Global Customers Are Worth 10x
Australia is geographically large, but population small. Great for lifestyle, not so great for ambitious entrepreneurs.
Tiny. We are 0.3% of the global population adn our GDP is 2% of the worlds GDP – so 98% is outside Australia.
In fact it’s worse because we think we are large. Yes, we’re in the G20 and yes, we have a great GDP per capital but we are still small. Countries like New Zealand and Israel outperform Australia per startup because they know they are small and go global faster and better.
They also have the advantage of proximity – i.e. the whole industry is 2 hours drive (Israel) or a 1 hour flight away (NZ). Australia is spread out over six cities and long distances.
If you’re aiming to build a $10m business, you can definitely do that in Australia domestically. But if you want to build a $100M to $1B business than it has to be global. I see a lot of entrepreneurs spend many years working very hard to create a small business.
I’m a big fan of focus, and if you’re able to get product market fit in a bigger market, then your niche will be bigger, you’ll have more customers and (hopefully) more revenue. USA, EU and China are pretty much 10x Australia. So you might do the same work for 10x the revenue. This can make a massive difference in covering your costs and growing fast organically.
If you do need capital at some point along the way, having global customers can also make a huge difference. Here is why.
Raising capital is all about how that new capital will expand the business as it currently is to take up it’s full potential. If you only have domestic customers then the ‘full potential’ is the domestic market. Even if you show research and argue whole heartedly that you have global potential, you have no proof. It’s too risky that you won’t be able to.
In fact, I believe that the maths almost doesn’t work. Let’s say you want to raise $500k at a $3m valuation. For their risk, the investor wants at least a chance of getting 10x their money back. Ceteris paribus, you have to get to $30m value. If you haven’t shown you can go global it might not be possible to extrapolate out your traction to make that valuation possible.
Still worse, I think there is a mental barrier for a lot of Australian investors. If you’re only local, they think you’re local and that you’re only capital options are local. They will probably not feel pressured that they are competing globally for your investment. This translates into longer due diligence, lower valuations and more often than not, no investment at all.
On the plus side, if you do get international customers it shows;
– You have a global perspective.
– You can get on the phone or get on a plane and sell.
– You can navigate other market issues like contracts, currency, support etc.
– It means that you are more likely to be able to do another international market.
What I recommend:
Some startups can go global day one. Don’t even look at domestic customers. Born global.
If local proximity will significanly help you get your product to a point where it’s creating great value for your customers, then that can be ok. But as soon is it is, go global. Brutally. Maintain or if you’re really brave (and I suggest you can be) fire your Australian customers and go global. Don’t get stuck looking after a small market if the pain of doing that stops you being global.
Remember, it’s product MARKET fit. If the Australian market is not exactly the same as the global market, then you don’t have global product market fit. That means you’re small. That might mean you don’t make enough sales or don’t raise the capital you need.