There’s no doubt that the CEE region has turned up the beat when it comes to developing and selling new tech products. However, there are only a handful of tech-savvy consumers willing to adopt new products. This aspect, combined with the limited number of investors and other cultural and legal matters, makes the CEE quite a small market for the visionary tech startups.
So what do most of them do? Battle with the waves to cross the Atlantic. With a vast consumer market, extensive investor networks, and a GDP close to $30 trillion, the USA sparks a light in the minds of the tech founders from CEE.
Indeed, there are startups that have made it there. The Romanian UiPath, the Ukrainian Grammarly and GitHub (one co-founder is Ukrainian), the Bulgarian Quantive or the Czech Mews are only a few of the CEE startups who are living the American dream.
But what does it really take to enter the US market? Do you really have to do it to be a successful startup?
For this article, we talked with two founders and a lawyer who have experience with the US market, exploring the line of thought founders should take when considering this expansion.
If you are a founder, investor or other adjacent professional and have insights on the US market, contact Elena and share your thoughts.
Good to know from the get-go
“Founders should think of the US as 50 different countries and not one alone as most of the legal or business aspects are state-based,”
advises Milo Poplar, Czech-born startup lawyer based in San Francisco. “They should have a good reason for opening a branch in the US and be ready to spend at least $10k annually for admin costs,” he adds.
The Americans don’t like cheap products
Having been advised that validating their product required a presence in the USA, easySales, an integrating tool for e-commerce merchants, took their leap of faith.
“After participating in a pitching competition organized by UiPath, we were advised to look closer at the US market. In that event, we got to the semifinals, but didn’t win because in our business plan, we didn’t include entering the US, but rather working with the European markets. We got the feedback that we were not courageous enough and we should go to the US to demonstrate our capabilities and prove that the product works there,” Ciprian Cazacu, easySales’s co-founder and CEO told us.
With this thought in mind, the team started researching the market and how they can get in touch with American customers. They registered for a booth at the Smart Retail Tech Expo in Las Vegas, adapted some of their product’s features and showed up there.
“We went there with the Romanian prices, converted into USD, so it was $39. And here the show started,” said Cazacu.
“People were confused why we are so cheap, considering all the features. Because of this, they started raising questions on why it was so. We looked around at the expo and found two competitors. Their prices started at $799. We then changed our prices, during the conference, to $99,” he continued.
“Not having the company registered in the US was also a question mark for the people we talked to,” Cazacu reflects back.
Being there and interacting with their target clients first hand made the founders of easySales understand what the US is really about, which was very much different than what they knew before.
“We discovered many things that were different from Europe. There were some which we knew about and fixed, but there were many others we didn’t. For example, they don’t issue invoices. So, in the end, some of our features which are very useful for the European market, are useless for the US,”
the CEO adds. “Also, we learned that they don’t answer the phone if they don’t know the number. Imagine what a task it was to get in touch with the fresh leads.”
In the end, after 4 months of exploring this path, they decided maybe it’s not the best time for easySales to be in the US.
“As a mantra, we don’t want to offer our product to someone who doesn’t need it. Because there were so many things we didn’t have, we decided to take a step back. To build the product properly for the US, the investment is substantial, around $1 – $2M. We agreed to postpone the process and continue focusing on the European market.”
Recommendations are the way to your customer’s heart
Going to America is also a goal for the Czech ad testing & brand tracking platform Behavio.
“We always knew that we wanted to grow in the Czech market and the EU to get the first traction here. But at some point the Czech market becomes pretty small and the EU is divided. Each country has a different sales approach, language, competition and customer needs. We’ve done a lot of research and the US was always winning. This is also because half of the global marketing budgets are spent there,” Marek Nebesář, the co-founder and sales director of Behavio tells us.
To get this ball rolling, Nebesář spent three months of 2022 in the US and soaked in the American way of thinking.
“We were getting great feedback from the US, but were not able to sell anything. They thought we were too cheap to be true. We also figured out that not having an office or a branch established there was a red flag for them. Because people didn’t know us and we didn’t have recommendations, we couldn’t gain their trust. Having strong relationships in the US matters more than in Europe, which we didn’t expect.”
Another note made on this trip was that everything is much bigger in the US compared to Europe – be it the size of the companies or stakeholders you are selling to.
“We are going for the mid market with our brand tracking product, which we’ve created especially for this market. We target smaller, fast-growing companies which are expanding into multiple markets. In Europe, for most of these companies we talk with the CEO or CMO, because the marketing team is small. In the US, on the other hand, they operate at a larger scale and have many more people in the marketing or branding department. Also, what’s an enterprise in Europe is a mid-sized company in the US. From this perspective, ICP has to be adjusted. Everything is much bigger in the US and you need to understand that very well.”
The new lessons combined with the beginning of a war and global economic uncertainty were the opposite of tailwind for Behavio.
“The timing was just not right for entering the US, we didn’t have product-market fit at that moment even back in our home market. So we decided to postpone the process. With all the key findings and the proper strategy which we now have developed, we’ll have another go this year,” Nebesář explained. “We already have contacts with two big creative agencies in the US and slowly grow on the customer acquisition. We also increased our marketing activities and are tailoring them for the new market. And the seed round which is almost closed will help us to run even faster.”
Best practices from a legal point of view
Given his experience in helping CEE startups with legal services in the US, Milo Poplar advises startups not to rush into things.
“I would recommend founders to open a branch in the US only if they have a good reason. This usually is one of three: clients, investors, or one of the founder(s) is emigrating to the US. Most startups are incorporated in Delaware, as it has the most developed corporate law and is usually one of the investor’s requirements.”
If you are convinced America should be your next stop, make sure you do your homework and not cut corners.
“One of the mistakes new founders without counsel make in the US is forgetting to sell the shares to the shareholders. Compared to Europe, in the US, when you incorporate a company, it doesn’t have any shareholders, and you have to sell the shares to them. If you don’t do it in the beginning and the company goes on without any shareholders for a while, selling the shares to them later will cost you either the fair market value of the shares or the taxes on the difference between FMV and the sale price to the IRS. Sometimes, founders don’t realize this for years, and the tax to the IRS often ends up being more than $15k and increases with the valuation of the company,” Poplar shares.
