble. Look to the smaller law firms who charge more reasonable fees to young startups and can often offer a package of services.

There are various US visas but for established European startups, the L-1A visas are made for transfers within companies. This is ideal if your company is incorporated in The Netherlands. After working in Europe for a year, you’re transferred to the US to open a subsidiary company there. L-1A is specifically designed for executives within foreign companies opening offices in the US. Remember that Immigration officers are going to look at your company’s staff count, current revenue, payroll and cash in the bank. You will need proof of a physical office back home. A lease agreement for an office in the U.S. may also be requested.

We also see some law firms like Mintz Levin who are giving back to their community (3% of their billable hours) and also helping early stage startups. Sometimes lawyers are willing to help in lieu of equity or delayed payment because they have an eye on future business. There are also some Dutch lawyers active in Boston who have a good grasp of the situation. I suggest tapping into the networks that CIC and Venture Café Rotterdam can provide.”

4.   Prepare in Europe to understand the advantages of the US market

“Remember the US market is not only large (323 million people as of March 2016) it is also homogeneous. The EU alone is the sum of 27 different markets with different national strategies and 23 officially recognized languages, more than 60 indigenous regional and minority languages, and many non-indigenous languages spoken by migrant communities.

Yet it remains an excellent strategy to build and validate your business in the Netherlands. Then comes the decision to expand to neighbouring countries like Germany or the UK. For some, the decision comes quite quickly to explore the US market.”

5.   America – the nation of immigrants

“I have lived in Japan and there you will always be a foreigner; no one ever mistook me for a local. It is different in New England. The US is a nation of immigrants, although immigration is a central issue in the 2016 Presidential Elections. In Boston I am seen by others as an American with Dutch heritage.

But remember that as a European startup you are competing with US startups who probably have established a local/national network and may have a powerful network of family and friends. No-one will buy something from you just because you come from The Netherlands, Ireland or India or whatever. Just look at the US media and you’ll see that what’s happening in the US and to Americans totally dominates the headlines.”

6.   Get a good lawyer recommended to you

“Get yourself an attorney and make sure you understand what you are signing. Contracts are under US law and if contested may have to be settled in a court in New York City for instance. If the contract isn’t fully paid it may cost more in legal fees to get it back. Most of the work done by lawyers and attorneys is actually to prevent these kind of situations arising the in first place.

Remember that US investors rarely invest in foreign companies unless they have done what’s termed a Delaware Flip Transaction. This is the process of creating an American holding company for an international company. The end result is that to satisfy the legal requirements of the investors the international company will be owned entirely by the new American company. Thus, the U.S. venture fund will invest in the new American company.”

7.   Don’t become an Innovation Tourist

“I see too many European “missions” visiting Boston with startup hopefuls who have been promised a “meeting” with VC’s. They are often not prepared to engage and are often not US investor ready. Almost all trips are government subsidized and I get the impression some people are on the trip because it is basically a free excursion to the US. The concept is termed “Innovation Tourism” by the people on the receiving end of these visits (e.g. Harvard) and there is absolutely nothing coming out of it. Investors want to see your face 4 or 5 times to understand and trust you. If you’re not willing to spend the time building partnerships and trust, then don’t even think of making the journey.”

8.   Be prepared to consider and decide

“The American way of doing business is usually a two-way street and if they see a glimmer of light in the distance they are masters at seizing an opportunity. I find a lot of European companies over-analyze. I guess they are looking for more security than exists in any breakthrough venture. So I have seen deals fall through because the European company decided after the deadline. Make the best decision based on the available data.”

9.   No ambition means no success

“In the last five years, I do see some Dutch companies doing more interesting things on the world stage. There are few entrepreneurs willing to mortgage their home and work 24/7 to build a company to change the world. But there are still too many startups walking around with a SME Business plan which shows slow and steady growth over the next 5 years. That may work if you are executing a tried and tested idea. But you don’t build a unicorn that way and you will never attract serious investors who are searching for the hockey stick moment in your growth curve. They know that 80% of startups fail to scale, so their return on investment needs to come from the other 20%.“

10.    Leave your comfort zone for a reality check

“I’d like to see more Dutch universities adopt the US approach. In Boston you see that startups at MIT quickly leave the safety of the academic environment and move to entrepreneurial hubs like CIC. There they get to experience the real world of entrepreneurship. If they move fast enough and build the relevant networks, there is a higher chance they will do well. In Europe I still see too many university projects running long after they should have been abandoned. It may be an interesting idea. But it is a validated business? There needs to be be more help post-incubator. May be that’s a model for CIC Rotterdam and Venture Café? “

11. We’re in Boston for a reason

“In my opinion, a European company should not locate on the West Coast unless it clearly has to be there. That’s the case for companies related to the movie industry, social media or semiconductors. In all other cases, the East Coast or possibly some central US states should be considered. Just look at real estate prices – US $4000 a month won’t get you a very large apartment in San Francisco. Boston has the advantage of being a high-tech cluster with a global reputation for excellence.

Even in today’s environment, a 9-hour time difference between the US West Coast and Europe is much more difficult to bridge than a 6 hour one, especially as the company grows and people will tend to work along normal business hours.

Emerging companies with new products entering the US market for the first time must consider the demographics to decide what geographic market they can efficiently cover and make themselves known and economically successful. 

No company in their right mind would embark on a China strategy without some serious advice on the ground. It is no different when entering the US. The right strategy could lead to dramatically higher sales and a lucrative acquisition offer from a major US corporation. A poorly executed market entry will set back the company, ruining its reputation. Google’s “right to be forgotten” doesn’t work in the US!

So get some advice, surround yourself with people that have actually sold in the US, not just worked for a US corporate or only studied here. Find out what you don’t know and then prepare a strategy together that’s focused on the markets you plan to conquer.”

This article has been written by Jonathan Marks, disruptive innovation expert at Critical Distance. He has previously written about startups, for instance about robots cleaning windows, new materials, and optical networks.

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