The Five Critical Mistakes of Israeli Startups in the B2B Field When Breaking into Global Markets
The dream of breaking into global markets
During my work, I accompany startups and small to medium tech companies in the B2B field in their efforts at penetrating international markets. Most of these companies are globally-oriented and the dream to break into global markets is the goal of most of them. The entrepreneurs are confident in the technological or functional superiority of their product and are ready for the big challenge.
Each time I am once again baffled by these companies, who insist on repeating the same mistakes other companies had already made, by a belief that their determination, creativity and advanced technology will enable them to pass the expected obstacles along the way.
The mistakes, which we will detail below, are not exclusive to start ups and small to medium tech companies in the B2B field; however, they are especially prominent in such companies, due to the following reasons, among others:
- Founders’ lack of background and experience in global marketing and sales – this regards very young companies, whose technological side is their primary accelerator at the beginning. The founders are oftentimes very young and lack global marketing experience. In contrast, in companies that have already based themselves in Israel, it is possible that there already is a sales function, but its managers are unaware of the significant gap between the capabilities and experience required for local marketing and sales, and those required for global purposes.
- The founders’ assumption is that their case and venture is different and unique. After all, this concerns a new product or technology and therefore the limitations and obstacles that apply to other businesses, as presented by various consultants, do not necessarily apply to them. They also believe that the intuitions that successfully brought the venture to the point at which it is found, will also be at work in the global marketing and sales field.
Equipped with faith, determination and a cutting-edge technology, entrepreneurs make way to the global marketing and sales work, and in most cases, repeat most of the mistakes that their predecessors or neighbors had already made, step by step:
- Going global before establishing success in Israel
The first mistake refers to the haste displayed by the companies in going global before having significant sales and customers in the Israeli market. Such companies sometimes struggle in the Israeli market, which might be characterized with low awareness of the importance of the new technology, a low professional or technological level compared to the western world, prolongation of sales processes, funneling the conversation to the issue of price and discounts only, poor payment practices and sometimes rude customer conduct.
At this stage, companies are tempted to rush and head toward global markets with the promise of unlimited markets with great potential. They also tend to believe that customers abroad are rich in resources and are just waiting for them to spend money on their product, that they are less sensitive to prices and have politer conduct. And about the competitors: “nobody does what we do”.
However, when it concerns the B2B field, there is an expectation on part of customers to have companies reach them only after having obtained several good local clients, as the best way of showing feasibility is demonstrating that you already have customers in the local market, that your solution has been chosen and is satisfactory, and is used to generate benefit or cost savings. Why would a B2B client purchase from a small, new, foreign and unknown company that didn’t even manage to sell in its local market? How would the Israeli company deal with giant global competitors that have multiple, more impressive references?
There are cases that justify the approach of starting abroad, e.g. an app that is predesignated for multiple private end users and there is no point to focusing on Israeli customers in particular, or cases in which there are geographic or climate-related preconditions for needing the product, ones that do not apply in Israel. There are also additional circumstances like when target customers are corporations with over 10,000 employees or an industry sector that is wholly undeveloped in the local market – uncommon in Israel. However, these are the exceptions.
In fact, the Israeli market is more comfortable and cheaper as a beta site and for proving proof of feasibility that will allow selling to local customers, who will also generate a future income stream that will assist in financing global activity or raising an investment. In the Israeli market, it would be more comfortable and cheaper to correct mistakes than in global markets. The market here is more forgiving and a slight stumble during the birth of a new product will not necessarily be accompanied by an impact to the company image, compared to testing done abroad.
Surprisingly, global markets also have difficult and even more demanding customers, it’s expensive to sell and operate there and there are competitors of a size that is uncommon in the Israeli market. Moreover, experimenting with local sales will assist entrepreneurs in developing global sales skills, and will later support a network of distributors, who will rely on this aggregate experience and on marketing and sales methods that have been proven effective in Israel.
- Addressing global sales as an extension of local sales
In companies that had the smarts to start with local sales and have a local customer base, and already feel that they are ready for the jump to global markets, there is common faulty attitude towards global marketing. According to them, they will operate similarly abroad with methods that had worked in Israel. Also, they are aware that the site needs to be in English and that the sales manager must speak English or any other language that is relevant to their target market. But as they are not familiar with the road to success in the local market, they mistakenly presume that they could do a bit more of what worked locally, abroad, and sales will come in tow.
These companies do not perform a methodical preparation process for global activity. Firstly, not enough attention is given to the typical risks in each export process such as: financial and legal risks, need for a large investment, occasional political instability in the target markets and complexity that is related to shipping and exchange rates. In addition to those, oftentimes no thought is given to issues such as:
- Regulations and regulatory requirements in various countries, including the bureaucracy and investment involved in handling them
- Time – time and seasonal differences and tempos that change from country to country
- Cultural gaps – languages, management practices, business ethics, consumption patterns and preferences
In the marketing aspect, no preparation is being made to an entirely new situation, by which:
- The company does not have the many relations it had in Israel which allowed it to easily reach decision-makers
- There is no existing customer base in the target market – why would a customer risk it and bother to purchase from a foreign company with no success in the target market? Israeli customers are often a necessary condition, as we have seen, but not a sufficient one.
- Distance from the market and customers and a lack of sales infrastructure in the target country – no offices or local salespeople. This is an entirely different situation from the work being done in the Israeli market. Will we take a flight abroad for each meeting? In general, information is less available, trips are expensive and the level of uncertainty is much higher.
- Excellent global competitors – with large resources, more references and marketing capabilities and global sales experience superior to those of Israeli companies.
- Local competitors – with cheap solutions, a wide local customer base and solutions that are highly suited for the market conditions and needs.
- A need for industry specialization – in order to be a significant market player, one needs to not only control the technological aspect in which Israeli companies excel, rather the professional aspect as well. This is so that the company could take part of the professional discourse in its industry and be perceived as a field leader. This requires experts from the field and specialization on a permanent basis.
- Distributor management – when companies opt to operate globally via distributors, skills, methods and designated tools are required for locating and managing channel partners. Most Israeli companies have no knowledge of what distributors and their characteristics are, and how to locate and manage them. By lack of experience, companies expect the distributor to bring a customer and they will know how to provide them with the product and implement it. They are wholly unaware that the distributor requires a series of tools, without which he will find it difficult to make sales, whereas in Israel the exporter would regularly deal with the customer directly and have control of the sales process here, he would have to invest in an independent mediating party, who is not an employee of his. A company that has no experience with managing distributors or with channel partner management, shall be expected to make another series of mistakes that is too extensive for this article to contain.
- Non-preparation of a marketing budget
A considerable budget is needed for global marketing and sales. The question that always pops up is what’s the required annual budget amount? $40,000, $100,000 or maybe $170,000?
The answer to that depends, obviously, on sales targets. As much as these are bigger and more ambitious, companies will need a larger budget. This also depends on the product’s uniqueness and on its defined unique selling proposition, past successes, references and the chosen target market.
Among basic budgeting sections for marketing and sales, the majority of which should be taken into consideration, the following can be included:
- International sales manager or a local manager
- Professional website with international appeal and its promotion
- Content marketing
- Social media activity or a PPC campaign
- Exhibitions – booth setup, space rental and flights & accommodation costs
- Flights to meetings and demonstrations with clients and distributors (even when it concerns the SaaS model for software companies)
- Purchasing market researches
- Marketing & sales tools and materials
- A marketing consultant in Israel and/or expert consultant in the target country
In a survey I recently held on behalf of the Export Institute that included several small exporters, it appeared that the main reason for stopping activities was when entrepreneurs did not consider the costs to be so significant in the global marketing and sales process.
Many entrepreneurs are aware of the importance of such investments in marketing and in the sales infrastructures, however they do not possess a sufficient budget. In this case, they offer to start with the sales and to finance the marketing efforts with the generated income stream. Alas, if it is possible to sell without marketing, why invest in marketing at all in later stages? Marketing is first and foremost meant to generate sales (by creating leads and generating product preference), and if it was possible to have customers purchase without marketing, no company would have invested in it.
So, what is the required marketing budget? We will address this in the next section: the marketing plan.
- Non-preparation of a marketing plan
I recently met a startup company with a promising product, which was in the process of planning its moves for breaking into global markets. I recommended that they should prepare an international marketing plan. They replied that they don’t have the time for it, and all that they need is to know which customers to reach, with which messages, via which marketing channels, what are the distributor profiles and the concrete tasks that need to be performed. I offered to add to their list goals and a budget as well, and of course, they’ve agreed. “Excellent”, I noted, “this paper is called a marketing plan”.
The marketing plan examines the market’s characteristics and trends, maps its players, analyzes where the business is at today and in light of that, and in light of the market’s and the competition’s status, determines targets and goals and describes the actions required to achieve such goals, who’s the responsible party, time tables and cost. A marketing plan is an operative document that includes strategy as well as action steps.
Sounds important, doesn’t it? Then why don’t companies prepare it? The reasons I found are:
- To someone who is unfamiliar with its contents, the marketing plan is perceived as an academic, non-practical thing
- Entrepreneurs have no marketing experience and do not know how to research the market and prepare a marketing plan
- Nobody in the company has time to invest in a prolonged process of market research and writing the plan
- Entrepreneurs are not aware that a marketing plan will prevent them from making multiple mistakes and will save a lot of money (imagine the cost of only 3 flights a year and also one exhibition in a wrong target market that has been chosen). Once they make the mistakes, they will better understand the importance of writing a marketing plan.
A marketing plan will enable decision-making regarding:
- Preferred territories
- Sales goals
- An accurate definition of target customers
- A definition of the product/service
- Business model and pricing
- Distribution channels
- Marketing channels (traditional and digital)
- Work plan – who does what and when
- Required budget
- Sales forecast
A company that does not form a marketing plan is leaving its sales to fate. There are companies that settle for preparing a business plan to obtain investments or financing. Since the business plan includes aspects of marketing, these companies might be in the wrong, thinking that the business plan is an alternative to the marketing plan. In practice, the former is too general and does not constitute an actionable document when starting global marketing and sales efforts.
Alternatively, there are companies that prepare a partial marketing plan as part of the process of planning the annual marketing budget. Whereas this action is desirable in itself, plans of this type soon find themselves in a drawer immediately after their preparation has concluded, and there is no relation between the companies’ actual activities and the plan. There is no need to prepare a marketing plan if there is no intention of implementing it.
The marketing plan has another great quality. The current multiplicity of marketing and sales channels, mostly digital, creates excellent opportunities to promote the company’s products abroad as well. However, the abundant tools and offers of marketing & advertising channels’ solution providers sometimes create confusion and lack of focus among decision-makers. A marketing plan constitutes a “marketing and strategic compass” and any new offer or channel that is received could be evaluated considering their compatibility with the marketing plan.
- Total reliance on distributors
Several weeks ago, as I was on my way to a convention I was speaking in, I heard a CEO of an Israeli company in a radio interview, being asked about the implications of new regulations in the EU for marking products made in Judea and Samaria. When asked how the regulations will impact the package of the product seen by end clients, he responded that he doesn’t know, as he had never seen his product in its package as another party, who is most likely his distributor in the target country, is responsible for the final packaging. It appears that the company does not know its customers and has not seen them when they receive or use the product.
The phenomenon of overreliance on distributors is natural and understandable, considering that the company has no budget for establishing a local branch in the target country, leading it to join with a local distributor. The distributor, as hoped by the company, knows how to locate and engage with the target customers and the marketing methods for its market. Thus, the company assumes that all it needs is to work with him and let him rack his brain in all that regards the product’s penetration and dealing with local customers.
However, in practice, things don’t usually work that way, particularly when it concerns new products or technologies. The distributor will be in no rush to bear the risk involved in penetrating the market with a new product and to invest. He would first want to see the company’s successes in other locales and might even expect the company to generate leads for him.
Companies in Israel are mistaken in their definition of their distributor as their “client”. The engine of all sale processes is the end clients. If the end clients don’t order the product, the distributor will not order it either. The importance of direct familiarity with customers is therefore critical to the success of any business. If we do not immerse ourselves in the customers’ needs, pains or tastes, even the best distributor will find it difficult to sell the products.
Therefore, the company in Israel must create, maintain and manage relations with end clients as well, either directly or jointly with the distributor. Hiding behind the distributor, as comfortable as it is, generates a lack of market knowledge and overdependence on the distributor, and also fertile ground for unpleasant surprises along the way.