If you can make it there, crooned Frank Sinatra, you’ll make it anywhere. However, making it here first might be a good place to start, according to homegrown entrepreneurs we spoke to who plan to grow offshore — and in particular, into the tough US market.
For Australian businesses, international expansion should be easier than ever before, thanks to the enabling technologies of the digital era. However, establishing themselves offshore still presents challenges for businesses looking to scale beyond the domestic market.
Take the US market for instance. The scale and the strong relationship between our two countries make it an attractive target. Yet, entering North America can be an expensive endeavour, plagued with bureaucracy that varies state by state. And establishing trust remains a key issue.
One Australian business preparing to take on the US market is quick service restaurant Guzman y Gomez. Last week the restaurant chain announced it had taken outside funding for the first time in its 12-year history, securing a $44 million investment from local investment firm TDM Growth Partners.
The cash will be used to grow its 117 stores to 500 and open its first US store in Chicago in early 2019.
“I think we’ll do alright,” Steven Marks, founder and global CEO said on stage during an event hosted by Zendesk in Melbourne last week.
Marks acknowledged it hasn’t all been smooth sailing since the company opened its first store in Newtown, Sydney in 2006. “It was brutal … My mother called it the race to bankruptcy,” he joked, before noting that building a business in Australia would serve them well overseas.
“In Australia occupancy is expensive, labour is expensive and the food’s expensive. But if you build a brand in Australia that people really love, because it’s real, I think Australian brands have an ability to go global, which is exciting,” Marks said.
The company’s ambition is to “reinvent fast food” with a focus on fresh ingredients and customer convenience.
And right out on the bleeding edge of technology, Guzman y Gomez is partnering with Project Wing, a division of Alphabet’s research arm X, to trial drone delivery near the NSW-ACT border. Marks sees this not as a gimmick, but an investment in customer experience.
“Our vision is to make every part of any guest experience at Guzman y Gomez easy,” Marks said. “For us, if you want delivery then we have to make sure we nail delivery. If you want drones I’ve got to make sure your food is hot and it’s packed in the correct way because you don’t want to lose them. Especially in Australia, you don’t want to lose anybody — there’s not a lot of people here.”
Now New York-raised Marks is preparing to win over a new set of customers, “bringing Mexican food back to the States.”
Which-50 spoke to several Australian businesses in the early phases of entering the US market, to identify why it’s an attractive market and why Australia is an important testbed for businesses with strong growth prospects in the digital economy.
For online retailer Showpo, entering the US happened incidentally, as global shoppers started placing orders on its site. More recently the company made a conscious decision to target the market, establishing a warehouse in Los Angeles and throwing an official US launch party in September 2017.
Mark Baartse, CMO of Showpo, told Which-50 US sales account for a “substantial portion” of its business and, by virtue of the size of the market, the US offers much greater growth potential than Australia.
From a marketing perspective, the company is working to overcome a key barrier, getting American shoppers to trust them.
“Because we are much smaller in the US than we are in Australia, we are doing a lot of messaging around trust,” Baartse said.
“People come to the site, they see who we are, they like the product but they are not quite sure about us. So we are getting that trust messaging out there to make them confident that we actually are a real business and that if they pay us money the products will show up and be of reasonable quality.”
The scale of the market is intimidating, Baartse said.
“From the logistics side of things, that has been challenging and continues to be challenging, I think very few companies have done logistics well, Amazon aside of course, because it is such a big geographically diverse country,” Baartse said.
On the road
Colin Weir, CEO and founder of Moroku is planning to spend two weeks in mid-September on the west coast of America meeting at least two banks each day.
Moroku is an Australian fintech which sells white label mobile app technology for banks, which allows banks to build their own apps using its mobile application development platform or they can use the pre-built apps from Moroku, such as Chore Scout — a mobile banking app for kids, launched in 2017.
“The problem we are trying to solve is how do we make banking fun so banks can differentiate their offering and customers can pay attention and get skilled at managing their money in a digital environment,” Weir told Which-50.
Locally, seven Australian banks and credit unions are using the platform and Weir expects that number will double in the coming months. But still, the size of the market in Australia is limited.
“In Australia there are about 80 authorised deposit-taking institutions — that’s a fancy name for banks and credit unions — and in the US there’s close to 14,000,” Weir said. “It’s just a massive market.”
Moroku began its foray into the US almost 12 months ago and hasn’t yet signed its first client. But Weir, who has been selling internet banking software since 1998, is confident “a healthy pipeline” will pay dividends soon.
The US sales conversations begin with Moroku’s performance in the Australian market.
“You cannot enter the US market as an international company without having proven that you can sell in your domestic market. It’s almost impossible. It’s the first question people ask you when you go into an international market: ‘have you been able to sell this in your own home?’ If you can’t answer that with a yes, people won’t even talk to you,” Weir said.
Weir says being an Australian fintech also has its advantages in the US, thanks to our reputation as a test market for digital technologies.
“America is some way behind Australia in terms of its digital readiness. You can see that largely by how commonplace cheques are in America versus how regularly they are used in Australia,” Weir said.
“Australia’s financial services innovation is world-leading. What that means for us is when we test here and we can prove we can sell and win the area you’ve got to be amongst the most innovative companies, not only here in Australia, but therefore in the world.”
Inlogik, an Australian company which builds software for financial institutions that digitises the manual processes involved in expense management and corporate credit card management, is also hoping to make inroads with US banks.
More than 500 Australian companies that use Inlogik’s system for expense management and the company has a well-established office in the UK. Founded in 1993, it was acquired by the current owners in 2004 and opened an office in New York 2½ years ago, to establish operations in the world’s largest market for corporate credit cards.
Despite going in with their eyes open, Richard Eskell, CEO of Inlogik describes entering the US as a much tougher task than he had anticipated. Specifically, slower and more expensive.
“Members of the board have had experience in the US before, so we went in with our eyes wide open and we weren’t expecting immediate results. That said, it has been harder to get into the US market than I had anticipated. I was always expecting it to be tough but it has been harder than I thought,” Eskell told Which-50.
Eskell puts the challenges down to the high level of bureaucracy which varies state-by-state.
“They are actually 50 different states, with different laws, different tax regimes. The actual bureaucracy in the US is extraordinarily high compared to Australia or the UK.”
“For any smaller business that is heading there, be prepared, funded and organised.”
Eskell said entering the US required a long-term view. Inlogik originally planned to spend three years establishing the US venture, but Eskell says it will take closer to four years to get the US operations to where they want them.
“It’s a big investment. If you think you can do it in a year, you’re kidding yourself,” Eskell said.
Despite the challenges, “the prize at the end of the day is huge,” he says.
“The opportunities are huge, when we get ourselves up and running it will be a very profitable place for us,” Eskell said.
Australia as a test market
Trena Blair is the founder of FD Global Connections, a company established in 2014 which helps Australian businesses enter the US market. She says the size of the market presents a big opportunity.
“It’s an enormous opportunity but Australian companies need to ensure they’ve got their strategy right before they launch there to ensure they are spending their time and their capital on a successful market entry to the US,” Blair told Which-50.
The biggest misconception Australian companies have about the US is believing it is one market, Blair said. “In fact, it is actually 50 markets.”
“Every state in the US is different when it comes to regulatory and tax structures and that’s not well understood. That causes Australian companies to spend considerable capital on trying to get into the entire market when they really don’t understand is what they should be doing is really targeting one market initially, or one state initially, and then scaling up from there.”
Success in the Australian market is also viewed favorably in the US, Blair said.
“What I have been told through my contacts in the US — both east coast and west coast — is another reason they really enjoy working with Australian clients and getting to know their businesses is because Australia is seen as a great test market.”
“If you’ve got a solution that is well received here, you’re earning revenue, it’s really seen as a great test market before companies go into the US.”