Why Late-stage Startups Stumble When Expanding Into the U.S. Market
Pre-read: Startups take one of two timelines for U.S. expansion: (#1) building for the U.S. market on Day 1 (seed-stage) or (#2) expanding post establishing a foothold/PMF in their local region (Series B+).
This article is focused on the latter, #2.
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Imagine this scenario — you’re an established B2B startup in India, the UK, or Australia and are crushing it. You’ve found product-market fit (PMF) in your local market and are ready to take the leap to unlock the next stage of growth — expanding into the U.S. market.
This scenario, in a vacuum, seems achievable. All you need to do is take what’s working and hire a dedicated US team, right? Wrong. The reality is that this is what Founders think they need all too often.
International growth is riddled with customer and cultural nuances, making it extremely challenging to generate initial U.S. traction. Even if you have proof of PMF in your local region and sustained success working with local U.S. subsidiaries, this in itself is not proof you’ll be successful in the US. Why? You’re targeting an entirely new customer with a product and process that has been hardened to the needs of your current customer base. Both the team’s mindsets and processes are more fixed and less flexible, which is an absolute recipe for disaster when entering a new territory.
Let’s take a closer look at the reasons why late-stage startups stumble when expanding into US markets and the things you can do to prevent this from happening.
Start-ups are blinded by their localized PMF
This biggest misconception in U.S. expansion is assuming your local customer base (i.e., logos) and sales-led go-to-market (GTMs) carry weight in a new geography. PMF in one region typically leads to false positives in any new region.
Failure/missteps tend to be higher for later-stage startups as they quickly assume their local market traction will translate clearly and efficiently into the U.S. market. It’s worked before — why wouldn’t it work now?
This mis-assumed shortcut will slow you down and yield a significant loss of capital and time. Customer Discovery is a revenue accelerant not only for early-stage startups but also for companies in late-stage growth.
Unfortunately, local success is often a false positive. When start-ups set false expectations, Founders are required to backtrack because they pre-maturely scaled. Perhaps that’s one reason why 93% of international startups don’t find traction when expanding into the US.
Here’s the truth — being flexible and adaptive increases the likelihood of success. No matter how established and successful you may be in your local market, taking a “Day 1” approach and mindset can lead to sustained acceleration in new markets, especially the U.S.
Start-ups lack critical insights about customers in new markets
Here’s what we typically see. A growth-stage B2B startup raises a Series B+ or beyond and generates $5-20MM in revenue in the Asia-Pacific (APAC) region. To unlock the next stage of growth, they focus on U.S. expansion in one of two ways:
50% of their total addressable market sits in the US
There are early signals of fit working closely with local offices of US-based firms
I can assure you that working with an APAC subsidiary doesn’t increase the odds of working with its U.S.-HQ. If it did, we would see more global startups find quick, U.S. traction here.
The key to winning in sales is to know your customer better than anyone else. Running to sell and assuming you are able to do so is the fastest way to fall flat on your face. The biggest reason why is that taking a sales vs. learning approach with your prospect will prevent you from unearthing the unique insights needed to sell. Why?
When customers feel like they're being sold to, they are less willing to share the intimate details and subsequently take a more defensive approach.
This is why a Day 1 mindset is required: before you jump in and start selling, you need to go through a learning and Customer Discovery phase. Sales, in general, is not about selling. It’s about having the unique insight to unlock a different perspective to solve their problem.
Products are less-flexible in later stages.
Because companies are in later-stage growth the product is less flexible and will require iterations/contextualization for new markets. It is a common problem, as you have built, customized, and heavily invested for your initial base. Later-stage startups (typically) have a more challenging time with expanding and finding product/market fit in new markets than their earlier-stage counterparts.
There is pressure to scale quickly, and the Founder believes they’re a bottleneck, making the misstep of quickly delegating.
After fundraising efforts, there is tremendous pressure to scale as quickly as possible. This leads to many companies taking shortcuts and not adequately investing in customer research—first-time founders often fall-trap to seeking out short-cuts that don’t exist.
Additionally, the Founder will likely be further removed from the situation, investing in and delegating to U.S.-based resources. A non-founder will never find the vein in the most competitive market in the world. Only the Founder has the social capital to build trust and land early customers.
Founders need to maintain a super tight feedback loop, collecting proof points before hiring and deploying people. Again, no matter what stage of business you’re at, U.S. expansion requires a Day 1 mindset.
Founder-led selling will ensure late-stage startups scale in the U.S.
Your previous and local successes may blind you as a late-stage startup. Startups would be wise to take a “Day 1” mindset and conduct thorough customer validation when expanding into the US, no matter how successful they’ve been previously. Founder-led selling is a natural advantage to allow you to figure out what works first BEFORE you scale. Move too fast, and the only thing you’re scaling is your problems.
If there’s one lesson you take away, success in one market doesn’t carry weight into a new market (especially U.S.). It’s invalidated until it is validated.
Need more advice on how to scale properly? Be sure to check out our insights page for more growth tips.
