Making it big in the US
The opportunity is great – but so are the considerations which must be addressed to get it right. Inflexion Partner Tom Pemberton hosted a discussion with three experienced transatlantic professionals at the recent Portfolio Exchange.
The streets may literally be paved with gold. With a market of 330 million people, the appeal of breaking into the US market is clear. Precisely how to do so is less straightforward. “If you get the US right, it’s not just a great business opportunity for scale, but also opens up opportunity to sell into that market,” says Inflexion’s Tom Pemberton. Indeed half the firm’s eight exits in 2023 were to US buyers following ambitious international expansion. Inflexion is well versed in this, with its international presence supporting over 90 international acquisitions, helping the portfolio to reach 160 countries. Recent Inflexion-backed US expansion successes include VED, Halo and Goat.
The path isn’t straightforward however, and the US can seem like 50 countries: California alone is the fifth largest economy in the world and you can fly six hours within the US and still be in the same country. “Each state is its own government,” cautions Obi Onyeagoro, an experienced transatlantic adviser who supports Inflexion’s portfolio. “During covid, there were effectively 50 different responses, and it is the same with taxes and regulations. The impact is considerable.”
Location, location, location
So how to choose a location for an office? Aspatial working has inspired people to relocate to more affordable settings, so the iconic streets of New York or San Francisco aren’t necessarily best for all newcomers, with Antonio Gulino, CEO of K2 Partnering Solutions sharing the firm’s experience. “The last few years have been quite disruptive, so consider if you really need proximity to clients, and where you can find the skills. We’ve found housing is becoming extremely expensive, so we’ve relocated a bunch of people from San Francisco to Texas as it’s more affordable.”
He recommends locating near enough to cities important to your business whilst being near places talent can afford to live in. “If you’re hiring junior talent, be near good universities and don’t feel you need to be downtown; just be nearby. Your location needs to be accessible for the talent you’re looking for. The high costs of living have seen a drain from New York and California, while states like Florida, Texas and Colorado are growing.”
K2 have got it right, having derived under a third of its revenues from the US at the time of its 2017 investment from Inflexion to over 40% now. “It’s really about striking the balance of what you stand for as a business and consider the norms and nuances of the country you’re going to,” Antonio says.
It may be that a company’s specialism necessitates certain locales, with the US dotted with pockets of expertise in certain geographies. “In terms of thinking about the US for the first time and where best to locate, it’s good to consider sectors as the US is segregated that way,” explains Obi.
In addition to the usual challenges of identifying the right talent, a big challenge of hiring in the US is remuneration expectations. If you’re a European business expanding in the US, you can send existing team members across the pond but also need to think longer-term about local talent and local partnerships. Large businesses can often have monopolistic powers, making certain areas hard to hire from – and so locating near those areas may not be ideal.
“I’ve worked with a lot of start-ups and they often struggle to compete for the best people with big tech on the basis of cash alone,” warns Alidad Moghaddam, CEO of Blue Light Card and serial tech leader and investor. But he adds that risk taking is very much ingrained in the mindsets of candidates and people perceive equity in the US very differently to how they perceive it in the UK. “Start-ups in the US are very generous with equity sharing, and opportunities to reach scale and have a liquidity event are more frequent, meaning that equity is seen as very valuable by candidates,” he continues, suggesting a business going from Europe to the US considers allowing for participation in the upside if that start-up is successful.
The idea of being part of the success is echoed by Antonio. “You need to be able to build a framework where a professional can thrive and culture is important,” he stresses. Now more than ever Antonio says it’s extremely important to give the young professionals – especially in the US – the ability to feel part of something and give back to their communities. “It’s important to bring some people over [from the headquarters] so they can bring the culture with them, then they can help find people capable of absorbing that culture so it is retained.” These things are important everywhere, but especially in the US. Antonio concludes with a counter statement to the usual rhetoric: “Gen Z and millennials aren’t less engaged; it’s down to managers to get the best out of the people they hire. The idea you can make it and make it big, and inspire, really helps
Obi reminds attendees of the edge values-driven companies have. “Younger professionals are very driven by values and look into companies’ ESG policies.”
“The US is a huge opportunity but talent is very expensive so you have to really commit,” Obi cautions.
…and retaining talent
Retention is globally and perennially important, but perhaps harder in the US owing to very loose labour laws, with notice periods as short as two weeks meaning you can lose people incredibly quickly. “The idea of employment at will in the US makes the labour market very fluid,” Alidad explains. “People can change jobs quickly; likewise employers can hire and fire quickly. It makes retaining talent incredibly difficult and competitive.” He says the ‘magnificent 7’ tech companies have huge workforces that cut across different functions. “They go for the best of the best and can pay. Their equity pool is also valuable, even at scale. So think about employee proposition and how you can compete with that.”
Antonio shares K2’s experience: “We’d train people for six months and then a recruiter would poach someone by doubling the salary.” For this reason, he suggests looking where workforces aren’t necessarily concentrated.
The caveats to consider with US expansion may make M&A seem a more attractive option. For some, it might be. But it’s not quite the panacea some may initially feel. “The complexity and time needed to integrate businesses post-acquisition is often underestimated so it’d not make it the default option,” Alidad says. Antonio says budget is a consideration, with an acquisition in Rhode Island (in 2004) requiring five people to move over from the UK to help blend the office with K2’s culture. But K2 is not shy of acquisitive growth, having made nine acquisitions since 2021.
The rewards of breaking into the US can be vast, and it’s clear there’s no one right way to do it. What is key, however, is planning and commitment to make it a success.
The US has been a big part of the Inflexion portfolio’s US success.
- Virgin Experience Days entered the US through a carefully executed acquisition which accounted for a little over a tenth of the Group’s revenue but had grown at 50%+ in its first year with VED.
- Halo was created when Inflexion merged a US and UK business to create a global optical transceivers company of scale which expanded internationally both organically and through acquisitions. Ultimately the leadership team saw Halo’s EBITDA grow nearly 10x in four years.
- Influencer and social media marketing agency Goat grew substantially in North America following minority funding from Inflexion before WPP bought Goat in 2023.