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Global or local?
We all know the refrain: “Your startup should be global from Day One.”
In theory, it’s true! What many startups are selling is an intangible product that can be sold across borders without the need to restrain yourself to one country. Plus, startups are all about increasing returns to scale, which means there’s only upside in expanding on as many large markets as possible.
Yet can you think of a tech company that’s effectively global?
Google, Facebook, and Amazon might seem large, but they’re far from being present on every large market. And the trend is clear: today’s businesses are less global, not more. For instance, Uber famously had to scale down its operations over the years, leaving China to local rival Didi and Southeast Asia to Singapore-based Grab.
All in all, the harsh truth is that there has never been a truly global business (with a few possible exceptions such as McDonald’s and Coca-Cola). Even in the tech space, the future seems to belong to companies that learn to embrace fragmentation:
They operate a business that’s more tangible, which means being physically present on the ground and generally lower returns to scale.
They operate a business that’s more regulated, which means complying with rules that vary from one country to another (even from one state to another if you’re in the US).
Fintech startups are a good example of the latter. In theory, financial services are essentially intangible, which means they can be operated at a global scale, right? Well, no, as remarked by Andreessen Horowitz’s Anish Acharya (from a16z’s newsletter):
Fintech is default local, not default global. Unlike software or a social network that can be “turned on” in any geography, fintech products must receive local regulatory approval, offer local payment methods, and work with local bank partners — all of which takes time, talent, and money, oftentimes a significant, dedicated team. Additionally, over the last 10 years, local fintech players have emerged around the world, posing formidable competition for foreign entrants.
I love Anish’s “default local/default global” framework.
It helps founders anchor their ambition and it helps investors determine if a founding team is the right one to tackle a given problem:
If your startup is ‘default global’, then you need a fearless founding team that’s global from Day One. Ideally, that team is already international, you already work in English and (assuming we’re not in the middle of a pandemic) you don’t mind travelling a lot—even relocating elsewhere if necessary.
If your startup is ‘default local’, it’s a different story: you need a founding team that thinks primarily about product and local sales, because mid-term success will likely be all about selling locally rather than expanding on foreign markets right away. In this case, being international is a plus, but not a necessary condition for success. A regional team working in the local language can always buy international expansion later, after they’ve gotten a firm foothold on their domestic market—so long as the product is good and its scope is broad enough.
So make sure to identify if your business is ‘default local’ or ‘default global’, plan your go-to-market strategy accordingly, and then attract the talent that matches your category.
For 7 years, we at The Family have been working with startups all across the spectrum: from enterprise software companies able to serve clients all over the world to startups in ‘default local’ sectors such as financial services, healthcare, transportation, and construction.
In any case, I can tell you one thing: we’ll know in an instant if your company is ‘default global’ or ‘default local’. And hearing that early on is one of the best pieces of advice you can get. So join us!