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Building a successful company is really hard. It is hard no matter where you are in the world, but the difficulty is magnified in Europe, where people are divided by geography, regulation, language and cultural prejudice. If governments can provide European startups a competitive advantage, that could come a long way in helping to offset some of the disadvantages. In this post, I'm sharing some rough ideas for what governments could do to encourage a thriving startups ecosystem. It's my contribution to the Belgian startup manifesto (#bestartupmanifesto).
- Governments shouldn't obsess too much about making it easier to incorporate a company; while it is certainly nice when governments cut red tape, great entrepreneurs aren't going to be held back by some extra paperwork. Getting a company off the ground is by no means the most difficult part of the journey.
- Governments shouldn't decide what companies deserve funding or don't deserve funding. They will never be the best investors. Governments should play towards their strength, which is creating leverage for all instead for just a few.
- Governments can do quite a bit to extend a startup's runway (to compensate for the lack of funding available in Belgium). Relatively simple tax benefits result in less need for venture capital:
- No corporate income taxes on your company for the first 3 years or until 1 million EUR in annual revenue.
- No employee income tax or social security contributions for the first 3 years or until you hit 10 employees. Make hiring talent as cheap as possible; two employees for the price of one. (The cost of hiring an employee would effectively be the net income for the employee. The employee would still get a regular salary and social benefits.)
- Loosen regulations on hiring and firing employees. Three months notice periods shackle the growth of startups. Governments can provide more flexibility for startups to hire and fire fast; two week notice periods for both incoming and outgoing employees. Employees who join a startup are comfortable with this level of job insecurity.
- Create "innovation hubs" that make neighborhoods more attractive to early-stage technology companies. Concentrate as many technology startups as possible in fun neighborhoods. Provide rent subsidies, free wifi and make sure there are great coffee shops.
- Build a culture of entrepreneurship. The biggest thing holding back a thriving startup community is not regulation, language, or geography, but a cultural prejudice against both failure and success. Governments can play a critical role in shaping the country's culture and creating an entrepreneurial environment where both failures and successes are celebrated, and where people are encouraged to better oneself economically through hard work and risk taking. In the end, entrepreneurship is a state of mind.
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.
Many organizations adopt Open Source for reasons like flexibility and agility. Everyone needs to do more with less. But in government, Open Source drives both civic engagement and government participation like never before. Because of digital, the world feels much smaller and more connected. And Open Source gives people the opportunity to rally around a cause, no matter where they live.
Think about how we petitioned our government before we had the We The People website. I bet you have to think pretty hard about how it was done (I do!). Now, a website has brought to life the First Amendment rights of U.S. citizens. Millions of people's voices are heard. People pull together based on common concerns. The White House built We The People using Drupal and shared the code on GitHub, opening up the opportunity for other governments to easily create their own online petitioning systems.
Now, all kinds of open government data made available through the Data.gov project makes it possible for any developer, anywhere, to create a civic app. These apps have made us see our cities and towns in a different light.
Open City is one example of a group of local volunteers who create Open Source apps using government data. While the group is based in Chicago, the idea is that any city can grab code from an Open City app and make it their own.
Here are a few interesting examples: Clear Streets tracks a city's plows in real time. Living outside of Boston, I know we could use an app like that! Crime in Chicago lets citizens compare crime statistics in certain areas of town, which could be useful for people making decisions about where to move their families.
What is perhaps the most gratifying is that as open-source developers, we can collaborate on projects and help people around the world. It's part of what gets us out of bed in the morning. Earlier this year, participants in DrupalCon Portland launched a website in 24 hours to help people in Moore, Oklahoma, find transportation and housing after the tornado. Two weeks later, the site was discovered on Twitter in Germany and was repurposed to help people affected by the flooding in northern Europe. This type of project inspires us all to see how technology can make an immediate difference.
Other events, such as the National Day for Civic Hacking, encourage developers to use open government data to "collaboratively create, build, and invent". The idea that hackathons can help build and create a healthy, citizen-powered technology ecosystem within government is relatively new, and full of promise. Tim O'Reilly believes that government can escape the "vending machine" mentality (citizens put in tax dollars and get out services) by thinking of "Government as a Platform" for participation. I couldn't agree more.
Open Source ideals are already spreading in governments throughout the world, with good reason. A global network of developers is motivated to help. It's one of the best examples of civic engagement. As digital citizens, we all now have the power to contribute. One person's time and talent can make a huge difference. That is a movement I'm proud to be a part of.
(I originally wrote this blog post as a guest article for VentureBeat. I'm cross-posting it to my blog.)
Very exciting news from the White House today.
Last night President Obama fulfilled his promise to release the code behind "We the People", a Drupal-based application that enables the American people to directly petition the President of the United States on issues they care most about. The release follows a commitment the President made to the United Nations to share the technology behind this platform “so any government in the world can enable its citizens to do the same".
In October of 2009, WhiteHouse.gov was relaunched on Drupal. Two years later, the White House launched We the People on Drupal, a big step forward for Open Government. While governments haven't traditionally recognized the importance of the grassroots, word of mouth organizing that thrives on the Internet, We the People encourages grassroots citizen engagement.
Even more exciting is that if you are an Open Source developer, you can get involved with improving how your government actually works. Needless to say, I'm thrilled to see Open Source and Drupal changing the world in a positive, powerful way.
The newly released code is packaged as a Drupal install profile. The profile is currently tailored to the White House's website but every Github member can issue pull requests to make it more generally useful. The Petition install profile can be cloned, forked or downloaded from the White House's Github repository.