Many technology start-ups operate under the widely-held belief that by staying within a protected and less competitive environment, they stand a much better chance of surviving and standing on their feet. But, this only makes sense in the short term, and not in the long run.
Beyond alpha-testing, it doesn't work, said Gideon Tolkowsky, described as one of the elders of the Israeli VC tribe who has 25 years of experience in Israel and half the world away in the United States. Tolkowsky was speaking at a recent conference on 'Globalisation and Technology Entrepreneurship', organised by SMU's Institute of Innovation and Entrepreneurship.
Once you reach beta-testing, let alone first product sale, there is no advantage whatsoever in staying a domestic market, he said. Alpha-testing, in the business of technology, means the testing of technology and applications within the developer's premise. Beta-testing, the later stage, refers to testing done over at the client's site - signalling the applications are getting readied for commercial launch.
Tolkowsky is speaking from first-hand experience. Israel, where he came from, is a country with a population of only some seven million. Yet, it is also a hot bed for technological innovation, spawning numerous companies that are quoted on the Nasdaq - America's tech-heavy stock exchange and where various global tech bellwethers like Cisco and Dell are also listed, in numbers greater than any other non-American companies.
He wears quite a few hats: founder and managing director of BME Capital Management Ltd, a Tel Aviv-based investment company specialising in nano-caps that most big fund managers ignore. He is also the co-founder of Crystal Beam Melody Inc, which combines Israel's niche expertise in processing diamonds, to produce digital music based on the unique cutting of each diamond.
Tolkowsky readily agrees that going global is never easy. But, for technology start-ups, even if they exist only as a plan and a spreadsheet, need to look far. And that inevitably means overseas markets. You are only conditioning yourself to sell in an environment which is not the primary market. You have to bring your beta-testing abroad where the primary market is, he said. In this case, 'primary market' refers not just to the market that generates the most revenue, but one where the dominant competitors already are.
Technology companies, especially product-based ones (as compared to service-based firms), need to quickly globalise, he stressed. The alternative is to fade into oblivion as quickly as they were formed. You can't succeed in a technology company if you are located in a non-primary market. The only way to succeed is to go global. There is no such thing as domestic success, he said.
Take for example, a technology start-up has newly-developed a piece of medical equipment or device. Rather than trying to convince buyers from the company's home market to take up this hitherto unknown product, it is much more effective to target buyers in a primary market. Simply put, if the start-up's products can beat home-grown competitors within the primary market, they will gain the sorely-needed credibility just about anywhere else.
While many businessmen might think that going global means winning a beachhead in the primary market, true globalisation involves more than just crossing a border - it is all about competing with the fiercest rivals on their own turfs; it is about entering the lion's den, said Tolkowsky.
Internal and external chasms
Of course, when companies want to globalise, there will be challenges. In particular, they have two different cultural chasms to bridge - internal, and external. The external chasm is relatively straight forward: the need to reach out to customers from another market, with variants of ideals, values, cultures, and levels of understanding compared to their own.
Internally, companies need to bridge the chasm that will inevitably exist among its employees performing different job functions. For example, customer-facing sales people often have a strained relationship with their colleagues in research and development (R&D). Sales people tend to think of R&D as 'a necessary evil'. Their mentality: just give me the products and we will sell it and 'bring home the bacon'. As for R&D, they see sales as ignorant buffoons who do not understand nor appreciate the finer points of the product. This gap amplifies when both groups are geographically apart, Tolkowsky noted.
The obvious and simple (but not necessarily easy) way to bridge this internal gap is to find more ways for the colleagues to mingle and communicate. If the R&D and the sales teams are working under the same roof or share the same corridors and coffee machine, they will have plenty of opportunities to mingle and share. For companies operating in multiple sites, this will be a challenge, as language, culture and time zone differences throw up barriers.
A costly, albeit effective way of addressing this is to send employees on regular visits to their counterparts, so that they can better understand each other's roles and challenges with greater coherence, better products can be developed, and at the end of the day, top line and bottom line will grow.
Tolkowsky also touched on how customers can be better engaged, through the use of what he calls shadow marketing. Company personnel should follow their channel's representatives wherever they go - to sales meetings, conferences and so on - even if they assure you that they know the market well and know what they are doing. Because very often, even large distribution companies make mistakes, and they may also fail to understand the new products.
Next, companies should leverage on some external parties for extra doses of credibility and support. As virtual unknowns to customers in a new market, rather than making cold calls, banging against the walls to reach out to potential customers, companies can involve their own investors - especially those from their primary markets - to help magnetise customers from the same markets.
American investors are not likely to invest in your technology product if you do not have any customers in America because it is very difficult for them to relate to your company. It can happen the other way round too. For example, institutional investors in UK will bring in UK customers. The synergy between shareholders and customers are very strong, so get your shareholders and customers from the primary market as early as possible in the life cycle, said Tolkowsky.
He also thinks that finding the right management structure for cross-border technology start-ups can be a tough challenge. During his talk, Tolkowsky describes four management structure variations using a rather colourful analogy: (1) have a hen co-founder move to lion den and manage the two-legged company from there; (2) move a hen to the den and recruit a local CEO above her; (3) move a hen to the den and recruit a local VP under her; and (4) the structure which Tolkowsky thinks work best - find an ex-hen in the den to team up with home hen.
Challenges are not limited to the operational level though. The composition of a company's board of directors (inevitably, the big investors) plays a critical role too. The history of technology start-ups is littered with corpses of companies where founders (those with the product know-how) can't see eye-to-eye with investors (those with the money). Tolkowsky's advice: choose your co-investors carefully, for the wrong choice is a common cause of company's death.
Act globally from Day One
So, given the opportunity to sort things out at the drawing board, what should technology start-ups do? According to Tolkowsky, they should think and act global, right from Day One - do not get too fixated with the domestic market and then see what kind of overseas opportunities might come about later on. You cannot build your company domestically and try to convince the board one day that you're going international. It doesn't work, he said.
From the start, companies have to design their business plans with a global perspective across all dimensions - be it shareholders, board, employees, product development plan, marketing plan, finance or intellectual property. Very often, going after one primary market is not enough; try to penetrate two or even more primary markets.
The game plan involves some internal gazing too. Companies, however small they are, need to build a global culture. Employees should be encouraged to use English, the dominant language of international business, when writing emails or documents, even if the communication is between two native speakers of the same language. In doing so, companies can address issues of cross-cultural chasms quickly. Tolkowsky likens corporate culture to the scent in carpets. It cannot be removed. You can clean the carpet, vacuum it, send it to the dry-cleaners ten times, and the scent remains.
It is easier to move the building 10 feet to the right than to change the corporate culture. Because we know what to do to move the building, but we do not know what to do to change the culture, he said. If all can be said and done, the hen stands a much better chance of outflanking the lion in its den.