In a globalised world a real option for smart start-ups gunning for rapid business growth is to focus on penetrating overseas markets, potentially bypassing the Australian market altogether.
It’s a strategy being pursued by a surprisingly large number of successful, smaller Australian enterprises, one that offers business owners the ability to turbo-charge their business in a relatively short space of time. But it’s also an option that requires careful forethought, determination and the ability to recognise and respond to each market’s unique characteristics.
Chris Ryan is the founder of Ryan Aerospace, which makes helicopter simulators. The story of his business is nothing short of astonishing. A former fixed-wing pilot, Ryan stumbled across his business idea during a helicopter lesson.
“Coming in to land I pushed the wrong pedal. I was really disappointed and I asked the instructor why I’d done this. He attributed it to the need to develop the right motor skills to fly a helicopter. It got me thinking about a way to develop these skills without having to pay $500 an hour for a helicopter lesson. I asked him if there was a low cost simulator that could help develop these skills. He said ‘no, but someone should invent that.’”
Ryan built the first simulator from such unsophisticated components as a re-wired gaming joystick and an old office chair, and says, “a lot of gaffer tape”. After spending time testing his invention he had another helicopter lesson.
“The instructor said he’d never seen someone pick up flying sideways, taking off and landing as quick as I had; and it was all due to the time I’d spent in the simulator.”
He quickly started developing a simulator that was suitable for commercial markets and set up a website to market his invention (Ryan also runs a website development business as a side project). He landed his first client, the British Royal Air Force, as a result of the site. The RAF was looking for a simulator because it had had a student crash a million-pound helicopter in training (because he pushed the wrong pedal). As a result it had put out a tender and the major global aerospace companies had put in proposals costing around £3 million. “I said I could provide 80% of the solution for a fraction of the price.”
“When they got in touch the prototype wasn’t even fully developed. They asked me how long it would take to build a simulator for them and I told them it would take me three weeks to manufacture it and two weeks to deliver it. Five weeks later I was on my way to the UK to deliver and install my machine.”
This opened the door to export sales to the US and Europe. “I’ve done four overseas trips in the last six months to develop export markets,” says Ryan.
These trips have included defence conferences and trade shows in the US and Europe and as a result, he’s in talks about supplying simulators to the US Navy and to a joint program involving the US Army and NASA, and now counts Boeing and Lockheed Martin among his key competitors. Initial sales to overseas markets have also led to sales of the simulator to the Australian, Saudi Arabian and South African defence forces.
The secret of Ryan’s success has been identifying a genuinely under-leveraged niche market.
“There just isn’t that many people in the world attacking this segment,” he says.
But although Ryan’s story is one of meteoric success – literally and figuratively, it hasn’t been all plain sailing. “In my industry you work to long time frames. Although the business shows all the signs of being a huge success I have to be careful not to go broke in the process.”
Bypassing the Australian market
Another Aussie export success story is Sasy n Savy, which manufactures natural skincare products and sells to 18 export markets. Managing director Samea Maakrun “didn’t bother selling in Australia; one good overseas order is equal to 80 or 90 orders from Australian clients. My first port of call was Hong Kong, where they know Australian ingredients and are prepared to pay top dollar [for them]. The Australian market is also saturated and, unlike other markets, doesn’t understand the benefits of ingredients like the Kakadu plum, a rich source of vitamin C or wild rosella, which is high in antioxidants.”
In her quest for overseas success Maakrun has had to overcome multiple obstacles.
“They have all been really fiddly things,” she says. “When I first went to China buyers and distributors initially said they loved the product but when I came home I didn’t get any orders and I couldn’t work out why. It took me a year to realise my red and white packaging meant half stable half unstable in Chinese culture, which is why no-one was buying from us.”
Maakrun also found herself up against a brick wall when trying to register her products in China.
“I paid $250,000 to register 10 products, on top of agency and testing fees, only to be told the Chinese agency responsible for registering aromatherapy products didn’t have the skill to determine whether to approve the ingredients. In the meantime product prototypes were stolen between Australia and China and competitors started copying my brand.”
Maakrun eventually involved Austrade in the situation and her aromatherapy products are now registered in China. “But my skincare products are another story” she says wryly.
Shawn Stilwell, managing director of IT firm Sqware Peg, is another with battle scars from delving into overseas markets. Sqware Peg develops customer response management solutions in tandem with global CRM business salesforce.com, among others.
Overseas demand for Sqware Peg’s products came sooner than he expected, which fast tracked Stilwell’s push into Asian markets.
“We started working in Singapore and Hong Kong three years ago, with the idea of getting these markets right before going deeper into Asia.”
Stilwell’s strategy was to win major clients in overseas markets and piggyback these clients into other markets. An example is his work with IT and internet business PacNet.
“We first started doing work with them in Hong Kong then rolled out what we were doing into eight other Asian countries, which was a big regional win for us.”
When working with other cultures Stilwell says, “you need a mix of local knowledge and international experience. We also needed to look at our pricing. You have to be prepared to discount because Asian clients want to know they are getting a good deal.”
To help maintain margins Sqweare Peg draws on offshore resources to keep costs low. “We buy services from countries close to Singapore and Hong Kong at a better cost than in-country.”
For example, the business maintains a development team in Jakarta, which also supports the Australian team, which has helped to expand margins in the Australian business.
Like Ryan, Stilwell stresses the need for deep pockets when rolling out an international expansion strategy, with the business relying on its already-established Australian operation to help support the push into Asia.
“I can’t underestimate how long lead times are in the sales cycle; you need ample cash backing to play that out.”
Right now, Stilwell is focussed on exploring opportunities in China.
“We still do more business in Australia than Asia but within the next few years Asia should surpass the domestic market. Over the next three or four years we expect revenue to double in Asia, assuming cloud computing takes off in the way we expect it to.”