Join us for the second part of our engaging conversation with Georgi Koreli, CEO and Co-Founder of Hinkal Protocol, and a recent MBA graduate from Stanford University. In the first part of our interview, we discussed the contrasting startup ecosystems of Silicon Valley and Central and Eastern Europe (CEE), the risk-taking culture of Silicon Valley, and the challenges faced by startups attempting to enter the US market. Drawing from his diverse background, including a career as a world champion wrestler, investment banker, and creator of the Silicon Valley Icons tech community, Georgi shares his unique perspective on the importance of local networks and ethnic communities in Silicon Valley. Discover how newcomers can leverage connections from their home country and ethnic groups to build a strong foundation in the competitive startup landscape.
[This is part II of the interview with Georgi. If your intrested in part I where we talked about how Innovation is Brought to Market in Silicon Valley vs Europe, you can find int here.]
Michał Kozłowski: For Central European startups with decent traction in their home market and some success in transitional markets, what would you advise as the first step to enter the US market?
Georgi Koreli: The answer to this question largely depends on the business model or product, as I’ve seen various startups from Israel, Russia, and Georgia attempt to enter the American market, only to fail. The US market has high purchasing power, but people are satisfied with numerous existing solutions. There are countless substitutes for almost every startup starting in the emerging world. So first of all do your due diligence, because if certain startups aren’t present in the US, there must be a reason for it.
For Israeli startups in security, they have the best technology in the world in their niche, which is globally recognized. So, when they move to the US with the best technology, it makes sense, because they will still provide a unique value proposition. However, Georgian startups in delivery or fashion goods, where Georgia doesn’t have cutting-edge research/tech, should study the US market extensively and conduct small pilots in local markets because the odds of finding a market to serve will be extremely low. Factors to consider include population density, purchasing power, and customer habits. If it’s a consumer product, testing without significant expenses helps determine whether it will succeed in the niche. This approach is preferable because I’ve seen startups launch with substantial costs, subsidizing supply or demand if it’s a marketplace, only to run out of money and fail… fast.
MK: Do you think the failures of foreign startups in the US market are due to a lack of focus and/or inadequate due diligence, leading them to enter the market unprepared?
GK: Yes. I believe they went unprepared, with a strong conviction that there was a massive need, and they should subsidize it. They thought, “If we made it in the local market, we’ll make it in the US.”
MK: Success in the local market doesn’t necessarily guarantee success in the US?
GK: Exactly. But, on the other hand, I think it relates back to the founder’s ego. Imagine a founder who succeeded in the emerging world; they feel great and believe their next market should be the US. They don’t want to accept that they should run a small test to understand whether it’s viable, so they just dive in, start subsidizing one of the sides, and ultimately fail.
MK: In your opinion, is there value in startups trying to establish themselves in a foreign market, such as a Georgian startup entering a Scandinavian market, before attempting to break into the US? Does this approach provide any advantages, or is it merely an unnecessary detour on their journey?
GK: I think that’s a great value proposition. I recently saw one of the Georgian startups go to Central Asian markets. They don’t have a value proposition for the US market because somebody else has already met the need. And obviously, these Central Asian markets are underdeveloped tech-wise, but globalization still comes there, right? People want to watch Netflix, they want to have subscriptions and everything that people do in the US. So, I think generally it’s a great value proposition to expand in nearby markets and explore. For example, if you live in Georgia, it makes sense for you to think about markets such as Kazakhstan or Uzbekistan. They might not have certain innovative products that you might offer, and they might be enough for you to become a venture-scale business. What matters is being a venture-scale type of business in terms of markets and growth. Yes, you have to handle a lot of regulatory pressure by expanding into different subsequent markets, but it is worth doing because it allows you to dominate certain markets while these markets won’t be interesting for the US-based companies.
If you live in Georgia, it makes sense for you to think about markets such as Kazakhstan or Uzbekistan. (…) they might be enough for you to be a venture-backed business. (…) it is worth doing because it allows you to dominate certain markets while these markets won’t be interesting for the US-based companies.
MK: So, this is like a lower level of difficulty? You can validate your product outside your borders and still not face such high competition as you would once you move to the US – because “everybody” is coming to the US?
GK: Yes, there are certain markets that don’t make sense for US companies. For example, if you form a startup in the AI space providing marketing tools with AI automation, your market is the US because marketing companies and communication agencies in the US probably have the highest willingness to pay for your product. So, you first tackle this market, then expand within this market niche by offering different products. Once it’s saturated, and you’ve taken as much as possible from there, you start thinking about subsequent markets such as Europe, based on companies’ budgets willingenss to pay.
Generally, it depends on how developed the country is and its per capita purchasing power. For the first 10 or 15 years, you may never think about emerging countries with few million people. US-based startups probably will never think about 3.7 million, population country, such as Georgia. But this actually creates opportunities for entrepreneurs to go to emerging markets, take over these markets, build their business model around this, and expand within these niches.
And, if you build the business so that those US competitors notice you, you’ve already made it. This could be your exit – because the competitor will likely want to acquire your company during expansion.
MK: So, you’re saying that there is an alternative path for startups from CEE, where the US market is considered the holy grail. This alternative path involves targeting smaller markets and potentially being acquired by a US company during expansion. Is that correct?
GK: Yes, there is an alternative path to the US market. By expanding your strategy to different countries, like European markets, and establishing your brand, you gain valuable information on customer reactions and their willingness to pay. This understanding can ultimately help you expand to the US. However, I define it as an alternative path, leading to being acquired by a US company.
There are certain markets that don’t make sense for US companies. (…) And, if you build the business so that those US competitors notice you, you’ve already made it. This could be your exit.
MK: We’ll circle back to US market but let me ask something else now. Do you still run SV Icons, can you tell us more about what that is?
GK: Initially, SV Icons was part of my personal initiative to become “local”, learn insights, and create a community. Now, it has grown to 800 people with more hosts and speakers, so it has become something more than I initially had in mind. The answer is yes – it started as a way to build a community and become local as quickly as possible.
MK: Since you built this community from scratch, do you think joining a community like this, or an accelerator program, or the Stanford alumni program, helps people integrate, make the change, and become “locals”?
GK: I think what defines whether you are local or not is your network – the community you’re integrated with, and people you talk to on a daily basis. What you mentioned might be helpful to achieve one’s goal. We have about 800 people in CV and 30-40 people coming to each dinner. Dinner is on a weekly basis, so every week you see 30 new faces, but 10-15 will repeat, right? So, you’ll build connections with them.
MK: Would you say that being “local” is not necessarily about your physical location, but rather your network and connections? For instance, how valuable do you think it is for newcomers to connect with people from their home country who are already established in their target market?
GK: National-based connections can be extremely valuable. These connections often help. For instance, we have very strong ethnic communities here in Silicon Valley, such as the Indian community, which is known for providing support to one another. While there may not be many smaller communities, there are still Ukrainian and Polish communities, that assist each other with introductions to investors or startups. So, there is definitely value in establishing connections based on ethnicity. I would highly recommend getting involved with these ethnic groups and leveraging the opportunities they present.
Ethnic groups are an excellent way to create an initial network and define your next steps. Ethnicity-based support is crucial because you receive assistance almost effortlessly due to shared associations.
MK: So, joining these ethnic groups should be seen as a stepping stone rather than an end goal, to help newcomers expand their network and reach even further? How do ethnic groups contribute to building initial networks in Silicon Valley?
GK: Ethnic groups are an excellent way to create an initial network and define your next steps. It may begin with these groups, and then you can connect with people who share similar interests, such as AI, crypto, climate and others. Alternatively, they can introduce you to different subgroups more relevant to your goals. Ethnicity-based support is crucial because you receive assistance almost effortlessly due to shared associations.
MK: Do individuals from Georgia reach out to you for support?
GK: I do receive some inquiries. However, there aren’t many Georgians in Silicon Valley, and even fewer are involved in startups. Most Georgians here follow traditional career paths like consulting, banking, but also owning traditional businesses – restaurants, wine shops, exc. While I may not have much in common with them, I always try to help.
Michał M. Kozłowski: Thank you for this interview, Georgi.
Georgi Koreli: Thanks, Michał. It was a pleasure.
[This was part II of the interview with Georgi. If your intrested in part I where we talked about how Innovation is Brought to Market in Silicon Valley vs Europe, you can find int here.]