The dynamism of Wall Street and insouciant brilliance of Silicon Valley tend to dazzle British businesses. GrowthBusiness meets the entrepreneurs who still want a slice of America’s money pie.
The dynamism of Wall Street and insouciant brilliance of Silicon Valley tend to dazzle British businesses. GB meets the entrepreneurs who still want a slice of America’s money pie.
The US has long been the UK’s largest overseas buyer, accounting for approximately 15 per cent (£33 billion) of all exported goods.
In the long term, UK businesses may be looking to increase exports to fast-growing economies like China and India. For the meantime, this nation’s entrepreneurs continue to be wooed by the opportunities offered up by the land of Stars and Stripes. They want a piece of its $14.2 trillion economy.
Technology companies are understandably keen to gain a foothold. Richard Davies only started his cloud computing company ElasticHosts a year ago and he is already trying to crack the market by forming a partnership with a company based in the US.
Put simply, the deal means that the other company can use and market ElasticHosts’ services. ‘We partnered with them under a scheme where they let us develop the cloud infrastructure and hosting facilities, while they have the data centre and staff to manage the hardware.’
Revenue comes via lead referrals and the set-up costs are minimal because it’s web-based software. ‘Rather than have a commitment in the US, we realised we could leverage their hardware with our software. It’s early days but I think this could go a lot further,’ says Davies.
Dollar signs flash up in the eyes of entrepreneurs when they think of the US’ population of 307 million potential consumers. Unfortunately, the excitement sometimes makes them forget some common sense rules when expanding overseas.
Gavin Wheeldon, chief executive and founder of translation company Applied Language Solutions, which has 11 offices in nine countries and sales of £7.2 million, observes that cultural differences can be difficult to navigate.
‘We have a rule here [in the UK] that if a query requires an answer, then you pick up the phone,’ says Wheeldon. ‘In the US, they prefer to do everything by email.’
Wheeldon admits that he went along with the email-only approach at first, but after the results failed to come in he decided to replicate the sales strategy of his UK team. ‘I spent more time working with them,’ he says. ‘Anybody who tells you that people are sold to differently in the US is talking rubbish.’
Applied Language now has four offices in the US and a supporting office in Guatemala. ‘If you really want the US to work [in the beginning], you need senior people spending a lot of time there,’ says Wheeldon, who admits that he’s found the US the hardest of all the overseas markets the company operates in.
Steve Gleave of Metaswitch, a telecoms manufacturer which generates 90 per cent of its £65 million-a-year revenue from the US, agrees that the support structure and training must be spot on. ‘We have complete commitment across the regions,’ he says. ‘A customer can call into a centre and name the specific engineer on their account. We have 500 employees and at least a third of them are based in the US.’
The recruitment process is rigorous. ‘There are IQ tests and every single person we’ve hired in the US is flown in as part of their second interview to the UK to meet the CEO and have another test,’ says Gleave. ‘It means that they understand the cultural objectives of the business and it seems to be working as we have a staff turnover rate of under 3 per cent.’
If that’s beyond your budget, it’s still worth going the extra mile in the interview process. Stephen Kelly, the deputy chairman of CloudApps, comments: ‘Sadly, I would say that nearly everybody in the US interviews brilliantly. As a nation, they are fantastic at self-marketing; you can imagine the people in the interviews as presidential candidates. So you really have to flesh into references, much more than in the UK. And you need verbal references too as I wouldn’t trust written ones.’
The consequence of hiring the wrong team isn’t only the wasted expense, which is higher than in the UK, but in the time lost in getting to market and making an impact. ‘British teams tend to be great on innovation and invention; if they squander time on hiring the wrong team, then chances are there will be a gorilla in the market who will swat you like a fly,’ says Kelly, who plans to launch CloudApps in the US within the next 90 days.
Like a new parent who thinks their baby is the best and most beautiful around, it’s not unusual for entrepreneurs to fall head over heels in love with their product or service and expect everybody else to feel the same. Matthew Whiteley, vice consul for the US branch of UK Trade & Investment, notes that this lack of objectivity can be disastrous.
‘A lot of British companies we speak to are pushing their technology rather than trying to assess the market pull: you need to assess how feasible it is to break into a market. Repeating the same sales strategy from your home country in another one is very difficult; you enter the US virtually as a start-up.’
A pre-fixed idea about what company should be buying from you is equally likely to end in disappointment, says Whiteley. ‘The problem I have is that CEOs constantly want certain introductions and they have already determined that these will be the right introductions.’
So although it might be nice to become a supplier for Microsoft or Walmart, the reality is that you need to understand the process of how to become a supplier to these corporate giants and you might be lower down in the foodchain than you think.
In short, you can’t assume anything as the most basic elements of doing business may require a fresh approach. Instructions, advertising copy and product descriptions that work in the UK may not pass muster in the US. For instance, literature and manuals printed on A4 will not copy or fax properly and will look decidedly unprofessional on US standard-sized papers. As Gleave observes, ‘you have two countries separated by a common language’.
The scale of the US can be a hindrance if you’re too ambitious and greedy. There are four time zones across the 50 states and the contrasts between the East and West Coast, the South, Texas and Midwest make the UK’s regionalism seem quaint by comparison.
‘If you don’t have a solid foundation in the UK, you shouldn’t fight a war on two fronts,’ says Kelly. ‘It is much more akin to the European Union as the regions are very different. Typically, people in Boston aren’t so enthusiastic about someone flying in from California as there is a big emphasis on supporting Massachusetts software businesses. If you treat the country as an homogenous marketplace, it’s quite likely you will trip up.’
Kelly should know. He has over 20 years’ experience of doing business in the US, starting out at Oracle Corporation shortly after its IPO in 1987 and then joining software company Chordiant where he became CEO in 2002, taking the Silicon Valley-based start-up to a listing on Nasdaq.
For him, the crucial mistake occurs when companies put investment ahead of sales. ‘Sadly if you go there and you’re not generating revenue immediately and start opening regional offices, you suffer massive cash burn,’ he says.
To keep costs down, Kelly advocates homeworking: ‘Even ten years ago at Chordiant, we used to work a lot from home and have a small serviced office. The reality is that if you’re going to sell to the Fortune 1000, they always expect you to come to them. In the first five or six transactions, we sold to customers with price tags of well over $1 million and they never visited our software or our development centre.’
As for marketing and branding, Kelly notes that huge sums are wasted on conferences where $60,000 can be spent on a booth that delivers only dead-end leads. ‘I don’t want to diminish the value of the people who go to conferences, but my experience from a business point of view is that a lot of them are tyre kickers,’ he says.
Make a noise
If you’re trying to get noticed, the obvious answer is to use PR. ‘If you had one dollar to spend on marketing every day, put it on PRs and analysts,’ states Kelly. ‘For UK companies, if you’re really smart around PR and you do intelligent things around surveys that will be picked up by the Wall Street Journal and New York Times, then the coverage is far more pervasive than anything you can do through traditional marketing.’
It worked for Micheal Rice, the CEO of exercise bike specialist Trixter. The company became the talk of the web after motorcross star Ricky Carmichael said he liked to use the bike for training purposes.
‘We didn’t know anybody initially. We were cold calling but after we targeted a couple of people by sending them free bikes to try, we managed to attract that cool factor,’ says Rice.
Trixter recently set up a subsidiary in the US to sell to distributors, boosting cash flow through a £300,000 invoice financing facility. Set up in 2003, Rice says the products have to be bulletproof in terms of durability and, because of this, he has been able to introduce new models and has won the trust of the major distributors. It’s not been easy and he admits that the US tends to be far more expensive than people originally budget for. ‘It’s intensely competitive – the US is always going to be your skinniest margin, although all our stuff is purchased in Taiwan so we don’t have the [foreign currency] exposure,’ he says.
The recession hit Trixter badly as established dealers went bust, leaving the company exposed on hefty invoices that were never paid.
‘Giving credit in America really helps sell the products, but you can’t do that on an exposed basis as that was crippling for us last year,’ says Rice. As a consequence, he now limits himself to working with distributors who have credit approval, and he now has insolvency insurance. ‘Don’t expose yourself to credit risk,’ he warns.
The US is not the force it used to be since the credit crunch and it is highly likely that the country is heading back into recession. China, which holds $800 billion in US treasury bonds, is clearly the new global powerhouse.
UKTI’s Whitely freely acknowledges that America’s wider economy has its troubles. But he insists that for companies operating in hot sectors, such as e-health, mobile phones and cloud computing, now is as good a time as any to take advantage of the unique scale and consumer base presented by those 50 union states.