Israel is too small a market to create substantial value for most companies, so from day one they must think precisely how and when they will break into foreign markets. The clear choice of most start-up is to head to the US, where most of the start-ups admired by the founders and the companies they seek to work with are located. However, this tendency has been changing in recent years, as it has become clear that there is a whole world full of opportunities outside the US.
How do we know when the time has come to leave the Israeli incubator and begin real work overseas? “The question is directly derived from the company’s budget. It’s possible to head overseas when there is enough money to cover the costs of foreign travel and keeping a salesperson abroad in anticipation of possibly opening a small foreign office soon and staff it with some local experts,” says Nielsen Innovate CEO Esther Barak-Landes, who is advising Zeekit Ltd as part of the “Globes”-Bank Hapoalim (TASE: POLI) Smartup2 program. “If you don’t have the budget for a big breakthrough overseas, it’s better to begin operating in Israel to create proof of concept that will allow you to raise capital with Israel functioning as a test site or beta site.”
Barak Landes adds, “It is also a question of the kind of company. If we’re talking about a B2B company that markets to large companies, these customers expect that you’ll only reach them after you’ve acquired good domestic customers, because the best way to show feasibility is to show that your domestic market believes in you. In addition, marketing to big customers requires a presentation to each one, and to do this, you should have a physical presence in the environment.
“In contrast, a B2C company that markets directly to end consumers, such as a company with an app for many users, can begin global operations while its management is still physically in Israel. In this scenario, there is almost no point in first studying the tastes of the Israeli market and developing an app in Hebrew, and it's better to develop the app for the target market at the outset and to start selling it online. In this case too, it is necessary to physically go to the market as soon as possible.”
Explore.Dream.Discover head of venture development Roy Oron, who is advising GreenIQ Ltd. as part of the smartup2 program, agrees, saying, “Companies that market directly to end consumers also need a physical presence in their main target market as soon as possible. You need to meet advertisers, journalists, and marketing channels, and you have to learn about the local competition first hand.”
Zap Group Ltd. CEO Nir Lempert, a partner in 8200 EISP, which is advising HopOn Ltd., warns that even if a company decides to begin operating in Israel before heading overseas, it is important not to get stuck in the Israeli market. “I’ve seen examples of start-ups which said, ‘Yes, we want to go overseas, but we began operating in Israel and ended up being exhausted in small, very crowded market in which it is hard to stand out like the current companies,” he says.
Oron agrees, saying, “The Israeli market is not really a market, because it’s so small. Israeli companies that begin to invest too much in the Israeli market may discover after a few months that they’ve actually invested a great deal for nothing, because as far as investors are concerned, it does not count. Also, the Israeli market is very misleading, creates illusions, and can give you the wrong impression about what is required from you as a start-up.
“I mean that it is easy to reach everyone in Israel and open doors through connections, and Israelis are innovation adopters with particular tastes. Overseas, connections are less relevant for marketing.”
Barak-Landes also agrees that the Israeli market can lead you astray. “At B2B companies, local customers know that you need them to prove feasibility with large foreign customers. The advantage is that large enterprises in Israel are very open to collaborations and experimentation, but the disadvantage is that they are rarely willing to pay for it. It’s very hard bargaining with them when they know you are new start-up. A company that invests too much time in approaching these pilot customers in Israel will discover that it gets no income from them, let alone income that would negate the need to raise capital, and that working with them does not really prepare you for working with foreign companies, which are much more closed and adopt innovation less,” she says.
Oron says, “Israeli entrepreneurs have turned the disadvantage that Israel has no real market into an advantage. The fact that we have no market has turned us into a truly global high-tech nation in terms of its thinking. This is our advantage over our competitors, which turn to their domestic markets for years before beginning to operate globally.”
How to choose where to go
The tendency is to go to the US as the first market because it is often the most developed market and pays the highest amounts for other products in the start-up’s area of business. Israelis also feel that they better understand the American culture than the cultures of other nations (a feeling that can be a bit mistaken), and it is more fun to make repeated sorties to New York than to Astana in Kazakhstan.
However, these should not be the considerations when choosing a target market. “Each company has its own matrix of unique factors,” says Lempert. “It is necessary to examine which countries have, or are likely to develop, a large market for the product and where the competitors are active. Sometimes, competition is good, if it’s easy to show that you’re better than them, and sometimes it’s better to enter a market with no competitors in order to exploit the advantage of being first. For example, some people will tell you that it’s easier for smartphone taxi hailing company Uber to operate in Israel because the market has already been educated by its Israeli counterpart GetTaxi. However, I think that in Israel it’s better to be GetTaxi than Uber.”
Barak-Landes says that it is necessary to examine which countries have available distribution channels to work with. Oron says that, sometimes, Israelis, because of their tendency to market globally from the outset, can find innovation in the very act of moving from country to country. “Sometimes, you will see another company successfully apply a solution similar to yours in the US, but the act of processing the solution for the Russian market, for example, can build your business even if the difference between the businesses is not very great. An American company will need years to reach Russia,” he says.
The example is relevant for every market, but Oron cites Russia, because it has flourishing e-commerce. He also mentions the UK as interesting because it is accessible, speaks English, and has a high concentration of residents in a small area, which can be an advantage for certain businesses, especially in the social field. It is a mistake to think that the British are exposed to every technology that exists in the US. He also says that China sometimes needs an Israeli as a mediator.
“Globes”: Is it worthwhile buying a market analysis from a company in the business?
Lempert: “This information is usually open and needs a few days of work, so it is not certain that the results are worthwhile for a start-up.
Barak-Landes: “In principle, I strongly favor an ad-hoc reliance on paid experts, but in any specific case it depends on the company’s resources. If you have a marketing person experience with this kind of analysis, it’s better to do the work in-house, because who knows your market and competitors like you do, and what you don’t know, you should. If there are only engineers in the company, I would buy a market analysis of the target markets from an external source.”
Once you’ve chosen a target market, how should you begin operating in it?
Barak-Landes: “The same way as you operate in our mini-Israel: hire mediators, placement companies, and begin talking with customers and marketing channels that you get through the mediators or personal connections. It’s possible to start establishing ties while you are still in Israel and schedule meetings for when you get there.”
Oron: “Because flights and accommodations are expensive, it is important to clarify the quality leads and not to jump on to a plane for everyone who tells you, ‘Shall we have a cup of coffee sometime?’ Israelis, especially entrepreneurs, optimistically interpret every sign as real interest in the product, and I tell our entrepreneurs to schedule anchor meetings only around quality leads and the other meetings if you can.
Should the CEO relocate to the target market?
Barak-Landes: “Yes; you should move quite early. After all, even if you fly for a week, it’s only a week, and if someone suddenly wants to schedule a meeting for the following week, the momentum is lost. Local residency also makes it possible to go to other conventions for which you probably would not make a special trip and to immerse yourself in the local business and social culture.”
Barak-Landes emphasizes that the most important thing is to learn the culture of the target country in advance. “Starting with how they negotiate and what is their preferred sport. There are companies that prepare books and lectures on these topics and I recommend them. There is information online about different cultures,” she adds.
Lempert says that even after you have succeeded in one market, do not get cocky. “When you go to a country, don’t brag. Even if you’ve succeeded in country A, that is no guarantee that you will succeed in country B. You must study each country individually,” he says, advising nonetheless to quickly break into as many markets as possible, if you have the means to do so.
“If you go to a particular country and succeed in it, there is a chance that this will be contagious. When you work with an idea, someone somewhere else in the world has probably also come up with it at the same time; that’s how innovation works. Therefore, if you have already succeeded with something, it is important to move quickly and forcibly. Expansion will be especially fast if you have targeted a country that influences its environment, like Germany or the UK, which influence Europe, or South Africa, which influences the whole continent.”
What do you the companies you are advising in the Smartup2 program?
Lempert: “For HopOn, which seeks to facilitate payment for public transport, we analyzed relevant countries for a breakthrough. The factors we set are countries with large business-oriented public transport operators, partial regulation in a market that uses businesses incentives and there is a sufficiently widespread use of smartphones and credit cards, and no similar companies.”
Oron: “GreenIQ, which improves irrigation systems, is a company whose business is highly dependent on geographical conditions. We’re seeking countries with awareness about water conservation, either because they are arid and truly lack water, or if they are water saturated like Canada, they store water with the result that is not enough water for residents, or countries like the US, which have plenty of water, but are have awareness about resource conservation for the good of the environment. You should also look for countries which have suitable gardening equipment stores where you can sell these products. We’ve marked several very clear targets.”
Barak-Landes: “Zeekit, which is developing technology for imaging clothes on the user’s body, began working overseas, in Europe and the US. Its overseas breakout plan is through strategic partnerships with content providers, such as Yahoo and leading magazines, media, and fashion brands that will promote their products through the company’s platform. Of course, the company also has to use main global online marketing channels.”
Published by Globes [online], Israel business news - www.globes-online.com - on September 14, 2014
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