Startups from the Ukraine and Eastern Europe play a very important role in the European entrepreneurship ecosystem and have very tech and product-savvy business models. Ukraine is no longer a cheap cost center for IT talents, but rather an innovation center with great ideas emerging. Many high potential companies from this region have reached a certain phase, in which they need more space and opportunities to grow. A geographical expansion into a new market is often the right next step. Therefore the subject which is key to any startup facing this challenge: how to expand internationally in a way that will guarantee long term success ? Many businesses aim for the DACH Area, consisting of Germany, Austria, and Switzerland as their first foreign markets, to benefit from an attractive leading economy in Europe and a large base of potential new customers. The DACH region is historically and culturally deeply rooted to Eastern E Ukraine, and for that reason is perceived as a quite common option for startups willing to pursue a cross-border development strategy. Of course this scaling process doesn’t come without its difficulties. In this article, I would hence like to share 5 tips on making it happen in Germany as a startup from the Ukraine based on my expertise.
Are you DACH-ready?
Germany is a very mature and tough market. Like Frank Sinatra said about New York: «If I can make it here, I’m gonna make it anywhere», it applies to the DACH-countries the same way when it comes to startups and business in general. If you succeed and establish yourself in Germany, Austria and Switzerland as a foreign company, then you will cover the largest European markets and will have the ideal proof of concept to expand into further demanding markets, including the USA or South-East-Asia. It’s essential to plan ahead and do the right market research in advance, to evaluate the feasibility of success of your product or service. Beforing making the bold move, you should conduct a SWOT-Analysis and develop a market-entry business plan, which you will then use as a strategic concept for the correct implementation of your business idea, while paying attention to the distinctive specifics of the market. If you are in a very early stage of ideation or prototyping, then geographical expansion shouldn’t be your top priority at this moment. At that moment, you should probably focus on implementing Lean Startup methodology to validate your idea locally, as the costs of validation are always lower at the local market. To be able to face your many, often deeply-rooted competitors, make sure that your internal structures are well-functioning and that you know which KPIs you should set and monitor in order to optimize your business processes.
But before actually starting your business in Germany, you should definitely get in touch with key local experts and stakeholders and discuss your market entry strategy. These can be experts from your industry, legal counsels, potential customers or even competitors. This way, you should try to get valuable feedback and receive important insights on your future market, since you are not directly on the ground yet. And remember: these people can help you jumpstart your business with their know-how and network of investors or B2B contacts. Try to keep them on board as mentors or advisors.
The selection of the first city for your launch should not be underestimated, especially if you are planning on opening a physical office. Compared to other European markets, Germany is really decentralized when it comes to business segments. If you are a startup, then Berlin is the place to be for you to open a gateway for other cities. This will be the fastest way for you to gain first leads or employees and profit from the booming ecosystems. Start with Frankfurt if you are a Fintech, with Munich if you are from the automotive or high-tech industry, Hamburg, if you are in logistics, or Düsseldorf if you work in B2B software. If you’re looking for a startup center that provides help in Germany, take a look at: APX, German Startups Association, German Accelerator, Firma.de, Founder Institute or Berlin Startup Incubator.
Centralize vs. Decentralize
A decision you need to make beforehand is whether you want to physically expand, with an own office, or just virtually. It’s a classical centralize vs. decentralize choice. Both options have their pros and cons. On the one hand, with your own representation, you have more presence and credibility. Infact, 95% of companies operating in Germany are GmbH (Limited liability companies). That’s why you definitely need to consider the cross-border legal and tax aspects, and should set up your legal entity. This will also enable possible financial investors to participate in your growth. The minimum share capital required to establish a GmbH is 25 thousand Euros, but startups usually start with the «Baby»-GmbH — the UG (Unternehmer-Gesellschaft), which you can register with a symbolic capital of 1 Euro. On the other hand, operatively managing the DACH-Region together with your headquarter, can turn out to be complicated. In times of the Coronavirus, the role of a physical office is losing relevance, since it’s an enormous cost and flexibility point. And worldwide lockdowns have made on site working literally impossible. In theory, you can operate completely remotely, or get a seat and address at one of the many coworking spaces. Therefore you should start by testing a centralized approach in the beginning. This way you will minimize the risk of your market entry project and have the overall control over the process, managing it directly from your home base. Nevertheless you would need to hire at least one local Country or Region Manager (possibly on a freelance basis) who will take ownership of your international expansion and be your sparring partner. Be ready to budget a sufficient amount for this, even if you don’t have cash flow yet.
Localize, Localize, Localize
Even though most of the people in the German mega-cities like Berlin, Hamburg, Munich, Frankfurt or Cologne speak (or at least understand English with many startups even having it as an official working language), the bigger part of the 83 million people market is still very conservative and «German»-dominant. Your potential customers will expect to be approached in German, and will be a little skeptical if that’s not the case. So to be taken seriously, make sure all your external communication (e.g. website, social media, email marketing), legally required documentation (e.g. General Terms and Conditions or GDPR agreements), your customer service, as well as your core product / and service is adopted to «deutsch». Try to avoid typical «Google Translate» mistakes when it comes to wording — it’s better to double check with natives or professionals, even if it means investing some money. Localization in this sense doesn’t necessarily just mean translation, but rather adjusting the whole business model to fit the German target group. There are some things that are very unique to this region, for example the fact that many Germans still pay using cash or Girocards, and only a small percentage actually owns credit cards. It’s a phenomenon you can’t find elsewhere and should keep in mind while shaping your business workflows.
Don’t get frustrated by long sales cycles
German-speaking customers are probably the most critical and thrifty ones. The further south you go into Bavaria, Austria, and Switzerland, the more obvious it gets. This means that every Euro spent by your users needs to be justified, as does every piece of personal data, since privacy is another important thing. So you should expect and prepare for longer sales cycles, especially on the B2B side, where more people are involved in decision making. Depending on your business model, the sales cycle from initial outreach to signing, can take many months. It will be crucial for you to build your reputation and trust in terms of branding. And that process takes most of the time initially, since it happens organically. So no need to be frustrated. A multi-local strategy is long to build, but brings strategic value in the end. Once you win a customer for yourself, the churn rate will be very low and the retention will be easier, since Germans are very loyal and «sticky». Nevertheless, they have high expectations in terms of the quality of service — so make sure to provide them with your customer care and continuous quality control.
In terms of sales you should take the business etiquette of your future German, Austrian, or Swiss stakeholders into consideration and perform A/B testing to find the most effective sales channels (from more traditional approaches to more modern ones like LinkedIn sales & marketing). Always start from your own professional network — these so called «quick wins» will give you more leverage and will act as multiplicators. Online networks and platforms can support you in gaining a bigger audience and give you the exposure you might not possess yet. Once again, your target group depends on the exact service or product your startup is offering. Be careful when it comes to large scale events or trade shows, since they are often cost intensive, fruitless, and hard to stand out from the crowd. Building an inbound sales channel via a contact form on your website for example, could help you generate qualified and warm leads, which are easier to acquire for your business. A budget for online-marketing, to strengthen your online presence, is a must-have. From experience, Germans are opponents of cold calls and will show you the cold shoulder if you reach out to them in this manner. So this method is not effective, since Germans like to plan ahead and keep control. In comparison, cold email outreach with an individualized or customized element will bring you way more results. That way you give your prospects time to process your offer. Yet of course, you should never go for the direct sales approach, but rather for value creation. A virtual or live meeting in person will follow in the next steps, if you create the right sales proposition and pitch.
Make your Pitch Perfect
Before you go live and speak to potential customers, investors, or business partners, you should definitely fine tune your pitch to fit the Western-European standards. Germans are very direct, so you don’t have much time to convince them. And judging by the first impressions, you will not have that many chances to do so. Focus less on the product, but rather on the value you are creating or the problem you are solving and the business model behind it. Keep it simple and rely on transparent communication. Speaking to DACH investors you should think big, know your competition, be able to formulate a clear USP and Go-To-Market strategy, and be prepared for critical questions. And of course, have a German version ready, in case someone asks you for it!
About the author:
Daniel Jach has spent more than 5 years exploring and shaping the Berlin startup ecosystem, working in international consulting companies across Europe including Deloitte, managing the digital transformation & innovation of multiple SMEs and strategically growing high potential early stage tech startups headquartered in Germany.
Due to his extensive background and network in the CEE Region, Daniel acts as a connector between Western & Central Eastern Europe, building strategic relationships between both parts of Europe and helping companies to launch their businesses in the DACH market region — as well as vice versa. He is an expert in community relations & ecosystem building and regularly holds keynote speeches & gives coaching on entrepreneurship focused topics at events all over the world.
Startups from our network had the opportunity to work «1 on 1» with Daniel on reaching German market and strategic planning. So if you are a startup from the Ukraine currently thinking of or in the middle of an international expansion to the DACH Region, feel free to reach out Daniel Jach: https://www.linkedin.com/in/danieljach/.