Expanding your horizons as a business – going international 

In the first of a two-part piece on looking international as a small company Ed Molyneux, co-founder of accounting system business FreeAgent, discusses taking his product to America.

When you’re starting out in business, it’s unlikely that you’ll be in a position to reach multiple foreign markets or set up satellite offices around the world. Unless you have a huge amount of investment behind your venture – and there are few new businesses that are so lucky – you’re more likely to focus and build your business on home soil.

That was certainly the case for us when our company was founded in 2007. Our three company founders (including myself) were all former freelancers who knew how painful it was to use spreadsheets to track their business finances, and we were committed to creating a more intuitive method for freelancers and small businesses to manage their accounts. But, as our own experiences were limited to working in the UK, our early versions of our system were also UK-based.

In the years since then, we’ve been able to grow our business to the point where we now have more than 50 people working either from our Edinburgh HQ or remotely across the country.

Thanks to years of careful development, we now have very detailed models of UK accounting and tax regulations so that we can forecast all kinds of tax liabilities and allow customers to file VAT returns with just a couple of clicks.

Because delivering software as a service (SaaS) – or ‘in the Cloud’ – allows us to evolve that service far more rapidly than if it were a shrink-wrapped software CD on a shelf in PC World, we’ve also been able to build a universal version of our system, which covers the rest of the world in a more generic fashion. This Universal product is used in more than 80 countries worldwide, but it doesn’t have the same level of detailed functionality that our UK system possesses.

So when we decided to get serious about expanding to another market, we knew we needed to create the same kind of functional advantage our UK offering has, and also think carefully about our focus in a very different competitive environment. After all, although the basics of accounting are the same worldwide, different countries have very different tax regulations and reporting requirements, and it’s noticeable that accounting software companies only rarely attempt to build tax models at all, because the goalposts are constantly moving, and it’s even rarer to see them choosing to do so for more than one country.

There were a number of factors that led to our decision to choose the United States as our first port of call, including:

  • The size of the market, and also the distribution of businesses by size and structure
  • Our existing understanding of accounting regulations
  • Relative web-savviness of the population, and also how ‘tax compliant’ the population tends to be
  • Connectedness of our existing network of investors and contacts
  • The potential existence of likely channels, preferably mirroring ours in the UK (accountancy and banking)
  • The capabilities (focus, features, pricing, ambition) of existing and potential future competitors
  • Availability of investment capital, giving us the potential to establish ourselves and then later scale up
  • Availability of talent, initially to get us up and running
  • Time zone differences, and also travel time for the inevitable frequent visits.

Our analysis of potential markets globally certainly generated some surprises in second and third places, but overall the US was the clear winner.

Of course, not every factor pointed unerringly in favour of the US, and in fact the existence of a single powerful incumbent supplier (in the shape of Intuit’s Quickbooks) was certainly a deterrent. But the balance of indicators was positive and consideration of these factors also helped us shape our strategy once the decision was made.

For example, Quickbooks is very well established in the US among Certified Public Accountants (CPAs) – those qualified to dispense accounting advice to businesses. But it’s not a particularly suitable solution for freelancers and tiny businesses, being tricky to understand and not particularly aligned to common business processes among these kinds of customers.

We already realised that in the UK our customers tend not to migrate to our product from existing small business software (like Sage) but from spreadsheets or paper-based systems. So given our existing focus on these tiny businesses in the UK, we would not end up in hand-to-hand combat with Intuit’s marketing machine provided we focussed our messaging towards these businesses rather than ‘upmarket’ towards larger businesses.

In a similar way, the other opportunities and constraints of our selected market provided a shape to each element of our approach. We knew that we could provide a valuable, new system that would benefit millions freelancers in the United States – and this drove us on as we considered how to physically establish FreeAgent as its own entity across the Atlantic…

To be continued…

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