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Avoiding The Quagmires of Geographic Expansion
👋🏼 A quick programming note before we dive into this week’s topic… I’ve published two podcast episodes over the last two weeks and have several more in the planning stages. If you have specific topics or questions you’d like to hear covered, send them my way by email or in the comment section. I’d also appreciate your feedback on this whole podcast vs. writing thing:
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I published about narrow focus being a superpower a couple of weeks ago. I also recorded a podcast episode with Aater Suleman about building company culture focusing on remote-first services businesses.
Geographic focus is an essential theme in both of these. This week I’m drilling into a little more detail on some of the dilemmas related to growing geographically and how to avoid them.
Motivations for geographic growth
Access to talent for delivery
There is no 3. 😉
Joking aside, most companies start looking at new geographies because they think they can grow sales faster, access more or less expensive talent for delivery, or both.
Achieving these goals can take time and effort. The first time a business tries to do it, they often screw it up.
I’ll get to why in a second, but first, it’s worth unpacking a little nuance.
Accessing new markets is tempting to any business. Services businesses, particularly in the US, sometimes start thinking down this path when they’ve had some success with sales but start feeling revenue growth slow down.
The “problem” is that the US market is huge. It’s large in absolute and relative terms of spending. It’s large in terms of the variety of sizes and types of prospective customers. And it’s also really deep in the sense that in many developed industry verticals, a business can sell to many prospective customers.
If a US-based business feels sales are stalling out and wants to grow internationally, it’s usually a symptom of an underdeveloped sales process. For very mature companies that have been selling in the US market for many years and have genuinely penetrated the entire market, the company may have reached the bottom of the well.
But, for most early-stage, high-growth businesses, this isn’t the case. The reality is that optimizing the business’ sales approach is much more likely to address the growth problem.
If a US-based business feels sales are stalling out in a specific area of the country and wants to grow domestically, a new US-based location may help. This is particularly true for businesses that have a well-established sales approach, typically with $5M of annual revenue, and the sales approach uses face-to-face sales.
Some key questions to clarify the “increase sales” motivation:
Is the market in the new geography being considered large enough relative to current markets to drive the needed sales improvement?
Are the current markets really fully penetrated? (A good test is to ask how your best competitor would answer that question about the same market!)
Is the sales approach being used in the current geography predictable, repeatable, and scalable?
Access to delivery talent
Services businesses are people businesses. The availability of talent is a crucial ingredient to growth. It’s natural to look at geographic expansion to find more staff. Again, though, it’s essential to consider the nuances of delivery.
Adding a new location for delivery talent may require a new delivery model. If a business has always had the staff doing delivery work co-located in one place, suddenly introducing a new location begs some crucial questions: Are the staff in the new location also going to only work with each other (basically replicating what the current location does)? Or will teams in the new location work on the same projects as the current location?
The latter introduces a new way of working for everyone involved. That can work, but it needs to be handled deliberately by working through the processes and interactions that make delivery successful.
A new delivery location implies needing the operational capacity to manage delivery, recruiting, and people management. It’s essential to think through not just how staff will deliver the work in a new location but how the business will recruit that talent and help manage their performance and careers. The complexity a new location introduces varies significantly depending on how similar or different a new location is to existing locations.
Growing domestically vs. internationally
For businesses in the US, domestic geographic growth in this context can mean:
opening an office in another city to sell to clients in that area, and/or
opening an office in another city to have delivery talent in that location, and/or
introducing a new style of working, i.e., staff has been remote-first but is now going to work in person in an office, or staff has been in an office but now will be in a new office or also be remote
Leadership may be lulled into thinking that these sorts of domestic growth will “just work” and will automatically fit into the business's existing sales, delivery, cultural, and operational aspects. This usually isn’t true - it takes more deliberate planning.
International growth often has the same motivations thematically but with subtle differences:
a new international geography to sell into is often sought because the business feels like its current market is tapped out; they believe they can grow faster by accessing a new, untapped market
a new location for delivery may be motivated by the cost of the labor in that geography rather than just access to or availability of talent
supporting a near-shore or off-shore delivery model may be viewed as strategically valuable to the business
It’s important for US businesses considering geographic expansion to recognize that:
While domestic expansion is more straightforward than international expansion, it’s not easy.
Businesses often have practices built into their sales processes, delivery methodologies, working culture, and operations that depend on the geographic approach used when the company started. Often they aren’t written down and only get identified when they break because of change - like adding a new geography.
Successfully executing geographic growth domestically does not guarantee success with international expansion, even though some of the considerations seem similar.
Why geographic growth can be hard
The complexity of geographic growth is a function of (at least) six different factors:
Purpose (the motivation discussed above)
Employment culture (how employees in that geography expect to work)
Commercial culture (how prospective customers expect to be sold to)
How that growth is executed
All of these factors live on a spectrum of more straightforward (but not necessarily easy!) to more complex:
It is helpful to think through each of these dimensions when considering geographic expansion and the potential challenges or unknowns for a possible expansion.
Some lessons learned
As a way of highlighting the “hidden” complexities of geographic expansion, I’ll end by sharing three examples of lessons that I’ve seen businesses learn the hard way:
Building a sales + delivery team in a new location at the same time is hard
It’s hard enough to do one of these well - doing both simultaneously is very challenging to pull off. It usually requires local leadership for sales and delivery as separate roles.
It’s also a distraction for the leadership of the business in the existing locations. More energy than expected usually goes into supporting the new leadership in the new location to ensure this kind of expansion is successful.
Lesson learned: even if a new geography is needed for sales and delivery expansion, it can be simpler to start by focusing on only one area.
The “same language” isn’t always the same
For US-based businesses, believing that any English-speaking international geography is just as “easy” to communicate with as a US location can be tempting. This is rarely true, and it pops up in unexpected ways.
One of the more basic assumptions businesses sometimes make is that sales and marketing collateral can be reused anywhere English is the primary language.
Unfortunately, the material rarely feels localized. PDFs of printed collateral in the US are formatted for 8.5” x 11” paper, whereas many English-speaking counties use A4 paper. Written, professional American English is easily detected by prospects in other English-speaking “Commonwealth” countries and is usually not received as warmly as truly localized English.
Other little things give away the lack of localization. Domain names may not use the local top-level domains. Phone numbers and email addresses will feel foreign despite sharing a common language. Even industry-specific terms may have slightly different spellings or usage that introduce friction in communicating with prospects.
Lesson learned: language localization is essential in international expansion even when the language is the “same.”
Limited overlapping work hours make it hard to transmit culture and work on problems together
Businesses sometimes underestimate how much time leadership and peer groups need to work together synchronously. Unless the company has built a remote-first, asynchronous culture, live communication is critical to building and growing a new geography. (Even if a company has a robust remote-first culture, adding staff in a new, far-flung time zone will stretch it!)
With limited overlapping work hours, committed teams will often alternate which party gets the “bad” hours to interact with their peers. They mean well, but this saps energy and focus. There is just no shortcut to team-building that helps transmit the culture to far-flung teams: it takes time, and there are only so many hours in a day that people can work.
Lesson learned: a minimum of 4 hours of overlapping working time is needed to enable leadership to work together and transmit culture to geographically distant teams.
Okay, so how do businesses grow geographically?
There is no one-size-fits-all answer, but I believe the core principles are:
Rigorously challenge the assumptions about geographic assumption being needed for sales growth. Ask others in the same industry, try to find out how much revenue competitors can generate in the same geography, and benchmark sales effectiveness. There are often more effective ways to address stagnating revenue growth.
Leadership should assume geographic expansion will be significantly more complex than expected until proven wrong. This doesn’t mean it can’t or shouldn’t be done, but that they should be prepared to spend more time and energy than they expect to make expansion successful.
Find ways to experiment with growth and identify problematic areas with lower stakes. For example, test out a distributed team delivery model using a team distributed in one country, with the same language, spread across one or two time zones before making it work with an off-shore team ten timezones away.
Design geographic expansion plans so that at most two dimensions above are on the “difficult” end of the spectrum. If the planned geographic expansion has many tricky bits, the risk/reward tradeoff is probably too lopsided.
✌🏼That’s it for this week. Subscribe below if this topic interests you! Subscribing ensures you won’t miss future posts, and it helps me know what people like reading about and makes my writing more easily discovered.
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