US Bound: Expanding Into Thin Air
Source: National Business Review
Author: Roger Branch
Date: December 01, 2008
Expanding a business to the US during difficult economic times is like a trek to the Himalayas. It can be done, and it can be rewarding, but you had better be fit, plan well, and realize the air is much thinner at altitude. To complete the metaphor, fitness relates to the strength of the business's balance sheet, to plan well equates to the ability to adjust your thinking to new market conditions, and thin air equates to the fact that cash is much harder to come by in a recessionary global credit crunch.
Businesses need to consider a number of factors when expanding offshore, especially to the US, NZ's second largest trading partner. According to Mike Hearn, Executive Director of the American Chamber of Commerce, you have to realise that you don't know what you don't know. "You need a presence in the US," says Mr. Hearn, "but where you locate should be based not only on where your customers are, but on tax and labor law implications, which vary from State to State." Hiring decisions are also crucial, he adds. "You need to hire Americans, and adjust your expectations of how much to pay. Paying for performance is a given, and some form of equity becomes almost necessary to hire top talent into key roles."
Miles Valentine, CEO of Zeacom, a global communication technology company based in NZ, knows the US expansion issues first hand. Zeacom now has 35 US-based employees. "First, the CEO has to relocate to the States," says Mr. Valentine. "US buyers want to see that you‘re committed to the market. He also recommends psychometric testing and deep reference checking that goes beyond the given referees. "Also, recognise that Americans like working for a NZ company," he adds. "We New Zealanders tend to be less formal and hierarchical. Opening a beer at work at 5 o‘clock on a Friday surprises our American friends in a positive way."
These are not the best of times economically, but the conventional wisdom applies even more. It boils down to two things - cash and people. Executives need to reassess the assumptions of the length of a sales cycle, especially in a down market. Companies with a 3-month "normal" sale cycle may need to budget for six or even more. Additionally, closing the sale is not the same as getting paid, and some customers will turn into slow or even no-payers out of self preservation. Smart companies expanding into a down economy will plan ahead for a higher burn rate before expecting a return. Cash is king.
Making the right hiring decisions is arguably the number one factor in US success. While hiring top talent, or "A+ players," is always the best strategy, the problem is that B+ players can look like A+ unless you have a good benchmark. While hiring B+ players won‘t be an obviously bad choice, it is a deceptively bad move for a business‘s long term health. The problems will be chronic, not acute, and therefore harder to spot.
In perilous times, it is more important than ever to steer a course between fear and rashness. While prudence and financial discipline are called for, so is a measure of boldness. There will be opportunities to capitalise on competitor‘s weaknesses, which may surface as opportunities to gain market share from them, or to make acquisitions at attractive or even fire sale prices. Once again, cash is king.
Returning to the Himalayan trek metaphor, it is also useful to have an experienced guide. The NZTE Beachheads programme and a number of qualified commercial firms can provide the best practices and lessons learned from experience.
Roger Branch is Associate Director of Kinross Partners, an executive search firm specializing in building management teams for growth companies in NZ and their US operations. He is also on the Council of the NZ Angels Association and teaches short courses at the University of Auckland Business School.
