Models for geographic expansion

As companies scale, there is often a need to build a physical presence in new markets. That could be to better identify and serve customers in their time zone or language, or to have a base from which to acquire new talent.

I have experienced a number of different models and wanted to share them along with some pros/cons from each.

Scouts: Google famously used this model as it expanded internationally. The firm hired local “consultants” to help do a market-entry assessment and work with management to lay the groundwork. As an example, HBS-trained Simdul Shagaya was the first man on the ground for Google in Africa. Under this model, once a decision is made to create a physical presence some of the scouts evolve into the first formal employee on the ground (with associated implications of setting up a local subsidiary, taxes etc). Facebook used a similar model with “country growth managers” in countries where it faced strong local competition
Pros: An efficient and low cost way to absorb local know-how and gain optionality on which geography to enter
Cons: In the consultant model, these are not really company employees and as such might not be fully representative of the culture or norms of the business and will therefore require active management

Landing team: Take a proven team member from HQ and put them on a plane along with a few colleagues to set up a beach head in a strategic geography. Teymour did this for Google in Europe and then APAC. Facebook has famously done this too to open Engineering offices in New York and London. The intention is that at some point local leadership might take over.
Pros: You are taking known leaders from the business and placing them in a new strategic geo therefore accelerating productivity but also gravitas for further hiring
Cons: For certain functions (ex sales in a local language) a kakhi-wearing valley dude might not carry the right cultural nuances to be effective in a new geo

Centralized hubs: One of my roles at Google was to expand our commercial reach into new markets by balancing into which ones we sold to in-country and which ones could be serviced “remotely” from Dublin. Google (and Microsoft before it and Facebook and Twitter after it) hired local young talent from, say, Romania and flew them into Dublin along with dozens of other nationalities to identify and service local advertisers but within a centralized hub with centralized resources. Eventually the decision was made to open up a local office in Romania with a team on the ground.
Pros: Centralized core benefits from common culture, best practices and, yes some tax incentives (but you should assume those don’t or won’t apply in the future)
Cons: Career progression for the amazing crew of Romanians in Dublin was limited as the market scaled and returning “home” once the local office was opened was not the desired option for many who had formed bonds, friendships, marriages, in Dublin.

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The insane Google Dublin campus

Move the team: We have seen this actively from startups from the East Coast, or Israel, or Berlin that, for strategic reasons, decide that their right home might be in the Valley or New York and therefore make the choice to take the whole company (or part of the company) and relocate it completely to a new geo. This is a hard (and expensive) call and one that I have seen succeed amazingly well (Spotify, Skype) but also fail (too many examples to name). If you keep parts of the team back home,assume that management will become a higher cost for the executive team having to align vision and execution across offices. If you decide to move the whole team assume not everyone will want to move and you might therefore loose some critical talent across the way.
Pros: If critical to the success of the company, and the choice is made early in a company’s life it can allow it to thrive in a deeper ecosystem
Cons: As highlighted above this strategy carries risk and should be done with measured pros/cons vs other options above.

Partnerships: A model that might be more relevant to SaaS or enterprise software companies but could also apply to consumer-centric firms is the notion of partnerships for market entry. In the software world there a number of Value-Added Resellers or System Integrators who can help bring a company into market. For consumer businesses this might be partnerships with local partners or even competitors via JVs or other structures for local sales (a number of Western internet companies have used this to establish sales teams in China as an example).
Pros:Accelerates market entry via someone already on the ground and with the right rolodex
Cons: Partnerships might make the initial cost lower but depending on how they’re structured might have a tax (% of revenue or other) and may be complicated to unwind from
NB: Hat tip to Jeff Hansen for reminding me to include this option

A key underlying lesson from all of the models above: Hire lawyers. Moving geos or opening new offices has massive implications from a regulatory perspective, local employment laws and even treatment of granted options for existing employees and unless tackled early, this will come back and bite you (as Spotify has vocally touted about option treatment in Sweden).

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Christian Hernandez is the co-founder and Managing Partner of White Star Capital, an early-stage Venture Capital fund backing exceptional entrepreneurs with global ambitions. www.whitestarvc.com

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Geeky tech-guy backing same. Previously co-founder of @whitestarvc exec roles @facebook @google @microsoft. Salvadoran-born Londoner. YGL of the @wef Father ^3

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