Entrepreneurs, not the government, will save Europe's economy

(I originally wrote this blog post as a guest article for The Next Web (English) and De Tijd (Dutch). I'm cross-posting it to my blog.)

If Steve Jobs was adopted by a Belgian family rather than an American family, it's extremely possible he may have ended up working in a bank instead of co-founding Apple. Why? Because starting a company and growing it is hard no matter where you are, but the difficulty is magnified in Europe, where people are divided by geography, regulation, language and cultural prejudice.

While entrepreneurship and startups have spread tremendously in Europe, a lot of aspiring young entrepreneurs leave Europe for the United States. Very little will stop a true entrepreneur from trying to reach his or her goals, including uprooting their entire life and moving it across the ocean to optimize their chances of success. From my interactions with them, the United States' gravitational pull is only getting stronger.

So, what can Europe do about it? Here are my three recommendations.

Focus on creating large companies

Europe produces plenty of small businesses: restaurants, small technology firms, clothing stores, hair salons, and so on. What it doesn't produce enough of are innovative companies that grow quickly and end up big. It's a problem.

Look at the 500 largest companies in the world (Fortune Global 500). According to Bruegel, a European think tank devoted to international economics, Europe created three new, large companies between 1975 and today. The U.S. created 26.

That number is even more incredible when you take into account the fact that Europe has about twice the population of the U.S. The reality is if Europe were to be competitive, it has to produce 25 times more large companies than it does today.

Access to capital continues to be a challenge in Europe. Getting seed capital (1M EUR or less) has become easier, but raising significant money (25M EUR and more) to turn your company in a global business continues to be difficult. Large companies also provide an important 'exit strategy' for startups. Without a vibrant exit market, it's harder to attract both entrepreneurs and investors.

Large companies also play an important role in creating successful innovation centers. They are catalysts for creating angel investors, for providing distribution, and serve as a breeding ground for talent and practiced management.

If you look at Silicon Valley, Hewlett Packard, among others, served that purpose in the early days, and more recently, a number of successful entrepreneurs have emerged from Google.

I recommend that European government stimulus focuses on companies that could become titans, not on small companies that won't move the needle. Too often, there are investments made in companies that have limited or no growth potential.

Level the playing field

Anyone who has built a global organization likely understands that European work regulations can shackle the growth of startups. Taxes are high, it's hard to acquire a European company, severance packages can be outrageous and it's extremely difficult to fire someone.

It only gets worse when you attempt to operate in multiple European countries, as anyone with the ambition to build a large company has to. Each country is different enough that it requires setting up a local legal entity, and having local accountants and local attorneys. Setting up and running these legal entities costs valuable time and money, a huge distraction that gets in the way of actually running and growing your business.

Europe needs to roll out unified labor laws that are competitive globally and unified across Europe. My biggest worry is the branches of government that try to promote entrepreneurship are not powerful enough to address Europe's labour rules.

Change our culture

A small business can be started anywhere in the world, but it takes a different level of ambition to aspire to become the next Apple. The biggest thing entrepreneurs need is the belief that it can be done, that it's worth taking the risk and putting in the hard work. Having the right culture unlocks the passion and dedication necessary to succeed.

Silicon Valley is a state of mind. To recreate Silicon Valley in Europe, Europe must first adopt Silicon Valley's culture. I believe Europe's culture would benefit from adopting part of the American Dream: the egalitarian belief that everyone is able to succeed through hard work, and that it is acceptable and encouraged to better oneself economically through hard work.

It doesn't mean Europe needs to give up its strong communal beliefs and its desire to look out for the greater good. I'm a firm believer that many modern businesses can "do well and do good". Businesses that generate value for their shareholders and that also have a positive impact on the world go beyond generating profits.

Our world does not lack business opportunities; there are plenty of people with needs that aren't met. Enabling entrepreneurship enables innovation, and innovation helps change the world. The entrepreneurs that succeed in building large businesses, especially those that are aligned with fixing the world's problems, will transform the lives of others for the better and introduce more opportunity on a global level.

Entrepreneurs, not the government, will change the world. It's time for Europe to help their companies grow.

Comments

Nick Vidal (not verified):

I recommend that European government stimulus focuses on companies that could become titans, not on small companies that won't move the needle.

Drupal is as powerful as it is today because of it's healthy ecosystem of small businesses that collaborate with each other. It's well known that most innovation comes from the "edges of the network". Think about every great thing in the Drupal world: Fields, Views, Rules, Entities, etc. Every single one of them started either by an individual or a very small team "scratching their own itch". When these individuals or teams come together to share their work, the real power of the community is revealed. By collaborating with each other, they are capable of defeating the biggest Titans in the industry.

Sure Steve Jobs with Apple and Bill Gates with Microsoft made a great impact on the world, but how does that compare to the impact of Tim Berners-Lee with the WWW? Is the ambition to become the next Apple truly the culture we want to adopt?

Waiting for Government stimulus is not what will make the needle move. Each one of us will have to move the needle ourselves, and with the right culture, we'll be able create the biggest impact of all! So you are right: "Entrepreneurs, not the government, will save the world's economy".

January 2, 2014 - 15:09
Philip Paeps (not verified):

I agree with your conclusion: entrepreneurs will save the economy. On the other hand, I don't consider the ratio of large enterprises to small ones as an indication of success. Quite the contrary. Enterprises should certainly be encouraged to thrive and to grow, but there is a point of diminishing returns: when an enterprise grows beyond a certain size, bureaucracy and greed become more important than innovation and the desire to please consumers.

When an enterprise reaches the point where its success is measured in terms of the numbers of competitors acquired or forced out of competition, it starts to do more damage than good to the economy. Consumers lose because the enterprise no longer has an incentive to provide the best service: it can simply ensure that it is the only one to provide the service at a price consumers are willing to pay. The economy loses because large enterprises like paying less and less taxes as they grow, and smaller enterprises are unable to thrive sufficiently to make up the difference.

From that perspective, I feel that particularly new entrepreneurship and small to medium size enterprises should be stimulated. Large enterprises should be treated with suspicion. Economic success should be measured by the number of companies serving a market and competing on innovation and service, not by the size of the companies.

January 3, 2014 - 10:11
Frank Marien (not verified):

While I agree with the general point that "entrepreneurs will save the economy", I have some strong objections to some of your other statements.

One has already been states by Philip Paeps. I don't only agree with him that "Large enterprises should be treated with suspicion", I actually thing they should be prohibited by law. We cannot tolerate organisations that grow powerful to the degree large multinational coorporations do, without them being subject to democratic oversight.

Also see: http://www.xconomy.com/national/2014/01/17/google-gets-a-nest-but-is-it-...

And second: While entrepreneurs may save "the economy", the economy is not the only thing we should care about. I do not believe entrepreneurs will save the our ecosystems, for example. This is where a large democratic union of states has a role to play:

1- Enforce laws that safeguard a habitable planet for our decendants
2- Create a viable environment for it's citizens and (small/medium) entrepreneurs to thrive, in mutual respect, without them being allowed to grow large or assume power.

This is, to me, the Europe of the EU Parliament, not the Europe of the EU Commission, which is mainly rubberstamping decisions created by large entreprise. The EU Commission should dismantled ASAP, as should all large corporations.

January 19, 2014 - 20:13

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