I have my fair share of battle scars from leading the European expansion of US tech businesses. Now as an advisor, I witness how U.S. business leaders still struggle to establish the right organisational design for successful entry into the European market.
For US businesses European expansion is a critical step in their growth strategies. Indeed, the European Expansion Report by Frontline highlights that Europe accounts for up to 40% of global revenues for top-performing US companies at IPO.
There are many aspects to get right for European expansion: timing, securing the necessary funding, choosing the right location for the first European base, localising the offering, navigating the legal and regulatory risks, hiring the right talent, and much more.
I want to focus on the organisational design aspect for a successful European expansion. Not many US start-ups get this right the first time. The wrong organisational design not only wastes time but results in financial losses and human resource setbacks.
“Getting the first senior hire right is crucial — yet half of companies get it wrong. The data shows that 47% of General Managers depart the company within two years of being hired” [Source: Frontline]
Based on my own experience and talking to several dozens of business leaders over the years here are the key aspects for creating a successful organisational design.
First senior hire and landing team. That is the most challenging but critical task to get right. Best is to hire a functional VP (normally sales) first. They are tasked to bring in revenue and build a sales team. They must get the full support from the US headquarters. I’ve seen the best result when these VPs are paired up with a top sales performer in the US and either directly report to the CEO or at minimum have frequent interactions with the CEO.
Depending on the growth rate such a Sales VP will be challenged quickly (typically after 18 months) with other functional tasks (marketing, customer service, legal etc…). Either the VP of sales can evolve quickly to take on a wider role or the companies best hire a General Manager who then builds and leads a cross-functional client-facing team.
Hiring a commercially driven General Manager (often labelled as VP EMEA) might be more expensive but if done right this approach brings results faster and improves the success rate.
Asking a US senior executive to move to Europe to lead the expansion has obvious advantages but it only works if firstly they have extensive European experience and secondly, if they surround themselves quickly with a European-based team.
An absolute winning formula and the best set-up I’ve experienced first-hand is when US functional junior team members from the US headquarters join the VP in Europe as part of the landing team.
That set-up was a game changer for me in one of my ventures.
This allowed me to have experienced operators who understood the company’s culture and could use their established connections at the US headquarters to get things done. They helped me to build and form the core functions in Europe fast. It also proved to be a great career experience for them.
The organisational design for the client-facing team and marketing seems to be the next challenge for US businesses expanding into Europe.
US companies are tempted to believe that the way which made them successful in the home market will also work unchanged in Europe.
That is a mistake.
You need to embed regional nuances into the go-to-market approach.
All too often the European client-facing team like customer success, client service and project management are part of and report to the US headquarters.
That does not work in most cases.
Even matrix organisations with multiple reported lines mostly fail.
Building the client-facing team in the region and reporting to the regional leader is the best chance of success. A European leader only controlling the sales team with little to no control over the rest of the client-facing team is a recipe for failure. It creates unnecessary tensions taking the focus away from winning and serving new clients as a unified cross-functional team.
There is often a power struggle among functional leaders at US headquarters to keep also international control over their function. It needs a strong CEO to convince the entire organisation that regional differences in organisational design are sometimes needed to succeed.
This does not mean that the European team does their own thing and is isolated. You just need to get the global-local balance right. Centralised global strategy with localised flexibility.
The same is true with marketing.
From experience, US companies wait too long to place dedicated marketing resources in Europe. There are considerable differences in the regional marketing approach and is difficult to manage that effectively out of the US with somebody who does not understand the nuances of the European market. I’ve witnessed much tension between European leaders and US marketing teams slowing down the speed of expansion in Europe.
Designing an organisation for a U.S.-based company looking to enter the European market is a strategic endeavour that involves balancing the company’s global strategy with the nuances of the European market.
Successful organisational design in this context accounts for operational, legal, and cultural differences, as well as customer needs and market conditions.
This all requires the leadership and strength of character of an open-minded CEO.