International Lean Startups Moving to the US
by Krzysztof Jedrzejek
This topic came up recently during lunch with Spark Capital's Andrew Parker before the LTV class. Andrew mentioned that he would invest in international startups targeting the US market only if the founding team relocated to the US. He also mentioned cases of Skype and last.fm, which in his mind potentially moved too late and failed to reach their full potential. I started thinking about it in context of my own experiences and the lean startups methodology.
I envision different potential models that could work here. On one hand, I see clear benefits of relocating. In the lean startup process, being in the US makes it much easier to stay close to the customer, to get feedback through frequent and direct interactions, as we’ve seen in the foursquare case. If the team is ‘hunch-driven’, that enables better decisions on what turns to take.
I believe it is also easier to evangelize the product, seek advice from top VCs and other entrepreneurs in Silicon Valley/NYC.
On the other hand, the analytical part of working to improve the customer experience – A/B testing, deploying browser tools to track the conversion funnel, frequently iterating on features– can be executed regardless of geography. As can be communicating with customers through blogs, message boards, monitoring twitter.
Product development cost issue seems very relevant here. Starting a business in many developing countries is usually cheaper in the US, with less competitive access to high quality engineering talent. One can argue, that relocating the team to a high cost location, increasing burn rate and eventually taking larger amounts of angel/venture capital places higher pressure on the entrepreneurs to scale the business rapidly. In some cases I could see that harming the business by ramping up too soon before understanding the optimal product/market fit or attempting to monetize prematurely, negatively affecting the customer experience. However, isn’t getting early traction in the market, and scaling aggressively what drives the most VC backed home runs?
On the flip side, if one could work on product/market fit in the home market before relocating, that might take some risk out of the venture - keeping burn rate low allows for more iterations/pivots, and even significant shortcomings in the smaller market do not harm the company’s opportunities/reputation in the developed market. I would be cautious with this approach, however, as it is unclear how much of what I learned in the developing country is applicable to the large market I eventually need to target to achieve scale.
Eventually, if you believe in the great idea that your team has developed, I think relocating to the US to work with experienced VCs is the right move. Nevertheless, there are logistical issues to overcome. One is keeping the team together – product and technical people working separately in different time zones might lead to a quality disaster, especially when aiming at the lean startup pace of changes. As I discovered recently, the immigration procedures are quite lengthy as well. The Start-Up Visa act, that was designed to enable entrepreneurs to get visas to come to the United States, if they secured at least $100,000 in an angel/VC financing, unfortunately expired in December 2010. Hopefully, with the overwhelming support of the investor community, it will be reassessed, driving both innovation and job creation in the US.
This topic came up recently during lunch with Spark Capital's Andrew Parker before the LTV class. Andrew mentioned that he would invest in international startups targeting the US market only if the founding team relocated to the US. He also mentioned cases of Skype and last.fm, which in his mind potentially moved too late and failed to reach their full potential. I started thinking about it in context of my own experiences and the lean startups methodology.
I envision different potential models that could work here. On one hand, I see clear benefits of relocating. In the lean startup process, being in the US makes it much easier to stay close to the customer, to get feedback through frequent and direct interactions, as we’ve seen in the foursquare case. If the team is ‘hunch-driven’, that enables better decisions on what turns to take.
I believe it is also easier to evangelize the product, seek advice from top VCs and other entrepreneurs in Silicon Valley/NYC.
On the other hand, the analytical part of working to improve the customer experience – A/B testing, deploying browser tools to track the conversion funnel, frequently iterating on features– can be executed regardless of geography. As can be communicating with customers through blogs, message boards, monitoring twitter.
Product development cost issue seems very relevant here. Starting a business in many developing countries is usually cheaper in the US, with less competitive access to high quality engineering talent. One can argue, that relocating the team to a high cost location, increasing burn rate and eventually taking larger amounts of angel/venture capital places higher pressure on the entrepreneurs to scale the business rapidly. In some cases I could see that harming the business by ramping up too soon before understanding the optimal product/market fit or attempting to monetize prematurely, negatively affecting the customer experience. However, isn’t getting early traction in the market, and scaling aggressively what drives the most VC backed home runs?
On the flip side, if one could work on product/market fit in the home market before relocating, that might take some risk out of the venture - keeping burn rate low allows for more iterations/pivots, and even significant shortcomings in the smaller market do not harm the company’s opportunities/reputation in the developed market. I would be cautious with this approach, however, as it is unclear how much of what I learned in the developing country is applicable to the large market I eventually need to target to achieve scale.
Eventually, if you believe in the great idea that your team has developed, I think relocating to the US to work with experienced VCs is the right move. Nevertheless, there are logistical issues to overcome. One is keeping the team together – product and technical people working separately in different time zones might lead to a quality disaster, especially when aiming at the lean startup pace of changes. As I discovered recently, the immigration procedures are quite lengthy as well. The Start-Up Visa act, that was designed to enable entrepreneurs to get visas to come to the United States, if they secured at least $100,000 in an angel/VC financing, unfortunately expired in December 2010. Hopefully, with the overwhelming support of the investor community, it will be reassessed, driving both innovation and job creation in the US.
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