US Expansion: Are the Problems Bigger Than the Potential Sales?
Expanding into the US represents an opportunity that is larger than the EU. At first glance, the problems appear insurmountable. Here's what we've learned.
The US Market is 47 times the size of the Netherlands. Even successful companies struggle with expansion in Europe. The problems and perceptions of the US market stop many from dreaming of success. Which means, by sales, they never become a truly global company. Should Dutch companies stay close to home? Or will online entrepreneurs lead the next Dutch Golden Age?
The Potential: Expanding into this one, single country represents an opportunity that is larger than selling into every EU country — combined.
At first glance, the problems appear insurmountable. Here's what we've learned from 15 years of living next to and doing business in the US.
Problem 1: Americans don't negotiate. They litigate.
"I'm afraid of getting sued."
The Dutch favour settling disputes through discussion and reaching a consensus. Americans call their lawyer. According to Elocal.com: 15 Million Civil Cases are filled annually in the United States. 80% of the world's lawyers live in the US. 54% of the time the plaintiff (the person doing the suing) wins the case.
There is reason to be cautious. While it is generally assumed that American law does not apply outside of the USA, there are specific case of corporate law that allow US courts to hold international companies at fault.
We are not lawyers. We do not provide legal advice. And we never experienced a genuine lawsuit while expanding into the US. But for this problem, and other reasons, we avoid what we think is the first mistake ecommerce entrepreneurs and online businesses make when considering expanding into the US.
Mistake #1: Incorporating a US-based company (using a service like Stripe Atlas or Clevver.io) without general legal counsel.
For the record, we are users and promoters of both these companies & services.
But taking advantage of their inexpensive and frictionless way of incorporating a US-based company, without getting advice, is a mistake.
Problem 2: Shipping Costs and Customs.
Shipping to the US is easy. As long as you want your product delivered to US Customs Border Control and not your end customer.
This is really two separate problems that come from the single cause of shipping across borders.
But the effortlessness of shipping in the Netherlands and the ease of crossing country borders doesn't extend to the US. Even if you did use the German-based international logistics giant like DHL.com
Once stopped, you end up being asked for product categories and import classifications. The standard line of 'taxes and duties' can turn into weeks of delay. You can probably guess the end effect on your customer satisfaction and your hard-earned reviews.
Obviously, the costs to ship a low-cost product to the US kills the profit from a US customer. So shipping from Europe to the US doesn't work for small order amounts. You'll hear that from anyone who has tried.
Problem 3: Taxation and Compliance
"There are two things certain in life: Death & Taxes" said Benjamin Franklin. Founder of a then small US-based startup called The United States of America.
Have you ever wondered why everywhere they go, Americans assume that things should work like they do in the USA?
That's because American consumption is homogeneous. You can buy the same brand of beer (Budweiser), drive their best selling pickup truck (Ford F150) and eat the same breakfast (Denny's) everywhere & anywhere in the USA.
Because Americans can get everything they want, everywhere in the US, they expect the same for everywhere else.
That's because they can do that -- consume -- the same way everywhere in the US.
But while American consumption is homogeneous, taxation is heterogeneous.
The US taxation system works on a state by state, county-by-county and even city-by-city basis.
We operated our company with a service that could be taxed in 3800 jurisdictions within the US.
The state of Wisconsin applied....honestly.....a Baseball Tax.
Don't think that because you are a 100% online company, provide a Software As A Service or have no physical product, distribution center or office that you are exempt. We've met Dutch SAAS companies that have been surprised to find out they must deal with US state taxes. And even small ecommerce entrepreneurs based in the US are wrestling with new taxation and compliance issues.
Nor are the definitions of what constitutes "doing business in a particular state" – a critical concept called Nexus – consistent with another US state. Your experience of expanding from the Netherlands to any EU or even European country – does not apply.
When it comes to taxes and compliance, the United States of America isn't united.
No Dutch online business aspires to more administration. But don't assume your dealing with a single, unified approach like European VAT.
For Ecommerce Entrepreneurs: Note we've not mentioned the immense competitor Amazon. Or in-fact any large online presence. We don't think that this is one of the top three problems most online entrepreneurs face. Amazon is a formidable force, to be sure. But we're uncovering smart, small Dutch webshop owners that are leveraging larger competitor's marketplaces for multiple reasons. There are ways of working around incumbent's size and uniformity that may make being small in size an advantage.
Can online businesses win in the biggest market in the world?
Must all ecommerce merchants assimilate meekly into Amazon?
What are the problems that must be prioritized going into the US?
. . .
Can European Companies Succeed in the US?
The answer is yes. We, with only a small team, successfully expanded our online business into the US market to where our US revenues exceeded all other revenues combined. With some the highest margins and lowest churn in our industry. We won, on our own terms, in a market with one of the highest acquisition costs. Competing against private and publicly held companies, that were 10 times our size.
You want to expand internationally? We want to help.
We do this by helping you craft what we've found is a key success factor – your UVP. We apply a data-driven country selection model, followed by a lean market entry method, for which we've been accredited.
We use a coaching, not consulting, methodology that draws on our 25 years of experience working in three continents.
We'd love to talk with you over coffee (koffie verkeerd) or online video.
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