What US Software Companies Should Understand About The Rest Of The World

 1. You aren’t always #1

You  may look at Google and Microsoft and think that having a dominant  position in your home market guarantees you worldwide success. It  doesn’t’. Salesforce doesn’t even have 3% market share in Russia as far  as I know, and I am pretty confident that in China or India Salesforce  sales are pretty dismal. Japan and South Korea are markets that are  known to be extremely hard to sell successfully, if you aren’t local.  Don’t think that the fact that you’ve made it to #1 spot in US  guarantees you anything.

2. Your prices are probably too high

What  you pay for a cup of Starbucks coffee is half a day worth of wages in  many countries. And that poses serious problems for you. As I’ve written  before, soft currencies are known to fluctuate wildly and you may find  yourself priced outside the market through no fault of your own, simply  because local currency devalued and your prices are in US Dollars.  But more importantly, your local competitors know how to survive with  LTV values (customer life time value) that are a fraction of what you  are used to. You’ll also notice (if you are running a freemium SaaS)  that your conversion rates from free plans to paid ones are much lower  as compared to US.

3. You are paying your developers how much?

A  good developer in Eastern Europe now costs $1000-$1500 a month. I kid  you not. In many newly joined EU countries (Lithuania, Poland, Romania)  $3000/mo salary for IT engineer is considered to be great. When you pay  $100K a year to your developers — and let’s face it, you don’t have much  choice — this means what you can do with a million dollars is a lot  less then they can. It really helps to have R&D office in Europe,  India or Philippines, you definitely should consider this if you want to  keep your dev costs down.

4. Your government really fucked you over.

Americans  are disliked in many parts of the world. PRISM scandal and many other  similar ‘initiatives’ means that people are really, really concerned if  their data is stored in the United States. Heck, even Canada now has a  law that makes using Dropbox illegal if you are working with personal  data (at least until Dropbox starts storing that data in Canada, or  that’s what I was told). It’s called PEPIDA. You know shit is serious if Canadians get pissed off. And EU has passed a similar initiative Directive 95/46/EC long time ago. I bet you did not even know about that.

5. IT is seen as a weapon

A  major power should have the ability to make nuclear weapon. That’s seen  as a given. IT is seen this way by foreign governments too. Let me  explain. You’ve heard many times that China doesn’t let Google work in  China because Google refuses to сensor something. That’s nonsense. The  underlying reason is much deeper. Sure, the Chinese are control freaks.  We now know that they have every right to be concerned about safety of  their data stored with US companies. But what’s more important, China  believes that like having nuclear weapons, it’s a really good idea to  have IT sector that is capable for producing its own search engine and  social networks and working with big data. So it did the same thing as  it did with the auto industry and many others — they allowed western  companies only in a capacity that helped them build their domestic  autoindustry.Let  me give you an example how US uses IT as a weapon, other than that  whole PRISM debacle. Remember that Ukraine thing and Crimea sanctions?  You’ve probably never heard about it, but US companies aren’t allowed to  sell software in Crimea (among other things). If you own iPhone in  Crimea, you can’t buy apps. You can’t use PayPal. Etc. Of course, it was  never about apps. US Government simply sent a signal to Putin — did you  know that your entire banking system runs on Oracle databases? Tomorrow  we’ll pass a law that will prohibit Ciscos and Oracles to sell you  software and updates and oh, how fucked your banking system will be in  no time.To  which the Russians replied — roger that. And passed a law that allowed  government and state corporations to only buy software from vendors that  can guarantee that it will function in all Russia, including Crimea,  essentially shutting out US companies from billions of dollars in  government contracts. Good old ‘let’s see who blinks first’ routine.The  point is this — you may think you are outside politics, but you aren’t.  Be aware of this fact. Don’t be surprised when a foreign government  doesn’t want to buy from you simply because you an American company.

6. Silicon Valley is a bubble.

I  am using the term in both meanings — as in ‘dot com bubble’ that’s  bound to crash and protective bubble that prevents you from the hurts of  the real world.Let’s start with the first one.A  good chunk of US startups are now monetized via investors. Let me  explain what it means. Regular businesses make money by selling to their  customers, that’s known as monetization by customer and is simply not  good enough for good ol’ American capitalists — it takes too damn long.  Monetization by investors is a totally different game. You launch a  startup. You take on VC money. VC then sells your company to a private  fund or does IPO. Whether your startup generates profit or not, is not  really important. It’s better if you are profitable, but it’s not  required. The point is this — as a founder and/or early stage investor,  you are looking to make your profit not really from clients, but from  OTHER investors. Probably the poor suckers who invested in pension funds  and can’t get decent return thanks to ZERP policy and are forced to  gamble with tech funds and IPOs.This  severely distorts the playing field for US tech businesses, even if you  don’t play the VC game. With so much money sloshing around, the cost of  putting lipstick on a pig goes up, way up. Suppose your company  provides task management solutions. Two of your competitors just raised a  bunch of money. They now have to show big growth. So they dump millions  in Adwords and new hires, competing with you. Remember, they don’t need  to be profitable (at this stage), so they can outbid you by a factor of  5 or 10. Dumb money drives out smart money and dumb startups just may  put your smart startup out of business too.Of course this is a Ponzi scheme and of course it will crash, but that’s not the point here.Let  me now talk about the second type of bubble. I read a ton of articles  about ‘bootsrapping’. They are fascinating. To me bragging about the  fact that you’ve bootstrapped your business is like boasting to your  Mexican friend that you’ve just made a tortilla from scratch. He’ll  simply laugh at you, because that’s how his grandma made them her entire  life.This  article is already too long, so the point is this. The rest of the world  does not live with billions of VC capital. They bootstrap because  there’s no other option. More importantly, these companies are prepared  to function just as well when rates go up, or venture capital dries up.

7. Growth hacking is (mostly) stupid.

I hate to be stereotypical, but Americans are frequently viewed as aggressive and overcompetitive. I can only refer you to Nicolas Nassim Taleb  and his ideas about antifragility. To put it simply, strategies that  help you not die are more important than the ones that help you grow  rapidly. There’s nothing wrong with growth per se, it’s actually a great  marker for doing something right. However, if not growing means death  to your company, that’s a bad position to be in. Growth hackers are  selling snake oil, to put it simply. Buying growth is almost always a  bad idea. More importantly, when you are obsessing about 500% grown next  year, you probably aren’t thinking how the world will change in 10  years. To me growth hacking doesn’t just hinder with strategic thinking.  It’s my belief that it’s a way to avoid reality for many. Rather than  dealing with really difficult issues (getting product on time, fixing  bugs, etc), you’d rather fantasize about viral ad campaign that will  triple your business, so that you don’t have to deal with problems that  you weren’t able to fix so far.

P.S. If you liked this post, you may want to read:
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