The following post is a guest post by Theophil Haberstroh and David Polte who help support start-ups with their expansion to either France or Germany. Theophil is also an active member of the Digital Club Franco-Allemand (DCFA).
European digital companies strive to successfully compete with their American and British counterparts. To achieve this, they know they have no choice but to expand beyond their local market. Within the wide range of possible target markets, looking across the Rhein is obviously a logical first step for many French and German startups. In order to get a perspective on this from key players from both countries’ tech ecosystems, the Digital Club Franco-Allemand (DCFA) and Rude Baguette organized a panel at the recent NEXT Berlin conference during which entrepreneurs and VCs offered their perspectives on how to tackle the internationalization question. Here were the top six tips from the discussion:
Tip 1 – Don’t just go international to stroke your ego
What does the term internationalization really stand for? Dominik Matyka, founder and CEO of plista GmbH brought up that question, asking: “Does it just mean being present? Having an office in France? Having a website that is translated into five to ten different languages?” He added that going international is expensive and a truly difficult step to take. His take was that: “If you want to be international, really think through why you want to be and what your goals are,” as just being 2nd or 3rd player in several markets isn’t necessarily a successful internationalization.
Going international is often the right choice for companies that have reached their max growth and revenue in their home market. Such a player obviously has a proven, revenue generating business model it can leverage to fuel its market expansion. But again, many startups and SMEs may not fit this mold. Nicolas Cellier from Alven Capital pointed out: “If you don’t have the potential to be European, be a solid player in your market and, potentially, position yourself to be acquired by someone. You may not be playing at the international level, but at least you’ll have something robust and profitable. Not everyone can be Google, not every business can be global.” He also added that although VCs do look for international aspirations from startups, that they can also be dissuaded by shaky international expansion plans.
Tip 2 – Go local
For those looking to expand internationally, the number of ways to do it is still limited. It comes back to “open your own offices, hire new people and start selling” or “acquire someone in your target-market” or “strike a partnership”, as Erkan Kilicaslan from Iris Capital pointed out. If deciding for option 1, you should “go urban with local offices”. “Act locally!” is a key-point here.
What about French and German companies looking to expand into each other’s markets? What are the main challenges? Wolfgang Krause from Seventure Partners addressed this and offered a striking observation: “From a French perspective, Germany is even more complicated and harder to penetrate, than the other way around, because Germany is an extremely competitive market. Plus, Germany is a decentralized country, you don’t really know where to go.” A German company going to France generally will always head for Paris first, knowing it will find a solid infrastructure and rich tech ecosystem there. Regardless, the consensus was still that when entering a new market, you pretty much always need to act like a local player, adapting as needed to the norms and rules.
Tip 3 – Understand the differences
In addition to the structural differences between the two markets there are, of course, still cultural ones as well: “France is like Austria” is what Dominik Matyka declared. “France is personal, everybody wants to meet you five times, august is basically not a month, because no one’s there”. Not surprisingly, he also raised the concern around employment contracts in France which make it difficult to both hire and fire people rapidly to adapt to changing situations. Looking at differences in the day-to-day work environment, Wolfgang Krause states: “The Germans are teamworkers, they discuss problems and the result of the discussion is the decision. You rarely have the case where after the discussion the CEO makes a decision differing from the team’s decision, which can often happen in France.”
A participant underscored that cultural differences should be recognized and respected when working across markets: “Agreeing on a certain time means ‘exactly that time’ from the German perspective and ‘around that time’ in the French case. Meeting with lunch will mean sandwiches by the coffee machine on the one side and two hours with wine on the other. Understanding and respecting these differences is just part of the deal when doing business in another market. At the end of the day, it’s about spending valuable time with others (coworkers, customers, etc) and that’s just the best way to do it in that market.”
Tip 4 – A good international team is key
The best way to respond to these challenges is to build a strong international team with local managing directors for each market. That’s how BlaBlaCar, a leading european ride sharing community marketplace, managed to successfully expand internationally, as explained Nicolas Brusson, one of its founders. The panel agreed, that one shouldn’t underestimate the importance of having staff that knows the market, culture, rules and business practices of the other country.
At the same time, as elaborated by panel moderator Yann Mauchamp, having a multi-national team should also help to improve how people and teams work together across markets. Maëva Tordo from ESCP’s Blue Factory Incubator explained that ESCP’s students are naturally developing cross-cultural collaboration skills, as they study on several campus and therefore have colleagues across Europe. Many even create pan-European companies together, which is one of the main things they’re encouraging at Blue Factory.
Tip 5 – Have a VC that has a multi-market strategy or perspective
Within the last 10 to 15 years VCs in Europe have evolved quite a bit from behaving like banks to becoming investment partners, offering advice and know-how in additional to capital. They’ve also evolved in terms of the types of companies they’re looking to invest in. As the Erkan Kilicaslan from Iris put it: “We are looking for companies that have a high growth potential in their home market and have developed a framework to grow in another.”
But are European VCs equipped to invest in and support truly European, rather than local, companies? Nicolas Celier responded saying that it’s true that the VC industry is still fairly young in Europe and still evolving to be able to fully support lots companies with global aspirations. However, given their knowledge of and connections in local markets, and increasingly across Europe (and beyond), European VCs are still probably the best partner for many EU based startups.
Tip 6 – Listen to your customers and be able to deliver
Finally it still comes back to “Listen to your customers”, as Céline Lazorthes founder and CEO of Leetchi.com underlined. Especially in areas like e-commerce, the customer base is no longer 60 or 80 Million French or Germans but 400 Million Europeans as another participant added.
Most importantly though, “Be able to deliver” as stressed by Yann Mauchamp, “Before you go international be sure your technology is able to scale as fast as your business. There’s nothing worse than having people ready to buy your product when you’re not able to deliver.”