How startups go global
Think multinationals have to be big? Think again. Scrappy, savvy small companies are operating worldwide in the battle for technology, talent, and customers.
(Business 2.0 Magazine) -- When working in the tropical sun becomes too much for Ivko Maksimovic, the lanky Serbian heads to one of the Dominican Republic's pristine white-sand beaches. He first gathers up a black hat, mosquito repellent, and a bottle of drinking water.
Along with those essentials, he starts stuffing his black backpack with a tangle of computer cords, an extra laptop battery, a spare 160-gigabyte hard drive, and an EVDO card to connect to the Caribbean country's 3G broadband network. Finally, he adds a battered ThinkPad, a Skype-ready headset, and a cable lock to lash all the gear to a tree when he decides to take a swim.
Maksimovic, 29, is the CTO of Vast.com, a startup search company based in San Francisco. He lives in the Dominican Republic because it's warm and far from Serbia's troubles. He works for Vast because his bosses think he's the best person for the job, and he can work anywhere with a broadband connection.
Vast launched a year ago in its present form and now employs 25 people who work across five time zones, four nations, and two continents - all of which makes it a striking example of a growing breed of startup, the micro-multinational.
Growth of the micronational
According to the United Nations, in 1990 there were about 30,000 multinational companies. Today there are more than 60,000, and while the number of multinational companies continues to grow, their average size is falling. As micro-multinationals proliferate, they're creating an entirely new form of corporate organization - one with powerful advantages for startups and entrepreneurs.
Like ExxonMobil (Charts) or IBM (Charts), these multinational startups operate all over the world, pursuing talent and markets wherever they find them. Unlike their corporate big brothers, which historically expanded internationally via acquisitions or after tapping out markets close to home, micro-multinationals are global from day one.
A big reason is money, but the benefits go beyond building a company on the cheap. Micro-multinationals are designing new corporate cultures and processes to compete in an increasingly global economy. Bound together by broadband and jet planes, they're startups all the same, run with the same fervor and energy as any garage-born company.
This is not offshoring as the term is commonly understood, although it is an outgrowth of it. From the get-go, micro-multinationals open up shop and recruit skilled workers where it makes sense to do so. Are the ace coders in Estonia? Hire 'em. The COO would rather live in Sydney than Sunnyvale? So be it.
In short, these are true distributed companies; they're not merely handing off the scut work to overseas electronics sweatshops. "This is core stuff, very advanced technology," says Vast CEO Naval Ravikant, a co-founder of Epinions. "We are building a company in a way that wouldn't have been possible even two years ago."
Pressures from investors
Many micro-multinationals are tech companies, but the same technological and economic forces are driving even nontech startups to go global. And if operating internationally was not an option for them until very recently, startups that follow may have no choice but to be worldwide.
The micro-multinational is a creature of the postboom era. After the tech crash, VCs stopped writing $100 million checks to fund startups. These days a VC might hand out $20 million over four years to invent a product. In the United States, that money might let you hire eight to 10 people. Overseas, you might get 30 people - and you can pick from a pool of battle-tested practitioners of virtually any business discipline imaginable.
"It's not cost as much as it is quality," says Brad Oberwager, CEO of watermelon juice and fruit company Sundia. Oberwager runs the 20-month-old firm out of his San Francisco home but employs workers across the country as well as in India and the Philippines to serve customers in America and Europe.
Using systems that are entirely Web-based, a Sundia employee in the Philippines can take an order from a Philadelphia grocery store for watermelon juice made from Mexican fruit. The juice gets squeezed in Washington state, and payment goes to Oberwager in California, who then notifies his CFO in India that the money has been received.
The advantages of the micro-multinational mean that just about all entrepreneurs pitching to VCs now need to be able to explain how - and how soon - they're going global to keep a lid on costs, operate 24/7, and compete with startups popping up from Mumbai to Madrid.
"Assume that now, or a year from now, you are going to face lower-cost competition, with more people at their disposal," says Deepak Kamra, a partner at VC firm Canaan Partners. "If you are not going to set up operations someplace else, you'd better have a good answer for why you don't need to or when you plan on doing it."
That's why Sundia's Oberwager selling Mexican watermelon juice to Philadelphia grocery chains via the Philippines. And it's why Vast's Maksimovic is beating the Google army to the solution to a search problem while surfing waves in the Caribbean.
"You don't need much to get things done," Maksimovic says. Just give him an Internet connection and a good power supply.
Oh, and throw in a new hard drive about once a year. The salt air is murder on those things.
This is an excerpt from a story in the July issue of Business 2.0. To read the complete version, click here.To send a letter to the editor about this story, click here.