Globalizing the young venture

- Facebook, Twitter, Skype, these companies went global very early in their lives. Some, like Skype, were even born global. Clearly barriers to early globalization have come way down. Yet early globalization is not always a bed of roses. It adds complexity and uncertainty precisely when the venture needs to stay focused on succeeding in the home market. Even if a young company is able to raise sizable venture capital, it will almost certainly be thin on organizational capabilities. These must be built from the ground up and are impossible to purchase. Thus a venture which globalizes too early could end up jeopardizing its very survival. Given these opposing pulls and constraints how should the leaders of a young venture decide whether to globalize early or not? How might they minimize the accompanying risks? Here are five guidelines. First, never ignore industry economics. In its first five years, Google entered 72 countries. Amazon only three. Why so? Online retail and physical goods requires much greater investment in local operations than does online search and advertising. For Amazon, comparative advantage needed to be built from the ground up, country by country, a multi-domestic business. In contrast, Google did not need much local infrastructure or even much localization, a globally integrated business. Rapid globalization is far more often imperative in a globally integrated industry, and far more of a challenge in a multi-domestic industry. Second, never neglect your position in strategic markets. A strong position in strategically important markets provides the young venture with cashflow, external credibility, and managerial resources. If globalization distracts you from building a secure position in your strategic market, then it's a liability, not an asset. Third, don't globalize too many activities at one time. Globalizing multiple activities simultaneously creates the risk that the young venture may take on too much complexity at one time. Complexity must not exceed the venture's ability to deal with it, otherwise you will face inadequate followup on new leads poor service to existing customers, and internal inefficiency. Consider globalizing only one activity at a time so that the organization builds additional capabilities before moving on to the next step. Fourth, deliberately establish formal processes early in the new venture's life. Ad hoc informal processes can work in a single location. However, when employees are separated by time and language ad hocism can lead to a rapid escalation in coordination costs. Last but not least, leverage veteran globalizers. They can do this in several ways. Hire liberally from larger, more experienced, and more global companies. Add the needed expertise to the board of directors. And invite global veterans to join the board of advisors. To sum up, early globalization is a double-edged sword full of not just promises but also perils. Smart entrepreneurs need to make sure that the potential payoffs will more than justify the potential risks.