Archive: Feb 2014
When Lasse Andresen left his position as Sun Microsystems’ CTO of northern Europe in February of 2010 to found open source identity software company ForgeRock, the native of Norway, did so with an eye toward a big opportunity in the U.S. market.
Around that time, enterprise cloud and mobile adoption were exploding, and many companies were increasingly dealing with identity management and security issues.
“We were a very traditional European company, building the business block by block with early customers in our home market, but we knew from day one that the product we were building had significant applicability to U.S. enterprises,” Lasse recalled during a recent conversation. “There wasn’t really a U.S. market leader in the space we were operating in, so our founding team understood that we’d be crazy not to ultimately move in that direction.”
So, just two years after founding the company in Norway, Lasse and his fellow co-founders decided to pull the trigger — relocating the business from Oslo to San Francisco.
Recently, I had the opportunity to talk to Lasse about that move, the challenges/opportunities it presented, and what fellow European entrepreneurs could learn from ForgeRock’s experience. Below is a transcript of that call.
Firas: You mentioned that migrating to the U.S. was on your team’s mind from the beginning, but how did you know it was the right time to make the move?
Lasse: It really stemmed from our knowledge of the U.S. market. We saw an opportunity in the U.S. market and we knew that in order to capture it we needed to act fast. Of course, in order to do that, we needed money.
We’d bootstrapped the business initially and the organic growth was great, but that growth often happens too slowly to capitalize on the type of opportunity we were pursuing. To execute the transition we wanted to execute, we needed a sponsor in the U.S. that had specific skills or knowledge about the market we were entering and the capital resources that could help us make the jump. We found that sponsor in Accel Partners, and that partnership ultimately facilitated our migration to the U.S.
The bottom line is that there was a ceiling on how big we could grow in Norway. But by agreeing to the deal with Accel and relocating to the U.S., that ceiling grew exponentially.
FIRAS: When you first began seeking outside investment, what was your experience?
LASSE: Thankfully, the interest in our company was huge. We were talking to investors in Norway, the United Kingdom, and the United States, and the attitude in each market was very different.
In Norway, for instance, investors very much believe in a slower paced, stone-by-stone approach to building companies. The concept of stepping on the gas to quickly scale a company is totally foreign to them. The attitude in the U.S. was totally different. U.S. investors recognized trends in cloud computing, security, and mobile, and saw a company with a proven product and an amazing team with a great track record.
In the end, we came away with six term sheets, and we signed with Accel because they really aligned with and bought into our vision. They understood that there was risk in investing in a European startup, but they didn’t try to drown us in spreadsheet risk management and diligence like many of the European investors were. For me, that showed that they really understood and shared our vision.
FIRAS: What did the Accel investment ultimately help you do?
LASSE: It enabled us to execute our vision with better efficiency and effectiveness.
The reality was that the talent and customer pools in the U.S. were significantly larger than our home country, and there were fewer roadblocks to closing deals being an American company vs. being a Norwegian company.
Frankly, we weren’t having trouble pitching our product to American buyers, but we were running into trouble in the procurement department. There’s just a lot of uncertainty that surrounds U.S. businesses buying technology from a small Norwegian company. It raises all sorts of red flags in the purchasing process. So, when we were headquartered in Oslo, we might be able to convince U.S. customers that we had the best product for them, but the process often stalled when it came time to convince purchasers to actually close the agreement.
As soon as we became an American company, 200 questions were immediately answered for those purchasers and it made the process of closing deals much faster and efficient.
Firas: I know you built a U.S. development team early on, but when did you officially start U.S. distribution? Was that pre- or post-funding, and what was your experience there?
Lasse: We began selling into the U.S. market pre-funding, but we were selling remotely and it just didn’t work. If you want to have any success selling to U.S. customers, you need to be here.
The first two years, we didn’t have any funding to build a sales team in the U.S., so we did the best we could — booking cheap flights back and forth, working at night in Europe to address the difference in time zones, etc. It took a toll on our team and it wasn’t effective. We knew that we needed to be on the ground. People still buy from people, and the continuity in your sales process breaks down if you’re only in the U.S. every few weeks.
So, that’s what we used some of our funding to do. We built a team in our San Francisco office that mirrored the one we had on the other side of the Atlantic. That way, we could execute autonomously without needing to share resources, yet there was still continuity and consistency between offices.
FIRAS: As the CEO, how did you manage wearing two hats during the move to the U.S., and when did you ultimately decide that it was the right time to pass the baton off to (current ForgeRock CEO) Mike Ellis?
LASSE: To answer your first question, the only way to survive bouncing back and forth across the Atlantic is to marry the best woman in the world. Seriously though, if you’re family or personal life isn’t stable or your family isn’t supportive of the move, I’d strongly advise against starting a journey like this.
Your family has to be on board, or you won’t be able to commit yourself fully. You have to be willing to go all-in, or nothing will go as fast as you need it to and growth will only occur incrementally. So, from day one, you need to accept that a move to the U.S. will require five years of your life. If you’re not willing to invest that, then you shouldn’t do it.
As for your second question, I don’t think European founders always need to step down as the CEO, but I do think it’s important to understand the lifecycle of the company and whether your skillset translates to the stage you’re entering.
Typically, the characteristics of founding CEOs are very different than those possessed by CEOs of companies with 200+ employees. Those two jobs just require a very different skillset. So I’d advise every startup founder to figure out what they’re best at and determine whether that skillset will scale. If it won’t, you have to do what’s best for the company.
FIRAS: Looking back over the two years since you moved, are there some lessons you’ve learned or mistakes you wouldn’t make again?
LASSE: I think the biggest thing for other European entrepreneurs to know is that if you want to start a global company, consider starting in the U.S. from day one.
We spent a lot of time and money on the transition from Oslo to San Francisco, and it created a lot of insecurity in our Series A round. Being an international company raised a few red flags for some investors, and then there was the issue of talent. There’s nothing wrong with Norway. It’s my home and I think there’s a lot of talent there. But if your goal is to be a big, international company, the U.S. just provides so much more of the resources you need.
So, my advice would be to just jump right in. From a pure registration perspective, it’s easier to set up a company in the U.S., and creating the right structure from day one is really important. If you know what the end goal is, it’s best to architect your plan with that goal in mind.
FIRAS: Anything else that presented a particularly significant barrier to U.S. migration?
LASSE: We haven’t talked about culture yet, but I think that’s extremely important.
When you’re an international company hiring your first U.S. team, it’s critical to find people who are culture-aware or have experience working internationally. The reality is that you’re always going to have international roots or ties. As such, your employees — particularly your senior leaders — on both sides of the Atlantic must be able to manage those cultural differences, or your business will suffer.
When I created this blog, my singular goal was to bring fresh insight into the unique challenges (and opportunities) that international software companies face when they begin their migrations to the United States.
Recently, I had a conversation with Derek Roos, co-founder and CEO of Mendix, a cloud-based app platform for large enterprise customers that just recently announced the closing of its Series B round of financing (landing $25 million from Battery Ventures and other investors).
Though Mendix has now successfully transitioned from the Netherlands to the United States, I wanted to pick Derek’s brain about the unique challenges he faced as he migrated Mendix across the Atlantic, as well as how he knew the company was “ready” for that transition and which lessons he’d share with other international entrepreneurs in the same position.
Firas: First off, congratulations on the big news! To get us started, can you walk us through how you decided initially to move to the United States, and which factors led to that decision?
Derek: Thanks, Firas. It’s been a crazy few months, but we’re thrilled with the opportunity we have in front of us.
As for our decision, I can honestly say that migrating to the U.S. was part of our vision from the beginning. We always had the ambition to be a leader in the enterprise marketplace, and to do that we had to be in the U.S.
We also knew that to be successful in our market, we needed a pretty complete story and product. So, we started in Europe to prove our concept and validate the demand, and we took a few years to get everything ready. But as soon as we felt we had everything in order, we took the jump.
Firas: What’s the definition of ‘ready’?
Derek: That’s a good question, and I think it probably depends on the unique circumstances of each company. But at a high level, I think focus is critical. It’s easy to drown in a market as big as the United States if you aren’t sure which customer segments you should be targeting, or which team members you need to recruit.
At Mendix, we felt we were ready when we could confirm two key things. First, we could identify and had a good feel for the target market and the personas we were going after. Second, our product was proven and engineered in a way that would work in the U.S. enterprise market.
Another factor to consider is whether you have sufficient capital resources to make the move. That wasn’t the case for us when we made the move, but it’s something I’d advise other entrepreneurs to consider.
Firas: How did you manage the dynamics of the whether the founding team would move with the company, or whether you’d hire someone else to run the U.S. operations?
Derek: We executed a two-phased approach.
Phase 1 kicked off before our Series A round of financing. At that point, we felt it was important to put someone on the ground in the U.S., so we hired a local guy in Boston to do some exploratory work. We wanted this person to find our first few customers to get a feel for the market, which allowed the founding team to maintain operations in Europe and pay attention to that market. During that period, we landed a few key customers and we learned a lot about ourselves in the market. It also helped us land our A round.
Phase 2 started with a simple goal — raise some capital and spend it on accelerating growth, rather than figuring out where we fit into the U.S. marketplace. A few weeks after that A round, I moved to the U.S. full-time and I’ve been based here ever since.
Firas: So, do European founders need to spend a year or more in the U.S. — prior to moving their companies here — to learn about the market, customer needs, and buyer dynamics? What were some of the differences you found or learned in that year?
Derek: Yes, I do think that’s important. You need at least a year to figure those differences out. That’s particularly true in the enterprise market, where you need much closer contact with customers than in other smaller markets.
As for what I learned in that first year, I think there were two big lessons.
First, you have to be much more focused on a subset of the market than back home. The U.S. enterprise market is homogeneous, but it’s also huge. You can’t possibly attack it all at once. You have to be much more focused, not just on a vertical industry, but also on sub-industries. And you have to learn as much as you possibly can about those markets.
Second, if you think the way you sold your product to buyers in your home country will translate to the U.S., you’re wrong. In Holland, it was easy for us to jump in the car and go visit a customer. In the U.S., you can’t do that. You have to set up a sales force and you need to understand all of the unique processes and challenges associated with that.
Firas: Then there’s the challenge of making your first hire. Who do you hire? An entrepreneur? An experienced sales executive? It’s a tough question to answer. How did you guys approach that situation?
Derek: For us, we made one of our founders our “first hire.” Sure, you can hire someone else to explore the market for you and determine the sales methodology that makes the most sense. But there are two disadvantages to that approach: first, that first hire will have a massive disadvantage of being a new employee in a new market thousands of miles away from the company headquarters where all the knowledge is contained. Second, as that first hire engages with prospects and partners in the US, much is lost in translations as he communicates the findings back to the founders, and hence you miss the “local feel” of the market.
I think it makes a lot of sense for one of the startup founders to move to the US first and experience firsthand the unique challenges and opportunities of that market. A lot of times, there’s nuance that you can only see if you’re in the middle of it. So, the first guy on the ground should be the founding CEO of the company, and he should be the first salesperson, too. You have to go out, meet customers, sell, and learn about your market.
Firas: How does that affect the way the company is managed in its home country?
Derek: It can definitely have a negative impact if you don’t manage it properly. I put a manager in place to take over my day-to-day responsibilities in Europe. You obviously won’t find out if someone can handle that job until you’re gone, but that approach worked for us. We had the benefit of a strong core team staying in Europe, as well, so it wasn’t as stressful as it could have been.
Firas: You talked a little bit about funding earlier. You started with European investors initially (Prime Ventures in Amsterdam), and you’ve since secured the Series B round through U.S. investors. What are some takeaways from both of those experiences?
Derek: Maybe things have changed over the course of the last few years, but I think one of the biggest challenges for European companies is getting U.S. investors’ attention when you don’t have any presence in the U.S. market.
We definitely experienced that with our Series A. The bottom line is that it’s easier for U.S. investors to work with U.S.-based companies that are known commodities. European companies might be able to get proposals and interest from U.S. investors, but they’re not necessarily going to be as good as they would be if the company was based in the U.S.
Firas: Obviously, that has a lot to do with risk. If a company has already made the transition to the U.S., there’s less uncertainty about the costs and challenges associated with an international move.
Derek: Absolutely. What I’d suggest European companies do is spend time understanding the U.S. market and how they’re going to approach it, and then identify the VCs that share your vision for the business. Whether those investors are in the U.S. or not doesn’t matter as much as whether they understand and support your expansion plans. In other words: Look for fit first, and then worry about capital and terms.
Firas: Agreed. Fit and an aligned vision are critical in any investor-investee relationship. Once you’re confident in those things, capital obviously matters — particularly because many international founders underestimate the cost of transitioning to the U.S. So, how can you ensure you have enough money to move to the U.S.?
Derek: It’s definitely expensive, but we expected that when we started. Thankfully, we were bootstrapped for the first five years of our existence. So, we knew how to manage money in ways that would return our investment quickly.
That being said, I could see how it could get out of control and catch companies off guard. Then again, if your spending gets out of hand, it almost doesn’t matter how much capital you get from an investor. That’s indicative of a different problem entirely.
Firas: True. Thanks again for taking the time to share your experience, Derek. And best of luck moving forward!
Derek: Thanks, Firas!