Startups that want to scale their operations abroad must contend with an important question: Should they start by learning from customers locally or go straight to the new target market? While common wisdom might persuade them to research their new product in the market they want to enter, new research from Columbia Business School Professor Nataliya L. Wright offers a different perspective. When she investigated the impact of learning from a product’s early users, she found that digital entrepreneurs who develop their product locally do better once they venture abroad.
“Even if your target market is ready for the product, you might not actually understand users’ feedback enough to develop a good product for them,” Wright says. “That suggests that it may be better to test in a different place than the one you scale.”
Testing local, scaling global
Wright collected data for her study from a popular global product launch platform. Startups post their early-stage digital products on the platform and invite potential users to visit their website. Drawing on a sample of 1,106 startups, Wright studied foreign user growth over time by counting page visitors outside the startups’ home countries. She found that companies with a larger share of early local users end up achieving stronger growth in their target market overseas.
After confirming her observations with further language learning model experiments, Wright concluded that when startups test early in their foreign target market, they may not understand the feedback they receive. As a result, their product development might suffer. For example, a French startup testing its new product in the United States may misinterpret linguistic or sociocultural nuances from users, and vice versa.
Information clarity versus transferability
Wright’s research focused on companies that specialize in digital products such as web tools and software as a service. Since user preferences tend to be standardized globally in this industry, these entrepreneurs may be better off testing locally among users they already understand clearly. But in other industries that are more locally fragmented, the transferability cost of testing with local users may offset any clarity benefits, and so the best choice may be to test in the new market right away. Understanding that clarity-transferability tradeoff as it pertains to their industry can help companies develop strategy with more nuance.
For example, for products such as food or cars, customer preferences don’t always transfer easily between countries. Managers launching these kinds of products may be better off testing them right away in the markets where they want to grow and developing them according to those markets’ preferences. Other products where preferences do transfer, like web tools, might benefit from testing in a local “beachhead market,” a location that is familiar to the company because of language or culture, but where tastes are more like their foreign target market.
“There’s a view that with digital technology, especially in today’s AI world, you can do everything virtually,” Wright says. “But this research suggests that there's definitely still a place for considering geography when you launch startups or products. It's just that the best way to think about geography may not be the way we traditionally thought about it. Country borders may no longer fully determine what customers want, but they can still shape the ability to interpret market feedback.”
