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Going to America

13 October 2009

5thFinger Co-founder and entrepreneur Matt Costello shares some his thoughts on the experience of taking an Australian business from Sydney to start-up in San Francisco

I, HARRIET SMITH WINDSOR, SECRETARY OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF INCORPORATION OF "5TH INTERNATIONAL US, INC.", FILED IN THIS OFFICE ON THE TWENTY-NINTH DAY OF NOVEMBER, A.D. 2006, AT 9:09 O'CLOCK A.M.

We cracked open the beer that day. It wasn't the first action item on the long list of stuff-that-just-has-to-get-done, but it was certainly a milestone. Steen Andersson took the lead and made the first forays into the US within 6 months of the sale of 5th Finger to ninemsn here in Australia and our Delaware incorporation was almost a year to the day since the sale.

We scoped the market from many perspectives and used the first few trips to visit the trade shows and make contact with expats, friends and initial clients. It's amazing how many Australian's are in the US, with NY hosting around 50,000 of us and over 500,000 calling the States home, be it permanent or temporary.

This networking is critical to gauging the local market. It is one thing to develop a to do list, but its the things that you don't know you don't know that can really get you. The expat network really helps you bridge the gap and gives you a good feel for how much you probably underestimate the size of the commitment a shift to the US will take. And generous, without fail we received great support and advice and where able get some valuable introductions to potential clients from friends, and friends of friends.

After half a dozen trips, we opened our first office in San Francisco. It was a simple one room place in Folsom St right across from the Mascone Centre, but this being San Fran, it was way funky compared to serviced offices here in Sydney. The feel of the place matched the feel of the business well and became an excellent base for what was becoming a rolling team of visitors to the US during 2007. Warren Billington and I made our first client road trip in March 2007.

Luke Forman and team at 5th Finger (Australia) had already managed Live Earth for Microsoft across the US and 6 other countries and in order to capitalise on that momentum, we set up series of meetings in the US from our Sydney base. We then did a whirlwind dash through LA, San Francisco, Seattle, New York, Boston and Chicago over 2 weeks. We focused on the US counterparts to our Australian clients and visited several industry associations, a networking event in Seattle, a small mobile marketing association conference in New York and to really get a feel for the place, spent some time acquainting ourselves with the bars and restaurants.

We opened our first permanent office in San Francisco right under the Oakland Bridge on Bryant St towards the end of 2007 and Steen was the first to make a permanent move at about the same time. Our Chairman, Campbell Corfe made the brave call to take the CEO position and also move over. Campbell had spent much of his working life on overseas posts, including the US.

The experience really counted when it came to understanding the local landscape and Campbell's wife, Sally, also provided awesome support to the families as they made the transition. We progressively moved the rest of the team over during the first half of 2008. Whilst this was happening, we were engaging with clients and working hard here in Sydney on capital raising. All up, we moved a dozen families to the US and set up a second office in New York. Our capital raising efforts were also successful with one of Australia's leading VC firms, Starfish Ventures, leading a round of $8m, giving us a real platform for growth in our new market.

The onset of the Global Financial Crisis was for the most part a shocker of an experience from a business perspective. Our revenues were reliant on ad spend, which is always the first to be put on hold during uncertainty. The GFC aside though, 12 months on from the crash business is continuing to grow. It's no easy task for the team over there and both Australian and US employees are really giving it their all. Kids are in Schools, wives have jobs and children have been born (congrats Kim and Steen) and we are now turning our attention to strengthening our position in the market with a Series B round of funding designed to bring in some US investors

You will hear plenty from the Coming To America event about all the big picture, and it will be information essential to your success, but I was hoping to offer just a taste of the essential minutia (yeh sorry, that's an oxymoron) for those of you looking to make the move;

• get yourself local legal representation, taxation advice and immigration support

• accommodation is cheaper at the serviced apartments (such as Gaylord Suites in SF) but the minimum is a month. Often, though, a month at a serviced apartment is cheaper than 2 weeks in a hotel. We ended up taking a 3 month lease once we established a critical mass of incoming staff to justify the expense.

• we received some great support from Mitchel Lake, who also set up in SF, from a hiring perspective (they even took a couple of seats in our offices when they set up shop there, something we did back here in 2001). ML's local guy Greg, and the effervescent Katie, both understood the local employment scene and worked closely with us to make some great hires

• one of our first local appointments was an office manager. This was quite a senior appointment and went well beyond the job title. Helen turned out to be like a mom to the team moving over, helping with everything from 401k filings (US version of SGL), local real estate searches, Visa submissions, employee handbooks, the list goes on and on. It was critical for key personnel to be focused on revenue generation or technology integration, so Helen's local knowledge and start-up experience was essential in taking the day-to-day load of essential but non-core details.

• Austrade was helpful, and the Export Market Development Grant was a fantastic re-injection of cash spent.

• We set up in NY with a small JV partner as a way to keep our costs down.

• we made extensive use of the expat network

• Australian clients with US links - if you're fortunate enough to have clients locally, get them to introduce you to their US
counterparts, or even partners, suppliers etc

The list is much longer, but the page is not, so please contact me or tap me on the shoulder at the event if you would like more details. I would be happy to pass on the contacts of some of the better service providers we used or just talk through the experiences.

Finally, a word of warning. The United States is NOT Australia. You may have grown up on a diet of US TV, but I have to say, it really is a foreign country who happen to (almost) speak the same language. For a start IT'S HUGE. The market, the opportunity, the landmass. I'm sure you've heard it all before and it's certainly most likely the reason you are going over. The danger though is to underestimate the simple logistics of setting up shop. Banking is tough (they still use check-books), getting a bank account without a social security number is impossible and getting a social security number can be even harder. The business culture is very different. They work hard, but as it turns out, so do Australians. It's a bit like the warning you get before you have children, which goes along the lines of "it really hurts". But people still have kids, happily, and Australian entrepreneurs will still head to the US, profitably.

Matthew Costello is a co-founder of 5th Finger (Australia) and co-founder and Director of 5th Finger International (5i). Whilst still closely involved with the San Francisco based 5i team, he is also currently engaged with ASX listed Hostech Limited, an IP-Telephone software and service company, as a non-executive Director as well as working on its M&A strategy. Matthew will soon complete his MBA with MGSM and recently completed a masters degree in finance. After selling 5th Finger in Australia to ninemsn, Matthew worked on its integration across the PBL Media businesses as Commercial Director (5th Finger) before taking on the role of Mobile Sales Director with the launch of ninemsn's mobile portal.

Written by: Matt Costello

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