There are few highlights for most tech startups as sought after as cracking the international market and for most of these startups none quite as tantalising as breaking into Silicon Valley.
The home of some of the world’s biggest tech companies including Apple Inc., Facebook and Google, Silicon Valley is the leading hub and startup ecosystem for high-tech innovation and development.
According to a January 2016 report from the Martin Prosperity Institute titled Rise of the Global Startup City, the San Francisco Bay Area, which spans Silicon Valley and San Francisco, remains the world’s leading centre for venture capital investment attracting nearly $11 billion, more than a quarter of all global venture investment.
A growing number of South African startups have also sought to grab a piece of the Silicon Valley slice, however, this does take some work.
If you have your sights set on entering the international playing field, the most difficult thing is getting your foot in the door, says Daniel Schwartzkopff, commercial director and co-founder of Cape Town-based startup and machine learning specialists, DataProphet, who also spends part of his time in the US working with DataProphet’s Silicon Valley-based clientele.
“Taking your startup to a global level means that you have to make connections and get new clients from a region which may be completely new to you.
“This is one of the hardest things you can do considering that this requires a permanent presence and a clear strategy of how to compete with existing competition who have already made a name for themselves. This takes time and should definitely not be rushed,” he says and adds that you need strong planning and networking skills as well as the ability to sell yourself, your business and the innovation which you are able to offer.
Established in 2013, DataProphet is a machine learning startup which brings what they say is easy-to-use artificial intelligence solutions within the grasp of businesses within different industries. An example of one of their solutions involves a lead identification algorithm that ranks potential clients (leads) from most likely to least likely to purchase. This was used for a large outbound call centre that needed a way to rank a set of leads so that they could focus their agents on the leads that were most likely to purchase an insurance product.
“Taking your startup to a global level means that you have to make connections and get new clients from a region which may be completely new to you”
Not only do they have some of the country’s largest corporates as their clients, the startup has managed to break through the tough US market gaining themselves a handful of customers in the world’s startup capital, Silicon Valley.
The startup also recently entered into an investment partnership with one of the country’s top global investment and private equity groups, Yellowwoods Capital Holdings.
SME South Africa sits down with Schwartzkopff who lets us in on how they managed to get a foothold in Silicon Valley and how altering their networking strategy allowed them to gain more clients.
Making the move to Silicon Valley
We like to move quite quickly and South African companies tend to move slowly, and closing a deal with some of the big companies can take anywhere from 6 to 18 months.
Machine learning is creative you don’t necessarily need a large team to service a big company, for example, a group of three can deliver quite a good project.
So what is fascinating about the US market and Silicon Valley, in particular, is that there’s a lot of small companies that want to move very quickly AND they also have a lot of money from their venture capital funds. That is our ideal partner – somebody who doesn’t have the skills or expertise in-house and they want to move very quickly and they have money. That kind of perfect storm of ingredients is very present in Silicon Valley.
That’s quite a different scene from South Africa. In SA the companies who have enough money and enough data to use machine learning are generally very large companies and their sales processes are quite long.
Building the right track record for easy lift-off
We needed to improve our operating model in terms of the way we engage with businesses so we learnt quite a few important lessons like how important it is to have our team operating on-site for the large part of the engagement.
And also just in general, the way we conduct business. We completed projects for a few large businesses in SA before moving over, so that we can have case studies. It is very important because anywhere you go people are obviously going to ask which previous work you’ve done in the industry and any positive results you have can help you there. We’ve completed projects for corporates such as Shoprite, Internet Solutions, Clientele, Hollard, Old Mutual, and other quite large businesses before going over
“It’s very much a t-shirt culture [in Silicon Valley] and I think that reflects quite a bit in the way they do business as well”
Finding our niche in the Valley
It was quite warm. The general US market is looking for machine learning scientists and every second new story that comes out of Silicon Valley is often related to machine learning. For example, self-driving cars are quite a big thing there at the moment and that’s all powered by machine learning. So it was quite interesting to note that there aren’t many machine learning consultancies in the US.
Most of the companies that do machine learning all build a particular product. Whereas we’ll do an algorithm design for the company. Businesses which are in Silicon Valley don’t really do that. They just sell their own suite of products that they’ve developed internally. They don’t do much consulting work so there’s a definite niche available there for us.
The Silicon Valley versus the South African customer
Just general demeanour. In Silicon Valley, people don’t wear suits. It’s very casual. I think one guy even mentioned to us that if he came to a meeting and [the people there] were all dressed up in suits and ties he probably would have turned down the engagement. So it’s very much a t-shirt culture and I think that reflects quite a bit in the way they do business as well.
Everything is a lot more casual and things move quite quickly so deals can often get concluded over lunch. It’s not something that’s very drawn out. There’s not much of a huge legal process that takes weeks and weeks to conclude. So it’s been quite interesting.
And I also think the people are also way more outlandish and out there with their ideas. In South Africa things are a bit more conservative and in Silicon Valley people are trying to build the next big thing so a lot of the ideas are pretty outlandish.
The one thing we needed to break into the US market
One of the major challenges for a company, especially from South Africa, in dealing with US companies is the 8 hours difference time zone, which is fairly difficult. It definitely helps to have people on the ground there.
I’d say that it’s basically impossible to try and get into the US market without having people there. A lot of the business there is done through face-to-face meetings and you may have to meet people several times. It’s very difficult to have that kind of relationship over a Skype call. So that’s pretty important I’d say.
Changing how we’ve done things
In general, the South African clients we deal with are corporates so we will generally have to speak to the CTO or maybe somebody below him and then it gets escalated to the CTO and they’ll have to table it at the board meeting a couple of weeks or months down the line. Whereas in Silicon Valley, we’ll deal with the startup founders, who have the powers generally to make decisions on the spot. So it doesn’t even have to go to a board so things get approved that much quicker.
“South Africans are as technically competent and we produce graduates of as high a level as anywhere else in the world;
I tried a bit of online marketing and all that. I found it not to be particularly effective. People generally go on personal recommendations and people that they know so most of the networking was meetups at events in Silicon Valley. I think that’s definitely the best way to go about it – to get introduced to all the startups through meeting the co-founders and founders.
Not all’s bad in SA – Our biggest lessons from the experience
I think generally the biggest lesson is that South Africans are as technically competent and we produce graduates of as high a level as anywhere else in the world. Generally, the way we see things in South Africa is that we might not be producing the same level of technical talent and that’s maybe why there’s not so much innovation or entrepreneurship here. But it’s not true. We do produce people of as high a quality and so building an international business from South Africa that’s servicing a technical need elsewhere in the world is completely possible. And we do have a cost advantage, generally hiring a data scientist who is a graduate straight out of university, in the US is over $100 000.
In South Africa, a similar starting salary would probably be three or four times less. So it’s definitely possible to build a tech-focused company in South Africa and it’s a great place to do so.
From us to you – What we’d like you to know
It’s very expensive to even visit Silicon Valley. Rent for a one bedroom apartment is $4 000 a month. For a startup, it’s not something they should do unless they are at least profitable in South Africa. I wouldn’t advise spending a significant amount of your budget in trying to break out into the US without having some sort of stable foundation in South Africa first because it is quite risky and it takes quite a bit of time and it is quite expensive.
There’s certainly a lot of opportunities there, however, there’s also a lot of competition, so the companies that want to get into the US market also need to be very sure that it is possible for them to get into that market.
What I did find was that with South African companies, it’s much more difficult to raise funding here. If you have a good idea and a decent business model and you’re making some revenue it’s much easier to raise funding, especially significant funding, in the US. If it is one of those scalable tech businesses it’s probably a good idea to raise money over there.