Things had gotten a little too comfortable for Dave Pitts. By 2008, the president of Kitchener, Ont.-based Angstrom Engineering had built the company up to a respectable size with a solid customer base.
Sales of Angstrom’s products—next-gen equipment used in the application of thin-film coatings on surfaces like lenses and TV screens — were growing at a steady clip, with about 80% of revenue at the time derived from universities and research institutions in the United States.
As sales from the U.S. started to plateau, however, Pitts felt an entrepreneurial unease growing inside. It was time to take a risk and dive into another market.
Today, Pitts is glad he took that risk. After six years of aggressively pursuing emerging markets, the company has doubled its annual revenue, to $10 million, and has greatly diversified the source of export revenue. “Five years ago we would’ve been 90% to the U.S.,” he says. Today half of export revenue comes from the U.S.—with the other half sourced from some 30 countries, including China, India, Russia, Australia and Brazil.
On the surface, Angstrom’s pivot away from the U.S. and toward foreign markets may seem like common sense—a logical next step—but Pitts marvels at the number of companies that avoid exporting overseas. “I see lots of companies that have international opportunities, but shy away from them because they’re challenging,” he says. Canadians in particular, spoiled by this country’s adjacency to the largest economy in the world, seem to be complacent when it comes to exporting overseas.
The biggest obstacle, says Pitts, is mental. But there are some other crucial steps that every business owner should take before diving into a foreign market:
- Get them comfortable: For Angstrom, which sells pieces of machinery costing upwards of $200,000, achieving a comfort level with customers is crucial. That means bending over backwards. It means offering concrete examples of work the company has done and providing testimonials from well-known customers. It also means ensuring that any questions or concerns are answered immediately—regardless of business hours or time zones. Early communications are particularly important, says Pitts. If customers don’t get a quick response during all the sales glad-handing, they know they’re not going to get one if the product fails to meet expectations.
- Choose sales reps wisely: Angstrom uses independent sales organizations already on the ground in each country. These firms are stocked with reps who speak the language and will sell your product on commission. They’re easy to find, but Pitts reminds business owners that sales reps are not interchangeable—some will not understand your product or how to sell it. For Angstrom, selling a $200,000 piece of equipment is like selling a house. The company’s sales reps, as a result, have to be more like real estate agents—patient, with soft skills, and willing to do a bit of handholding throughout the process. Not every rep has that patience, so the company has to be careful when choosing.
- Get yourself comfortable: The risk of getting burned by a non-paying customer is always there, says Pitts, but there are ways to protect yourself. Sales reps don’t get paid until you do, so your team on the ground should be of some help. Even better are letters of credit—legal documents used to backstop a transaction with an unknown entity. The way they work is simple: the buyer’s financial institution provides assurance that the buyer has set aside the necessary funds; the seller’s financial institution, meanwhile, provides assurance that the goods have been shipped. Only once the shipment arrives are the purchasing funds released. “I equate it to the old Prohibition days,” he laughs, “where you would meet in the middle of the bridge and exchange some money for goods.”
- E-conference: Angstrom does business in 30 countries, so flying off to each one for meetings with customers would be prohibitively expensive. Pitts says a lot of business gets conducted over email or telephone, but he’ll also often hold Skype meetings with multiple attendees, including sales reps who will serve double-duty as translators and negotiators.
- Shipping is not rocket science: Yes, there is a learning curve associated with shipping. There’s documentation that needs to be right. There are tariff codes to memorize. And if the paperwork isn’t filled out correctly, shipments could be held up in customs and even prompt an audit. Ultimately, though, shipping isn’t nearly the hassle it’s made out to be, says Pitts. Logistics companies are very good at what they do. They can ship almost anything, follow specific instructions, meet ridiculous arrival deadlines, and offer insurance to boot. “They will be happy to ship your goods,” he says.
- Beware military buyers: The Canadian government, as well as international treaties, require exporters of high-tech machinery to collect end-user statements confirming non-military use only. Pitts says he’s careful to get clients to sign these. His company has had certain shipments inspected, but he’s never had a problem. “Once we provide all of the proper paperwork, he says, “then it’s released and you have no issues.”
Pitts acknowledges that there are challenges associated to overseas exporting. The business culture is going to be different. The financial instruments are unfamiliar. There are concerns about servicing customers. And there’s always the risk of getting burned by someone halfway around the world who won’t pay the bill. At the end of the day, though, he says the rewards far outweigh the risks.
Today, almost all of Angstrom’s growth comes from exports to emerging markets, and the company plans to continue to break new territory. “It’s working, so we’re going to keep doing it,” says Pitts. It’s a big world out there.