I’ve worked at multiple technology companies where we made the leap from domestic to international. Along the way we learned a lot… a lot of what to do… and a shit load of what not to do.
I have the scars on my back and 117 pptx versions of our “International Prioritization Framework” to prove it.
I’m going to share that framework today so you can better evaluate your future go to market footprint abroad across three vectors:
Headcount investment
Ability to win
Market attractiveness
In terms of when you should do this type of analysis - probably yesterday if you’ve already placed concentrated bets abroad. But the second best time would be as part of your annual planning process; this way you can link resourcing to field marketing spend and sales pipeline goals.
What vectors should I evaluate international expansion upon?
Visually I’ve created a quadrant that combines Market Attractiveness, as seen on the Y axis, and Ability to Win, as seen on the X axis.
In a perfect world you'd want to be in the upper right hand corner, which reflects both a high ability to win and a very attractive market.
If you can't get into that golden quadrant, then your next best bet is to either go for high market attractiveness, with a lower ability to win, or high ability to win, with lower market attractiveness.
And if you find yourself in the bottom left hand corner, well that's probably a sign that you haven't set yourself up for a high return on investment in that country. It’s what we call “a dead zone”.
What factors influence prioritization?
So what are we examining within this prioritization framework?
It's a six factor model.
Market Attractiveness
We evaluate market attractiveness across four factors and aggregate the scores to come up with a composite view.
Market size is first and foremost, as you want to go after the largest prize. This is typically sourced from Gartner or Forrester and stack ranked against the other countries.
Expected growth looks at how we think the market is evolving long term. This too, comes from Gartner or Forrester and stack ranked relative to other countries.
Fragmentation is based on Herfindahl Hirschman index. Basically, the higher the score, the closer the market is to monopoly. The lower the score, the closer it is to perfect competition.
If, for example, there was only one firm in an industry, that firm would have 100% market share, and the HHI would equal 10,000, indicating a monopoly.
If there were thousands of firms competing, each would have roughly 0% market share, and the HHI would be close to 0, indicating nearly perfect competition.
The U.S. Department of Justice considers a market with an HHI of less than 1,500 to be a competitive marketplace, an HHI of 1,500 to 2,500 to be a moderately concentrated marketplace, and an HHI of 2,500 or greater to be a highly concentrated marketplace.
The HHI is calculated by taking the market share of each firm in the industry, squaring them, and summing the result
And for our fourth factor we’ll consider our competitors’ footprints. Therefore we've incorporated a factor that looks at [Competitor X’s] market share in the country". IDC has been useful in the past for sizing markets by specific vendors.
Ability to Win
We evaluate Ability to Win across two factors and aggregate scores to come up with a composite view.
You've probably heard of absolute market share. But relative market share is a more telling stat than absolute market share. For this we consider your firm’s market share against that of the leading competitor in the market. It's essentially your current market share divided by the largest, or if we are the leader, second largest player in the market's share. It's a better proxy for power in the market, and calculated using ratios of the IDC data we referenced above.
And for growth, you simply compare your historical three-year bookings CAGR in the region vs the Market’s 3 year bookings CAGR to evaluate if you’ve successfully out-ran the market’s growth rate to date. For this, you’ll use your own internal data and compare to IDC data.
The weighting is up to you. I’ve set the weighting factors to what I think is most important, but it varies depending on your management team’s growth philosophy and ability to execute. But overall, I’d say that a big market covers up a lot of sins, and having high relative market share allows for continued preferential attachment.
What might the output look like?
So here's a hypothetical example of what you’d see in Europe. The size of the bubble (and the numeric label) reflect the current headcount we (hypothetically) already have staffed to the region. It includes anyone on the go to market teams (Account Execs, BDRs, System Engineers, and Field Marketing). Consider this the current bet you’re making.
(Note: if you don’t have anyone in the region yet, just put a placeholder of 0.5 so it can still be visually mapped.)
Based on this visual output, I'll give you a few high level points to consider:
Germany, France, Italy, Belgium, Netherlands, and Switzerland are in the golden quadrant, with both high market attractiveness and high ability to win.
The largest headcount investments to date have been in Germany, the UK, and France.
UK and Germany, two large markets, have low HHI concentration and are relatively fragmented, making them attractive markets. But we’ve had limited success to date executing and outgrowing the UK market.
On the other hand, much of Eastern Europe is highly concentrated. It appears we’ve made good choices to date in not placing too many people in less attractive markets where we have lower confidence in our ability to win, like Poland and Hungary.
Here's the hypothetical view we developed for Asia:
There are no countries in the “golden quadrant”, perhaps signaling the Asia market opportunity for our specific product offering is still early.
As you can see, we are currently placing large bets on China and India.
If we do decide to continue to invest in Asia, we’ll have to decide if we want to go after a market with a high ability to win, but is smaller (like Thailand). Or if we want to rethink our GTM strategy and see if we can execute better in more attractive markets (like Japan).
We can also see that we have yet to fully capitalize on our investments in South Korea or Japan. And the Japanese market is growing fast but we’ve yet to match that growth.
Impact on decision making
Moving into a new market or doubling down on an existing investment is more art than science. It’s a multi variable equation, where you can impact some, but not all, of the levers. You can’t influence how attractive a market is, but you can always execute better.
It’s also quite eye opening when you see how concentrated of a bet you might be making on a place in the world where the market factors are not in your favor. This part is always difficult to discuss with execs who have a vested interest in an area you’ve already put feet on the ground. But if you agree with the inputs of the model, you have to also agree with the outputs.
