July 17, 2023
With a dearth of examples to draw on – consigned to the silver screen and the basketball court – making it big across the Pacific can represent a treacherous undertaking for those willing to attempt it. Big rewards perhaps, but even bigger risks no doubt.
Examples in the technology space are also few and far between with the acquisitions of Wellington-based Green Button by Microsoft in 2014 and Auckland-born PowerbyProxi by Apple in 2017 now distant memories.
The US market is a tough nut to crack whether as an expansion or acquisition target but for many Kiwi entrepreneurs, that’s part of the appeal.
“Go big or go home,” said Shannon Karaka, Managing Director of Australia and New Zealand at Deel. “This is a common catch-cry among the entrepreneur community. And for many New Zealand start-ups looking to go big, there’s no bigger market than the US.”
Boasting the highest GDP (gross domestic product) in the world at more than US$23 trillion and housing a population of over 330 million, the US represents a market with “rich pickings”.
“Expanding into the US has typically been a complex, expensive and time-consuming venture,” Karaka added. “The barriers to entry for businesses were considerable as each of the 50 US states have unique regulations and local market dynamics.”
According to the U.S. Bureau of Labor Statistics, 45% of new businesses fail during the first five years of operation in the US.
“It’s unsurprising,” Karaka acknowledged. “Expansion into the US used to mean undertaking the long and expensive legal process of opening a foreign subsidiary.
“Set-up and running fees often exceed hundreds of thousands of dollars and require the diligence of legal teams to navigate a complex legal landscape. Processing times vary by state and can take several months to complete.”
Despite the challenging process, expansion using this method was only within the reach of much larger, more established Kiwi businesses, due to the investment and knowledge needed to handle such scaling.
In response, Karaka said local technology providers are leveraging global HR platforms like Deel to “get over the growth hump” with a “vastly” more manageable investment outlay than was previously possible.
“Also, the job of recruiting and managing employees half a world away is no longer as arduous as it once was, as businesses can now use one platform to see all employees globally,” he outlined. “These new platforms and tools enable even small businesses to make a play for the US market.”
Relocate Kiwis or hire someone on the ground?
For technology providers seeking to establish a US presence, hiring strategies centre on either relocating talent from New Zealand, finding expat Kiwis or engaging local staff as independent contractors or employees.
“Hiring employees locally offers advantages in terms of market fit, contacts and local knowledge,” Karaka said.
“Relocating employees from New Zealand has the advantage of already knowing the home company and culture. We have found that Kiwi businesses will use a mixed approach to hiring talent and expanding into new markets.”
For accelerated expansion, both approaches can hire talent through an employer of record (EOR) solution. An EOR is a company that engages and pays one or more employees to provide services to another company.
In other words, an EOR enables companies to legally work with employees in another country without setting up an office in that country or region.
“Alternatively, start-ups can develop a local workforce presence in the US by hiring independent contractors,” Karaka explained. “When hiring contractors, you must ensure the business relationship is distinct from an employee-employer relationship; otherwise, you risk a misclassification violation.”
Naturally, the key benefit of hiring locally is knowledge and networks.
“And in some cases, people also just need to be physically present for practical reasons – like going to events or being active in the right time zone,” Karaka stated.
“Expanding into the US has typically been a complex, expensive and time-consuming venture”Shannon Karaka (Deel)
Karaka cited the example of Auckland-based Letterboxd, which provides a social discovery platform for cinema fans to catalogue films, write reviews and discuss movies with others in the community.
“Letterboxd realised they needed to hire people in the US to attend red carpet and press events in person,” Karaka explained. “With Deel acting as the EOR, Letterboxd has now hired six people, confident they are doing so compliantly.”
On the flip side however, if the preference is to move team members from New Zealand, Deel offers an in-house immigration team that helps global workers work in the US.
Whether staff require a temporary work visa or a Green Card, Deel acquired US immigration provider, Legalpad, to help Kiwi teams move to the US “quickly and compliantly”.
Recruiting and retaining talent overseas
While attracting and retaining the top talent is always a challenge – whether based in New Zealand or the US – Karaka said companies are succeeding by offering competitive salaries, equity grants and benefits.
“Labour costs are one of the most significant expenses a start-up will undertake when expanding in the US,” he noted. “One of the most attractive perks start-ups can offer is equity. Stock options are an effective way for start-ups and high-growth companies to attract top US talent.”
For legal, finance and HR teams, navigating equity locally and internationally can be complex, with regulations varying between jurisdictions.
“The US requires certain mandatory benefits for all full-time US employees, including employer contributions to federal and state unemployment insurance programs, sick leave, retirement and pension schemes, accident insurance and more,” Karaka outlined.
“These contributions are generally calculated as a percentage of payroll and sent directly to the relevant government agency.”
Typically, start-ups would have to grow their HR department or find a local partner in the US to manage the admin of benefits, representing a “pretty rigid and costly” process when negotiated independently.
“At Deel, we have partnered with providers to offer discounts to start-ups,” Karaka added. “Using our platform, you can generate contracts that comply with employee benefit entitlements, enrol employees in benefits plans and manage employee contributions.”
In addition to offering a competitive package with the right salary, equity grants and benefits, flexibility and the ability to work remotely also rank high on the wish list for talent. And given the sheer physical size of the US, Americans have always been open to working remotely.
“We are seeing a change in attitude compared to pre-COVID,” Karaka observed. “There is less expectation that staff will always be physically present. Customers prioritise working with a company representative who is knowledgeable and engaged, regardless of where they are located.”
But for growth-hungry Kiwi businesses in a rush, the on-boarding process often represents a “make-it-or-break-it” moment in the US.
“Since new hires often don’t meet their manager and teammates in person, remote training and on-boarding require new ways to communicate clearly and create a welcoming experience for remote employees,” Karaka added.
Whether remote or in person, the goals of any on-boarding program are the same. By the end of the process, businesses want the new hire to feel welcomed to the team, excited about joining the company and confident in their new role.
According to Karaka, fostering meaningful relationships is just as important as training employees on processes and tasks. An effective remote on-boarding experience will fit the unique specificities of the new hire’s role and the company’s culture.
“We see employee on-boarding as having six phases,” he noted. “This begins with pre-boarding, before the individual starts, and continues through a daily, weekly and monthly process of feedback and training, including building a career progression plan.
“Using an on-boarding platform integrated with your existing software will enhance your employee experience and give direct managers a clear view of their progress.”
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