Shan Nair

Bio

Dr. Shan Nair is an entrepreneur and consultant on international expansion. He was the first to spot and develop the niche market of International Expansion Services (IES) which was previously fragmented. In the process he has worked with many companies in their early stages who have since become household names such as Tesla Motors, FaceTime and Sonus Networks. His role is to promote the services offered by Nucleus and to work with the management team to ensure a high level of technical excellence and client care is maintained at all times.

Nucleus is unique in that it provides true one stop, multi-disciplinary, multi-country shopping for companies seeking international expansion or with international operations. A single experienced Client Services Director and an Accounting Manager will be your sole points of contact for all of your foreign consulting needs – you will not need to chase multiple accountants, lawyers and HR consultants in different geographies or have a single contact point with little expertise acting simply as a postbox. The Client Services team is backed by staff at senior and mid-management level each having more than a decade of experience in providing IES services.

Shan has a doctorate in nuclear physics from the University of Oxford. He has received multiple recognitions for his contribution to business in the US, UK and India.

Intro

The conversation with Shan Nair elucidates the two predominant errors that enterprises frequently commit when endeavoring to expand internationally. Foremost among these missteps is the absence of a well-defined strategy, which often leads to a host of operational challenges and unanticipated legal ramifications. Additionally, Nair emphasizes the peril of attempting to navigate foreign markets with a constrained budget, a decision that can culminate in exorbitant costs in the long run. Drawing upon his extensive experience as an international expansion expert, he shares cautionary tales that illustrate the potential consequences of neglecting local legal frameworks. This dialogue serves as a critical resource for any organization contemplating global growth, underscoring the necessity of thorough planning and informed decision-making in the pursuit of international success.

Conversation

In this enlightening discourse, Jothy Rosenberg engages in a profound dialogue with Shan Nair, a distinguished expert in international expansion. The core of their conversation revolves around the intricate challenges faced by companies as they venture into global markets. Nair elucidates two pivotal missteps that frequently plague startups embarking on international journeys: the absence of a coherent plan and the inclination to economize on essential legal and operational frameworks. He stresses that a lack of foresight in understanding the regulatory landscape of foreign nations can lead to catastrophic financial repercussions, thus underscoring the necessity for thorough preparatory measures. Nair's extensive experience, spanning fifteen countries, provides him with a unique vantage point, enabling him to share harrowing examples of companies that have suffered dire consequences due to neglecting these fundamental aspects. Through this episode, listeners gain not only insights into the operational complexities of international business but also practical advice on how to navigate these treacherous waters effectively, ensuring their ventures are both profitable and sustainable.

Takeaways

• The foremost error companies commit when expanding internationally is a lack of a coherent and well-defined plan.
• Companies often underestimate the costs associated with international expansion, leading to financial difficulties later on.
• Utilizing an inappropriate employment agreement in foreign markets can result in severe legal repercussions and financial losses.
• Attention to detail and effective communication with clients are critical components of successful international business practices.
• Employers must ensure that their business model complies with local laws governing foreign entities to avoid costly mistakes.
• Startups should either prepare a realistic budget for international expansion or delay their plans until they can afford to do so.

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Hello.

Please meet today's guest, Shan Nair.

There are basically two major mistakes. The first is that they don't have a clear plan as to what they want to achieve internationally. Sounds kind of obvious, but it sometimes happens.

They don't have a clear plan. They don't have an idea as to what they intend.

What if I told you that using a standard US Employment agreement in Europe could cost you your case before your lawyer even opens their mouth? Or that firing a successful sales agent with a 30 day termination clause could result in a $1.3 million judgment against you?

Today's guest has seen it all.

Sean Nair is a nuclear physicist turned international expansion expert who's lived in 15 countries and built a category creating business, helping tech companies avoid catastrophic mistakes when going global.

He started by filling a gap that nobody else even knew existed, taking the pain out of international expansion so startups could focus on what they do best. In this episode, Sean reveals the two biggest mistakes companies make when expanding internationally.

He shares horror stories that will make you want to call your lawyer and explains why doing it cheap now means paying through the nose later. Whether you're eyeing European markets or just curious about international growth, this conversation could save you literally millions. Let's dive in.

Hello, Shan, and welcome to the podcast. Glad to have you.

Thank you for having me. It's a pleasure to be here.

I always start by asking my guest to tell us where they are originally from and where they live now.

I'm originally from India, but I live now in Naples, Florida. Having lived in 15 countries over the course of my life, I don't even.

Know how you keep track of how many. You must have a little place where you've written down all these countries so you can remember. Well, good brain.

And you picked up quite a few languages along the way, I assume.

Yes. Four. Four that you speak fluently, Three that I speak fluently, and the fourth quasi fluently. Socially, certainly.

That's, that's, that's excellent.

You know, Americans, as you know, you live around, you know, you have, you're surrounded by us now, but there's, there's not a lot of education early on in life when you need it to learn a foreign language. And to me, that's a mistake. I didn't start learning another language until I was in high school. And it's, it's.

You don't learn it as well if you learn it so late. The language I, I picked was French, and then, then, well, I also learned Hebrew, but that's a little bit different.

And when I Was in college I had an opportunity to do foreign study and I picked France. And that's when I really learned it well, because I was there for six months and I lived with a family that didn't speak a word of English.

I don't have a lot of chance to practice French. And so you lose the language if you don't use it.

The opposite of also affect you. So when I was a kid I, I was born in Egypt and so I learned Arabic and English and Hindi at the same time.

Then my, my father at that time was a diplomat and he was transferred to Sri Lanka. In Sri Lanka they speak Sinhalese Tamil.

So I was hearing Hindi, English, Sinhalese Tamil and my mother tongue Malayalam, which my mother spoke to me and my father spoke to me in English. My mother spoke Malayalam and there was Arabic still in my brain coming from Egypt.

And I started stammering and the doctor said I was stammering because I was confused as to which language to get my words out in.

I can totally understand that because sometimes I'm just struggling to get the right English word out without trying to figure out which version of that word I should be speaking.

Okay, well that actually leads us right into my first know, really core question, which is you're now in the business of international expansion, meaning helping companies expand internationally.

And just with all the experience you had, being the son of a diplomat gave you a lot of exposure to other countries, other cultures and appreciation for them that many of us would just die to have. Now I'd love to have help have you tell us how you got started in that business and did that come out of your education, your formal education?

I think it did not come out of my formal education.

It came out of probably my subconscious because I started an accounting firm and I was looking for a USP that differentiated it from the hundreds of other accounting firms that there are and were around at the time.

And I realized that there were American technology companies expanding internationally without a full understanding or knowledge of how to do so and what pitfalls to avoid.

And so I started to test out the idea that we basically take the pain of international expansion out by covering their entire back office structure, supporting their back office structure so that their salespeople can concentrate on selling, their engineers can concentrate on developing IP and not be worried about being chased by the taxman for unpaid tax debts or whatever.

So the idea was to provide these companies with a very easy way to expand and to basically take what is a very complex topic because the laws are different in each country and take that pain out from them and handle it ourselves for them. And that took off like a rocket because there was no competition, it was a niche that was not there before.

Most startup founders would just die. To be in a situation where they're essentially a category creator like you were, that's really a fantastic way to get started.

So I do happen to know from your bio that you have a PhD in nuclear physics.

What I found having a PhD myself is that even if I'm not using the actual stuff that I studied, doing a PhD still has been helpful in everything I've done since. Is that true for you as well?

100%.

Because the PhD might be a very in depth project that you're doing that got you the PhD, but in the process you have to have a very broad and deep and fairly in depth understanding of different fields of physics, like solid state astrophysics, because an astrophysics consists of nuclear reactions happening in the stars. Nuclear physics.

And so gravitating towards tech companies was actually quite simple because my first interest with the tech companies was, was not as an accountant, was to understand the technology and understand what exactly is it that they're selling. And because I was a physicist, I understood it much better than a typical accountant coming from another discipline would have done.

You created quite a few startups in total before the one that you're running now, which is called Nucleus.

Yes.

So what sort of areas of markets and whatnot were those startups in?

The first startup actually didn't work out because we were too far ahead of what the market wanted. It was basically building a database that enabled buyers and sellers to connect with each other.

So if, say, for example, I'm having a certain type of machine tools manufactured in China and I'm a US buyer that wants to buy these machine tools, the idea was that that database would connect the buyer and the seller and they would make a deal. The problem was that the database was long. That idea was we were executing it long before there was any Internet and it failed.

So the first startup failed, but from the failure you learn things you should do and shouldn't do, and then the second startup succeeded.

Hi, the podcast you are listening to is a companion to my recent book, Tech Startup Toolkit how to Launch Strong and Exit Big. This is the book I wish I'd had as I was founding and running eight startups over 35 years.

I tell the unvarnished truth about what went right and especially about what went wrong. You could get it from all the usual booksellers. I hope you like it? It's a true labor of love. Now back to the show.

I wrote a whole book here about mistakes and failures.

Yeah, I mean, the first startup had a very good name. It was called Export Connections Direct. So you help companies to export by finding foreign buyers for their products and services.

It could be anything. It could be machine tools, it could be carpets, it could be vases. It could be anything. And literally that.

The idea of that was to connect directly the buyer and the seller through an export connection, which was the database. But it was way ahead of its time.

The fact is that that database, there was no cloud, there was no email, there was no Internet, and it just didn't work out.

I built a company that was at least a decade ahead of the market. A lot of startups end up being too early to market. I think it's because to be an entrepreneur, you have to be fundamentally an optimist. And. And you.

And you perceive a problem and you think you understand it, and. And you're pretty sure that by the time you get your product out, the market will be there.

But we're too optimistic about when the market will be there. And in my case, for one of my companies, we weren't. We were. We were way too early. Now we. The company didn't go under.

I pivoted and I had to pivot again. And then ultimately that one went well because I sold it for five times revenues, which. Which ultimately was 125 million. It was close call.

It was a close call. Had to pivot fast and had to lay off half the company. And it was tough, but good outcome, ultimately.

Okay, so in doing these other startups, because all of these startups, now that you look back, all these startups were. Were training you to make sure that Nucleus was a huge success. And what would you say?

Could you synthesize a couple of key lessons that you learned in doing those other startups?

Yes, There is competition for Nucleus. You know, in any area, you may have two or three years of no competition, but then competition arrives.

So you have to differentiate from the competition. There's two very clear differentiators here. One is service. So what do I mean by that? I mean communication with the client.

Too often I've been in situations on the other side, on the client side, where I'm paying my accountant or my law firm, and I'm chasing them because they're not responding. And I'm getting frustrated and I'm beginning to think, why should I pay them and chase them?

Should I charge them for chasing them and wasting my time. So basically one of the tenets in our business is that you, you do not, you cannot over communicate but you can seriously under communicate.

You're not going to do that, so you're going to respond. So there's a policy of response even if a holding reply within 24 hours.

So clients know that their email has been received and is being actioned on and an expectation set as to when a reply can be provided. The second is attention to detail.

So when the reply goes out it's very detailed and it covers all of the ifs and buts so that the number of subsequent questions and email ping pong is minimized.

So for example, if there is a need to set up a company in Ireland, then the detail of how the company, the information required to set up the company, the process involved in setting up the company, the documents that have to be prepared, the issue of whether or not the client wants a local resident director or payer bond, all of this is listed out as decision trees that the client has to walk through with our help and then only is the application filed.

So basically attention to detail and responsiveness are two things that are priced very heavily in this business and that I lay a great deal of emphasis on and my colleagues do the same.

Good advice. So I have a tiny bit of experience trying to expand a company internationally and it wasn't a good experience at all.

And there's that there's a lot of expanding internationally that's pretty scary because there's compliance and taxes and labor laws and so what do you think the biggest mistakes are that startups make when they're trying to figure this out on their own?

There are basically two major mistakes. The first is that they don't have a clear plan as to what they want to achieve internationally. Sounds kind of obvious, but it sometimes happens.

They don't have a clear plan, they don't have a, a, an idea as to what they intend having set up in a particular country.

Again, this may sound incredible, but sometimes they don't even check that what they're planning to do in that country is allowed for a foreign owned company to do. The second is that they try and do it on a shoestring and don't realize that there's a certain de minimis cost of going into a foreign country.

And you've got two ways of incurring the cost, the easy way or the hard way. The easy way is to have a realistic budget that covers these costs.

And I don't just mean accounting and legal Costs, I also mean operating costs, I mean the realistic assessment of remuneration, benefits, et cetera for the personnel that you need to hire, a hiring plan, all of that stuff. So all of the costs, the full rate come out of the cost or they're going to end up paying these costs later on.

Say, say do they, they might do it cheap. They'll end up being bitten in the butt three, four years down the line by a mis, by the mistakes coming home to roost.

So an example is a lot of US companies have the habit of sending out a US employment letter, employment agreement when they're hiring abroad that says you're employed at will. That's illegal in Europe and in many countries employment at will is not recognized outside US at all.

So the employer then loses their rights to reserve matters that they could have, like the right to put the employee on probation, the right to put a garden leave provision clause as a way of getting around a non compete, if you want a long non compete period, things like that, they lose those rights.

And even worse, if the employee then goes to an employment tribunal two years down the line having fallen out, they can show that the employment was illegal in the first place. So the employer is looking very bad in front of the judge before even his counsel has opened his mouth. But it's cheap at the beginning.

You don't employ a local law firm or get legal advice. Just send out a U.S. employment agreement and we've got him on board and everything's hunky dory until it goes pear shaped.

The other problem is to have the wrong type of entity.

If you've set up a representation office that's got three people and now three people become five people in most countries that won't wash. With the exception of China, it won't wash. You have to have a company or a subsidiary or a branch.

So again, if your plan was to hire five, why set up a rep office, close it down, set up a branch, set the branch up or the company up from the beginning. So it's important to have a, to know where you're going and to have a budget that enables you to go where you want to go.

Otherwise my advice is don't go international. Delay. There is a cheap way out that a lot of companies these days do call the employer of record.

That's a new, a relatively new industry in the last five to seven years that's arisen where companies have set up their own subsidiaries and offer to hire employees for their clients through these subsidiaries. But again, what is important to Understand is that in Europe, for example, that doesn't mean that the US company escapes employment liabilities.

The US company would then become jointly and severally liable as an employer and could be sued together with the employing company in an employment tribunal by a disgruntled employee. It also can create over a long period of time a taxable presence of the US company in that country.

So there are, but it's a quick way because you don't have to set up anything. You just plug into the infrastructure of the company offering the EOR services and you're done and you're good.

That's a very good model for a short period of time. But if you've got some long term plans, it's not.

You might also be interested in the online program I have created for startup founders called who says you can't startup in it I've tried to capture everything I've learned in the course of founding and running nine startups over 37 years with no constraints like there were with my book. The program is four courses, each one about 15 video lessons plus over 30 high value downloadable resources.

The QR code will take you where you can learn more now. So in my case, what I inherited, my predecessor was the CEO.

He had made a plan to that that the company was going to bring in $21 million in revenue and he was going to open offices in London, Paris and Munich. And the customers for this company were very big companies.

He ended up only doing 11 million and the board fired him and they, and they asked me to take over and it was my first time being CEO, which was, I shouldn't have even accepted it, it was a bad idea. But now I really had to close these offices down because it was just too expensive.

Right.

And that was really, really difficult because basically in most of those countries in that time they all had guaranteed six months severance. So it was expensive to close these offices down which he never should have opened.

Yeah, I'll give you that. A counter example, US company had a sales agent in Belgium. He was an independent sales agent, a commission agent, purely commission remunerated.

He was very successful. The US wanted to employ him. They decided they needed to work through their own people and wanted to employ him. He declined to be employed.

He wanted to be self employed because he was selling other products as well. They basically the contract they had with him had a 30 day termination clause. So they hired a guy and terminated the sales agent.

Well, they didn't take proper advice because in Belgium when you terminate a sales agent, that's built a stream of business for you. You have to effectively buy him out. You have to pay him regardless of what the contract says.

You have to basically buy him out of the goodwill that he's generated for you.

So he immediately sued them the civil court for damages and he ended up winning a million dollars about I think $1.3 million worth of damages because he said he'd been terminated with just one month's notice.

He'd built this business stream for them out of which they were making profit over a period of three years and he put a lot of blood, sweat and tears into it. He was entitled to be paid for the goodwill he had created for them. And the court agreed. So it's again, it's an example of very cheap, right?

You don't hire your own person, employ a distributor type guy, get him to sell and it's commission only, so there's no cost unless he makes a sale. But three years later you have a million plus dollar bill coming out of there's.

I mean you could write a book of all the horror stories that.

Yeah, I could. I could also write a book of the success ones but probably the horror ones will sell better, I think.

So you've got a startup now. You did several before, you know, that means by definition you've got to have a lot of grit. And maybe you could tell us where your grit comes from.

I think. I don't know if I have a lot of grit. I have a lot of. I do work long hours. I consider a 60 hour week to be nothing much.

I used to work 105 hour week but I don't do that anymore. But I do work a 60 hour week and a bit more from time to time. But I don't view it as work because I enjoy what I'm doing.

So there's not a lot of grit because I'm doing my hobby, I'm doing what I like doing. I like meeting clients, I like solving problems because no two clients have the same problem.

I like looking up legislation to see if I can solve a problem problem in a different way to the conventional way, thinking outside the box.

So it's not so much grit, I think it's more, it's a hobby and it might even be an obsession, but it's certainly a hobby and it's something that I like doing. So when you like doing something, you don't feel like it's a problem or a burden, you, you're enjoying doing it.

So you're relaxed, alert all the time. You're not, you know, stressed and busy. You're just relaxed, alert, getting things done.

Now for your toolkit takeaways. Toolkit Number one Budget realistically or don't go at all International expansion has a de minimis cost. There's no getting around it.

You can pay the easy way with a proper budget up front or the hard way when your mistakes come home to roost three years later. Cover the full freight legal accounting, realistic salaries, benefits and hiring plans.

If you can't budget properly, delay your expansion until you can Toolkit number two Local laws trump your US Playbook that employment at will clause in your standard agreement. It's illegal in most of Europe and many other countries. Before you set foot in a new market, get local legal counsel.

Check if your business model is even allowed for foreign owned companies. Verify that your entity structure, whether it's a rep, office, branch or subsidiary, actually supports your growth plans.

Cutting corners here is like building your house on sand. Match your structure to your vision. Don't set up a representation office.

If your plan is to hire five people, you'll just have to shut it down and start over. Employer of record services are great for short term testing and but if you have long term plans, build the right foundation from day one.

Think ahead, structure correctly and save yourself the pain and expense of rebuilding.

Now go map out your international expansion plan with real numbers and local legal advisors or make the smart decision to wait until you can do it right. That is our show with Sean. The show notes contain useful resources and links. Please follow and rate us@podchaser.com designingsuccessful startups.

Also, please share and like us on your social media channels. This is Jothy Rosenberg saying TTFN Tata for now.