UK and European companies that cross the Atlantic face a number of challenges. With a population of nearly 325 million, the US is a very attractive integrated market. However, the US also is a complex and diverse market, and non-US entrants face both the ordinary challenges of establishing and scaling a business in that market and special challenges as foreign entrants.
This blog series addresses what we see as the top ten challenges after establishing an initial US presence.
We believe the three most difficult challenges all relate to people: (1) finding and attracting the right individuals; (2) integrating them with your existing organization; and (3) managing them out if they fail to perform.
I. Finding and Attracting the Right People
Non-US companies face special challenges in recruitment: (a) assessing skills (especially sales skills) on a cross-cultural basis; (b) the lack of an established network to assist in recommending and diligencing candidates; and (c) matching equity and other compensation expectations of US candidates.
Many new entrants to the US market initially hire the wrong people. Americans present well, and the gap between “talking the talk” and “walking the walk” can be wider in the US then elsewhere. This is particularly an issue when hiring sales or business development candidates, who may be a lot better at selling themselves then selling the business. The best way to address this, of course, is to hire based on personal recommendations (from US angel investors, advisory board members, accelerator-based networks or otherwise), but that is not an option for many foreign companies. In the absence of personal recommendations, careful due diligence is essential – with the consent of the candidate, it is important to talk not only to the candidate’s references but also to others with whom the candidate has worked or interacted. Knowledgeable recruiters may be very useful but are not a substitute for the company’s own diligence efforts. Companies should obtain HR advice as to how to conduct this diligence process while avoiding discrimination or other similar claims.
Foreign companies also face special challenges in attracting the best US candidates. US compensation expectations are high by European standards. Additionally, equity grants (options or restricted shares) are a key element of tech company compensation in the US. The tax-favored tools that the foreign company uses to provide equity grants to its local employees will not work in the US, and equity grants in a foreign company are, for a variety of reasons, likely to be less attractive to US employees than comparable grants in a US company. There are no easy answers to this problem. However, non-US entrants to the US market need to keep compensation challenges in mind in considering: (a) where to locate (some markets, like Silicon Valley, are especially difficult and expensive from a recruitment standpoint); and (b) what a successful launch is likely to cost. Foreign companies need to play to their strengths, particularly by recruiting candidates with international interests or experience who see the company’s international reach as a plus, not a minus.
II. Integrating US Hires with Your Existing Organization
Companies operating on a cross-border basis should not underestimate the challenges associated with integrating candidates. Your new hires will not know you or your culture, and they are likely to feel isolated based on their distance from the mother ship. The best way to address this is to send a founder or other senior candidate to the US to establish the company’s local operations. This is strongly recommended if you are setting up on the West Coast, given the time difference (8 hours to London; 9 hours to the Continent) and the length of flights (12+ hours). There may be more scope on the East Coast to manage through a combination of frequent visits (senior members of the team should count on spending at least one to two weeks per month in the US in the first year) and through heavy use of Skype, Slack and other tools. In any case, successfully integrating your US candidates is critical to presenting your business in the US and protecting your brand. It also is essential from the standpoint of retaining the US candidates that you recruit – they need to feel part of the organization.
III. Managing Out Employees if They Fail to Perform
Finally, non-US companies face special challenges in managing employees out of the organization if they fail to perform. The US is, for the most part, an “at will” employment jurisdiction where employment contracts are uncommon, so there are no rights of statutory redundancy or notice (except in certain “plant shutdown” circumstances). However, it is customary to pay employees a termination benefit that is negotiated and to secure a release. Non-US companies that approach their US employment relationships from the starting point of their home country arrangements sometimes take on contractual redundancy or notice obligations — these may become simply the starting point for a negotiation upon termination. Additionally, a lack of care in managing employment relationships may, on termination, facilitate claims of discrimination, sexual or other harassment or hostile workplace environment, or whistleblower claims, that are easy to assert and potentially expensive to settle. We’ve written about this previously – it is critical to get good HR and legal advice.
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It should be unsurprising that a company’s people are its most important asset, and that this asset is particularly critical at an early stage in a business’s cross-border expansion. Finding the right people to staff a US operation is typically the longest lead-time item in US establishment, and the area where a misstep is likely to be most costly.
Want to learn more about how best to pursue US expansion or US investment? Feel free to get in touch with Daniel Glazer or Robert Mollen.
Post produced in partnership with Daniel Glazer and Robert Mollen at Fried Frank Technology.