2 min read
The truth about expanding your tech business to the USA: part 1
In 2016, SurveyMe expanded to open its first US office in Southern California. It now employs more people in the USA than the UK ,and gathers real-time feedback from a network of moviegoers in over 2,800 movie theatres across all 50 US states and Canada.
Four years ago this month, I was sitting at a shared bench in TechHub at Piccadilly Basin, Manchester. We’d just started logging details of where our fledgling app was being used. We had a handful of UK clients at the time but frankly we’d just put our app out there without much of a plan as to how far it might spread.
Within hours, the app ‘usage heat map’ that came back from cyberspace both astonished and astounded us. Our app was being used in places that we hadn’t even imagined could know about us yet. Excitedly, I hurried on home that night clutching said heat map and on showing it to my wife, she remarked, “well I’m not really of fan of rice or noodles so that’s the Far East out … but America looks kind of interesting doesn’t it?”
Over the next weeks, we began looking at the heat map more intensely and it seemed to show three areas in the US that were particularly ‘hot’ for us. But the reality was we were clueless why and we were always going to be clueless unless we actually got on a plane somewhere to try and figure it out.
Choosing our American home
Fresh with the remains of our credit card limit, the promise of a £1,000 UKTI grant plus the cheapest economy tickets imaginable, our heat map was telling us we had to choose between Florida, Texas, and Southern California. Of course, each had pros and cons. I had spent enough months in each state as a university student many years before to know the climate and people of each place to know the basics about each.
Our ultimate decision was made by plotting out the number of those businesses in our target sector headquartered in each place and the running order was finalised by knowing someone who might have a sofa for us to sleep on for a week or two. So destination Irvine, Southern California.
Despite my extensive travelling through the USA and SoCal, I had to admit that Irvine wasn’t a place I’d really heard of before. My wife and I had even finished our honeymoon a few years earlier in the neighbouring city of Newport Beach but neither of us recalled visiting Irvine. Nevertheless, home to so many company headquarters it seemed to be the place that made most sense.
Two weeks later, on returning home to Bramhall, having listened to people on the ground in SoCal, I don’t think we could have been any more excited about the prospects for SurveyMe. But okay, quickly realities of life set in and while we had witnessed the scale of what is possible, how on Earth were we going to achieve it.
At this point, I’ll admit to, and quickly skip, the very painful part of choosing the wrong investors to help us. That’s for another day. But having finally got the right investors on board, here’s a bit more depth about the challenges of actually setting up our US presence.
What companies should consider
As I listen to the bustling noise and excitement within our present office in Newport Beach, I can look back on that first trip now with both a mixture of great amusement about our near-total innocence and a certain sense of pride about what we’ve accomplished, albeit knowing we still have a very long way to go until we achieve our ultimate destiny.
First things first, if you seriously want to trade in the US then it’s possible of course. But if you want to trade with even moderately sized US companies, the reality is that you must incorporate a company in the USA. This isn’t some quirky nationalism, it’s grounded in basic business culture and that’s driven mostly by the likelihood of a legal dispute in the future and consequently the ease of settling such lawsuits as and when they arise.
After that, the main reason is banking. While in the UK most B2B transactions are done electronically, in the USA almost all B2B transactions are done by paper cheque still. So if you’re serious about expanding to the US then you’ll need a bank account and for that you’ll need to be incorporated first.
”Everyone gets sued…”
In terms of company incorporation, most companies incorporate in Delaware and then register to trade in another state. For us, that was California. Less understood is the principal reason why that’s advantageous. Indeed one of the first things our attorney here asked me was, “how long do you think it will be before you get sued?” Now, as a rule Americans are far more direct than the British but at the time, knowing we run a good company, this question knocked me backwards.
Perhaps sensing the look of anguish in my eyes she quickly followed up with, “.. because you will get sued. Everyone gets sued. Think of it as a badge of honour. You’ve got something that someone thinks it’s worth suing you for”. And with that, we learned that we have to insure everything, literally there is no point thinking British, as soon as you are incorporated get an insurance agent and get covered.
You will be surprised as a business owner just what you are liable for, especially once you start employing people. To conclude that early client-attorney conversation, once we established her total satisfaction with us having incorporated in Delaware, she explained her delight was because, “it’s far easier and quicker to deal with lawsuits there”.
And yes, we almost had our first lawsuit this year and yes it came about not because we’d done anything wrong but because someone thought it was worth testing whether we would contest a spurious (and wholly unsubstantiated) claim. The claim rightly went away but it took time to collect the evidence to prove it.
Choosing where to trade
So once incorporated in Delaware, choosing the right state or city is your next opportunity. What few people appreciate is how different most of the states are. While my wife and I have both lived in several countries around the world, the realities of uprooting your family and starting a business somewhere else forms my next piece of serious advice. And this is it…
However confident and positive you are about your business, in the first 18 months the number of days of frustration, exhaustion, and self-doubt will severely outweigh the days of optimism, elation and excitement. There are many professionals who will correctly advise which are the best states to hire people, fire people, and always the ones that are most tax advantageous. My advice is to find somewhere that inspires you, where you feel comfortable and happy, because you’ll need that in spades as you try to figure everything else out. Leave worrying about the various state taxes until you’re making a lot of money.
That being said, we chose Newport Beach, California. Apart from the commercial and lifestyle reasons, you must consider time zones and ease of travel to/from Manchester. Several new direct routes from Manchester to the West Coast have opened since we started exploring being located here but it’s important to understand is that it takes roughly the same amount of time to get from Manchester as it does to fly from West Coast to the East Coast of USA.
So, that would suggest East Coast might be the best but the reality is the East Coast business decision-makers are relatively more traditional, more initially suspicious of new (West Coast) technologies. By comparison, the West Coast mindset is generally more accepting of new ideas and innovations, particularly disruptive technologies.
Whether it’s linked to the gold prospecting or surf culture, there’s also a general perception and acceptance on the West Coast that as a tech entrepreneur and especially an ‘appreneur,’ that you’ll try and fail a thousand small times before eventually you’ll hit pay dirt or catch the big wave. Possibly for these reasons it feels that more often than not, in daily life here on the West Coast that tech entrepreneurs are encouraged and celebrated more than in any of the other states.
While there’s three hours’ time difference, outside of central LA, you’ll find most Southern Californians are up with the sun and retire for the evening as soon as it becomes dark. So, for me, being awake at 5.30am and chatting with my senior team before or on the way into work is perfectly normal.
In a big country
One of the hardest things to appreciate is the scale and vastness of the USA. Unlike the UK, you probably won’t see most of your clients more than once, if that, in any year. For that reason attending industry conventions and participating in trade shows is far more important in the USA. But be very specific about which industry you are targeting because you will not be able to be all things to all industries.
We’ve already witnessed so many new technologies that we saw 18 months ago who are no longer around simply because they were spread so thin. That can be a double-edged sword because it also means you’re unlikely to make significant commercial breakthroughs until you’re attending the same convention or trade show for the second successive year.
For that reason alone, if you are early stage tech, then you’ll probably need much more cash than you think in your first two years after expansion to the USA.
Having said all that, what are some of the most common myths we heard before we located here, and what are some of the realities to those myths? That’s what we’ll take a look at in part 2.
Now read part 2, featuring five myths about expanding to the USA.
Featured image credit: Brandon Day on Unsplash