Bram Kaashoek on the international scalability of the Computer Software-industry | Deep-dive European Scaleup Monitor
21 June 2022
How to win outside home-markets? International scaling journey of enterprise software companies
The European ScaleUp Monitor 2021 found that Digitalisation and Tech dominate the scaleup landscape. To put this into numbers, 57.1% of all European young fast-growing companies are active in the Computer Software-industry and attract 43% of total scaleup funding. Britain rules the waves in this industry, housing 1/3 of the Computer Software scaleups. Web Hosting & Internet plays first-string in Europe’s scaleup sectoral orchestra, with 30.4% of all young fast-growing companies even larger than the runner-up industry Communications (17.7%). Bram Kaashoek (Main Capital*) explains the winning hand of cards of the Computer Software-industry: International scalability.
“There are clear reasons why software is so well presented in these overviews of fast-growing markets. Next to the availability of capital and the ability to attract talent, the underlying business model of software companies is very internationally scalable. For example, compared to hardware, for software solutions you don’t need complex supply chains, production facilities and installation. Moreover, marginal costs are low. Based on extensive research**, including a survey among 60 European software entrepreneurs by Main Capital Partners, three key factors are identified that play the international scalability card into hands:
Pull vs Push approach. Most software entrepreneurs think about internationalization from the start, for example by making their application multi-lingual. However, successful international sales, delivery and support are more challenging. Smaller companies are less likely to proactively go abroad. Our survey points out that in 45% of the cases software entrepreneurs are approached by potential customers (= pull), whereas 53% of the respondents indicated that they have a clear internationalization plan, with well-defined go-to-market routes and Marketing & Sales capabilities and budget (= push approach). This shows that, once a software company becomes more mature, internationalization is part of the growth strategy.
Market size, cultural & geographical proximity. Our research clearly shows that there are two drivers for geographical market selection, when internationalizing a software company. First of all, market size: the potential number of new customers in a certain geography and related revenues that can be generated. For example: 82% of the Dutch software entrepreneurs have the ambition to bring their solution to Germany, 65% to the UK and 50% to the USA. The size of these markets is quite appealing to Dutch entrepreneurs. Another pattern that we found relates to cultural & geographical proximity. An illustration: German software entrepreneurs have their eye on The Netherlands (43%), Switzerland (43%) and Austria (36%).
How to sell abroad: four operating models. There are basically 4 ways of reaching customers outside your home market. (i) Selling solutions remotely (e.g. via Inside Sales), (ii) via local partners, (iii) via international acquisition (M&A), (iv) opening a local office. The remote model (67%) and partner model (60%) are by far preferred in the software industry. Local presence isn’t necessary to sell solutions across the border and can be quite costly.
For lessons learned, a practical ‘how-to’ playbook and cases of successful software entrepreneurs, read more here.”