Is it time for partners to go global or go home?

Vendors paint the picture of software-focused start-ups being global from day one, but worldwide expansion isn’t as easy as it appears

Close your eyes, spin your globe and point — where your finger lands is where you go.

That could be Argentina, Belgium or China, perhaps even Hong Kong, Israel or Japan. Maybe, Russia, South Africa or Thailand.

The possibilities — the PR and marketing departments will say — are endless, with ambition the order of the day and expansion expected from the outset.

Officially, it’s a going global from day one approach.

It’s the throwaway line heard during accelerator events, demo days and investor pitches, because being global is great and if you’re a software start-up, you must seize the day.

For the channel, carpe diem is the name of the game.

“It’s not true at all,” Tech Research Asia executive consultant Mark Iles warned. “Being global from day one is difficult and in general, it’s not true.

“You need a market entry strategy but people take the view of ‘the world is your oyster’ and the global market is open and waiting. But to be honest, if it was that easy, you would have done it already.”

Speaking from experience — in heading up local independent software vendor (ISV) Centaman Systems — Iles questioned the rhetoric that has ring-fenced the start-up industry, creating fallacies around instant global expansion through software offerings.

Iles joined the Sydney-based business in 2006 as part of the management buyout team, taking the role of CEO and equity partner alongside a private equity investor.

Operating as a market leader in enterprise software solutions for the leisure industry, Centaman helps manage everything from ticketing, membership and inventory management, to access control, business analysis and reporting.

In employing more than 40 employees, the business has offices in Sydney, Melbourne, Perth, Auckland, Chicago and Toronto, servicing over 4,500 users across over 700 sites in the USA, Canada, Australia, New Zealand, Thailand, Hong Kong, China and South Korea.

“Our obvious targets for market expansion were first the mature English speaking markets such as the USA, UK and Canada,” Iles explained. “Before going global, businesses must ensure the product is as ready as it can be for the global market.

“Some of that is writing good code and it’s not hard these days to write double-byte character sets to physically change the language of your application should you expand into non-English speaking countries.

Mark Iles - Executive Consultant, Tech Research Asia
Mark Iles - Executive Consultant, Tech Research Asia

“That’s not too hard these days but there were some gotchas to watch out for along the way.”

Specifically, the Centaman product range spans ticketing, point of sale, membership management and CRM, alongside bookings, programs management, access control, online, kiosk, mobile solutions and staff administration systems.

Through an existing customer agreement, the ISV was introduced to the South Korean market, creating both opportunities and challenges.

“We sold into the Korean market and the lunar calendar is incredibly important,” Iles said. “We work off January 1 until December 31 so it’s not something you immediately think about, but suddenly there was a requirement to stop and examine things from a lunar calendar perspective.

“It’s things like this that partners must be aware of because they can tie up significant development resources, especially in a market where sales and marketing execution is key.

“Simply turning up to a country, launching a product and having it available is not enough or isn’t considered a viable global strategy.”

Despite the difficulties associated with local markets, Iles said entering a new territory through an existing customer agreement helps provide a “soft landing” for businesses seeking global expansion.

“When a customer pulls you into a market it’s a great excuse to enter a new country through a customer that is almost funding you to go in there,” Iles said. “We had a client that had a business operating in a few countries outside of Australia and required a single system deployment across the region through a single dashboard view.

“That was beneficial to our business because we could leverage a friendly customer who could help assist with development work and setting up shop.”

In short, Iles said finding customers that can introduce new geographies offers a safer route to market than trying to acquire new business in a country that fails to recognise your brand and offerings.

“Having a current customer is great because they will share with you their local team who will quite happily help outline the requirements they are looking for in the market and you can then use that to your advantage,” Iles explained.

“From there you can decide to springboard out because supporting software and integrating it is hard with a single client.”

Global aspirations

In running all aspects of the business — including finance, product development and international expansion — Iles and the team sold the organisation in early 2010 to Constellation Software, a large publicly-listed North American software provider.

Before the sale however, the business actively pursued global expansion plans, assessing the merits of moving IP overseas in a bid to build out a worldwide footprint.

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“There is less focus today on physical locations because you can do things virtually,” Iles acknowledged. “But for any software focused business operating in the enterprise, and especially if you’re an ISV, you typically have a fairly heavy service arm.

“Therefore you must decide to invest in services in the local country, start putting people on aeroplanes or use a channel strategy.”

While a channel often provides the quickest and most effective route to market, challenges remain for businesses attempting to build ecosystems from scratch, in a country unfamiliar with its offerings and value proposition.

“Building out a channel is a tricky strategy to set up,” Iles cautioned. “Everyone dreams of activating channels in each of the separate markets they enter but it’s much harder than you think and typically, it isn’t the best strategy to pursue.

“You can of course get lucky if there’s something unique in your proposition but the challenge is that you’ll typically be a very small component of a channel partner’s revenue. Therefore you get the mind- set your market share gets.

“In our case, we decided that we would make a couple of bets, which involved ignoring the European market and targeting the US instead.”

After running initial rounds of analysis in relation to the local market — assessing customer buying patterns and competitive plays — Iles and his team began to build out a viable entry strategy across the Pacific.

“The US is a double-edged sword because there are many providers in the market which makes it one of the most competitive globally but also one of the largest,” Iles said. ”If you can crack the US then that’s great but you’re up against the best of the best in theory.”

Having identified a target market in the US, Centaman was then faced with a common dilemma for businesses harbouring global aspirations — hire local or bring your own.

“We made the decision to invest and put our own team on the ground and we set up the business as a full-blown subsidiary,” Iles explained. “You reach the point where you either send your right-hand person or bring someone else in.

“But if you’re going to do something, the best approach is to go and set it up yourself — it’s the most effective but resource intensive strategy.

“This approach means that your team on the ground understand what you’re trying to achieve. Then they can hire people locally in the marketplace that can recruit customers, which represents a good combination.”

Because for Iles, hiring somebody blind that doesn’t understand your company or your values in a new country represents a risky strategy for aspiring software providers.

On the flip side however, local knowledge is key to unlocking the purse strings of local customers.

“Typically you’ll know your marketplace but the perfect set up is that you hire a vice president or country manager that is one of your people and a trusted person you’ve sent over,” Iles said.

“And then they can hire a local sales manager that understands the market and the key players within it. That might be through a competitive poach but once you do, then you’ve got the right combination of skills.

“You’ve got somebody that understands the company direction and you’ve got somebody on the ground that has the right voice and the right language to build that expertise up.”

Another expansion approach, according to Iles, is the notion of the joint venture, setting up shop with an in-country provider to help build the foundations for a sustained local push.

“People don’t think about joining forces with another partner but we pursued a joint venture in New Zealand,” Iles said. “It’s about getting a bit more skin in the game and it doesn’t cost you as much as a full- blown subsidiary you’re setting up.

“We found a partner that we thought could help us add significant footprint so we set up a company that we owned 50-50. So if the whole company did well, we all did well.

“We both put some capital in to get it started and this is also a good approach for Asia, which is difficult to set up and build a channel.”

Leveraging alliances

Whether it be established providers or fledging start-ups, Iles believes opportunities are arising for partners to leverage local vendor alliances, in a bid to tap into global footprints.

“There’s a role for vendors to step up,” Iles added. “Partners are keen for key cloud providers such as Amazon Web Services (AWS), Microsoft and Google to help them expand.

“That’s the direction the market is taking but it’s a little nascent at the minute. I wouldn’t say that it’s working particularly well at this stage but it’s clear that’s where the market is heading.

“There’s potential for a vendor to take a leadership position in that respect.”

In comparing today’s business climate with that of 5-10 years ago, Iles acknowledged that going global from day one is “a lot easier than it once was”, especially within the context of localisation and customisation.

“It depends on the size of the software you have, particularly when you have cloud orientated solutions,” Iles said. “With AWS, Microsoft and Google, if you take a solution you’ve built on the cloud, you can literally replicate your infrastructure on a global basis.

“Therefore, all you’re really worrying about is actually tracking customers and a bit of consulting services on top.

“Also, if your software is relatively vanilla and there’s not huge amounts of customisation to the code, then that removes a lot of barriers.”