Why local users are startups best route to global markets

Scaling up a tech start-up often requires the company to quickly reach beyond its home country. But how should a young company, with limited resources and few users, actually start?

For many entrepreneurs, going international is crucial to attract capital and reach large customer groups. But new research challenges the conventional wisdom that tech start-ups should aim directly at their foreign target market. Instead, it may be smarter to start at home.

Local first – global later

A study examined more than a thousand early-stage tech start-ups that launched their products on the international BetaList platform. Here, young companies, often before their first major launch, have the opportunity to reach a large audience – especially US users.

Combining data on startups’ early web traffic and their international growth, the study shows that those companies that had more local users before launching later saw greater growth in foreign users. Thus, the effect holds despite the fact that these local users are less representative of the foreign target market.

Clearer signals mean better products

Why does local anchoring beat global anchoring – at least in the beginning? The study points to one central explanation: clarity. When the startup and the first users are in the same country, they often share language, culture and social norms. This makes it easier to understand what users really think and need.

While foreign users are more representative of the market the company wants to reach – their feedback is often more difficult to interpret. Expressions and gestures can mean different things in different countries, so small misunderstandings can have big consequences when the product is still being designed.

Local users therefore act as a kind of ‘training ground’ where the start-up can fine-tune its product before launching it in another market.

Impact greater in homogeneous countries

The results are particularly clear for start-ups that come from countries where the population shares a language and understands each other. Then the feedback is more likely to be clearer.

The impact is also stronger in global and standardized digital product categories, where user needs are similar across countries. Here, local insights are not only clear – they are also relevant to the target market.

Previous research has often advised startups to target their target market early on – especially if it is larger and more attractive than their home market. But the new study shows that this can be risky.

If the company expands before it has learned enough from easy-to-understand users, it risks building a product on the wrong feedback. This can result in poorer growth and, in the worst case, barriers to further growth.

A new strategy for young companies

The conclusion is clear: for many tech start-ups, starting their journey locally can be a strength – even if the big potential is abroad.

By first gaining clear and useful insights at home, they can be better equipped for the international expansion that often determines their future success.

More about the article and the author
The article When Local Learning Scales: Entrepreneurs’ Initial Users and Market Expansion is published in the scientific journal Organization Science.

The author is Nataliya Langburd Wright at Columbia University, USA.