WHAT NOT TO DO
(5 things ‘Not to Do’ when you open a US business)
By: Phil Kearney, Christopher McHattie & Jeanne Raffiani
So, you’ve built a successful business in Europe (or elsewhere) – well done – and you’ve decided it’s time to dip your toes in the US market to see if your “magic touch” “translates.” You know what “to do,” but do you know what “not to do?”
Don’t choose your location solely on convenience – it’s important, but not the most important factor.
There are numerous business friendly states in the US. However, that alone does not make one or the other the most attractive place for your physical location. Your initial location may very well be the biggest decision you are going to make in the long run. So, take your time, and evaluate everything, starting with your core business needs and other factors specific to your business such as access to customers, employees, transportation, raw materials, etc. and, yes, convenience.
Once you have thought that through, you can review whether any of the locations you have selected offer a particularly favorable business and tax environment. Leading the list – Nevada, Wyoming, Texas and of course the perennial favorite, Delaware. Each of these states offer business friendly laws and environment.
Finally, and importantly, how convenient will the location be? If being managed from your home office, how long is the flight? What is the time difference? Is the cost of living high or low? Is housing and office/warehouse space plentiful and cost effective? Is skilled labor related to your business readily available? Is the area known as an industry hub for what you do? Have you considered ‘industry hubs’ (where like-minded companies are located), and if there is an ‘industry hub’ relevant to your business, why is it where it is?
Don’t overstep your resources.
One of the most common causes of failure of a new enterprise is misunderstanding the resources necessary, typically time and money. In order to avoid this, you should honestly address the time it’s going to take and what it’s going to cost for: (a) a ‘minimally viable’ market experiment; (b) a legitimate effort to enter the market; and (c) what would be necessary to ensure success. Make sure to measure success so you can determine how to repeat it, and build upon it. It is not negative thinking to be prepared and to create a plan. Working through a pre-launch and initial operations budget, in time and money, is time well spent. Develop a ‘road map’ to appropriately pace your growth as you build, ramp and scale your business. You will need to invest time into understanding the market’s nuances, building a network and client base, and navigating the various obstacles that come with day-to-day operations.
Don’t skimp when vetting your US “partners.”
You will need “boots on the ground” – that person or entity is not the place to skimp. You will likely determine that it is optimal for your business to “partner” with a US person or company as part of your US expansion – and when we say “partner” we mean it in the broadest sense. Your partners will likely be legal, accounting and business advisers, or true partners. For example, this may be a “legal undertaking,” meaning you will enter into a “joint venture,” or it may be an employment or independent contractor relationship. No matter the modality, do your due diligence to make sure the “fit” is right, the person/entity is trustworthy and a valuable addition to the undertaking. That may mean multiple “meetings” and we’d recommend at least one “face to face” meetings and a realistic and thorough assessment of your partners’ skills and reputation – do not be afraid to ask for references – good partners are happy to give them!
In addition, from a legal perspective, it is important to proceed cautiously, as many developed countries place a legal burden on their nationals to vet their foreign business partners (for example the US has its Foreign Corrupt Practices Act and, in the UK, the Bribery Act). With many of these laws, it is critical that such undertakings be done prior to starting business operations. Violations of these laws carry various levels of fines and penalties in additional to possible imprisonment. Consultation with a legal professional can assist you with compliance with these laws. So, don’t be put off or surprised by your proposed partners “vetting” you as well. If they are legitimate, they have obligation to do it.
Don’t unintentionally trigger liability for taxes and regulations.
Just because you incorporated in Delaware for example, doesn’t mean you only have to comply with Delaware law. If you are “doing business” in another state, county or city, you will have to comply with that state’s, county’s and city’s laws regarding registration, licensure, employment and taxes, among other things. This can lead to doubling your corporate expenses (for example, corporate filing and annual fees in two or more states) as well as exposing you to unintended local regulations and taxes. (See point 1. above) So, initially at least, with an eye to limiting multiple expenses, you should try to focus on one location for incorporation and doing business and review those needs with qualified legal and accounting professionals.
Don’t launch until you are ready.
This is easy, do steps 1 through 4. Gather as much market intelligence as you can and get smart on the US. It’s part data, part subject matter experts, part boots on the ground. Understand the ‘why’ as much as the how, what, when and where. Get a good grasp on where the opportunity is, see how you align with demand, and see how you can best deliver. It’s not an exact science, but a firm grasp can have a huge impact on your results.
Some bonus thoughts, don’t doubt yourself. If you’ve made it in Europe or elsewhere, your goods and services will likely translate (be sure you literally ‘translate’ your brands to ensure they don’t mean something different in the US and in your target markets. While the US market on its face may seem more daunting regulatorily than, for example, Europe, it’s not. It is for the most part a “free market” economy, bounded by common sense health and safety concerns, and taxes. Don’t give up, it takes some time, re-do Step 2, and then double it, it’s always a bit harder from afar.
Finally, it’s actually easier than you probably think.