Over the past few weeks, we’ve focused on finance. For the next few weeks, we’ll cover the legal basics you need to address. Legal issues are obviously incredibly contextualized by location & region, so we will be focusing on the United States. That’s because we strongly believe tech services startups should target the US market. Here’s why.
1. The Largest Market
With a population exceeding 330 million and a GDP surpassing $21 trillion, the sheer scale of the US market is unmatched. It is the largest marketplace in the world, representing unparalleled opportunities for businesses of all sizes. The United States also leads the world in IT services spending, with more than a third of the global IT spending.
The voracious demand in the US for tech talent has led to the highest tech salaries in the world. Consequently, tech services companies command similarly high bill rates. Even companies without delivery centers in the US can bill at significantly higher rates to US customers than to other locations in the world.
What’s even more interesting is that the United States has the world’s largest startup ecosystem. According to Crunchbase, the US has four times the venture funding compared to the second-place country, China. That also puts it at the forefront of per capita VC funding and an order of magnitude larger than all the comparable countries.
2. Market Diversity
The size of the US isn’t just about the total addressable market. In fact, the total addressable market is almost irrelevant to a services startup. The real value of the size of the market comes with the diversity of customers it offers. This diversity makes it easier to find a significant number of Blue Ocean customers and to test out specific niches. By catering to specific customer needs and market segments, services startups can carve out a distinct competitive advantage.
Another aspect to note is that the US market is very used to working with diverse backgrounds. This means that US customers are more likely to take a risk on a newcomer who can provide proof of competence. You face less discrimination, and it is easier to break through without pre-existing relationships. They are also less likely to be set in their ways in how they work with consultants. In fact, in our past lives at Flux7 we were 100% remote since 2015 and Fortune 1000 companies frequently changed their processes to accommodate us.
3. Tech Early Adopter
The US continues to be a clear leader in tech innovation, apparent from the number of big global tech brands that originated in the US and have gone on to become household names. But the impact goes far deeper. The US market is generally less risk-averse to new technology. This is especially important for emerging tech services startups. We highly encourage tech services startups to focus on emerging technology. This allows them to create more differentiated services, create strategic partnerships, and make them better acquisition targets. Operating in a less risk-averse market naturally enables such a focus.
In addition, most strategic partners - including established industry players and technology giants - focus on the US as a target market for their customer base once they are in the scale phase. So focusing on the US market also aligns your interests with your partners.
4. Mature M&A and Investment Environment
The US boasts a mature mergers and acquisitions (M&A) and investment environment, offering abundant opportunities for capital infusion, business expansion, and exit strategy. Most tech services companies don’t qualify for VC funding, but many private equity companies do invest in tech services companies. This mature ecosystem opens up several strategic directions for fundraising, roll-up, and acquisitions.
5. Supportive Legal Environment
Finally, the US offers a supportive legal and regulatory environment that fosters business growth and innovation. Clear legal frameworks, robust intellectual property protection, and streamlined business regulations give startups the certainty and confidence needed to operate and innovate. You can incorporate and have a business with bank accounts in a couple of weeks.
This supportive legal environment mitigates risks and uncertainties, enabling early-stage tech services companies to focus on their core objectives and drive sustainable growth. Additionally, corporate taxes in the US are very low especially in comparison to how developed a market the US is.
Wrapping Up
With its vastness, diversity, innovation, investment landscape, and supportive legal environment, the US offers a conducive ecosystem for tech services startups to thrive, innovate, and succeed. By strategically leveraging its unique advantages, early-stage tech services companies can position themselves for long-term success and market leadership.
This is why we always encourage our portfolio companies to focus on the US as a target market. If you’re wondering how to do business in the US, please stay tuned for our next blog post.