So you’ve decided to go international with your business.
I think it’s rather common to see the general business case study on internationalisation take the following steps:
- Picking your first country
- Renting office-space,
- Hiring your first sales representatives, possibly local PR and marketing,
- Wait for the sales reps to close new deals.
- Money coming in to the bank.
I do think there’s a big flaw here though, and it’s that money is only S.L.O.W.L.Y coming in while money is flooding out at too high a pace.
After having now helped a couple of businesses take the plunge, here’s a case study for a high-tech company delivering communication solutions for use within public transport. It is an area with rather long purchasing cycles, which is rather common as the company is introducing a novel approach to a market. In 2011, the venture funded company was still operating at a loss, making 4 Million EUR in Sales, primarily on its domestic market. However, with its proof-of-concept in place, it now decided to take the leap onto the international scene.
The original idea included adding one new market every 12-18 months, and the plan of attack was roughly:
» Hire sales rep & rent office
» Train the sales reps
» Let the sales reps book their first clients, and initiate the sales process
» Strike a first deal
» Deliver and invoice
If all would go well, it anticipated black figures after three years on a market, at a total investment before revenues started to make the trajectory upward of around $600K per market.
The total break-down for around the first year was roughly:
|What||Time until operational||Revenue & Cost in first year|
|Translate web-page to the first country of choice||1.5 months||-$4,000|
|Recruitment cost||3 months||-$15,000|
|First 2 Sales Representatives out in meetings||3 months||-$146,000|
|Travel, training and accomodation cost to/from domestic office until Sales Reps are up to speed||N/A||-$12,000|
|Other support & delivery costs||N/A||-$60,000|
|Total time to first revenue||15 months||$0|
|Time to money (delivered, invoiced & paid)||18 months||$150,000 (not in first year)|
|Total costs first year||-$267,000|
|Total Profit/Loss first year||-$267,000|
An alternative approach as a business case for internationalisation
At the time, Sonician had already tried out an alternative approach for another business targeting the home security market, and suggested to take a different path with much less costs involved, quicker revenue and thereby a considerably lower risk. We even knew our approach would work without a translated web-page, but since that work was already underway, we could start the other steps in parallel and thereby short-cut the process:
|What||Time until operational||Revenue & Costs in first year|
|Translate web-page to the first country of choice||1,5 months||-$4,000|
|Hard segment the market to as few and as likely buyers as possible, and acquire contact details||0,5 months||-$1,500|
|Hire a freelancer to make the first queries over the phone in the local language (managed and coached from Sonician and found via freelancer.com)||1,5 months||-$7,500|
|Use Otto to gauge interest and sort-out the lowest hanging-fruit||1,5 months||-$6,000|
|Time to first small revenue (Make the first clients request a pre-sales workshop at cost covering travel expenses and time from head-quarters delaying the need for international sales reps)||4 months||$100-1,000|
|Other support & delivery costs||N/A||-$40,000|
|Time to first sale||8 months||$0|
|Time to money (delivered, invoiced & paid)||11 months||$150,000|
|Total costs first year||-$59,000|
|Total Profit/Loss first year||$91,000|
The business case study on internationalisation shows only about 10% the cost and risk in the actual pre-sales phases, and even the chance to get paid by the clients for the pre-sales meetings that you otherwise likely would need to host anyway.
The company has in the last five years grown its business over 40% yearly from the $4M to $23M and is now very profitable and has since expanded also with physical premises in four countries, in US, UK, Sweden and France.
The business case can get even better
The question is, could a business case like this get even better?
Well, we think so, or at least in terms of lowering the threshold for just trying it out. There are a number of public grants available in the European Union for internationalisation. They can even cut the cost further in half, and we’d be happy to help find and apply for them with any one interested!