Geographic Expansion Starts at Home

Expanding to a new city or a new country can take abusiness to the next level, but it’s also a huge financial risk. Even the biggest brands falter overseas — a lesson Starbucks learned all too well in Australia.

Posted on
January 12, 2022
by
Laura Gaviria Halaby

Geographic Expansion Starts at Home

Hone business playbooks at home before targeting foreign markets

Expanding to a new city or a new country can take abusiness to the next level, but it’s also a huge financial risk. Even the biggest brands falter overseas — a lesson Starbucks learned all too well inAustralia. Despite having more than 30,000 locations worldwide today, thecoffee giant failed to understand Australia’s cafe culture, which led to asubsequent retreat — a costly mistake most firms can’t afford to make.

Knowing how and when to expand overseas requires farmore than a map. As part of the team at SoftBank Group International that supportsportfolio companies as they grow and scale, I’ve had the pleasure of workingwith Latin America’s leading entrepreneurs, many of whom have expanded tointernational markets. While there is no plug-and-play formula for success,there are some best practices founders should use in planning to conquer a newcity or country.

Adopt successful framework

Until you enjoy success in your home market, do notexpand to another. Founders must ensure theyhave solid unit economics and have achieved product-market fit before theyexplore geographic expansion, says Javier Villamizar, operating partner atSoftBank Investment Advisors. Most companies, he adds, are not ready.

Once a company has obtained a strong valueproposition, founders need to understand the “market signature” that makestheir business successful. Usually, that means having a clear understanding ofwho your customers are, market structures, and local culture. If you know whichdemographic is responding most, you can create a model that will be usefulelsewhere and target new markets offering access to that demographic.

Take the time to research the customer base and thecompetition in potential markets. Then assess what products you can offer thatwill be of value to these markets and what costs are involved in making ithappen (hires, regulations, leases, etc). To decide where to go first, giveyour potential markets each a grade based on the factors mentioned above (e.g.value proposition, cost of going to market, team-building costs, etc).

Withdrawing from a new geography is far costlier thanlaunching, and it takes a lot longer. So it’s essential to plan properly and commit enough resources to do it well.

Think long-term

Pierpaolo Barbieri, founder and CEO of financial service provider Uala, spent nearly two years working with his team on thebusiness model before launching in Argentina in 2017. Four months later, histeam was already working on Uala’s expansion into Mexico, a leap it wouldn’ttake until 2019.

Unlike the U.S. and Europe, where a single license canprovide access to many markets, Latin America’s financial regulatory system isa minefield, which makes it hard for entrepreneurs looking to disrupt legacybusinesses in regulated industries. That’s why so many fintech Latin Americancompanies never grow beyond their home region. But for Pierpaolo, this was anopportunity to use geographic expansion as a differentiator.

By starting early and doing the necessary research,Uala has set itself up as an exportable business.

Invest in teams that do their homework

Barbieri’s playbook for success: Start early toanalyze a new geography, do the research, assemble a local team, execute andrepeat. Villamizar recommends that a dispassionate team who knows your businessshould conduct market research to provide the systematic analysis of what thebest target markets are, what customers want, which products you should offerfirst, and where your business should go first. Uala launched with a prepaidcard in Argentina, for example, but led with a debit card in Mexico, owing todifferences in the banking ecosystems.

Keep in mind that you must explain your decisions toyour team, investors, and board, so the research needs to be right. Uala spenta year researching the Mexican market — analyzing the size, bankingpenetration, competitors, and the regulatory environment. Another group withinternational expertise then handled regulatory matters, getting the licenseswhere needed, which can be a lengthy process.

Finally, you need a technology team that can buildyour products in the home market in an exportable way. While products can’t betransplanted, “a successful tech team understands how to build a product in away that’s exportable,” says Barbieri. So Uala’s tech team develops productsfor Argentina that, with customization, can be developed for use elsewhere.Barbieri always knew he wanted to expand Uala beyond Argentina, and histechnology team started with this goal in mind.

Enjoy repeat success

Success in a few markets doesn’t mean success everywhere.Mattel and Home Depot flopped in China; Home Depot failed in Germany; Britain’sbeloved Tesco didn’t make a splash in California – all because the brandsfailed to properly read the local market and understand the scope of the effortbeforehand.

Companies that successfully conquer new geographieswill want to do so again and again. But they need to continue honing theirexpansion playbook by researching, gaining local expertise, ensuring they havea good market-product fit that customers need and want, navigating regulatorymatters, and building a team to launch. Success in one market will offerlearnings that can be applied to the next expansion. But, as Villamizar warns,“always know you have to recalibrate.”

Watch both Operator School master classes on Geographic Expansion here.

Javier Villamizar, Operating Partner, SoftBank Vision Fund: https://youtu.be/_woHPR0J1Wo

Pierpaolo Barbieri, Founder & CEO Ualá: https://youtu.be/-KICN60DEf4

Laura Gaviria Halaby
Head of Knowledge, Strategic Partnerships and Crypto Value Creation, SoftBank Latin America Fund