UK vs US Tech: Can the Tortoise Ever Catch the Hare?

UK vs US Tech: Can the Tortoise Ever Catch the Hare?


“To win a race, the swiftness of a dart
Availeth not without a timely start.
The hare and tortoise are my witnesses.
Said tortoise to the swiftest thing that is,
“I’ll bet that you’ll not reach, so soon as I
The tree on yonder hill we spy…
The race is by the tortoise won.
Cries she, “My senses do I lack?
What boots your boasted swiftness now?
You’re beat! and yet, you must allow,
I bore my house upon my back.”

The Hare & Tortoise, La Fontaine fable (1668)
translated by Elizur Wright, Wikisource

I must say that I’m not sure that La Fontaine’s fable of the hare and the tortoise provides a totally apt metaphor for the question I am posing here. However, I think there are definite similarities to the competition between US and UK tech companies. The fable tells the story of a tortoise that, when suitably provoked by a hare, challenges the much faster hare to a race; the cocky hare takes a nap during the race, while the slow and steady tortoise reaches the finish line first.

In this scenario the US tech industry is the hare, quick to act and get ahead in the race, while UK tech is the tortoise, slower to get going but maybe, just maybe able to catch up and even overhaul the hare if it can use its different smarts productively. So far, so good – I hope you’re still with me!

Since moving back to the UK in mid-2017 after over twenty years living and working in Silicon Valley and after spending two decades before that marketing IT systems and software to corporate and government customers in Brazil and the UK, I have been struck by a number of contrasts between how digital tech companies are founded, funded and operated in the UK as compared to Silicon Valley and elsewhere in North America. One inevitable question I am asked by UK entrepreneurs is how UK tech companies can compete against their American cousins.

Not surprisingly in light of the difference in industry longevity and market size, US companies are much more richly funded than their UK counterparts. Although usually a definite advantage in terms of firepower, extensive funding and even over-funding can conceal a variety of sins until there’s a reckoning. The recent examples of WeWork and Uber, among others, are testament to this.

US scaleups also tend to be generally more ambitious in their aspirations, more decisive in decision-making and execution, and more in tune with the idea of failing fast before either pivoting their companies to pursue a new strategy for growth, or later founding a new startup to pursue a different business idea. In fact, failure is often seen as a badge of honour in US business culture, in stark contrast with how it is regarded in Britain.

Among other contrasts, UK tech companies are nowhere near as plentifully funded. Furthermore, UK entrepreneurs tend to be somewhat less clearly ambitious, they take longer to move from deliberation to action (which can be a good thing at times), and at times take too long to reverse a slide, or they get trapped in slow and agonizing failure loops due to their reluctance to face the brutal facts. To be clear, I’m citing what I see as general tendencies rather than cast-iron rules.

Expanding on the contrasts hinted at above, I think there are six points where we can begin to understand whether or not British companies can measure up against their US counterparts, or even supersede them in effectiveness if not always in size and scale.

1. Ambition and business strategy – Think Big, but be ruthlessly focused.

In terms of vision and ambition, founders and boards of U.S. companies are more conditioned than UK scaleups to genuinely aspire to be world-beating. For years U.S. investors and entrepreneurs have been driven by a “go big or go home” mantra, even though 95%+ of companies are destined to be no more than moderate players in their respective product categories. But they start life in the largest marketplace in the world, one that is also arguably more homogeneous than most other markets. So there’s plenty of space in which to experiment until you get it right. There are also fertile niches everywhere you look.

Next, not only do U.S. entrepreneurs start thinking about going international relatively early on, usually as a result of customer pull from overseas markets, but they are quick to open offices in the traditionally defined regions of EMEA (often starting in the UK and Nordics) and Asia-PAC in order to respond to, and serve, demand from customers in these markets. One limitation I have seen with U.S. based companies is that they have a U.S.-centric attitude to their foreign outposts, usually limiting their activity to that of country sales offices reporting into a regional EMEA or APAC HQ. I think this can provide opportunities for UK companies that adopt a broader and more global perspective. This however implies, for example, that if it makes sense to transfer significant autonomy and resources to your U.S. subsidiary because of the greater demand you might be able to generate there, you should do so. The more proactive scaleups do this with considerable success. We need to keep in mind that not only do U.S. and UK scaleups compete against each other on their home turf but in other countries.

Not surprisingly, UK founders and management teams and their investors tend to think first of succeeding in the UK and possibly a few European countries such as the Nordics or Germany before taking on the challenge of launching operations in the U.S. and beyond. There’s nothing wrong with this approach, up to a point. In fact, I tend to caution CEOs about launching too soon in the U.S. Best to wait until you have at least a handful of reference accounts on American soil before you open an office and start hiring employees.

This is especially important because of the somewhat “provincial” attitude of American companies toward customer references from anywhere outside the US, even if those customers are subsidiaries or divisions of their own multi-national corporation. Many years ago, when starting up the U.S. operations of the fast-growing software company I had co-founded seven years before, I was shocked to discover that corporate customers in the U.S. were completely unimpressed by our prior success, despite the fact that over forty major U.S. multinationals from Citibank to Colgate to Dow Chemical to Caterpillar had made major commitments to deploying our security software solutions in their Brazilian subsidiaries.

Alongside a degree of prudence, I think it’s important to be bold in setting aggressive objectives for your international expansion. Be bold, but focused. This means, by all means open an office in a key US city and employ some people (especially sales and technical staff) as remote workers, but don’t open offices in more cities until you’ve generated business that justifies the investment. Most important is to build a “company” presence (with marketers, PS, customer success staff, architects and even developers onshore) rather than just a sales office, as soon as feasible. Those same conservative American customers much prefer to be dealing with a company that has local technicians and other experts available than to depend on flying people in and out when there are problems to be solved.

In conclusion, if UK startups and scaleups are bold but disciplined in their positioning and execution based on a sane view of their true differentiation, there’s no reason why they can’t be extremely successful against American competitors anywhere, even against incumbents on US turf.

2. Market segmentation strategy – Celebrate “rich niches”.

Overall, there’s no need to be fearful of competing against U.S. companies despite their often superior fire power. One key element to exploit is niche market segmentation, digging deep to uncover unsolved problems rather than going broad and shallow, and delivering repeatable solutions.

Interestingly, the U.S. is the only marketplace I’ve encountered where adopting a niche market strategy can be surprisingly controversial. Most US scaleups and even larger companies are opportunistic to a fault, tending to shy away from adopting (or sticking to) a clear segmentation strategy no matter what their sales pitches say. In an enormous market such as that of the U.S. they tend to be dazzled by the number of sales opportunities, focused on winning an imaginary land grab against larger and smaller competitors. So they set out to land new logos as fast as they can, paying much less attention to expanding each account, besides renewing their annual or monthly contracts. Many a U.S. CEO or CRO has proudly claimed to me me that revenue is revenue, wherever it comes from. Wrong, wrong, wrong. Smart CEOs know full well that all dollars are definitely not equal. This is one place where thoughtful sales teams can win against their usually more expansive, opportunistic U.S. competitors.

Taking the issue of niche market segmentation further, for many U.S. entrepreneurs and sales teams the word “niche” is a term of disparagement, because they consider a market segment to be too small and limited to warrant attention. For example, companies that sell what they consider to be a “horizontal” product such as CRM or workflow management software, theoretically usable by any type of business anywhere, find it hard to justify to themselves that they should target one or more specific vertical industry segments. What they seem unable to acknowledge is that enterprises and other business customers don’t think of themselves as inhabiting the broad market. In contrast, they most often self-reference intensely within their industry segment because they are anxious to find out how effectively their specific business problems are being solved by different vendor solutions and services.

Pragmatically minded customers tend to reference each other in their respective sub-segment (i.e., fashion apparel rather than just “apparel”, or just “retail”). The good thing about niche markets that share common unsolved problems is that they can be a gold mine for the right vendor. They also tend to be fiercely loyal to their chosen vendors for many years. Alongside the ten or so “usual suspects” – such as automotive, aerospace, CPG, energy, financial services, high-tech, pharmaceutical, retail, travel, transportation, and hospitality – there are innumerable other niche market sub-segments that have important and costly problems to solve.

This blind spot among American companies gives UK companies a tremendous opportunity to succeed where their American counterparts choose instead to implement a more generic market strategy for different types of customer. In fact, certain niche markets in the U.S. often ignored by most vendors have enormous potential for the right software or SaaS vendor. Whoever thought that gas station convenience stores or commercial truck fleets are mere “niche markets” might find that they had completely under-estimated the potential to solve problems and be handsomely rewarded for doing so. The United States is such a massive market that even “niches” like these spend millions and billions to solve business problems. I’ve recently seen young startups close multi-year, multi-million dollar deals with companies in these exact segments.

3. Decision-making style – Bias for action vs bias for deliberation.

Whereas U.S. companies tend at times to gravitate towards a Fire, Ready, Aim approach, UK CEOs and execs are usually more reserved, favouring a more traditional Aim, Ready, Fire attitude, especially in modifying their existing strategy, or imagining and pursuing a new strategy, or pivoting when needed.

There is also a reluctance among CEOs and executive teams in the UK to act on decisions once they are taken, and a parallel tendency to hedge their bets on assigning resources to key initiatives. For example: “We’re focused on the top sixty retail brands, but we’re open to opportunities in travel and financial services” can easily turn into allowing sales teams to chase deals outside the sweet spot at the cost of winning leading share in the target segment. What’s important is to pick a segment and commit resources to it; provided you read the signals reasonably accurately from prior customer situations, you are likely to be far more successful than if you’d continued to hedge your bets on choice of target. This is where a smaller or younger scaleup can steal up on larger and better known rivals and win handsomely.

4. Leadership and governance – Scale the executive team sooner rather than later.

In the UK, founder-CEOs are usually treated as if they are untouchable in their roles until things really go south, or even much after the company has hit the skids. I’ve seen this be a major cause of premature company failure. UK boards seem to be extremely reluctant to have a frank conversation with the CEO, especially when the latter is a (co)founder. This is partly because it is a painful step to take and because it is likely to be felt by the affected party to be a personal slight.

In stark contrast, in Silicon Valley and elsewhere in the U.S., as soon as it becomes clear that the current CEO will struggle to scale the business successfully, investors see it as their duty to find a new role in which the current CEO can succeed. It’s commonplace for VCs to meet with the founder-CEO to let them know of their concerns: ‘We’ll happy to invest in your Series B round, but we’re not sure you will be CEO six months from now”. Far from being seen as a condemnation or betrayal, it is considered to be a healthy and necessary approach to adopt in order to head off future difficulties. Much better to have them move to a role such as chief evangelist or even a functional management role in which they have experience and credibility and can be more effective, than to watch them and the company go up in flames.

This also applies to other members of the founding team, who may be having a tough time trying to make a success of their CTO, CPO, or CRO responsibilities. After all many of these people, smart and motivated as they probably are, don’t have management experience and may actually be much happier as functional managers or individual contributors, or relieved to be able to look for a new role elsewhere.

Linked to the earlier issue of decision-making style, in UK tech companies CEOs are often treated more like GMs, where the board chairperson may be acting a little like the effective CEO except on a part-time, “selective” basis. Unless the CEO is really unable to quickly learn to provide CEO-level direction and leadership to the company, it can be extremely undermining to the organization as well as to the CEO to be under constant supervision by the board. After all, most board members can only spend fractions of time on the company’s business strategy and operations. I think it’s much wiser for the board to give the CEO the full span of control, and invest time in mentoring and coaching them so that they can learn to drive strategy and run the business.

Linked to the issue of not allowing the CEO to drive strategy and run the company without close board supervision, I think there are in general too many board meetings/calls in UK scaleups. If the CEO and employees are spending much of their time preparing board decks and revising sales forecasts, they don’t have time to focus on building the business. To be fair there are an awful lot of first-time CEOs and CTOs who have never built a business or managed teams before founding their startup. But I still prefer a lighter touch of supervision to avoid paralyzing micro-management by the board.

Keep in mind also that board members who are investors are often not aligned with each other on growth strategy, performance metrics, exit options, and so on. This can be a major headache for a CEO and chairman to manage. Although this is also a common problem in U.S. companies, it doesn’t help a young UK-based scaleup that is trying to compete effectively against larger and better-funded American rivals if its board is hampered by conflicting investor agendas.

Another issue I see frequently is the reluctance to grow the executive team until serious problems occur. My advice is to attempt to have a scaled up team of 5-6 executives in place sooner rather than later, in anticipation of the next stage of growth. If this doesn’t happen, when the executive team finds itself seriously undermanned and/or overwhelmed by growing pains, things can rapidly turn ugly.

5. Skillsets and talent pool – Key disciplines are lacking in the UK.

Due to the fact that before 2005 or so the UK tech industry operate mainly via subsidiaries – in many cases regional sales offices – of U.S. based companies, there are plenty of seasoned GMs, sales managers, sales reps, and SEs in the UK. However there are major talent and experience gaps in certain key management roles such as product/solution marketing and product management – two crucial cogs in any tech-company machine room, besides the admitted lack of seasoned CEOs.

In recent years a good number of EU and non-EU entrepreneurs and professionals have come to the UK to either start their business or expand it, enriching the overall pool of talented owners and operators. Funding in the UK has grown exponentially as compared to other European countries, and this makes the UK somewhat of a Mecca for European tech. However, it is unclear to what extent this 10-year growth trend will be affected by Brexit or an overhaul of government immigration policy.

6. Investment appetite – Smaller Series A, B, C rounds than US scaleups receive.

Angel investors have become very active in the UK in recent years, often benefiting from tax breaks. Unfortunately, some of these tax deductions may be unavailable in succeeding rounds or additional investments, causing this source of funds to dry up too early in the development of a startup’s business. Many angels are former tech executives and professionals who have profited from having been acquired by larger players and are now playing the investment game.

Apart from US-based VC firms such as Accel, Balderton (fomerly the UK subsidiary of Benchmark Capital), and others like Summit Partners who opened UK offices during the past dozen years or so, a number of British investment and private equity firms started up VC divisions. These include Albion VC, Octopus Ventures, and others. As mentioned earlier, venture funds raised by firms are generally quite a bit smaller than their American competitors. They also invest in smaller rounds than equivalent U.S. scaleups receive, possibly hedging their bets by keeping young scaleups under tighter financial control. That said, my observation is that UK VCs tend to be less prescriptive in the demands they make of their companies, not always a good thing considering the lack of experience of so many young executive teams. The risk is that inexperienced founding teams can founder for lack of strategic guidance rather than lack of tight financial oversight.

Private equity firms have also added their firepower, even though it’s still not clear to me that they have a lot to offer to startups and scaleups besides onerous financing terms and revenue or profitability metrics that drive the wrong behaviours. One side-effect that I’ve seen of the tendency of PE firms to “stray” into the territory of early stage investors (i.e., Series B, C, and D rounds, when companies may not yet have fully established a sustainable business model) is the insistence that the portfolio company does everything to “get big fast”, and the imposition of short-term growth or profitability metrics which can really hurt the young company.

My advice to UK funds is to invest more and sooner in their portfolio companies, rather than running the risk of investing too little too late. A concomitant problem is the tendency of UK companies to sell out too early, at too low a valuation. Among other negatives, this can be a major distraction to management and employees, causing serious jeopardy to the survival of the company if the hoped-for acquisition fails to materialize as demoralized executives and employees leave the organization, and customers get wind that the business might be winding down. It’s rare for scaleups to achieve sustained growth and profitability in less than four or five years from birth, or even less than six or seven years.

Summary

My hope is that entrepreneurs, management teams, and investors can bear these differences in mind when making decisions on strategy, organization, and investment. Above all, I think UK investors and entrepreneurs need to be bolder but hyper-focused in their vision and strategy, though more decisive and disciplined in their execution. This is the way for them to compete effectively; who knows, the tortoise may eventually catch and overtake the hare.

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