Challenges & opportunities for entrepreneurs expanding globally
There are huge opportunities for entrepreneurs and start-ups who are now able to access a global market for their products and services. There are also cultural, financial, legal and staffing challenges which need to be taken into consideration when expanding overseas, says Dr Anino Emuwa, Managing Director of Avandis Consulting and founder of 100 Women @Davos.
The global economy and the power of the internet means that
start-ups can sell to global customers from their first day of trading, should they wish to do so. This opens up opportunities for founders who want to bring their products and services to an international audience. As a company expands, however, there are some key considerations to bear in mind to ensure the success of your entity.
- ENSURE YOU HAVE STRONG GOVERNANCE
If you are a smaller business or a start-up, the focus is on the product, selling it and expanding. When you then start growing, governance becomes a key issue. You need to build in a board, put the right structures in place and draw up robust policies. We often find with entrepreneurs that they are so busy developing, testing and marketing their product that they forgot about this aspect of running a company.
- BRING IN FINANCIAL EXPERTISE
Founders may have business flair and acumen, but not all of the clients we work with enjoy the minutiae of keeping books and managing the accounts. As you expand, it may be necessary to appoint external auditors and to file annual reports.
- CHANGE YOUR LEADERSHIP MINDSET
Moving from a start-up to a rapidly expanding company requires a
different kind of leadership. You are running a larger organisation and it
needs to be well-structured in terms of organisation and leadership.
You may have a fast-growing team which you need to motivate and manage. A key skill founders need to develop is delegation. Delegating doesn’t just mean people the power to do things, it also means you know, you can’t really be in the midst of every single thing. You have to rely on a team and hire the best people.
- LOOK AT THE WIDER CONSIDERATIONS
Once you start to grow, it is not just about you and your initial idea. You
may need legal advice, you need to learn how to deal with stakeholder
management. It’s much more than just yourself and the product and
your customers. Depending on your location or industry, there may be
regulatory considerations. You will need to get the marketing right and
have a strategy in place for growth and expansion.
- BUILD A GLOBAL TEAM
As you expand, you may come across challenges in terms of staffing
and finding talent. In tech and tech-related industries in particular,
the talent and expertise is global. This brings with it issues around
tax, immigration and employment laws, depending on whether you
need your employees to be working at a physical office in a specified
jurisdiction, or whether they are employed remotely from their own
country and are working from home.
HOW TO EXPAND
OVERSEAS – FUNDING, STAFFING AND LEADERSHIP
If you are scaling up and your business requires a physical
presence, then you will need to get local advice. You will need
to understand how to set up an entity in your chosen country, and
consider tax issues, laws, regulatory policies and other external factors.
When you’re looking at expansion, entrepreneurs often are looking at
the market and neglect to research the practicalities around their
chosen jurisdiction. That is why it is important to engage specialists who
can guide you through the process. If you are employing people
directly in your organisation, then it becomes essential to understand
how the law works and to make sure employment contracts are set
IT’S IMPORTANT TO BE CLEAR WHEN RAISING
CAPITAL THAT YOU COMMUNICATE TO
YOUR INVESTORS WHAT YOU NEED THE
MONEY FOR, AND IF IT IS FOR EXPANSION,
THAT YOU EXPLAIN THE FUNDING WILL BE USED
FOR INTERNATIONAL PROJECTS.
Think carefully about the security of your capital. Entrepreneurs
who were establishing ventures in emerging markets, from India
to Brazil, Africa and Nigeria,had raised funds from the US
venture capitalists, and the funds were housed in SVB. Investors in
emerging markets had felt that it was safer to house in the US.
They set up Delaware companies to become the holding companies.
These entrepreneurs and owners are based in emerging markets,
they’re not American citizens and do not have the social security
numbers required to set up a US bank account. SVB was one of the
very few banks that was encouraged business from these ventures. They
were in the US because it was supposed to be safer.
Finding and keeping your talent
can also be a challenge and you need to think globally, especially
if you are a tech or tech-enabled company. Tech talent can be found
in Africa, Egypt, Saudi Arabia and Turkey and you need to know how
to onboard employees from these countries legally and compliantly.
As a founder, you may also find yourself moving between countries,
especially if you are expanding into a new market and want to be
on the ground in that jurisdiction. If this is the case, you need to
think about how you put together a team in the new location. You
may need to build a workforce and manage them and this requires a
new set of skills and a deep cultural awareness of the country in which
you are operating. There are often major differences between the way
business is done in different cities, as well as different countries.
For this reason, it is really important to use consultants and
advisors who can guide you. You need to be culturally attuned, be
receptive to the people around you,ask questions and don’t make too
many assumptions. If something doesn’t seem right, ask questions
rather than jumping to conclusions. It may be something cultural or
business-related that you were not aware of.
Entrepreneurial businesses don’t necessarily have the capital immediately available, and if they are planning an expansion they will need to become involved in fundraising. This can be problematic for founders who are inexperienced or unsure where to turn.
It’s important to be clear when raising capital that you communicate to your investors what you need the money for, and if it is for expansion, that you explain the funding will be used for international projects. I remember that we looked at a set of financials
for a business client and they had a huge fund earmarked for expansion over the next year, which they had not articulated.
It is important not to spring these sorts of surprises on the venture capitalists with whom
you are negotiating. You have to be clear that this is for expansion and be open with your investors.
The debacle around Silicon Valley’s SVB bank will continue to have ramifications across the whole of the funding and venture capital market. We will not see the full effect until we have figures at the end of April 2023, but there is likely to be a drop in funding.
A phrase much used is the VC Winter, created by a combination of the end of the decade long bull market in equities in 2022, rising inflation and interest rates around
the globe, and a gloomy outlook for companies amid fears of a recession. This has led to a fall in valuations for start-ups and VC funded ventures, and according to Kroll, valuations of private startups fell by 56% between 4Q 2021 and 4Q 2022. Its research found the tech-heavy NASDAQ index fell by a third in 2022, making it one of the worst years on record and drawing comparisons with the dotcom bust of 2000-01.
The run of SVB, fuelled by social media speculation and fear, is a reflection of systemic problem, which is why financiers and investors are concerned about the risk of contagion to other banks around the world, and ultimately, the entire banking system. No
one wants a repeat of the global financial crisis of 2008, which is why investors are twitchy.
SVB had their capital tied up in long US government bonds right, and the prices dropped as interest rates rose. In Europe, the European Central Bank has just increased
interest rates, which will further drive down the value of existing bonds in the market.
In the delicate ecosystem of world banking, this has made investors nervous. Banks and investment funds face a dilemma, however because they need to put their
capital to work, and deciphering where is a safe haven has become increasingly challenging, hence the renewed interest in commodities such as gold.
I feel that the VC Winter is likely to continue, as Venture Capitalist make the decision to
watch and wait, to see how this all plays out. But there are still plenty of opportunities for start-ups and entrepreneurs who have ambition to see their products and services sold worldwide. What is needed in this uncertain economic situation is good advice, sound planning, and a team of quality talent who can help plan and anticipate to take advantages of opportunities when they arise, wherever that may be globally.