The Truly Global Business Plan
Within months of launching Somnio, a running-shoe company in La Selva Beach, California, Sean Sullivan was selling shoes in Europe and Asia. "With something like running shoes, it takes a long time to build a following," he says. "We wanted to start building the brand all around the world from the very beginning." Plus, Sullivan had witnessed how lucrative foreign markets could be. At The North Face and Specialized Bicycle, where he had been an executive, he had seen international sales grow to reach as much as 60 percent of total revenue in some categories.
Like Somnio, many start-ups are going global right out of the box—perhaps more than ever before, says Hal Varian, professor emeritus at the University of California, Berkeley's Haas School of Business and chief economist at Google. But launching these global start-ups—or micromultinationals, as Varian calls them—can be challenging. "We've needed enough resources to fund essentially two new companies," says Sullivan, who dipped into his personal savings to bankroll the business. "That's really what it's been like."
Sullivan, an avid runner, came up with the idea for Somnio after suffering from chronic foot pain. His doctor, Andy Pruitt, founder of the Boulder Center for Sports Medicine in Boulder, Colorado, said Sullivan's shoes were to blame. Sullivan eventually partnered with Pruitt to design a running shoe that, through custom padding and inserts, could be tailored to a person's unique body mechanics, which include things such as foot shape and running style. Sullivan launched the company in 2009.
After Sullivan created the shoe, one of his first challenges was finding the right person to help Somnio establish itself in Europe. After a four-month search, Sullivan hired Saskia Stock, who was previously the head of biomechanical research for MBT Shoes, a Swiss footwear company known for its rounded soles. Stock now runs Somnio's European operations out of the company's Zurich office. "You have to find someone with a start-up mentality, someone who can deal with lots of ups and downs," Sullivan says. "Not everybody is cut out for it."
Part of the reason Sullivan wanted a seasoned executive on the ground in Europe was so the company could begin striking direct-sales deals instead of selling its shoes through regional distributors. "Having worldwide distributors is great for small companies that want to grow quickly—it gives you capital right away," he says. "But it can get expensive to get out of those contracts later." So far, Somnio has struck direct-sales agreements in many major European markets, such as the United Kingdom, Germany, Switzerland, Spain, and Portugal. In Asia, however, Sullivan opted to work with distributors.
Somnio, which manufactures its running shoes in China, sells the shoes in 20 countries throughout the Americas, Europe, and Asia. It expects to end 2011 with $8 million to $10 million in annual revenue, more than half of which is likely to come from European sales.
Though selling to many countries provides Somnio with diverse sources of income, it has also forced the company to master a multitude of confusing tax and customs policies—even in places that have adopted the euro as a common currency. And because Somnio is small, Sullivan says, it has had to establish new banking relationships everywhere it has gone. "They may all be on the euro, but these are still very much their own countries," says Sullivan, who says that the company essentially keeps separate books for each country.
Sullivan attributes part of Somnio's success in Europe to the fact that the company relies on specialty retailers to guide customers through a five-step fitting process used to calibrate each shoe's interchangeable components. Sullivan says European customers have responded more positively to Somnio's tailored approach than Americans have, because Europeans typically demand a higher level of service than do Americans.
"In the U.S., the retail experience usually consists of someone handing you a pair of size 10s, then having you take a lap around the parking lot," Sullivan says. "I think those days are over." In a sport like running, a relatively small group of enthusiasts tend to mingle across borders—both in competitions and through online social networks like Facebook, says Sullivan. Because of that, he hopes that word of Somnio's customization process will spread further in this country.
Eric Ries, who writes Lessons Learned, a popular blog on entrepreneurship, says he used to think that only Internet companies were suited to go global when they were small. Not anymore. "Look at what a company like Groupon has done," Ries says. Groupon caters to more than 50 million users in 35 countries. Setting up shop in those areas wasn't as simple as translating a website—Groupon needed local sales teams on the ground. "Yes, Groupon operates online," says Ries, "but they've had to get into local markets and understand the physical goods they're helping to sell."
Whether a company sells running shoes, daily coupon deals, or just about anything else, Ries says, businesses are increasingly being reordered around addressing consumer needs that transcend national borders.
Nowhere is this more evident than at Lookout Mobile Security, a San Francisco–based company that makes an application that guards mobile phones from problems such as viruses and theft. In less than a year, the company has attracted more than four million users in 170 countries, as well as $36 million in venture financing.
"The whole boundary mindset has been obliterated," says John Hering, the 26-year-old CEO and co-founder of Lookout Mobile Security. Hering says it was assumed from the start that the company would be global: "Our service is available on 400 mobile networks around the world. We have customers in 170 countries. And yet the only language we offer is English, with one office in San Francisco." The company is adding about one million new users per month.
As he digs into the reasons the international uptake has been so strong, Hering says he is discovering how much more important mobile phones are to consumers outside the U.S. "For many people, this is the only computer they have," he says. "The thought of something bad happening to your phone is untenable." In other words, if online consumers want a product or service badly enough, national borders—even language differences—aren't going to stop them.
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