Launching a rocket in the USA
Expanding outside one’s home country is a huge milestone for many startups. For businesses in Australia and New Zealand, it’s not uncommon to seek new opportunities in the USA. It has its own pros and cons, but if done right, it could open plenty of doors for your business. But where do you even begin? Our panelists dish out everything you need to know about taking the big leap over to the land of stars and stripes.
📣 About the Speakers
- Jason Atkins: Co-founder of Cake Equity, a company that helps businesses issue equity and manage cap tables, etc.
- Jeremy MacLeod: Co-founder of The Search Experience, a specialist recruitment consultancy focused on building go-to-market teams for early-stage, disruptive technology companies across North America and APAC.
- Kathy Woeber Gardner: Partner at Montgomery Pacific LLP, a boutique corporate law firm that counsels corporate clients from formation, commercial and licensing transactions, and acquisitions and dispositions.
- Georgina Gilbert: Partnerships Specialist at Deel, a global payroll solution that helps businesses hire anyone, anywhere using a tech-enabled self-serve process.
📝 Key Takeaways
- Launching in the US gives you access to an addressable market, seasoned professionals, and a different timezone.
- Every state is different. Understand the labor laws of the state you want to set roots in.
- Test the waters first! Validate your product by building a small team in your selected state before going all out.
- Your success in your home country will be rosy for US investors.
🍰 Slice of Cake #1: The bitter and sweet of entering the US
Gilbert begins by pointing out the total addressable market that you get access to in launching in the US. She says, “You're capturing a greater audience and are building additional value into your business, and that means that you can attract investors… [Also] expanding into the US gives you the ability to capture another timezone outside Australia.”
From a recruiting perspective, Jeremy MacLeod highlights the expertise you can access.
“I think you're able to tap into really seasoned professionals who have been there, done that. They have really good playbooks. They have the expertise of taking a company from a certain level and growing it exponentially. In Australia and New Zealand, those skills are definitely growing and developing…but they’re so much more plentiful in the US… It is a real game changer for companies heading over there.”
Atkins adds, “The leading companies and the best practices in your industry quite often are in the US. So taking that step can help elevate you towards the forefront of your industry and your niche, which can then help you with further expansion.”
On the other end of the spectrum is the difficulty of penetrating the US market due to its sheer size. The US has 50 states with varying laws and policies that pose challenges for overseas companies. Unlike Australia or New Zealand which have standardized laws across the country, the US adheres to several depending on where you set up shop.
🍰 Slice of Cake #2: Each ingredient is different
As mentioned earlier, each state is different in their employment laws. It helps to be mindful of understanding these legislative aspects and securing your customer base. MacLeod says,
“Make sure you have good employment agreements that are legislated correctly for the state that you're in. And that is a mistake that a lot of people make thinking that the US has some sort of core employment law and that it's very easy to have something that's structured across every state. But you need to be quite specific as to where you've employed your people.”
Employment laws such as non-competing clauses vary from state to state. Gardner explains, “I'm from Ohio where non-competes are fine; but as a California lawyer, they can't happen here and that takes people a while to get adjusted to. You can hire and fire somebody for any reason or no reason. The nuances are you can't discriminate against people when you're hiring and firing. You have to be very careful about that.”
Apart from these, the payroll aspect of hiring also differs. Gilbert says, “You've got different employment and payroll laws in each state. So something to be really mindful of is if you are going to be employing people in multiple different states. You've got taxes, lodgements, reporting... So it’s very important to be mindful of that when you are choosing to employ people across different states.”
🍰 Slice of Cake #3: Opening shop in the US
Launching in the US isn’t a walk in the park. It begs the question: should you have an Australian parent company with a US subsidiary or do you flip and become a US parent entity with an Australian subsidiary?
Atkins suggests, “One of the biggest factors in making that decision is who your investors are and where they want your parent company to be. Some investors in the US will only invest in a US company. That's quite common. It is becoming more common for investors to invest globally, but it's not the majority.”
Gardner continues, “Once you start engaging in a substantial way with US customers and you've got employees or consultants on the ground, that's usually where the line is drawn. For Australian entities, that's how they decide… They will set up in Delaware as a Delaware entity.”
But why Delaware? Gardner answers, “Delaware decided decades ago that it was going to leap ahead of every other state. It has the most sophisticated company-friendly laws in the US... Most US public companies are Delaware corps; VCs don't even want to think about another state.”
Going all out can be daunting though. Gilbert offers a solution, “Before you go through that commitment phase of establishing an entity, you can test the market. You can validate your product in a new market. So if you're not signing contracts and things like that, but to have some people on the ground to establish distribution networks for a period of time, you can do either.“
On the topic of hiring employees or contractors, MacLeod emphasizes that hiring people on a permanent basis establishes momentum. Apart from that, employment promises benefits–such as health insurance–that provide security for employees.
On hiring contractors, Gilbert notes, “The contractor side of things does give businesses much more flexibility because the contractor has to manage all their own taxes and lodgements and things like that. Who you are hiring will depend on whether you are happy bringing in people as a contractor or as a full-time employee and the types of roles that they're doing.”
🍰 Slice of Cake #4: Inviting more chefs to the kitchen
Going to the US is mostly about customer generation and growth of market size. More often than not, your first hires will be sales or marketing people. MacLeod has advice for companies thinking of scaling up overseas, “Try and hire at least a couple of people when you go make that footprint. Hiring one off and then waiting for that person to be successful...tends to be a much harder strategy. Typically, the first couple of hires you want to make are people that are going to be selling directly to customers… And then you probably want to hire some kind of player-coach who can start to be a bit of a mentor and a leader to the people in the region.”
When it comes to hiring higher-level employees, it can get depressing knowing you might be earning less than a US counterpart. Atkins goes, “There was a rule that I learned recently, which is about five to one. If you're paying a couple hundred thousand dollars for an AE, they should be booking a million dollar worth of revenue for use. That's a really good ratio. If you can get that in your mind then you can see that they're getting up to that pretty quickly.”
Finding investment in the US and capital raising is a matchmaking exercise. Although the majority of US investors still prefer to invest in US-focused companies, there are those who want to go global as well. Atkins says, “If you want to access them, you need to be there or you need to show why you're going to be there. And they need to be pretty convinced that that's going to work out.”
Another route you can explore is to flip your company. Gardner explains, “Many Australian companies doing really well are surrounded by eager US investors who say, “we'd like you to be a US company.” And what they mean is…that the Delaware subsidiary issues shares to the shareholders in Australia so that the Australian shareholders now own the Delaware entity and the Delaware entity owns 100% of the Australian company and all the IP it's sitting on at that point in time. Then the US VCs are comfortable going ahead to invest.”
When is a good time to get hands-on deck in the US? MacLeod quotes Ayrton Senna, “It's really hard to overtake people in the dry, but it's very easy to overtake a lot of people in the wet.” He continues, “In a market like this, if people are hurting, get to the US and take advantage of being able to establish a really good market position very quickly as opposed to when it's rosy for everybody.”
Gilberts adds, “If you have established profitability in Australia then that's a really good position to be in.”