The business cloud: Going global from the start
If you are a business-to-business (B2B), software-as-a-service (SaaS) entrepreneur, the world is your market. Gone are the days when a company launched in the US, and waited 10 years before expanding overseas. Today, many American entrepreneurs think globally from the start. In fact, many of the pitches we have seen in the last year at Emergence Capital include some kind of international strategy, which is not surprising giving the noticeable change in global outlook among US CEOs. According to a recent PricewaterhouseCooper's study, almost 40 percent of US CEOs intended to complete a cross-border deal in 2012, compared to 25 percent in 2011.
Driven by the shift in mindset and the market potential, B2B, Business Freemium, and SaaS companies are going global much earlier in their lifecycle than ever before. In fact, the notion of dominating the US market and then going global is becoming quaint. Now, the primary strategy is to go global from the outset, and many are reaping the benefits.
For example, less than five years since launch, ServiceMax is already selling its mobile field management software in 20 countries, and bio/pharma-focused Customer Relationship Management (CRM) provider Veeva Systems has expanded to Spain, the UK, France, China and Japan, all simultaneously. Meanwhile, Yammer’s second largest group of corporate social networks are in the Netherlands*, and thousands of other companies outside the US have built networks on the platform. Insightly, a cloud-based CRM software for small businesses, found that since 2011 about 50 percent of its customers came from outside the US and Canada, and it doesn’t yet have a single sales person working from outside the US.
Meanwhile globalization works both ways, and while American companies have been increasing their global customer base a growing number of SaaS start-ups have launching overseas. For example, Xero (Australia), Evernote (Russia), and Prezi (Hungary), and many US users probably have no idea these companies are not American born and bred.
What is driving this change, and what does it mean for start-ups and the investors that back them? There are three converging trends:
The Cloud simplifies global deployment
An increasing number of entrepreneurs are leveraging cloud-based platforms and infrastructure that dramatically simplify global deployment. In addition, Saas business models and multi-tenant architectures enable continuous release cycles, making it easier to support multiple languages and currencies that can be rolled out as they are made available and can be supported. Platforms such as Force.com, Amazon Web Services, Akamai, and Google App Engine have paved the way for B2B companies to leverage a mature and reliable set of global infrastructure services.
Proliferation of mobile devices
The explosion in mobile devices globally has dramatically expanded access to cloud-based software application. The cost of access to internet computing has plummeted -- where it once took a $3,000 broadband connected PC to gain access, it now requires just a $300 (or less) smart phone. It’s expected that the next billion connected mobile professionals will be located outside the United States, a number that will soon eclipse the number of mobile connected business professionals in the US. This massive growth in global potential users holds tremendous opportunity for companies in the B2B mobile and SaaS space.
Business Freemium is paving the way for rapid global adoption
The combination of leveraging a viral product offering and a business freemium model globally can create an amazingly efficient and disruptive global distribution model. Case in point: Companies like Yammer, SurveyMonkey, YouSendIt, Box, and Insightly have amassed thousands of customers globally with limited to no marketing investment. Many of these companies also have profound network effects which create significant barriers to entry for others.
Founders who want to build the market leaders of the future need to keep an eye on international growth from the get go and seek investors that understand how to help make that global opportunity a reality. Companies that leverage the cloud, take advantage of business freemium models, are mobile first and have inherent viral characteristics are going to be the big winners of the future.
*An earlier version of this post identified Denmark as Yammer's second largest group of corporate social networks when it is, in fact, the Netherlands. The story has been corrected.