International expansion for software firms – what do successful families have in common
Jussi Lehtinen
I recently held a workshop on international expansion for a Finnish software company. And as a white, middle-aged male, I hold it self-evident that my opinions (oops, I meant to say evidence-based insights) carry such universal truths that they should be shared with a larger audience.
Finland is fortunate to be blessed with a lively software ecosystem. While in the past only a few brave companies such as Basware or F-Secure ventured abroad, in the last decade we’ve seen more and more firms expand beyond the domestic market. However, for a firm considering international expansion, it can seem a daunting and risky undertaking.
When it comes to international expansion, the foremost thing to understand is that, in contrast to what Leo Tolstoy said, there is no singular recipe for success. This said, having worked with and observed a number of software firms that have successfully gained a foothold in the international market, I’ve noticed certain common characteristics. Four, to be exact.
The first of these is a growing underlying market. This can seem self-evident, after all what software market wouldn’t be growing? But after 20+ years of software eating the world, the fact is that many subsegments in e.g., financial software, HR, or collaboration tools are already fairly mature markets with limited growth, especially in the Nordic markets with similar levels of digital savviness.
The second characteristic is a strong product. While it’s natural to believe in the inherent strength of one’s own product, it’s also important to be brutally honest here. Is your position in the domestic market based on superior quality or features, or is it more dependent on e.g., strong customer relationships, high customization, or early mover advantage? (Advantages which by nature are difficult to establish quickly in a new market.) And even if your product is truly superior in your domestic market, you have to consider whether there are characteristics such as local regulation or market structure which inhibit expansion to other markets. As someone said, there are no atheists in the trenches and in a similar way there are very few internationally successful payroll software firms.
The third common denominator is sufficient investment in sales and marketing. There are a number of different routes here, but no matter how good your product and how attractive the market, if there is no sustained sales and marketing effort, there is little hope for success.
The fourth and final thing these companies have in common is bandwidth and patience from the management (and the BoD / owners). It is easy to try your feet in Stockholm for a few months, withdraw because of lack of results and declare international expansion as a waste of time. While it is true that not every software company is suited for international presence, it’s equally true that very few of the ones that have been successful have done it quickly (or even on the first try). As Homer Simpson put it: “You tried your best and failed. Lesson of the story. Never try.”
These are the traits that software firms that have been successful in their expansion typically share. I’ve also put together some evidence-based insight (or un-grounded assumptions, pick your poison) regarding the key steps that a software company considering international expansion should take. If you are interested, please check out my related blog post: Unlocking International Markets – key steps for software firms.
