Going Local or Global?
My biggest frustration with local entrepreneurs is their dogged approach to building local web businesses. My personal feeling is that it's difficult to reach critical mass building a product just for South Africa, as you're just fishing in a smaller pond (4m users in SA vs 1.4bn users online). I've always said that the Internet is "Geographically agnostic" - so why focus on a small segment and limit yourself when are the much bigger markets to tap into and potential for hard currency earnings. You can target advertising to consumers in any country in the world - why limit yourself to South Africa?
Some people may think that this is unpatriotic (and in fact, I've been accused of this) - but to me, patriotism is bring in foreign revenues and creating jobs & industry for local South Africans - something which I'm passionate about.
The question therefore is: Should people based in the Silicon Cape be focused on building locally or globally relevant startups (and yes, the right answer is probably in the middle!)...
Some people may think that this is unpatriotic (and in fact, I've been accused of this) - but to me, patriotism is bring in foreign revenues and creating jobs & industry for local South Africans - something which I'm passionate about.
The question therefore is: Should people based in the Silicon Cape be focused on building locally or globally relevant startups (and yes, the right answer is probably in the middle!)...
Views: 36
Replies to This Discussion
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Permalink Reply by Sean Nieuwoudt on -
Good point Vin and yes, the right answer is probably the middle.
One should remember that there are forces acting against local web based entrepreneurs when attempting international markets - not being able to accept PayPal payments, hugely expensive broadband prices, extremely expensive transaction charges etc etc.
Something else that I've seen over and over again is the perception many local entrepreneurs have of what it is to go global... almost a fear of the unknown - this is why it's great that we are seeing local boys that have made it big globally and sharing their knowledge and experience.
Funding locally is also not on the same level as it is internationally, $2 million is quite hard to envision here in SA.
Personally, I can't wait to see more local entrepreneurs succeeding globally - we have ample tech talent.
S
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Permalink Reply by Vinny Lingham on -
Thanks Sean. Totally agree with you - the big question is, what are the challenges, exactly? Let's highlight them and work as a group towards fixing it. The Silicon Cape Intiative is about driving change - let's figure out what needs to change. Capital is not as hard to find. ChessCube just raised $1.25m and there are many other startups raising similar amounts - VC is pouring in, albeit slowly. Even in the US, most investors are only putting in small amounts for early stage startups (<$2m)
Sean Nieuwoudt said:Good point Vin and yes, the right answer is probably the middle.
One should remember that there are forces acting against local web based entrepreneurs when attempting international markets - not being able to accept PayPal payments, hugely expensive broadband prices, extremely expensive transaction charges etc etc.
Something else that I've seen over and over again is the perception many local entrepreneurs have of what it is to go global... almost a fear of the unknown - this is why it's great that we are seeing local boys that have made it big globally and sharing their knowledge and experience.
Funding locally is also not on the same level as it is internationally, $2 million is quite hard to envision here in SA.
Personally, I can't wait to see more local entrepreneurs succeeding globally - we have ample tech talent.
S
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Permalink Reply by Allister Kreft on -
The way I see it is South Africa forms a great test market for a lot of products and services peddled via the web. It is a much smaller market, easier to penetrate, but obviously more difficult to reach scale. Once you have something you have tested locally, you can upscale from there internationally. It should be part of the strategy from the beginning but a lot of money and focus can be wasted if you don't have the capital to hit international markets or even worse, an understanding of what is required. If you can be a success locally to a non internet savvy market (compared to US and UK markets), then you can really grow from here.
So, my answer to this is we should be thinking global, but acting local initially :-)
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Permalink Reply by Sean Nieuwoudt on
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Highlighting the challenges we face in SA and figuring out as a group how to fix them would be a fantastic discussion to have at the SiliconCape event.
Emphasis on "as a group".
Exciting times ahead for local Entrepreneurs...
Vinny Lingham said:Thanks Sean. Totally agree with you - the big question is, what are the challenges, exactly? Let's highlight them and work as a group towards fixing it. The Silicon Cape Intiative is about driving change - let's figure out what needs to change. Capital is not as hard to find. ChessCube just raised $1.25m and there are many other startups raising similar amounts - VC is pouring in, albeit slowly. Even in the US, most investors are only putting in small amounts for early stage startups (<$2m)
Sean Nieuwoudt said:Good point Vin and yes, the right answer is probably the middle.
One should remember that there are forces acting against local web based entrepreneurs when attempting international markets - not being able to accept PayPal payments, hugely expensive broadband prices, extremely expensive transaction charges etc etc.
Something else that I've seen over and over again is the perception many local entrepreneurs have of what it is to go global... almost a fear of the unknown - this is why it's great that we are seeing local boys that have made it big globally and sharing their knowledge and experience.
Funding locally is also not on the same level as it is internationally, $2 million is quite hard to envision here in SA.
Personally, I can't wait to see more local entrepreneurs succeeding globally - we have ample tech talent.
S
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Permalink Reply by Justin Stanford on -
I would suggest that the recent easy availability of inexpensive cloud computing and commoditised online platforms allows one to setup a global scalable online business affordably from just about anywhere in the world. Previously hosting, redundancy, expansion, etc were expensive, but this certainly has changed the landscape some... the time and cost of setting up an online business is dropping by orders of magnitude in relatively short spaces of time which is lowering some of the previously existing barriers to entry.
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Permalink Reply by Jono Lewis on -
Great topic to get discussion going VInny.
I think I'm coming from a different position to other members here.
I think similarly to Alister Kreft and his response about testing locally and upscaling from there.
In my experience, as a full-time student at UCT and bedroom entrepreneur Vinny, the biggest challenges were raised by Sean Niewoudt. Realising ideas to pilot locally even has its downsides. And you shouldn't laugh : ) On a student budget bandwidth is steep and paying for hosting, domain registrations and ppc adds up.
- PayPal
- Broadband costs
Now I know that some readers may be thinking that a fish as small as me doesn't matter at this point and I should keep quiet and just listen to the real business people on the thread : ) Well I won't guys.
I intend fully to listen and do so humbly in addition to politely commenting. Dorm rooms are fruitful environments for great startups as we know and why should South African students feel they can't be next?
I think if your question about "what are the obstacles for local businesses going global?" is indeed open what must be posed is how do SiliconCape's community feel about creating platforms for student entrepreneurship and micro-loans? At the end of the day we want to flex that itchy muscle when we have ideas and play in our student market 'sandpits.' : )
While deciding on how to split your equity pie, solve teething problems and your first management appointments, or go global is something along way away for me I think it could be sooner and not later if I was able to accelerate my learning/successes/failures and develop some mentoring relationships. SiliconCape must not forget the hatchlings in the scene like me I hope. When I speak to American students from Vanderbilt, Princeton, Harvard, Colgate etc who are at UCT on semester abroad the opportunities student entrepreneurs have for funding over there excites me. I don't expect the same but I do hope to see more reaching out and circulation of talent amongst campus startups.
I could be asking for too much here especially since active startups here themselves are wanting to be beneficiaries of VCs time and energy and general community mentorship as well.
I would really like to see startup veterans and businesses in Cape Town reaching out to us and providing micro-loans solely to students who are keen, involved in the online scene and have a few ideas on their plate.
For example I need to raise about $1500 for a custom wordpress theme design in order to get going on one project. Its not a $1.25m funding round but its still a fair amount of dosh. I'm getting there but perhaps I need to reconsider what it is I intend to get out of the design and whether justifying a custom theme is bad business sense. In my latest project I am in the phases of offering a service students at UCT desperately need and I can't believe have not had before. As exciting as it is being a one-man-show I relish conversations I have with people like Tom van den Berckt who are able to give me sound advice. I am sure students will agree.
Like Sean N said: "We have ample tech talent." (whether I count myself in this category is doubtful : ) )
My points is if discussions like this are posed early on in the stages of students experimenting and providing products for markets they know perhaps we could see some more rapid growth and 1 or 2 actual global success stories (maybe).
Jono
Sean Nieuwoudt said:Good point Vin and yes, the right answer is probably the middle.
One should remember that there are forces acting against local web based entrepreneurs when attempting international markets - not being able to accept PayPal payments, hugely expensive broadband prices, extremely expensive transaction charges etc etc.
Something else that I've seen over and over again is the perception many local entrepreneurs have of what it is to go global... almost a fear of the unknown - this is why it's great that we are seeing local boys that have made it big globally and sharing their knowledge and experience.
Funding locally is also not on the same level as it is internationally, $2 million is quite hard to envision here in SA.
Personally, I can't wait to see more local entrepreneurs succeeding globally - we have ample tech talent.
S
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Permalink Reply by Tomas Van den Berckt on
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i don't think South Africans can be faulted for thinking local. i'd argue most businesses in most countries start off like that. It's just that our market is too small to think like that. So it's a mindset that needs changing if you want to make it big.
starting local is easier b/c you're more likely to have the connections and market/consumer knowledge that can make your business work. That said though, i think one of the great advantages of living in SA is that you're forced to see the bigger picture. Companies like Media24 and SAB managed to grow this big b/c they saw opportunities in markets that the Americans were ignoring.
I don't think there's anything wrong with focusing only on a local market, as long as you are aware that your competitors might not be (look at how easily Google conquered the local market despite local alternatives).
So regardless of your geographic focus, you can never afford to be myopic in today's world.
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Permalink Reply by Justin Stanford on
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Jono,
Nice post! Don't worry, you aren't alone! Loads of great startups were started out of dorm rooms on pennies by students. FireID was run out of a Stellenbosch res room piled to the ceiling with equipment and paper for ages! At 4Di Capital our slogan is "From Garage to Global", and I think garage also implies things like dorm rooms too, so we know this.
What you're looking for is seed money. This is out there, it can be had, especially for promising students. But you need to bear in mind some of the criteria any investor will be looking for, no matter how small the amount, such as: Is there intellectual property being developed here, ideally protectable? If it's an execution play, can the company attain market power or become entrenched? Is this opportunity limited to being local or can it go bigger, even if it's just testing locally? Investing in tech startups is very high risk so investors only look for opportunities that have the potential for equally decent return. Fortunately though the cost to get going online these days is getting lower and lower.
Unfortunately I don't think that business veterans and others are going to reach out to you, as you've asked for, you're going to need to reach out to them. Hopefully Silicon Cape will create a platform for people like you and them to find each other. I think you might be surprised, if your idea is well thought through enough and you can explain it well in a short amount of time, raising the $1500 or more won't be that hard! If you still struggle, maybe your idea needs some refining to make it more investor friendly.
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Permalink Reply by Guy Taylor on
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Strangely, I was just about to write a blog post as a response to Gareth Knight's comment "Think global".
There are many fine points above regarding global penetration, and I think we're still missing one critical element that needs to be discussed: The "It's not what you know" effect. As much as the internet does pull down boundaries, digital lead and touch points can be established, I find the the majority of the relationship that I build has to be done in meatspace. The argument against this, of course, is that the SaaS (software as a service) model, doesn't need face time, which is absolutely accurate. However relationships built around VC, building strong marketing drives, and pulling the right kind of influence to move into a space where your namespace is public domain, does.
South Africa is still geographically removed, and quickly jumping on a plane to go and visit your local conference to go and network with similar minded individuals or journalists that can help you break out of an echo chamber is still difficult and/or expensive.
In fact, this is one of my biggest reasons for supporting the Silicon Cape movement. It's a bit of a startup take on bring the mountain to Mohammed.
I'm happy to be proven wrong on the above thoughts, it has however been my experience though, and maybe it's just the way that I personally like to do business, that relationship trumps good ideas.
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Permalink Reply by Justin Stanford on
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Guy, agreed. The power of "meatspace" networking can never be underestimated. Relationships are key. One of the things a good CEO should bring is key relationships in fact.
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Permalink Reply by Godfrey Parkin on -
A few thoughts..
The focus on local is one of my frustrations, too. And it is not only small businesses that are hindered by it.
We tend to stick to the familiar, and there's a sense of security in staying close to home. But it is a false sense, because the online customer at home is not the same familiar creature we were accustomed to dealing with face to face a few years ago. The long tail has definitely hit SA, and locals are now buying online from all over the planet, and consuming media from "foreign" sites. But vendors here have yet to venture out and grab their share of the global long tail -- those niche markets that give you a just-get-by business locally, but which on a global scale collectively are rich hunting grounds.
PayPal not operating here is no big deal. Companies simply need to set up offshore businesses and offshore accounts to collect PayPal revenues (if in fact PayPal is their optimal gateway). Then the local business simply transacts with the offshore business. It is legal, it is simple to set up, and it costs very little. And (of course) you can do most of the set-up online.
A bigger obstacle if you are in the physical goods business is shipping/warehousing/fulfilment logistics. But, again, the world is increasingly configured to make this relatively simple.
But the major obstacle to global success is an absence of vision and a peculiarly South African insistence that we have nothing to learn from the outside world. I hear so many "brilliant" business concepts from smart people who have clearly not taken the trouble to look beyond our borders at what other smart people in other countries have already done; we always want to build from scratch what those in other countries have already perfected; and we are reluctant to invest on the scale that the potential global market demands.
One more obstacle to success - there is still in SA an insistence on working face to face with vendors, and the more local the better. This is an obstacle, pumps up costs and wastes time. Meetings are expensive and often merely habitual. When i was running a consulting business in Washington DC, I hardly ever met my clients (many of them I never met). Now I am in Cape Town I still rarely get face time with my international clients, yet I find myself living in Joburg hotels because of the insistence on meetings. We have a long way to go to exploit the efficiencies of the virtual world. Of course there's an opportunity globally -- SA online services vendors will find that global markets are more attractive than local markets -- revenues can be greater and operating costs lower.
Another critical factor is this: local talent is often over-priced compared with what is available on the international market. I am not just talking about programmers, which, as we all know, can charge a heck of a lot more for their time and take a heck of a lot longer to finish a task than more experienced programmers in other countries (including the US, not just India). I'm talking about a whole range of services and contractors, across the board, needed for developing a new business. As a business I cannot justify paying a local programmer R400 an hour for twenty hours of work, when I can get an American programmer at half that rate who will do the job in half the time. I am also finding that the costs of business banking and insurance services here are extortionate compared with their equivalents in the US or Europe. Yes, we want to grow the industry locally, but local suppliers of expertise and services have to get competitive, or they will be bypassed. The barriers to access to competitive suppliers have virtually disappeared.
Finally, would-be online start-ups in SA need to take a long hard look at how things have evolved strategically in the rest of the world. SA will follow the same paths, but at an accelerated pace. The opportunities, and the threats, for start-up businesses are often in plain sight if we look beyond our borders.
Godfrey
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Permalink Reply by Neil Blakey-Milner on -
So much depends on your product.
In two previous startups, there were some interesting medical and business regulatory compliance issues that affected how easily those products would be received by customers in different countries, as well as different customers in the same countries. Another had a model that could be repeated in many countries, but relied on both hardware installation and in-depth customer consultation. On-premise applications have different support requirements than those delivered in a SaaS/ASP model.
If your product has network effects, that obviously influences the choice to go local first, and follow up globally — getting critical mass locally and then selectively going after related markets (UK and Australia being more obvious post-South Africa targets for a network effect product). Attracting people who aren't connected to the rest of your users in this scenario can be detrimental to the localised impressions of your service's worth - c.f. the geographic prominence of the various social networks.
Besides network effects, there are also some customer development and support issues you might want to consider in the choice of timing and extent of going global.
Having some users readily available for in-person customer interviews might be invaluable as part of a customer development or user-driven approach, and being a local business may get you more effort from your customers to participate. As you expand beyond local, the ease of travel to the new market or existing relationships with those in that market can affect how effectively you can build momentum in the market.
Controlling (to some degree) the timezones your users come from can positively affect your ability to create a reputation for good support and responsiveness as a business.
However, like Vinny says, the right answer is probably not at the extremes. Pulling occasional customers from outside your local market can keep you aware of the sorts of things you'll need to go global properly, without the pressure of going global immediately.
Another interesting point, if you consider Steve Blank's idea of market types as either "new markets", "existing markets", or "resegmented markets", is that you may have a "new market" locally while an "existing market" elsewhere. The methods used to succeed locally in a "new market" will not be the methods you'll need to crack into an "existing market" elsewhere.
© 2012 Created by Roger Norton.
