four keys to worldwide growth

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Levin joined Heartcore Capital in 2019 from Global Founders Capital. the billion dollar VC arm of Rocket Internet, where he was responsible for investing in Canva, Heyjobs, Instarem, Anyfin, and others.

During my five Years with Global Founders Capital, Rocket Internet's $ 1 billion VC arm, I've seen more than a hundred Rockets incubated companies attempting to internationalize. For the background rocket internet has helped set up some very successful companies internationally, including HelloFresh ($ 12.9 billion market cap), Lazada ($ 1 billion exit to Alibaba), Jumia ($ 3.2 billion market cap), Zalando ($ 21.2 billion market cap) and many others. Rocket often followed the lightning scaling model popularized by Reid Hoffman and earned them an appearance in his book of the same name.

After an initial success in scaling Groupon internationally through a merger with Rocket's incubator CityDeal, the Rocket team has scaled companies aggressively from Algeria to Zimbabwe – sometimes within a few weeks. No wonder Rocket also has a graveyard of failed companies that have fallen victim to poor internationalization efforts.

Many companies make the costly mistake of starting overseas too early.

My personal observations on Rocket's successes and failures begin with this crucial point: These insights may not apply to your unique business model, market, and timing. No matter how well you prepare and plan your internationalization, in the end you need to be agile, vigilant, and smart as you dip your toes into your first overseas market.

Fail quickly and cheaply

Internationalization can be a major growth driver and therefore a company value, which is why investors are always pushing for it. A stay abroad can destroy the value just as quickly. As a founder, it is your job to manage financial and operational risks. Finding the right balance between controlling costs and not investing can mean things get done more slowly than your board would like. For example, you can open new markets one at a time instead of introducing 10 markets at the same time.

For your expansion strategy, adopt the “slow, stop fire fast” mentality. Don't be afraid to pull the plug if things don't work out.

Our team at Heartcore Capital uses the following frameworks and insights to guide the internationalization strategies for our portfolio companies. A successful internationalization strategy must answer and address the "four questions": When, Where, Which and With whom to internationalize. (Regarding the fifth W from journalism, you shouldn't have to ask the “why” question if you're looking to build a big business!)

1. When is the right time to start?

Many companies make the costly mistake of starting overseas too early. They see internationalization as a standalone function, isolated from the rest of the business, and then start their second market ahead of time. Follow this simple rule: Wait with internationalization until you have reached product / market suitability.

How do you know exactly when you have achieved product / market suitability? According to Marc Andreessen, “product / market adaptation means being in a good market with a product that can satisfy that market.” He adds that seasoned entrepreneurs usually feel when they get to that point.

Let's take the man at his word and let's move on to the real argument: Until you have a product / market suitability, you cannot differentiate between what you have learned from your business model and what you have learned from your country experience. Mistakes will get worse. Complexity and costs will multiply. I contend that an inadequate understanding of their business and operating model is the main reason why companies fail with their expansion strategies.

Founders should also consider the underlying costs of internationalization before deciding to expand (more on this in the “What” section below). Some companies are global by default – think mobile game companies – or just need language localization. Others need to build new warehouses, hire local teams, or build entirely new products. The costs and the respective risks of premature expansion depend heavily on the business model.

There are marginal cases in which companies have to act quickly for strategic reasons in order to become international – despite the uncertainty about their market adaptation. For example, companies like Groupon or companies involved in the delivery of groceries are faced with markets where opportunities for product differentiation are limited. In such cases, “lightning scaling” makes sense.

However, you should exercise caution if your only reason to scale up overseas is for a large fundraiser or if you are in line with a competitor's internationalization efforts. Scaling prematurely for the wrong reasons can cost you your entire business.

When Rocket Internet announced that it would bring the Homejoy model to the European markets with Helpling, the American "original" company quickly started in Germany to destroy its new competitor. In the early days of On-Demand Everything, a managed marketplace for cleaning services sounded like the next unicorn in development.

In 2013, Homejoy had a new $ 24 million Series A from Google Ventures and the first round – a big round at a time when Instacart had just raised a $ 8 million Series A and Snapchat ran a $ 13 million Series A. It must have been a good idea to suppress German competition early on.

As it turned out, Homejoy's product was not yet internationally scalable. Only 13 months after the start in Germany, Homejoy had to cease operations worldwide while Rocket & # 39; s Helpling is still alive and kicking. Helpling carefully focused on product, automation and a functioning unit economy. A rush to destroy an international competitor resulted in the death of a possible unicorn.

Homejoy expanded internationally in 2014 to defeat a new German competitor, Helpling. Your websites in 2020 are showing vastly different results. Credit: Homejoy / Helpling

2. Where should you internationalize?

When deciding which new international market to tackle, it is important that you do your homework. Analyze the competitive environment, the availability of partners, the infrastructure, the culture, the regulation and the synergies with your home market.

In the early days of e-commerce, it was pretty easy to analyze whether a market was a target for expansion. In the absence of professional competition, Rocket picked new countries based solely on GDP and internet penetration.