Aaron McDaniel and Klaus Wehage of 10X Innovation Lab are coming out with a book called Global Class on August 23rd, which gives advice to founders on how to scale globally–an area familiar to 500 Global. In this episode, they share some interesting tidbits on common mistakes founders make, as well as successful strategies, many based on interviews with companies, such as Airbnb, Zoom, Spotify, and Pinterest.
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TRANSCRIPT
Shereen Abdulla
Klaus, Aaron, firstly, thanks for coming on the show. I’d like to start by asking you to please tell us what made you uniquely positioned to write about building best-in-class companies? How’d you come up with the idea?
AARON AND KLAUS INTRODUCE THEIR BACKGROUNDS
Aaron McDaniel
So the idea — a lot of it came, actually, from our business 10x Innovation Lab that helps companies from all over the world connect into Silicon Valley. We noticed a lot of mistakes that these companies made, and that led us to really explore what are some of the right ways to do things. As an example, we jokingly talk about how companies that come to Silicon Valley, they expect to go to the baggage claim at San Francisco International Airport and a venture capitalist is there to hand them a check for millions of dollars, because that’s how it works. Obviously, it’s not that way; and so, that’s one of a number of mistakes we saw being made. That led us on a really interesting journey to learn about what these companies did to be successful. We talked to a lot of really well-known brands, but talked to the people who were there early on. So, that the first international hires, the people that first started expanding into new countries. Obviously, they become the well-known brands they are today.
COMMON MISCONCEPTIONS ABOUT THE STARTUP ECOSYSTEM IN THE US
Shereen Abdulla
Other than the example you just gave, what are some other common mistakes that you found founders making who weren’t based in the US?
Aaron McDaniel
A lot of it comes down to using the right parts of what makes you successful early on. and not using other parts. Here’s what I mean by that — companies that are often successful in validating their first market, it’s all about iterating, using that agile methodology, and having as fastest speed as possible to figure out what product-market fit is. But, if you take that mentality and you go attempt to expand into five different markets at once, you end up creating a lot of problems for yourself. We found a lot of these companies wouldn’t really think about building for global scale until they were in a few countries, had created a bunch of problems, had plateaued in some of their expansion, and realized there were a lot of these problems they had to go fix before they could take it to the next step. But, at the same time, there’s what we call, “putting a global filter on agile,” that helps you be successful, because the regular agile methodology doesn’t really work the same way when you’re going into five or ten different countries.
Klaus Wehage
Just to reflect that back to what we do in terms of running the acceleration program for international governments and startups is that, often, what we see is the mistake — they don’t revisit agile, they’re too focused on generating sales, revenue, pushing their product, rather than customer discovery and getting insights, to better understand how the product that you’ve built at home can resonate with the local customer base. You can’t really take the model that has been successful at home and just dump it down in Silicon Valley or any other market. I know 500 [Global] does an amazing work in helping companies reset a little bit and frame things like that, and prepare them for that international growth as they go through the accelerator.
In my view, these issues — typical founder and startup issues — it’s literally from all over the world, whether you’re a company from the US in Silicon Valley going abroad, or you’re a company from Denmark — I’m from Denmark — coming into Silicon Valley. These are common mistakes in our view.
And so, we found these mistakes, having interviewed these 400 executives, looking at patterns of common mistakes and successes. And so, even — a lot of people look at Silicon Valley being this very successful ecosystem, very prominent, very successful in building global organization, but even Silicon Valley-based companies are not really good at international expansion and growth because what they do is they build very much with their home market in mind, they are super focused on scaling in the US, then when they reach around Series C, Series D, Series E they have very much hard-coded the business and product, etc., for the US market, and not really thinking about the global and international market. And s,o they make a lot of these mistakes because, then, when you finally get to that point, when you want to make that pivot and switch towards international, it really becomes very hard because the culture is very US-centric, the structures and processes you built internally are very US-centric, and it makes it really challenging to make that switch.
COMMON MISCONCEPTIONS ABOUT INTERNATIONAL MARKETS
Shereen Abdulla
What’s a common misconception American founders have about international markets?
Aaron McDaniel
W,hat we’ve seen especially accelerated through the pandemic and other economic growth factors, is that, at least from a US-perspective, a lot of times when you were going international, it was finding sources of cheap labor in other places. Now, a lot of these markets are developed economies, you look at — we could list a ton of them from like Indonesia, to even just from a few decades ago — what China was versus what it is. And so, there’s so much opportunity, I think, when people — at least from a US-centric approach, they’re so focused on that one market, they don’t really understand the scale and opportunity of other places. And we, basically — we’ve just found that when you come from a large market, you tend to think so much about that initial market and there ends up being this really huge chasm between success in one market versus success globally because of what Klaus talked about, about hardcoding things just for one market. And so, if you take an approach where you’re thinking global early on, you tend to build in a way where you can be more successful. An interesting story of just that — when you look at companies that have been successful in China versus the US, and vice versa, there are very few that have been successful in both because each of those companies that tend to be successful in those markets think about international so late, because the markets they’re in are so big. And then everything is so hardcoded, as Klaus said, and it becomes very hard for them to localize for other markets.
REGION-SPECIFIC STARTUP CHALLENGES
Shereen Abdulla
Now, what are some of the challenges founders face that are unique to their region, so not common global problems, but problems that are really specific to let’s say, LATAM, Southeast Asia, or the Middle East?
Klaus Wehage
Take an example of Japan. We work a lot with Japan and have worked with Japan for the past seven years. I think, Japanese founders and companies, they’re really good at building technology but not very good at building a business. One area, in particular, they’re struggling with a lot is the way in which they engage with customers and engage with — in business overall. So, Japanese executives that are coming over here and trying to develop business are very focused on pushing the product and the business model they’ve built at home. At the same time, the way in which they communicate is very different from Silicon Valley. As an example, when it comes to writing an email, they write long emails. They come up with the conclusion of that email in the bottom of it. Whereas, Silicon Valley is much more concise — we make a statement upfront and almost bullet-point your way through that email, in terms of describing the objectives that you’re hoping to achieve by engaging with that specific person. And so, communication is central [to] being successful when you go international. And so, you need to adapt the way you communicate with people when you go into new ecosystems.
ADVICE FOR FOUNDERS LOOKING TO SCALE GLOBALLY
Shereen Abdulla
What advice would you give founders who are looking to scale, given scaling is such a big problem, in addition to the communication point you just mentioned?
Aaron McDaniel
One way we like to describe it is that some companies talk about this idea of being born global, which we don’t really agree with because you can’t necessarily find product-market fit in a bunch of markets all at once. We believe you need to find product-market fit in a single initial market of substance to prove the scalability of your idea. But, you can think ‘global’ [from] Day One. Meaning, you can build your product, you can build your team, you can build your processes, you can even build your company core values in ways that can be localized and/or universalized.
To talk about a really practical example — one of our favorites, or at least my favorite — we want to credit Frédéric Mazzella who is the Founder and CEO of BlaBlaCar, the world’s largest carpooling platform. He talked about this notion of building for two markets. BlaBlaCar is a French company. Originally they, actually, had a — Klaus, you can probably say this better than I can, but was it ‘Co Voiture’ or something. What was the name of the company?
Klaus Wehage
That was beautiful, Aaron, you did it very well!
Aaron McDaniel
Perfect! Which means ‘carpooling’ in French. But then they realized, “Okay, nobody else, like Americans like me, can pronounce that; so, we need to have another name,” which is why they came up with BlaBlaCar. But, for them in particular, they built for both the French market and the Spanish market at the same time. Now, to be very clear, they didn’t launch in both markets. I think there are a lot of problems with launching in two places at once. But, to the point of hardcoding, they didn’t hardcode everything about their business; not only the coding of their actual code, but aspects of their business. They didn’t code it just for the French market, they didn’t think of just French regulation, they didn’t think of just French language, when they had to build things. [They built] for Spain and the Spanish market at the same time. All of a sudden, when you need to add a third market, a fourth market, a fifth market, that agility has been built into the company processes on the product; so, it becomes much easier to scale and add other things. From a people perspective, which we were talking a little bit about, they even hired Spanish employees, had them come to the headquarters in France and work out of that office to help them get the company mindset, company knowledge, but also to inject, as they were building their product and strategy, so it wasn’t just purely a French-centric mindset.
Shereen Abdulla
How did they ensure product-market fit in both France and Spain, given that they launched in France first?
Aaron McDaniel
So, they focused on getting product-market fit in France first, and then went to Spain afterward. So, they didn’t attempt to do two at once; they made sure to get that product-market fit. As Scott Coleman, former Head of International and Growth for Pinterest, talked about, one of the big mistakes companies make is they don’t get product-market fit in one market, and they think, “well, let’s go to another market, and then we’ll get product-market fit there.” That’s often not the right solution, that’s just going from place to place. So, you do need to focus on one market first, get that product-market fit in that initial market as a standing off point.
Shereen Abdulla
But, in the case of BlaBlaCar, they would’ve had the foresight of wanting to expand in Spain next; therefore, they would have hired Spanish, or people from Spain, as you alluded to. What if, after successfully finding product markets and product-market fit in Spain, they then decide, “Oh, we want to scale to Dubai.” They would not have necessarily have hired people that were based [in] Dubai that early on. So, how do you make sure you’re a step ahead in the global scaling game?
Klaus Wehage
One of the things BlaBlaCar actually did was they acquired teams that were building a similar model in those local markets. So, they understood what it required to build a similar business there, but they’re actually struggling in terms of being able to build a profitable model because they didn’t have successful-enough funding to develop the business. So, they actually acquired a local team similar to BlaBlaCar, then brought them back to the headquarters to learn the BlaBlaCar way of doing things. And then, they basically deployed them again. So, they’re really able to accelerate the expansion of BlaBlaCar by acquiring teams that were not successful. So, I think that’s another strategy you can do.
But, you have to be really, really thoughtful. But, since the — I think the way that Frédéric Mazzella talked about it was that they didn’t get acquired by a bigger company that was developing a successful business in the area they were in. They’re really, just, bought into the mission of the company from the very getgo and they’re really passionate about developing a similar business in that market. So, I think that’s another strategy you consider, not just hiring people and bringing them into the organization but, actually, acquiring and then deploying the team in that local market.
Shereen Abdulla
Now, we’ve talked a lot about how companies can tackle the people element in order to go about things with a global mindset, what about processes? You mentioned that having global processes is important, as well.
Aaron McDaniel
Absolutely. We label these in our book as ‘momentum builders.’ But, there’s this mindset in some of these core concepts that we’ve been talking about and some of these frameworks — a lot of it comes down to the scaffolding you need to set up in place to be successful. Part of it, not to use too generic of a term, is around feedback loops. And so, that’s making sure headquarters is translating company culture, core values, and the mission to local teams, but, also, so that they’re open channels, so that the local teams can translate back localizations that are required in key insights back to headquarters. Part of what we found these global class companies are effective at doing is two-way innovation. It’s not just headquarters saying you need to do it this way, but the local team saying, “Here’s an interesting thing,” and then headquarters saying, “Oh, that’s great.” And it doesn’t work for just one market, that can help us globally.
One example of a momentum builder is what we call the ‘localization resource team,’ and what this, essentially, is a cross-functional team. Depending on the size of your organization, it doesn’t have to be dedicated people, it can be just some representative from each of the functions. Their goal is not to tell local teams what to do, but it’s to be there as a conduit to headquarters and remove obstacles. So, for example, let’s say you have a local market GM, and she realizes, “Okay, we need to change something in the product.” Well, if you don’t have the structure set up, she’s going to go to product and engineering and figure out how to change it, and that takes her and her team away from focusing on uncovering more localizations and getting traction in the market. So, when you have a structure, like the localization resource team, they become that front door. They take it, and then they go and figure out, actually, how to make those changes. The local team continues to focus on traction in that market, then when you – what happens is you create this brain trust, and people understand as you go to more markets, as you’re in this localization resource team, they know what does work, what doesn’t work, and they can put up guardrails to say, “This can change and this can’t change,” as it relates to, maybe, things very important to core values or otherwise.
Klaus Wehage
I think, in particular, building that free trust is key for any organization to go international. I think, a lot of the stuff that we’ve seen, as we’ve done all these interviews, is that it’s often a solitary exercise. When companies start to go international, they hire someone to send into that local market, you have someone from the headquarters, the leading international — a little bit by little. And so, it’s really important to be engaged in the headquarter and to the structures. That thing can support that local team.
I also reflect on my past experience. I was in Vietnam, in 2012, and helped the product launch strategy for one of the largest beer brewing companies in the world — I can’t mention the name here. What basically happened, in Vietnam, was they had been in the market since the 90s and they fired the whole management team in 2011 because they’re still not successful. And so, we came over to help to reinvent and re-launch new products, because they were simply not selling in the market. They were out-competed by Heineken. And so, what was interesting there was that they didn’t develop that brand trust. They didn’t have data or any information to go from because that local team hadn’t developed that — they didn’t develop structures or processes, they didn’t capture insights, they barely knew where their products were placed across Vietnam. So, they have very little control in terms of understanding whether they were successful or not. And so, it’s really important that even though you’re an early-stage company that you consider developing these things early on, as an example, market entry playbook, or what we call ‘localization premium analysis tool,’ to be developed. When you fully uncover a type of localization, you need to do to be successful and go through a rigorous analysis, and then understand who’s responsible for decision-making and who’s responsible for implementation, as well. So, it’s really important to build these structures, to really support internationalization, and then also be able to reuse those insights from one market and see if they can be applied in the new market, as well.
ADVICE FOR FOUNDERS LOOKING TO SCALE IN EMERGING MARKETS
Shereen Abdulla
I’m so glad, Klaus, you touched on an example of a piece of work that you did in Vietnam, because so far, we had touched on your experience, collectively, with companies in the US, Japan, and France, and I was actually beginning to wonder, is there any piece of advice that you would give for founders in emerging markets, specifically that may be different for founders in developed markets?
Aaron McDaniel
Oh, gosh, I think there’s a few things. So, one thing that we talked about, and very intentionally, we don’t use the term home market, we use the term initial market because depending on — if you’re from Silicon Valley, or Brazil, or something, your home market, where you’re from, is the first market you go into, because it’s a big market. But, Klaus is from Denmark — Danish entrepreneurs — we talked a lot to executives from Zendesk, they’re a Danish company, but they early on moved to the US and made that their initial market. So, I think part of the advice is to find the right initial market for the opportunity. I think, one of our favorite examples of that is actually a Silicon Valley-based company [that] picked initial markets in Africa. So, a company called Zipline, they have a drone delivery service for medical supplies. And so, in the US market — yes, it’s very big, and all these other things, but there are very established transportation systems, temperature control, and other things for medical supplies, and there [are] air traffic control restrictions so you can’t just go fly drones everywhere. But, if you go to different countries in Africa, you don’t have any of that, and you have a bigger need. And so, it’s about finding the right market, and it might not always be the biggest, and it might not always be the most developed.
Aaron McDaniel
And one other interesting, thought it may be less related to the first market you choose but more around the first international markets you start to go to, companies that we help — we talk about how they need to be very conscious of what we call familiarity bias. So, companies will think just because the other country speaks the same language, or is geographically nearby, that those are the right markets to go to. And, oftentimes, when you look at it holistically from a regulatory perspective, competitive perspective, infrastructure perspective, it may not always be the right choice to go to those places. They may seem like they’re the right ones.
HOW TO SELECT WHICH COUNTRY TO EXPAND TO
Shereen Abdulla
What other criteria would you recommend founders keep in mind when choosing where to expand to, then?
Aaron McDaniel
So, it’s actually interesting because we have developed in this book a very detailed playbook, but we also know where our lane is and where we don’t necessarily want to get too far into. Meaning, companies have so many custom criteria for choosing what markets to go to, so we don’t come and say, “Here are the five things you should think of.” I think, there are a lot, but what we tend to talk about are things that maybe aren’t as thought about, that you should consider. And so, one of them, as an example, is cultural considerations. We were talking about BlaBlaCar earlier; well, they actually went and launched in Russia, not one of their first markets, but they ended up going in there, and they were wildly successful. It had nothing to do with Russia being a big market, or otherwise; it was very cultural. In the US, where I’m from, every parent says, “Never hitchhike, because you’re going to get murdered, because there are movies and stuff about hitchhikers getting killed.” Well, in Russia, everybody does that; it’s very, very commonplace. So, the idea of getting in other peoples’ cars and carpooling is very natural. And so, all of a sudden, when you layer those types of understandings on, then you can look at a whole new set of criteria that you might not have thought about.
Shereen Abdulla
What other than culture, then?
Aaron McDaniel
So, here’s the other thing, too — and sorry, Klaus, I’ll let you go — this is more a warning of what to be careful about because a lot of companies, we see them looking where there’s organic growth and assuming that just because there’s organic growth that’s the right market to go to. And what we found is that some companies might start to get a little bit of traction, and then they hit a wall, because of all these other considerations — regulatory, just competitive landscape, infrastructure, just things that you would never even think about of how you have to operate your business. And so, just because you see organic growth somewhere doesn’t mean you automatically should go into those markets; you should take a step back and do a holistic approach. We have this model we call the localization premium analysis, that’s this spider chart that has six different categories to think about when you’re evaluating new markets.
Shereen Abdulla
I have a clarification question — prior to actually expanding in another country, how would one determine organic growth? Would that mean organic growth of their competitors or of the industry? How would that be measured?
Aaron McDaniel
So, I think this is may be where there’s a little bit of a diversion between B2B and B2C. What we have found is, often, with B2B companies, they will go to the same companies that they’re already customers of in their initial market and find other international offices to use it. Just because they start to sell from that perspective doesn’t mean that is a widespread problem that needs to be solved in that market. On the consumer side, you hear companies talk about, “Oh, yeah, we’ve been an app that’s been around for — whatever, a year, two years — we’re in 150 countries.” I mean, they’re a mile wide and an inch deep, there is something very different about just having users that use a consumer app because it was available in an app store to truly have a presence and truly build strong traction in the market.
Klaus Wehage
Another example, I’m not going to mention the name, but one of the companies that was setting up a business in Europe, in the Netherlands, they had to go through that “know your customer” process, where they were asked to bring in the passport of one of their minority investor, [and] one of the most famous guys, investors in the world, very prominent, they asked to get that guy’s passport to then show the bank to be able to set up a bank account. So these small things that delay the process of actually setting up your company in the market can quickly become three weeks, four weeks, two months, etc, if you do not know how to navigate that swiftly, and that can really delay your expansion. And that’s really important — time matters a lot because you’re in a very competitive space.
Aaron McDaniel
One of the people that we interviewed for the book, Mo, who used to be a general manager for Talabat delivery service, he talked about how as they were expanding into Oman, they had to deal with a lot of these different localizations from — I forgot what market that he had managed before Oman, but everything from —
Shereen
I think it was Kuwait.
Aaron McDaniel
Yeah, so he was in Kuwait, then after that he — they had to hire people in Oman, because of certain government requirements for number of employees. He even told us a great story about how he and the team had to go drive and basically compare what people said on the ground versus Google Maps, and what was more accurate for what was considered a certain area because they’re delivering food from restaurants and things you don’t think about.
Shereen Abdulla
The quirks of the Middle East, where I’m based. Klaus, Aaron, thank you so much for your time, I had a wonderful chat, and I hope you enjoyed being on the show.
Klaus Wehage
Yeah, thank you so much. And, again, feel free to go to globalclassbook.com, and if any organizations are going international, we’d be happy to have a conversation with them. We’re looking forward to socializing these concepts and they will be out on August 23. We look forward to partnering, furthermore, with your team and anything we can do to help and support over there.
Shereen Abdulla
Super. Thanks, guys.
