5 Reason Why Global Startups Fail
The Internet is completely saturated with statistics and information on why startups fail. We know 90% of startups will eventually fail due to incompetence, lack of funds, and poor management. International startups, on the other hand, have to not only watch out for these common traps but also to watch out for a select group of issues that only arise if the company is global.
Now that we have become more connected, it’s common that a startup may not exactly have a home base: One founder could be in South America while the other lives in Europe and the product targets the US. There are a vast number of benefits to having a global team - and a global idea - but staying in the startup game can be even harder from outside of the US. Here are 5 reasons why global startups become part of that 90%.
1. Push to Launch in the United States
The startup culture is thriving in the US. Silicon Valley is THE place to be for funding. But it might not be THE place to be for your product. Many global startups make the mistake of automatically assuming the US market will accept their product. In reality, according to the Startup Genome Report, startups need 2-3 times longer to validate their market than most founders expect.
Early stage startups that haven’t raised money yet, over-estimate their market size by 100x and often misinterpret their market as new, according to the report. This, coupled with going after the US market unnecessarily, is a huge pitfall for many startups.
Instead, startups should use analytics and market research to discover where the market actually is -- they might be surprised.
DIY animation video creation startup, Wideo, was surprised when they found their market was in South Korea. The company ran a feasibility test with the Nanyang Fellows Programme in Singapore to find out that South Korea influencers the East Asian region and was a strong market to launch in. While the company does have a presence in the US, this type of “think outside the US” mentalia helps them remain a successful global startup.
2. Company Can’t Scale on an International Level
For founders who have their hands in everything, scaling on an international level can be incredibly difficult, because not only are they giving up control, they have to trust that this person can do their job in another country.
74% of high growth Internet startups fail due to premature scaling. But adding on the pressure to scale internationally and to find the right people in the right country can hurt a global startup greatly.
In addition to not overestimating market, which causes companies to scale prematurely, global startups should look for a person that has some HR qualifications. While most founders have development, marketing, or business backgrounds, adding someone to your team that can recruit the right person will help.
3. Funding Isn’t Where it Needs to Be
This point is an issue that global startups can’t control. Certain governmental restrictions and red tape prevent finances getting to where they need to be. In an interesting Quora conversation, a user asked “Do Silicon Valley angels invest in startups overseas?” Managing Partner at SoftTech VC, Jeff Clavier, wrote:
Startups get around this issue by joining an incubator program and/or frequent trips to Silicon Valley. Unfortunately funding options become a bit more limited, as a global startup has a better chance of funding with a VC that has experience with international red tape.
4. Too Expensive to have a US/European Home Office & Competition Takes the Space
Keeping talent abroad is a strong move. The talent across Latin America, especially when it comes to developers, is vast, and, for now at least, this talent is cheaper than in the US or Europe. When targeting the US, it’s easier to make noise about your company if you are in the region.
Unfortunately, some reporters don’t want to hear about startups located outside of the US - even if the company targets that market. And while your company is scaling up to open a US office, a competitor can launch in Silicon Valley and take your space.
How can foreign companies avoid this? Well it starts by hiring at least one native speaker. Luckily there are many expats looking for work abroad, and it’s just a matter of finding someone that understands your market and knows how to complete the position you have open (whether it’s marketing, sales, PR, etc).
Luckily the US and Europe are changing in their acceptance of international companies, but the change is slow.
5. Don’t Pivot Based on Market Demand
Changing course can be incredibly difficult for any startup - and even harder when changing direction on an international level. However, according to Startup Genome Report, “ Startups that pivot once or twice times raise 2.5x more money, have 3.6x better user growth, and are 52% less likely to scale prematurely than startups that pivot more than 2 times or not at all.”
Shifting a company to meet market demands proves a challenge for all, and when doing this internationally, startups can become fearful of making the wrong change.
Global startups that can battle these 5 areas of concern have a strong chance of success.