“I sit down with the CEOs, go through their budgets with them, and double or triple many line items. Often they are shocked,” says Marie Landel, head of an accounting firm by the same name. Based in Boston, Landel Associates serves a clientele of mainly French startups with “part-time financial management of their US subsidiaries.”

It turns out that some of the CEOs were not ready, either, for the time and energy drain required to develop a subsidiary in California. It sounded exciting to the point of giddiness, pulling on cowboy boots and zooming back and forth to San Jose. Beyond the jet lag associated with a 12-hour, says Rudiger Stroh, German CEO of Dresden-based Systemonic who actually does wear cowboy boots and lives in Silicon Valley, is the distraction factor. “The home base needs to be very solid before the CEO starts giving 60% of his time to the US branch.”

Landel notes that her clients have been pulling back over the last year. “European customers leave me in two ways,” she explains. “They get established here and hire a US-based CFO, or they quit the US market.”

Why don’t they succeed in America? Classic mistakes of European firms coming to the United States: spending unwisely, not outsourcing enough, hiring too fast, hiring badly, trusting one person too much, not budgeting enough money and time, not taking time to learn the US market and players. Other missteps that can befall a younger company entering a new market include signing on many distributors without assessing their profitability, not communicating enough with the “remote” partners and staff, and not localizing enough; presuming that what works at home will work abroad.

And of course there are all the conventional wisdoms about the US market: it is viciously competitive, customers aren’t buying now, the marketing noise is deafening and difficult to be heard against, litigation is a serious risk (a European’s friendly joke about gender or sex quickly becomes a $10 million lawsuit in the US), and most Americans carry guns.

And even those who have achieved an IPO on the Nasdaq have found that it doesn’t always furnish the liquidity and valuation that a stock listing in the home country can bring. With all this, it’s understandable that the number of European tech companies arriving in the States has slowed significantly.

But for many, holding back is a major strategic error.

Why it’s a mistake to wait
First, if you sell to the enterprise, the US can still become your best market by far, given its homogeneity and the fact that it comprises 50 percent of world demand for IT. Second, demand is down in the US, but shows signs of perking up. Third, costs in the US have dropped considerably, a point some debate - but the fact is that many offices are empty and many good executives are jobless. Fourth, it takes time to succeed in the US. If you wait for boom times before beginning the process, and it is a process, you’ll be well-positioned – just about the time the next recession rolls around.

Luc Hardy, a former engineer and management consultant, lives in Greenwich, Connecticut, outside New York City. A self-described “parallel entrepreneur”, the tall, 40-something Frenchmen has for several years advised and mentored European startups in exchange for an equity stake. Among his “portfolio” are Enition, All Instant, Physical Networks, and eDevices. Hardy notes that it is among VCs, not CEOs, that skeptical of US expansion now reigns.

“The pendulum swing from aggressively heading into the American market to aggressively avoiding it is mostly VCs. People running companies in Europe have not changed their perspective too much. They are interested in the US market when the time is right.”

Who you need on board
Among those who advise European startups, there is a consensus that rushing to hire a US CEO, either for the American subsidiary or the entire company, is a mistake. “This was supposed to ease the way to financing at a higher valuation with American VCs,” says Hardy, “and to facilitate an IPO on the Nasdaq. But some of these American CEOs, frankly, could not obtain a similar position with a US company and some were, in my opinion, mercenaries. One had the impression they noted the European firm had one year’s cash on hand and decided to take the title and salary for that year.”

Sebastien Torres is with VenturePlex in San Diego, which advises and incubates European companies. He concurs, “Don’t hurry to hire. It’s a major expense. And when you hire an American CEO, put your German or French COO right next to him. If that US CEO goes wrong, you need to see it and fire him before he wrecks the company.” Torres cites the sorry example of a French company, urged on by its American VC, moved the headquarters to the US. “With all the revenue still coming from Europe, and about $5 million cash on hand, they hired a CEO here who spent $4 million in nine months – with no sales. The company was ultimately forced to sell prematurely.”

Money
Even moving the founder/CEO to the US may not provide enough control if spending is being driven by someone else, such as investors. A London-based turnaround specialist mentions a “solid, Dutch software company” that fell into this trap and nearly went under. Checks and balances are important, and make sure you have ears and eyes on the scene, even if hired as consultants. Does it really have to cost $3 million for the first 18 months? The answer is no.

Torres believes that, on average, a company can achieve the most cost-effective “landing” in the US by spending $200,000 the first year, double that the second year, and then roughly $1 million in the third year. He points out that the first year is a pre-sales process, where much can be outsourced, and that hiring technical support locally isn’t strictly necessary until you are closing deals with customers. Marie Landel concurs: “These companies need help in the US to find and develop sales leads.”

What about introductions to local investors? While for some companies that still matters, Hardy points out that the search for money is no longer a driving motive to enter the US. “The shortage of VCs in Europe has been cured.”

Where
The issue of geography is key to many. Some Europeans find Silicon Valley to be a cultural and psychological desert, though rife with opportunity. They tend to love San Francisco and dislike Los Angeles. New York and Boston are convenient and less devastating from a travel viewpoint, and important to those selling to banks and the many companies headquartered on the East Coast. “But if you have to integrate your products with those of a major US player,” says Torres, “then locate in Silicon Valley.”

He adds that the French often prefer Montreal, favoring its bilingual climate. “And after their first winter there, they will certainly move to San Diego,” he notes. However, as Kevin Moir of Virtual European Office says, New York and its suburbs offer not only many technology partners, but also the world’s best concentration of corporate headquarters. Moires firm, known as VEO, concentrates on bringing American companies to Europe and helping European companies expand throughout the Continent.

His point about the New York area is backed up by Gabrielle Riera of New York City’s Economic Development Council (NYCEDC). “Europeans haven’t been especially worried by the terrorist attacks,” she says. “They tell us they are just waiting for a few solid indicators that demand in the US is picking up.”

New York, like numerous cities, seeks to attract new companies and growing technology firms in particular. NYC, however, boasts its own venture capital fund, and NYCEDC points to benefits such as subsidized office space, which helped it draw 24 new technology companies in 2001, representing both Asian and European countries. Newcomers should look closely at the benefits offered by American cities hoping to boost local employment and tax rolls. They should not forget, though, that their home-base governments may have subsidies aimed at boosting export, either, such as COFACE in France, which can help pay for geographic expansion.

When
Developing a customer base in a new market takes time. According to Hardy, you cannot expect to speed up too much. “You can save money, through outsourcing and a measured approach, but you must make the time commitment.” Even when VCs tell you to wait and first consolidate your position in Europe, advises Torres, “You must get over here to tease the market, attract partners, and benchmark the competition before it surprises you in Europe. You need time to localize your product, find the right niche with the least competition, and build trust and reputation.”

Hardy says that some companies dependent on wireless demand approached the US market prematurely. “Some have pulled back to let the US market develop to the point where it’s ready, including one in my portfolio, Enition. For the wireless business, we are going to focus on Europe for an additional two years.”

How
Frances Mann-Craik consults in Silicon Valley with European technology companies, particularly in the wireless markets. Formerly with Oracle’s Alliances division as a marketing director, she also worked previously with Tornado Insider and GorillaPark. An expert on channel development and product launches, she notes that with a European firm can establish distribution and customer support quickly in the US geography without expending the resources to set up a subsidiary. “On the downside, the relationship with the ‘end customer’ is in someone else's hands,” says Mann-Craik. “Hence careful selection and vetting of channel partners is critical.” VenturePlex’s Torres maintains that European companies need to choose carefully between direct sales and working with distributors and OEMs. “Direct customers are important for your references,” he says. “But if you discover there’s high demand for your product before you are seriously established here, hand the business to partners.”

“Channel partners leverage their established local network and are in-tune with local business practices,” says Mann-Craik. She emphasized the need to find trusted allies. “Take the time to identify channel partners who will responsibly carry your product and be a credible extension of your company’s reputation.”

As one European transplant puts it, “Forget who you are in Europe. In the US you are once again a startup. Americans care little where you come from if you offer them local technical support, a good product and a good deal.”

Note: to reach the individuals mentioned in this article, drop an e-mail to ives@tornado-insider.com