Exotic Rockets 🚀 :Starting Locally and selling Globally
Deeper Technology companies built outside the US are a valuable example of a National Monopoly.
I’ve become enamored with a business model that keeps recurring, which is the locally built software company built in an unusual geography that goes global. I call this an exotic rocket.
This is an unusual type of national monopoly because
To start they can hire 10-20 engineers in one place allowing them to develop a deep technical product, or a SaaS product with a more ambitious surface area than an equivalent US team.
Once they start selling internationally, a lower cost base means they can undercut the market but make the same margins, which makes them hard to refuse by earlier customers when they go to market.
Early sales and profits are invested back into the engineering team accelerating product velocity and product quality, which leads to a deeper technical product and wider product surface area.
Once the product quality starts increasing the company attracts more lucrative customers, and the commercial success means they become a local talent magnet attracting foreign venture capital, and acting as a talent vortex locally.
The Flywheel compounds. More customers, in more countries, deeper product, more equity value created in a shorter time. Started local went global. Suddenly everyone in Fortune or Forbes is proclaiming them to be the next thing.
As startups get more expensive in San Francisco, the number of software engineers you can hire for less than $3M reduces year on year. Five years ago you could fit a team of 10 in an apartment in Mountain View with a few million dollars. These days you could get a team of five max, with the same constraints. This means these teams can only build simple software - leading to mass commoditization, and competition - which is why many versions of Asana exist and design is starting to be the only real supposed differentiator.
What can a startup in Chennai, Bangalore, Bucharest, Paris or Kiev do?
It took Zoho over 20 years of bootstrapping to get to $500M in annual recurring revenues. It took 10 years for Freshworks to grow to 150,000 customers globally and a $3.5BN valuation with over $100M in annual recurring revenue. Now, these first generation software companies were known for following the crowd, focusing on price rather than how original their products were as their key axis of competitiveness.
Bucharest’s UIPath showed how you can combine price with innovation ability indicating a key shift — that locally started rockets can be both original and cost competitive, in their approach - an even deadlier combination. Combining an intrinsic talent advantage with a market advantage was the first level of competitiveness.
Now these companies become even more compelling when you combine a talent advantage into a technology advantage, which compounds with a market timing advantage. For example as software changes the dynamics of machine learning and artificial intelligence, international startups applying these techniques will outperform their US counterparts due to starting advantages in the first 20 hires.
The cost benefit makes it much easier to build an interdisciplinary team - combining software engineering, data engineering, deep learning engineers in addition to commercial functions. The same will be true in hardware at the intersection of software or even in other interdisciplinary areas like diagnostics enabled healthcare . Companies like Inito in India or Tambua Health in Africa are examples of what happens when you combine proprietary hardware and sensors, machine learning and software for healthcare diagnostics applications coming to market in less than $3M of starting capital (Disc: am an early investor in both).
Tambua Health’s Lewis Wanjohi introduces his approach to reinvent the stethoscope.
These original technology companies — exotic rockets — will prosper in a more globalized world, and are the companies worth paying attention to as unique national monopolies.
[1] Growth Strategy Breakdown: How Zoho Became a $500M Company You’ve Never Heard Of
[2] Freshworks clocks $100 million in annual recurring revenue