How to expand your B2B company to the US in 7 steps
Learnings from Dropbox, Templafy and Relesys
For the past 10 years Emil Dyrvig has specialized in taking fast growing B2B SaaS business from Europe to the US and helped them scale from single digit ARR to +$50M ARR.
At Dropbox, Emil saw how a great product, combined with a team of A-players, can rapidly drive growth, as demonstrated by Dropbox becoming one of the fastest SaaS companies to reach $100M ARR. At Templafy he was the first US hire and helped build the US market from $200K ARR to more than 100 employees and +$25M ARR.
Yet the US poses numerous, often unique, challenges for European technology startups & scaleups. The list of companies who have launched but never gained traction in the US is long. It is estimated that more than 60% of companies that launch in the US closes down within 2 years.
This left me wondering: What is the best way to expand from Europe to the US for B2B SaaS companies?
To answer the question I teamed up with Emil who previously played significant roles at Templafy, Relesys and Dropbox as part of their internationalization and scaling journeys.
Together we broke the journey down into 7 tangible steps:
When should you expand to the US? - what are the signs or data points that you can use to determine the right timing to expand to the US?
What city should you expand to in the US - what factors should you consider?
How do you prepare for a US launch - what are the steps you can take before launching in the US?
First boots on the ground - how do you launch in the US?
Scaling in the US - how do you build a sustainable business in the US?
Hiring in the US vs Europe - what are the key hires to make in the US (and which ones do you leave in Europe)?
Abandoning the US - when do you know if it's the right time to leave the US?
You can explore the full analysis below 👇
Why is the US an attractive market?
Largest software market in the world: The US has a massive domestic market, accounting for 51% of global software spend.
Access to funding: There is simply more money available in the US, in 2020, venture capital funding reached almost $24bn in Europe and $73.6bn in the US. To access that capital, some sort of US presence is often a requirement.
Higher likelihood of unicorn status: In order to become a unicorn company the US market is important. 70% of the 73 European unicorns operating in B2B SaaS have launched there.
1. When should you expand to the US?
You have Product Market Fit (PMF): Before venturing into the US make sure you have found PMF in your home market/region. A big mistake companies make is expanding before they truly have PMF. Not having nailed your PMF not only makes your market entry more risky but more importantly complicates your ability to identify what works and what does not work post market entry.
Solid Financial Situation: Expanding to the US is expensive. Hiring employees, renting an office, cost of living etc. are all more expensive than in Europe. Make sure you have the financial backing to make the required investment and the time to see some of your bets play out. As a rough benchmark Emil normally recommends that the company has raised a Series A and have at least $2M ARR in their home market.
First mover advantage vs Competition: Is there a market opportunity that you need to take advantage of before competitors? If you are in a very competitive space and can see that you might have a competitive edge by moving to the US before them this might merit expanding to the US sooner rather than later.
You have found the right first hire: As with all other markets it goes without saying that you need A-players when you expand to the US. The first hire to lead the US expansion is extremely critical. If you get the opportunity to hire the right person who will be the first boots on the ground this might be a reason to expand earlier than previously planned.
US based customers: If you are already selling to US based customers from your home region and most of the pipeline is being generated in the US you should consider expanding to leverage the momentum.
Should you expand to other places in Europe before expanding to the US?
It depends. In most cases companies expand to neighboring countries first due to being in the same time zone and sharing demographic similarities with neighboring countries. Competition often also plays a role in the decision as heavy US based competition might mean that it makes more sense to conquer Europe first.
The counterargument to launching in nearby European markets is that you'll often need to cater to another language (except in the UK). However, if you have strong product-market fit and a product well-suited for the US market, it could be a viable choice as your second or third market.
2. What city should you expand to in the US?
Overlap with timezone: The difference from 6 - 9 hours (NYC vs SF) is very real and will have an impact long term. If you have a significant part of the team in Europe and want to ensure at least 3 - 4 good hours of overlap the east coast is definitely preferred.
Direct flights: A smaller thing but having direct flights if you are frequently going back and forth makes a difference.
Identify where your ICP (Ideal Customer Profile) customers are based: If your product is an enterprise product where in-person meetings are important you need to be in the city where most of your potential customers are:
NYC: If your customers are in Audit, Consulting or Banking then NYC is be the best place
SF: If you are selling to technology companies then SF is in most cases the place to be
Boston: If you are selling to biotech or pharmaceutical companies Boston is the largest hub in the US
Transactional vs Complex sales: Costs are significantly higher in NYC and SF. If your sales model is more transactional, primarily inside sales as an example, the lower cost cities such as Austin, Atlanta and Miami are great options. On the contrary if your sales process requires more senior sellers and in-person meetings talent density tends to be higher in the larger cities.
What kind of office are you setting up?: Product/engineering vs Sales. If the former then you need to ensure you can hire the right caliber of talent which in most cases will mean you need to set up shop in NYC or SF. If it's purely a sales office then you might be able to open up in other cities such as Austin, Colorado, Atlanta and Miami.
2. How do you prepare for the launch into the US?
Starting remotely
There are many steps you can take before you get boots on the ground:
Get your sales reps (SDRs) to do evening shifts in the home market to build pipeline for the US market
Increase US ad spend to drive more leads
Travel to the US more frequently to visit potential customers and partners
Research competitors and understand what their strengths are and how you should be positioning yourself vs them when you enter the US market
Build a pipeline of talents to hire for the US market.
Below Is an examples of the steps Templafy took before launching in the US:
Tweaking the product to the US
In some cases you might have to make product related changes to ensure you meet the requirements of the US market.
Language: If your product is only in the local language you need to ensure you translate the product and support to English
Compliance & Certifications: Certifications such as HIPPA, CCPA, SOC 2 are often required to do business in the US.
Currency & Payments Processing: Integrate support for USD as a default currency, and potentially adjust pricing models to fit US market standards.
Integrations: Ensure that you have the relevant integrations for your product into core US providers.
Equity Programs
Unfortunately Europe and Denmark are still behind when it comes to equity programs. This is a big and important component in the US. If you have not yet set up an equity program for your company make sure to get it set up as part of the US expansion as you will need it to compete for the best talent in the US where equity compensation is table stakes.
4. How do you launch into the US?
Founders or CEO has to go
Bringing over either the founders or the CEO is crucial for a few reasons.
Signal: It's a signal to the company and the external surroundings that you are serious about the US.
Fast decision making: You also need to have a person who can make decisions without having to get approval from HQ as this will slow it down significantly - particularly with the time difference to Europe.
Culture: You need to make sure that you build the right foundation in terms of the culture and the CEO or founder should be directly involved in the hiring processes for the US market. At Templafy Emil was hired as the first boots on the ground and spent 2 months in Denmark to really get to know the business. Upon returning to the US he was supported by their CEO, who moved there for the first two quarters post office launch.
Assemble a launch team from the home market
In addition to a potential first hire, you should assemble a launch team from your home market who can ensure that you hit the ground running. The team should contain people who are very familiar with your product and your GTM motion.
Typically the launch team should contain GTM profiles such as Account Executives, Sales Engineers etc.
The first few hires are critical
The first few local hires you do are super important. Emil spent a lot of time finding and sourcing the right talent for the first sales related roles. He saw first hand how important hiring was at Dropbox. In the very early days Emil favors more untraditional sales talents over candidates with a lot of big brand names on their CV. The three things he looks for in his landing team hires are les:
Entrepreneurial drive and mindset
High EQ and IQ
Genuine curiosity and an extreme willingness to work hard.
A-players want to work with A-players
You are coming into the US as an unknown brand and potential hires are therefore only able to judge you on:
Your investors
Your people
Putting together an A+ landing team really helps set the bar for what you are looking for in the US. Make sure you use your core employees, and investors, in attracting new talents. A-players want to work with A- players.
In addition Emil and the team also chose to invest quite a lot in their first “real” office in NYC to ensure that candidates could feel that they were serious about the US.
Pay top dollar for top talent
European companies get a shock when they hear about salaries in the US. Most companies think they can pay below or at market and get top talent. In Emil’s experience that is not possible and you need to be comfortable paying at least average market value.
For many mid level sales hires for Enterprise B2B companies in NYC or SF its not uncommon to pay around $150K base and $150K bonus + an equity component.
Landing US logos quickly
You might be a well-known European company but in the US you are an unknown player with little credibility. Having a few well-known logos in the US is critical to get the business off the ground.
Consider whether offering additional discounts for logo rights is worth more to you for the first few deals than the ARR. Based on Emil’s experience it typically is more valuable early on to get brand recognition and credibility vs additional revenue. This is also the playbook they used at Dropbox in the early days.
5. Ensuring the right culture for scaling up
Ensuring the right culture
Getting culture right can be difficult. On one hand you want to ensure that the US develops a culture on its own. Often you will see the US culture lean more towards a “work hard play hard culture” which is beneficial when competing in the US. However, you also don't want to lose the company DNA and origin culture from the home market which is why it's so important to bring over culture carriers from the home market. Emil is of the opinion that all offices and markets should have it’s unique and distinctive culture, essentially a hybrid of the original company DNA and the local culture.
Avoiding silos between Europe and the US
This is something a lot of companies underestimate. While you should not be creating identical cultures in Europe and the US you do need to ensure that you are able to have common grounds and collaborate efficiently. There will be things that work globally - those should be adopted by all markets and then there are things that might only work in certain markets and there should also be space for that.
The best approach to avoiding silos is to acknowledge that they might appear and have C-level focused on it and then spend as much time as possible together. Events such as Sales Kick Off and Summer parties are great ways to strengthen the collaboration across the pond.
Emil likes to leverage multiple markets to also allow it to be a forcing function for raising the bar. Having a bit of healthy competition between the markets is great for team spirit and to ensure no one is resting on the laurels. Who does not want to beat the record that the newly established region just set last quarter?
6. What functions do you need to hire in the US (and which can be done from Europe)?
A caveat that this will depend heavily on the kind of company and at what stage you are at in the US expansion journey. The below is Emil’s general perspective for a B2B SaaS Company in the first 1 - 3 years of operating in the US.
Hire in the US
Sales: You need to build a sales organization in the US to serve the US market.
Partnerships: Often important for B2B SaaS companies. I would always make sure to hire local partnerships reps. You need to have folks with a network in the market who can set up events and meet up with relevant partnerships contacts.
Support and Customer Success: You need to hire Support and CS staff locally to ensure you have the right time zone overlap with customers. Be smart about it though. You don’t need a 5 person CS team day 1 if you don’t have any customers and your sales cycle is 6-9 months. On the other hand you don’t want to start your hiring process the day you have signed your first customer either.
HR/Ops: You need to hire a local HR person to help with the hiring, contracts and other ad hoc stuff.
Either/Or
Marketing: You can run marketing from one market as long as you ensure you are equally dividing your attention. Emil’s personal preference is to have a few local marketers who are hired in the US to ensure the right focus and adaptation is made to the US. With that said for some reason the best Product Marketeers are always American.
Keep in Europe
Product and Engineering: Unless there is a specific need to customize the product to the US market most companies continue to keep these functions in Europe. You have much lower salaries and in general splitting out these functions into two different markets and time zones are hard.
Finance/Legal: If your plan is to IPO in the US you need to gradually move more and more of your function over there and also have the CFO be based out of the US. In the beginning you don't need any financial roles in the US but be aware of seeking adequate financial guidance. Setting up the wrong entity structure can be painful and costly down the line. As for legal, a smart attorney paired with a local partner can get you far before you need to hire in-market in-house resources.
7. When do you abandon the US?
Expansion to the US is about proving or disproving the hypothesis that you have about your company and the US market. This is what you need to assess your performance on.
This is why Emil think's one of the biggest mistakes you can make is to “half-ass” it as you won't really have tested the hypothesis definitively. You need to go about it in a “scientific way” in order to ensure that you can identify which part of the engine is broken.
What went wrong? Was the market different? Did we not have sufficient funding? Was our product not strong enough? Did we make the wrong hires? did we focus on the wrong segments? etc.
Before making the decision to abandon the US Emil suggest to look at core metrics around business performance and how they are relative to the targets you set and compare them to the home market.
Quantitative metrics: ARR, New Logos, Pipeline and conversion rates.
Qualitative metrics: Talk with both employees and customers to get their sentiment before calling it.
Patience is key
Finally, most companies underestimate the time it can take to break into a new market and the number of iterations it takes to get it right. You need to ensure you are allocating the right amount of time to properly break into the market.
On the other hand you are making a heavy investment and I am by no means suggesting you to sit back and watch your money burn with no performance. That is why I view it as critical to get a founder/CEO on the ground as the person is best suited to provide a “gut feel” for how things are working (or not) and what to improve.
What are the top 3 biggest mistakes you see companies making when expanding to the US
Making a bad first hire: The first person you hire to the US market is crucial. Many folks end up hiring people that have not tried it before or one with an impressive corporate CV who does not know what it means to build a company/market from scratch. It is extremely costly and sets you back 6 - 18 months.
Unwillingness for the founders to change: Often “what got them here won't get them there”. Founders need to be open to change the way they have been used to doing business to ensure success in the US. Yes, people fundamentally buy for the same reasons (cost, risk, revenue) in all markets but dynamics are different.
“Half-assing” the approach: In my world there is no tip-toeing into the US. Either you do it or you don't. And if you do it make sure to do it properly and go all in.