Successful Irish companies must increasingly serve a global market from early on.
Yet, I still hear how:
The Irish market (or maybe Ireland + UK) can be a launchpad for going international later, and/or,
Someone is already doing “that” over in America.
Focused on Ireland/UK = Earn revenue like Ireland/UK = Be valued off Irish/UK metrics.
Most great ideas or founding teams won’t make up that difference.
Selling to Global Markets
I run a business that sells software for training and deploying large language models. My main route to market is a YouTube channel. The people who buy are the people who find me on YouTube (and now a bit on Google and Substack). Here’s the breakdown of revenue by region:
and here’s a zoom in on the top ten countries:
That’s the reality of doing international business in software. Imagine if I was just selling to Ireland and the UK…
Purchasing Power and VAT
An under appreciated dimension of selling internationally is the impact of purchasing power and VAT/GST.
Consider a software package I sell for fine-tuning language models.
In the US, where companies and developers have more money, I can charge about $125 for a package. By and large, the sales tax rates are zero or single digits.
In Ireland (and similar for Europe), there is less money, so it makes sense to price products lower, e.g. at $100 (probably, the optimal premium/discount between the US and Europe is even larger). Then, there’s a VAT rate of 23%.
So, the same product I sell:
To the US, will yield about $120 in revenue.
To Ireland (and much of the EU), will yield about $80.
That’s a radical difference and we’re only talking price, not volume. Maybe the premium/discount on startup valuations should be even larger?
Policy notes:
While the above dynamic disincentivises serving Irish/EU/NZ/Australian markets, one should not overlook the virtues of VAT as a tax: a) it spreads the Irish tax base between income, VAT and corporate tax, b) there is low avoidance (as businesses claim back VAT paid to suppliers, although there is a bureaucratic cost here to small business), and c) VAT, unlike income tax, is a tax on consumption rather than work (and we like jobs!).
Irish entrepreneurs are fortunate that there is not a protectionist environment charging VAT on foreign sales, which would be a massive relative disincentive to have an Irish business. That would be an unusual approach, but it’s worth appreciating we’re in world that is (by historical standards) supportive of international markets, business and travel!
Building Ambition - Internationally
Knowledge and prices move at a pace such that being a top regional player is less relevant.
That offers us two ways to raise ambitions:
Building - from the start - for international markets
Benchmarking off of global standards, for revenue targets and for valuations.
Irish company. International markets. International ambition.
important topic & well written -- keep it up