ECI have a long track record of supporting businesses on international expansion, in particular with entering the US market. For European CEOs who are weighing up further growth in Europe or whether to make the leap across the pond, we asked our North American Growth Specialist, Brett Pentz; Commercial Team Partner, Rich Pearce; and Investment Manager (and Belgian cultural correspondent) Louis Jans, for their top tips to make US expansion work:
1. Don’t underestimate the diversity of states
When looking at US market entry from a European lens, it is easy to assume that the differences between say, Maryland and Virginia, are much smaller than say, Belgium and the Netherlands. In fact, the differences between states can be vast. The model of the US federal and state regulatory framework is analogous to the European Union and each member state, where there are unique regulations (and other dynamics) by state that might impact demand.
What this means is that if you have mastered European expansion, you will probably also master state-by-state expansion, but it’s important not to assume that it will be easy. Whether you’re looking at different taxes, employment laws, costs of hiring, or even how you approach small talk, states differ significantly, and you need to adapt accordingly.
It’s why our advice for US expansion usually emphasises the importance of not spreading yourself too thinly. Carefully choose the best state for your target market and start there rather than aiming to take the whole US at once, which is more challenging to build the momentum needed to make significant impact.
2. Reap the benefits of the M&A-friendly US market
As a management team, you will need to choose whether your entry strategy is best suited to organic entry or via acquisitions. If you need requisite scale fast, often an acquisition allows you to take that leap at pace, but there are some points to be aware of. In many ways, the US is a very M&A friendly market. Compared to Europe, it is less bureaucratic, with less regulation notably around employment or competition law. That means it is often quicker to get the acquisition signed, sealed and delivered once you have found the right target.
However, it can be trickier to find those targets in the first place. Europe tends to benefit from good financial data on companies, take Companies House in the UK, whereas it can be slightly harder to map the market in the States. This means more is done through personal relationships and networks of advisors, so it is important if you are looking for stateside acquisitions that you have built a solid network of trusted individuals who can scope the market on your behalf. At ECI our Origination Team works closely with Brett Pentz, our North American Growth Specialist, to help map and assess potential stateside acquisitions for our portfolio. Once you have found those prospects, you will likely find that pricing expectations in the US and Europe are different – this should be part of the consideration of the strategy, but once you have decided to acquire in the US, the only comparison you should dwell on is how the valuation multiple compares with other equivalent businesses in that geography.
We have a fantastic track record of supporting management teams to acquire in the US and Europe – for example last year we supported Commify to acquire Tennessee-based Text Request, and French business, SMSFactor. Both geographies have different challenges and opportunities, which is why it is helpful if you can lean on an investor who has seen M&A in those markets before.
3. Take a pragmatic view of total addressable market
It is not uncommon for management teams to size the whole US market in their plans when launching in the US. In our experience, it is better to take a state-by-state view, just as you would size only the Dutch market if you were opening an office in Amsterdam. It is highly unlikely you will be able to run a US -operation from just one location in the States, and you may also find that you simply don’t need to. The size of states or cities in the US is often surprising – did you know Indiana has the same GDP as Norway? That Florida is equivalent to Spain?
While some states such as California and New York are obvious economic powerhouses, there are a massive number of other states where you will find huge demand. When MiQ launched in the US, they found that the advertising hotbed of New York wasn’t a very productive location, as costs were phenomenally high and the market was overcrowded. Instead, they found untapped demand in places such as Tulsa, Oklahoma, or Boulder, Colorado, which contributed to them growing US revenues to 80% of total by our exit.
4. Remember the importance of boots on the ground
One thing we have heard again and again from management teams that have expanded into new countries is the importance of being on the ground. Geographic distance makes this all the more important in the US market. It’s very hard to lead wholly from afar; you will likely need to move over for a period of time, or at least be very willing to jump on a flight regularly. Not only will this give you a better understanding of the culture and ways of working of your new office, but it is also important that you role model company culture and act as a brand ambassador to your new team. How you as a leadership team will make this work should be considered well in advance of starting expansion plans. The distances and time difference involved simply mean it is a much greater challenge than operating between France and Germany, for example.
It also means, even if you’re regularly flying over the Atlantic, that you will likely need a US MD in a way you are less likely to need to hire a Spanish MD. If you have acquired a business, it may be straightforward to appoint the incumbent CEO in the role. But if you are expanding organically, start the process early so that the US leader can spend time getting under the skin of the European business so that they can reflect your company culture in the new market.
5. Overindex on political and cultural sensitivity
Whenever you move into a new geography, there are always differences in culture, language and technology, which need to get considered. Much like how the US version of The Office only really took off once they adjusted the personality and humour to an American audience, so too will your US office only take off once it mirrors the world in which it lives. Because we feel culturally and linguistically aligned to the US, this can cause blind spots. For example, when CPOMS, a safeguarding software business, was expanding into the US, they discovered that the US didn’t use the term safeguarding. Another CEO realised that ‘drinks after work’ didn’t really happen as everyone got into their car and left, and therefore new social norms needed to be established rather than relying on a European company culture, which doesn’t translate.
Culturally, especially if your workforce is younger, you may find in today’s US media environment that everything is more politically charged and emotionally sensitive than you might expect. From across the Atlantic, recent elections may look like a political event akin to Brexit, but people have stopped speaking to their families over this, and increasingly there is a growing division and mistrust which has made speaking about politics at work almost impossible. Similarly, the US led the way in conversations about DEI at work, and therefore the expectations between there and continental Europe were sizable, however now in the Trump era, some employees will be very sensitive around even using the term DEI. Essentially, you are likely operating in a more delicate employee ecosystem than you might have been five or ten years ago.
If you would like to find out more about how we are helping CEOs with US expansion or how we could help your business, please get in touch with brett.pentz@ecipartners.com
