Why British Businesses Struggle With U.S. Expansions
America represents an attractive opportunity for British businesses. We share a language, history and numerous cultural reference points. With over 300 million consumers and an economy growing faster than Europe, UK businesses understandably view the U.S. as a land of opportunity.
In 2011, the American economy returned to its pre-recession size, with it currently worth around $18 trillion. Economic growth in 2018 is expected to be around 2%, according to official Congressional Budget Office (CBO) estimates.
The U.S. economy is more resilient than the UK and Eurozone. It is less reliant on the service sector, more innovative, the home of Silicon Valley, and U.S companies are, traditionally, better capitalised than UK businesses. Entrepreneurs also benefit from around 500 active Venture Capital (VC) firms, which is one reason why so many ambitious UK scaleups are eager to establish a U.S. presence.
Go West and Prosper?
U.S. companies and investors take an active interest in UK startups and scaleups. Crunchbase data highlights the fact that the world’s top startup buyers are from the U.S., most are from Silicon Valley, San Francisco and New York.
In the last 12 months (2016-17), 36% of 3,573 Eurozone startup exits were bought by U.S. companies. Ambitious European scaleups that adopt the ‘dual’ model, whereby they retain important operational offices in Europe (R&D, etc.), whilst moving the head office to New York or California, raise more money and grow faster than those that don’t.
According to the European Dual Companies: Scaleup Migration? Report, 570 of 4,200 scaleups in Europe have adopted the dual model, raising $10.6 billion in 12 months. These companies raise 30% more than those that don't adopt the dual model. Two quotes stand out from this report:
“There may be no better place than Europe to start a tech company, and no better place to which to expand than the U.S.”
Daniel Glazer, Partner, Wilson Sonsini Goodrich & Rosati. Startup Europe Partnership (SEP) report: European Dual Companies: Scaleup Migration?
“Access to capital clearly emerges as the main driver of U.S. expansion for EU scaleups.”
Alberto Onetti, Chairman, Mind the Bridge, quoted in European Dual Companies: Scaleup Migration?
So far, this almost sounds easy. Expand into the U.S. Win some clients. Raise more money. In time, shift your head office to a trendy and spacious office somewhere in New York or San Francisco and get your face on the cover of a high-profile magazine.
If only U.S. expansion were that easy. Instead the path to expansion is littered with the remains of companies that tried and failed.
U.S. Expansion: Not a walk in the park
In 2012, the retail giant, Tesco pulled the plug on an expensive U.S. misadventure, Fresh & Easy.
Created in a warehouse in Santa Monica, California, Tesco, with 50 executives living in with American families - in an attempt to understand consumer habits - invested £1.2 billion trying to break the U.S. market. They failed to make a profit. Taking the eye off the ball back home and re-investing domestic profits into this venture resulted in a massive £6.4bn pre-tax loss reported in 2013. It has taken several years and major restructuring for Tesco to recover from this experience.
Tesco isn't the only well-known British brand to fail in America. Rival supermarket, Sainsbury’s, alongside Marks & Spencer, WH Smith, HMV and B&Q have all had expensive misadventures stateside.
British startups, scaleups, and digital agencies also struggle. Even tech giants, such as Sage, required a re-brand and culture shift to succeed in the U.S.
Why British businesses struggle?
In Mindracer’s experience, British companies suffer from the collective assumption that U.S. expansion should be easy. As a country, the UK is awash in U.S. media, television, movies, social network influences and those constant shared cultural references bouncing back-and-forth across the Atlantic.
Speaking a shared language wraps us in this safe yet false assumption that, we - British and Americans - think the same way. Imagine you were expanding into the Far East? You wouldn't make many, if any, cultural assumptions. It would take longer. You would be more cautious; you would want to engage on-the-ground support, to understand the market, languages and cultures of that area.
One of the main reasons UK companies struggle in the U.S. is insufficient cultural understandings. Assumptions fall apart in the cold light of day. For example: U.S. consumers and business buyers/end-users expect fast, efficient, and often, real-time customer support. If they have a problem, they want a rapid solution. Why should they wait until UK office hours to get a resolution?
Getting the sales pipeline established isn’t easy, either. Walking into the U.S. market without an understanding and appreciation of the landscape, key players in your sector, buying cycles, how to approach buyers and who they are is a recipe for disaster. U.S. investors rarely look at UK companies unless they’ve got a decent U.S. client list.
To many business leaders, this often leads them to assume the best approach is send their top salesperson to establish a U.S. office and get the pipeline flowing. Again, in our experience, this is one of the most expensive and time-consuming mistakes you can make. In a future post, we will outline a different approach, one that will help ensure you avoid most pitfalls of growing your business in America.
If you don’t want to wait, please contact us.