Personal experience: how we entered the American market and what difficulties we faced

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

About tax rates in different states, the intricacies of hiring employees and the importance of planning.

There is a lot to consider before choosing an office location

When choosing a location for your headquarters, it is important to take into account several factors: the amount of taxes paid to the state in which you will operate, the business connections of the founders of the company, and the availability of external capital.

State tax deductions

The choice of location should be made based on market analysis if the business is focused on customers in a specific location. You also need to consider the regional tax rate. Taxes will have to be paid to the state and federal center. The federal tax rate is the same everywhere and for all businesses - 21%. And regional taxes vary in size depending on the state, district, or city. Therefore, many entrepreneurs open a business in those states where the rate is the most profitable. For example, the highest is in Iowa (12%), Pennsylvania (9.99%) and Minnesota (9.8%). The lowest is in North Carolina (3%), North Dakota (4.3%) and Colorado (4.63%). The tax percentage also depends on the type of company.

Founders' business connections

Having connections in a particular region is what helps your business to develop more quickly and dynamically. For example, when we were choosing a location for the headquarters, our attention was drawn to New England (Boston and the surrounding area). Firstly, I still have contacts with MIT professors and students from the days of my studies. Secondly, this region is one of the technological centers with a high concentration of medical device developers, and we planned to work in this area as well.

Availability of external capital

It is often said that investors want to see the startup next to them, within an hour's drive. Thus, one should not rely on the fact that all operational activities can be carried out from Delaware, and the investor will sit in Silicon Valley. This scenario is highly unlikely.

Early personal presence is required

This is especially important for business founders and those employees who are well versed in business processes within the company. A personal presence in the target market helps to quickly understand what rules and laws are used by businesses in another country.

For example, we managed to register a legal entity remotely, but we failed to open a bank account without a visit to the office. None of the ten banks that promised to do this remotely ended up being unable to provide us with such a service.

Also, business processes that work well in Russia may not work in another country (targeting, product positioning taking into account local specifics). The founders need to test their hypotheses personally: no local employee will be able to recreate the business process autonomously, he will have to be taught this anyway. It is almost impossible to do this remotely from Russia, including due to the difference in time zones.

A thoughtful plan is essential

Before opening a business in the United States, as in any other country, you first need to study the existing forms of doing business and decide on the most suitable one. Assess your chances in the market, draw up a business plan and only then hit the road.

But when we were thinking about a strategy for entering the American market, at some point we decided that instead of long planning, we could just go and solve many issues on the spot.

We signed an agreement with one accelerator, which helps Russian businesses to start working in the American market, and hit the road. As a result, it turned out that not all potential customers were ready to adjust and set aside time for meetings with us. It was not possible to solve some issues at all - for example, quickly find a sales specialist. There were also problems with affordable housing at first. Meetings fell apart, days passed, and money wasted.

The employees of the accelerator, with whom we initially agreed to work closely on site for a month, eventually began to insist that it is necessary to stay in the United States for at least six months. For a month, nothing happened, as a result, the exhaust was zero. In general, "expectation vs reality", as in the famous meme.

You need to have the entire budget at once

Without free 15–20 million rubles, which will be enough for a year of office work with a minimum number of employees, you don't even have to try to organize something on the American market.

The average salary for a salesperson in a narrow segment of the market in the United States can be 80-100 thousand dollars per year. Offices also cost a lot of money, even coworking spaces are expensive. We found a suitable option for $ 800 a month and an apartment for $ 1,500 a month. And then there are the costs of transport, food. Taking into account marketing expenses, the total amount for the year will be 210-280 thousand dollars, that is, just 15-20 million rubles. In addition to fixed costs, there is also a launch cost at the very beginning, we estimated it at 13 thousand dollars.

We had a budget for some time of work, and in the future we planned to support the office and employees thanks to operating proceeds. But within a few months, the financial situation in the company changed: revenue fell, stocks were quickly spent.

Therefore, when planning a budget, it is very important not to forget about marketing, moving around the country (to participate in specialized events), PR, rent, salaries, payment for basic equipment and consumables, entertainment expenses and payment for the services of lawyers.

Lawyers are needed from the start

Corporate law in the United States is quite complex, so you should immediately think about contacting a specialist who can be hired on an hourly basis to solve specific problems.

Lawyers charge quite large sums ($ 100–500 per hour). Usually, payment consists of an advance payment and the remainder of the work done.

You can work with lawyers remotely, in our case it worked out well. We hired a specialist at the stage of developing the company's charter and policy for handling confidential data. They also planned to involve him at the stage of applying for a work visa.

Hiring a local salesperson is important

It's all about the difference in mentality. It is the locals who should be involved in the sale of the product or service to local companies. It is easier for them to find a common language with clients, take into account the specifics of sales, choose the right tactics and just make sales pitches. There will be more trust in the local employee, so the chances of closing the deal are significantly increased.

You should only rely on yourself

As already mentioned, we tried to work with business accelerators, but we were convinced of one thing: no one will do our work for us, and it is better to rely on outside help as little as possible (even if you pay money for it).

Most likely, you will have to spend a lot of time and effort to promote the company yourself. And here the importance of competent selection of employees cannot be overestimated. For example, proficiency in English is very important, even if you are filling a vacancy for a Russian office (for example, in the software development department). Rest assured, this will definitely be useful. We had a case where a team, not ready to communicate fluently in English, negated all efforts to get an order from a client in Singapore. The project was canceled after a few months precisely because of the difficulties in communication.

The product needs to be localized for the local market

Product development must take into account the specifics of the region. Not everyone thinks that a product for the American market must have an English-language menu, 110 V power, ISO documentation and comply with the American measurement system. Certification, for example, by the FDA, cannot be neglected.

Don't forget about the Russian diaspora

There is a fairly large Russian community in New York, San Francisco, Boston, where there are many successful entrepreneurs and investors.

There are relevant Facebook groups (for example, "Russians in Chicago" or "Ours in the USA"), you can also use LinkedIn and get useful contacts through friends. We just received our first order in the USA through expats.

One final bonus tip: it makes sense to start working with the Russian subsidiaries of large American companies. For example, carry out projects or organize sales of products for local offices of General Electric, Google, and so on. Having shown yourself in this way, it will be much easier to travel to the USA with a useful background.