Internationalisation strategies: How to crack America – stories from the front line

19/11/2019
Read Time: 4 Min

At twenty trillion dollars and counting, the US remains by far the world’s largest economy, a tempting target for ambitious British companies looking to grow. Yet it also has a reputation as something of a graveyard for many of these companies. CEOs often consider America to be a slam dunk opportunity for growing exports, given the country’s cultural affinity with Britain and our shared language. However, the challenges to successfully cracking the US are legion – from byzantine local regulations to a tight labour market to fierce competition. Here are some important considerations from four decades spent helping companies grow in America. 

American flag

Expansion by acquisition… or organic growth?

There is always the temptation to believe the strategy, business model and culture that have sustained strong growth in your home market will propel you to exporting success. However, it can mean carrying a heavy cost burden before you can build up a sustainable revenue base to cover fixed entry costs. Sometimes it is far quicker and easier to expand by judicious acquisition.

Fourth Hospitality (“Fourth”) is a SaaS provider to the hospitality industry. Restaurant managers use its product to plan meals, manage inventory and schedule work shifts according to demand and across multiple locations. When ECI invested in Fourth back in 2011, the company already boasted high street stalwarts such as Wagamama, Carluccio’s and Café Rouge as customers. ECI and management agreed that the bigger prize lay in the US, where households eat out twice as often as in the UK. With a population six times that of Britain, it meant tapping a market 12 times larger than the UK. SaaS businesses also command a greater premium in the US, strengthening the logic for building a business with a significant US revenue stream.

In 2012 Fourth acquired Connecticut-based Adaco, which provided a SaaS-based inventory management product to the hotel industry and brought high-profile clients including Ritz-Carlton, Jumeirah, Starwood, and Marriott. Acquiring a complementary business opened the possibility of cross-selling Adaco’s inventory management service to Fourth’s existing restaurant chains and Fourth’s shift management and menu planning modules to Adaco’s existing hotel chains. In just one move, Fourth quickly established itself in the US market with a profitable operation and an established client base, rather than spending months or even possibly years building a business. Buying Adaco also made Fourth the world’s number 1 player in its market. 

Leverage partnerships – don’t reinvent the wheel

Companies looking to crack the US can also expand by leveraging established distribution networks. Take Manchester-based MPM for example. The pet food specialist produces a broad range of premium, human-grade wet and dry food for cats and dogs.

For MPM, the quickest way to tap the world’s biggest pet market was to obtain listings with large pet specialty stores such as Petco and PetSmart. MPM’s premium products were first retailed in the US in 2016 when they secured a listing in Petco’s Unleashed store estate. Three years on, and with US sales of c.£10m, the company has invested in a US based team in Phoenix, complementing its international reach with offices in its home market in Manchester and now also in Sydney, Australia. Having established a strong presence in the three largest US pet speciality retailers, MPM is now further expanding its US presence by building distribution in the large mass grocery market. 

View of America from a plane

Finding the right people

Of course, it’s not just a good product that drives success, but also having the right people in place. That is no easy feat given the very tight labour market in the US after unemployment fell to a fifty-year low in August 2019.

ECI portfolio company MiQ is so disciplined about finding the right people that it won’t expand into a new US city until it does so. MiQ crunches data to help companies better target their marketing spend, and already works with some of the world’s biggest fashion, luxury and sports brands. Entering the world’s biggest advertising market to diversify the business was a no-brainer. For CEO and founder Gurman Hundal that meant moving to New York for two years to get the office up and running before he found the right leader to take over.

MiQ’s steady expansion also demonstrates another important characteristic about the US market: it’s not all about New York and LA, with significant pockets of advertising and marketing spend across other regional cities. ECI has supported MiQ as it has hired key personnel to lead new hubs in Chicago, Denver, Dallas and of course Washington, to tap the rich seam of political spending in the US capital. All these cities are supported by MiQ’s Centre of Excellence in Bangalore, home to over 250 data scientists. 

The importance of culture

Failing to understand local culture and idiosyncrasies can hamstring a company’s foreign expansion. It is important to recognise that the US consists of fifty very different states, with very practical implications. For Fourth, that meant understanding state-by-state variations in labour laws that impacted on the software’s ability to organise shift rotas for clients, or varying requirements on what information to provide about food allergens.

The issue of culture can also apply to the unique culture found within an organisation. This is especially important when combining two distinct business through acquisition, as when London-headquartered Fourth bought Connecticut-based Adaco. For Fourth that meant moving a senior executive to the US to oversee the integration of the two businesses and teams and bringing Adaco staff to London to encourage cultural transfer. The acquisition was a success, and three years later ECI sold the business earning a 3.5x return on its investment. 

Conclusions

Expanding your business overseas can be a daunting task for any entrepreneur or business leader, and the US market has its unique challenges. However, the need to find new export markets will become even more acute for business as and when the UK leaves the EU. With the right partner in place with the right experience, ambitious firms will find a rich seam of opportunities to tap beyond Britain’s shores. 

About the author

Mark Keeley

"I am responsible for leading deals from initial investment through to exit and taking a non-executive board seat at the businesses that we back. I am also proud to be Chairman of ECI’s ESG Committee, and am responsible for considering the non-financial factors related to ECI’s investment activity."

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