Here’s a question that crossed the minds of a number of founders and other friends I’ve talked to over the last several months, would you be better off launching your startup locally or should you try to get traction overseas and bring that back home? For a number of startup founders, the answer can be pretty clear because their product is market specific, but for those whose products are applicable worldwide, would it be better to gain local traction before heading out?
ReadWriteWeb wrote about a Danish study titled “Home Sweet Home: Entrepreneurs’ Location Choices and the Performance of Their Ventures“, which discovered startups tend to be more successful if the founders have spent a longer period living at where they launch their companies. This does not necessarily mean founders have to stay at home because even non-locals can launch a successful venture if they understand the market well enough.
The nine-year study from 1995 to 2004 found that for every year a founder spends in the city or region where they launched their companies, the failure rate went down by 2 percent and that they would earn over $1300 more profits. The average failure rate of those who have spent 6.4 years in one city is 9% less than those who have spent less time.
Aside from the numbers, this seems like a no-brainer. The longer you spend in a particular market, the more likely you will understand the local consumer behavior and therefore the likelihood of being able to take advantage of that to the benefit of your company.
Not only that, being local leads to having the necessary network to support the company and to gain access to much needed resources to seize the market and grow the company, not to mention having the sentiment of local consumers as well.
However Professor Olav Sorenson, one of the two researchers involved in the study, said to RWW that when startups meet venture capitals who require them to move their operations, founders should take that advice because VCs have access to networks, contacts, and resources that startups need.
It’s certainly not compulsory but most VCs and investors would prefer to have their portfolio companies, or at least the founders of those companies, be within geographical proximity to allow for better access and discussions. Despite the technological breakthroughs in long distance communications, nothing beats face to face meetings.
Unfortunately the article at RWW seems to be giving mixed signals as to whether startup founders should stay or move. Of course, there’s no definite answer and every case needs to be decided on their individual merits based on the situation and condition of each circumstance, but the results of the study can’t be ignored. Experience, market knowledge, as well as contacts and relationships, all of which are essential to setting up a business, are more likely to be established over a longer period of time and this study confirms that.
What this study shows isn’t necessarily that startups should be launched at home, but would-be startup founders are more likely to succeed with better results if they spend more time in wherever they plan to launch their companies, whether they are locals or migrants.
