European Founder’s Perspective: A Q&A with Mendix Founding CEO Derek Roos
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!