Expanding to America might seem daunting for a small company, but the benefits of moving into the world’s largest economy are manifold.
“The rich diversity of the US allows SMEs to develop and refine their offering to make it suitable for wider international expansion,” says Elliot Padfield, head of consulting firm Precision Solutions and US-based entrepreneur. “The US is a major trendsetter for both B2B and B2C industries and this is attractive to UK SMEs as consumers and decision-makers are more open to purchase from newer businesses.”
Padfield also points out that there are also financial advantages to consider, since “cultural similarities between the US and UK markets make the US a cost-effective market to expand into for UK SMEs, without the danger of roadblocks with localisation that are often seen in places like Asia”.
According to research from professional support business Newable, nearly six out of 10 UK SMEs are currently considering establishing a presence overseas and almost one third (27%) of survey respondents selected the US as their preferred market destination [1].
What’s the right approach to US expansion?
Depending on your size, funding availability and willingness to navigate the legislative landscape, there are several ways to set up in the States. You can open a subsidiary, however it’s worth researching the individual states’ tax laws before deciding where you'll be based. Alternatively, you could expand purely online or use a distributor – someone who acts as an intermediary between you and your customers.
Founded in 2005, NEOM Organics is a fast-growing wellbeing brand. It sells in the US through partnerships with Amazon and the department store Nordstrom, in addition to its own dedicated US D2C site, which launched last year. “In many ways we replicated our UK omnichannel business model" says Oliver Mennell, CEO, “first selling through partners, then our own ecommerce site and one day we may open our own stores in the US, mirroring our UK strategy.”
Whatever approach you decide to take, preparation is key, as is ensuring you have the funds and resources in place to make a success of your venture.
Differences between running a business in the UK and US
There might be many cultural similarities between the two markets but there are some key differences that any SME considering the move needs to know.
“Business owners who pride themselves on agility are the most likely to experience a culture shock when doing business in the US,” says Padfield, “Payment infrastructure is substantially slower and more complex in the US and longer-term relationships play a much more substantial part in negotiations. This can be a major challenge for businesses." On the other hand, he says, “there is a much stronger SME culture in the US and the willingness to craft partnerships offers a scalable opportunity to grow your business quickly.”
The regulatory scene is different too. SMEs are often taken by surprise when faced with regulatory and tax concerns during an international expansion. “Operating in the US, especially as a foreign-owned business, can be a highly complex and expensive process,” says Padfield. US tax law can often have implications on an SMEs’ overseas operations and there are added challenges of employment law, immigration and securities. Key to doing this right, Padfield says, is “retaining a strong advisory team to avoid roadblocks during expansion as well as expensive problems years into the future.”
SMEs should ensure that they budget for the financial implications of adapting to these differences.
How to prepare for your US expansion
There are number of key questions to ask yourself before embarking on US expansion:
Have you got the necessary funding to launch in the US?
As well as raising the required capital, there are pockets of money you can access as a small business to expand abroad. Consider approaching the Department of International Trade, which has announced various initiatives, including "export champions", an Internationalisation Fund for SMEs attending trade fairs, and a dedicated network of international trade advisors [2].
Jo Swash, CEO of telephone answering service Moneypenny, advises SMEs to set realistic expectations: “Go in with the mindset that it will take a number of years to get it right and have the funding in place to allow you to make a few false steps (because you inevitably will, no matter how much research you do).”
Can you ensure there is enough demand for your expansion to be profitable?
For Moneypenny, the idea for expansion came about from a clear need. “Before our US launch in 2015, we were already receiving at least 20 enquiries every month from US businesses and already serviced a number of American companies from our 24/7 UK office,” says Swash. “These businesses came to us as they couldn’t find a dedicated receptionist service in the States.”
How will you tailor your offering to the US market?
NEOM spoke to PR agencies and influencers, who helped shape how it approached the market. "In the first few months we contacted every single customer to find out how we could tailor our service, products and messaging for the US market. We conducted exit polls and surveys, and this year we conducted our first brand study,” says Mennell. This strategy seems to have paid off: “Our US operations are developing rapidly, with 150% growth in revenue 2019-2020 and 220% growth in transactions," he says. "Across the business, our active customer base has increased by 120%, supporting total sales growth of 84% 2019-2020.”
How will you test the viability of your product or service in the US?
“A low-cost starting point is to conduct a meta-analysis of social listening data to validate your ICP’s (ideal customer profile) pain points to ensure that there is sufficient demand,” says Padfield. The logical next step is to directly validate your product against the market. He adds: “There’s little need for expensive focus groups. Most high-growth marketing agencies will assist you.” Finally, complete an early stage in-market test, such as a paid media campaign to build a waiting list.
How will you preserve your company culture?
“One of the hardest things about operating in the US right at the start was getting the balance right between keeping the ethos of what has made the company a success in the UK, but also adapting it so it’s relevant to the US market,” says Swash. Finding the right leadership team is crucial, she says. “We’ve had a few false starts along the way, but now have a really strong team in place.”
Swash also believes that strong communication between your UK and US teams is important. “We introduced new communication channels during the pandemic to keep everyone joined up, including daily team huddles on Teams and regular chats on Workplace by Facebook, to maintain the company’s culture.”
An international expansion will not be a small cost for a business of any size, and an American Express® Business Card can help you make every pound of your investment count. You can earn Membership Rewards® points when making international transfers using the Card, which can be turned into statement credit to offset other costs of doing business¹.
- With an eligible American Express® Card, you could earn 1 point for every £20 transferred internationally. Terms apply.
Sources
[1] Newable, Overseas expansion high on the Growth Agenda for SMEs
