With venture financing globally on the tightening side of the market pendulum, trying to grow smarter and with fewer resources is now a much more prudent strategy than the growth at all costs strategy of the recent past. However, your tech scaleup still needs to launch in the US to have a shot at ultimately growing into a $1B market leader in your category. Applying early-stage startup cost containment strategies to your US expansion efforts can allow your company to still enter the US market and keep your company’s overall burn rate in check. Here are 4 strategies to lower the costs for tech scaleups entering the US market:
1. Don’t Immediately Hire a Senior US Executive to Launch Your US Operations
A common approach companies take is hiring a senior US executive to lead its US expansion efforts. The prevailing wisdom is hiring someone with a great resume from a leading tech brand like Stripe, Twilio, Figma, or even Microsoft will produce great results for your company too. Unfortunately, that’s not always the case. Hiring a senior executive is always an expensive and risky hire. Hiring a senior executive as your first hire in the US is even more risky. Chances are they have never started a new corporation before and have always had significant support resources surrounding them. Even if they have had a great career in a specific discipline (sales for example) they will most likely have little knowledge of the combined tax, legal, insurance, banking, accounting, or human resources compliance related issues they will immediately face. Hiring a fractional COO with experience launching venture backed tech companies can help your company quickly expand in the US with less risk and lower costs. A fractional COO can even serve as the interim leader of your US operations until a full-time executive is warranted.
2. Don’t Immediately Move Executives from Your Home Country to the US
Moving an executive from your existing team to the US to lead your company’s expansion efforts may seem like a logical step since this executive will know and fully understand your company's products, strategy, team, and culture. However, this executive won’t have experience starting a US company and will have little knowledge of the myriad of tax, legal, insurance, banking, accounting, or human resources compliance related issues they will face. Also, they most likely will not have a strong industry and talent network in the US to recruit new hires, customers, and partners. Finally, financially supporting expats for visas, travel, housing, autos, etc. is very expensive. Delaying moving executives from your home country to the US during the launch phase of your US operations will significantly reduce the costs of your US expansion efforts.
3. Establish Your US Operations in a Lower Cost Geography
Many UK and EU scaleup Founders immediately think of Silicon Valley or New York City as the best place to launch their US operations. Of course, these are by far the most expensive markets in the US to launch and run a business. There are several alternative markets in the US that also have access to talent and customers, startup ecosystems, and large expat communities, but come with much lower operating costs. Costs for talent, office space, professional services, and taxes vary significantly from state to state and city to city in the US. According to CBRE the per square foot costs of Class A office space is $35.88 in Raleigh, $36.84 in Atlanta, $75.44 in Boston, and $99.59 in New York City. According to Indeed the average salary of a full stack developer in the US with 3-5 years of experience is $144,126. Salary variances by state include North Carolina: -12%, Georgia: 0%, Massachusetts: +8%, and New York: +7%. One often overlooked operating costs is corporate taxes. In addition to the Federal tax levied on corporate profits by the US Federal government, many states also levy taxes on corporate profits. State corporate income taxes range from 2.5% in North Carolina, to 5.75% in Georgia, to 7.25% in New York, to 8% in Massachusetts.
A few lower cost geographies to consider for US expansion that score well with all 7 Site Selection Criteria for Tech Scaleups Entering the US include:
Research Triangle Park, North Carolina
Charlotte, North Carolina
Greenville, South Carolina
4. Confirm Product-Market Fit in the US Before Scaling Hiring
It’s natural to believe that strong product-market fit signals in your home country means you have product-market fit figured out in the US market as well. However, the US market is unique and it’s common for it to take a considerable amount of time to dial in the positioning, pricing, demand generation, and overall go-to-market strategy needed to scale revenue. Talent in the US is expensive and having too big a staff (often salespeople) before you have product-market fit is an expensive mistake to make. Waiting until you confirm product-market fit in the US market before scaling hiring is a smart way to reduce costs while maximizing productivity of your US team.
If you have questions about ways to contain costs or budgeting for US expansion, please feel free to contact us. We are always happy to talk and answer any questions you may have for us.