During my five years with Global Founders Capital, Rocket Internet's $ 1 billion VC division, I've seen more than a hundred of Rocket's incubated companies attempting to internationalize. For the background, Rocket Internet helped launch some very successful businesses internationally, including HelloFresh ($ 12.9 billion market cap), Lazada ($ 1 billion exit from Alibaba), Jumia ($ 3.2 billion market cap) ), Zalando ($ 21.2 billion market cap) and many more. Rocket has often followed the Blitzscaling model popularized by Reid Hoffman, earning an appearance in his book of the same name.
After an initial success that helped Groupon scale internationally via a merger with CityDeal, Rocket's incubation company, the Rocket team has aggressively scaled operations from Algeria to Zimbabwe, sometimes within a matter of weeks. . No surprise, Rocket also has a graveyard of failed businesses that have been victims of bad internationalization efforts.
Many companies make the costly mistake of going overseas too early.
My personal observations of Rocket's successes and failures begin with this crux: These lessons may not apply to your unique business model, market, and timing of combination. No matter how well you prepare and plan for your internationalization, ultimately you need to be agile, alert and smart as you dive into your first overseas market.
Fail quickly and economically
Internationalization can be a great engine of growth and consequently business value, which is why investors always push it. But going overseas can also destroy value just as quickly. As the founder, it is your job to manage financial and operational risks. Finding the right balance between keeping costs under control and not investing too much can mean doing things slower than your board would like. For example, you could launch new markets in sequence instead of launching 10 at the same time.
Adopt a "hire slow, shoot fast" mindset for your expansion strategy. Don't be afraid to switch off if things don't work out.
Our Heartcore Capital team uses the following framework and knowledge to guide internationalization strategies for our portfolio companies. A successful internationalization strategy must respond to and address the "Four Ws": when, Where is it, Which is With who internationalize. (As for the fifth W of journalism, you shouldn't need to ask the question "Why" if you want to build a big business!)
1. When is the right time to start?
Many companies make the costly mistake of going overseas too early. They view internationalization as a detached function, isolated from the rest of the business and therefore prematurely launch their second market. Follow this simple rule: Wait to internationalize until you reach product / market suitability.
How do you know exactly when you have achieved product / market eligibility? According to Marc Andreessen, "Product / market adaptation means being in a good market with a product that can satisfy that market". He adds that savvy entrepreneurs can usually hear if they have reached this point.
Let's take the man for his word and move on to the actual topic: until you have adapted the product / market, you will not be able to distinguish between what you have learned from your business model and what you have learned from your experience in the country. Mistakes will get worse. The complexities and costs will multiply. I believe that insufficient understanding of their business and operating model is the main reason companies fail with their expansion strategies.
Founders should also consider the underlying costs of internationalization before deciding to expand (more on this in the "What" section below). Some companies are global by default - think mobile game companies - or simply require language localization. Others need to build new warehouses, hire local teams, or build entirely new products. The costs and respective risks of premature expansion are highly dependent on the business model.
There are borderline cases in which companies have to move quickly to internationalization for strategic reasons, despite the uncertainty about their adaptability to the market. For example, companies like Groupon or those engaged in food delivery face markets where winners get the most, where opportunities for product differentiation are limited. "Blitzscaling" makes sense in cases like these.
However, you should proceed with caution if your only reason to start climbing overseas is a large fundraiser or to match a competitor's internationalization efforts. Premature downsizing for the wrong reasons could cost you the entire company.
When Rocket Internet announced that it would be launching the Homejoy model in European markets with Helpling, the "original" American company quickly launched into Germany in an attempt to crush their new competitor. In the early days of "all on demand," a managed market for cleaning services seemed like the next unicorn in the making.
In 2013, Homejoy received a new $ 24 million Series A from Google Ventures and First Round, considered a huge round at a time when Instacart had just raised $ 8 million Series A and Snapchat had made a $ 13 million round. Serie A must have seemed like a good idea to crush German competition early.
As it turned out, Homejoy's product wasn't quite ready to scale internationally. Just 13 months after launching in Germany, Homejoy had to cease operations globally, while Rocket's Helpling is still alive and well. Helpling has focused carefully on the product, automation and operation of the unit economy. A race to crush an international competitor resulted in the death of a would-be unicorn.
2. Where should you internationalize?
When deciding which new international market to tackle, it is essential to do your homework. Analyze the competitive environment, partner availability, infrastructure, culture, regulation and synergies with your internal market.
In the early days of e-commerce, it was quite easy to analyze whether a market was a target for expansion. In the absence of professional competition, Rocket chose new countries based solely on GDP and Internet penetration.
