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.
Marc Andreessen famously said that software is eating the world. While I certainly agree with Marc that software companies are redefining our economies, I believe that much of that technological shift is being driven by data. So is the value of a business in the data or is it in the software? I believe data is eating the world because the value is increasingly more in the data and not the software. Let's investigate why.
Netflix provides a great example of a data-driven customer-centric company. By introducing streaming video, their software "ate" the traditional DVD business. But Netflix soon realized their future wasn't in the medium of delivery -- it was in the wealth of data generated simply by people using the service. The day-to-day data generated by Netflix viewers provides a crucial ingredient to competing in the marketplace and defining the company's mission: improving the quality of the service.
To that end, Netflix uses passive data -- the information gathered quietly in the background without disrupting users' natural behaviors -- to provide TV and movie recommendations, as well as to optimize the quality of services, such as streaming speed, playback quality, subtitles, or closed captioning. Of course, Netflix subscribers can contribute active feedback to the company, such as movie reviews or feedback on the accuracy of a translation, but the true value of Netflix's user data is in the quiet, zero-effort observation that allows the company to optimize experiences with no friction or disruption to regular user behavior. In fact, the company even hosted several competitions to invent better algorithms for user ratings, with a winning prize of $1M USD.
Within very saturated marketplaces, data is also becoming a key differentiator for some companies. For example, when Google first started, its value was almost entirely centered around the quality of its Pagerank algorithm, or its "software". But Google did not rest on the laurels of having good software, and prioritized data-driven insights as the future of the company. Consider Google Waze, the world's largest community-based traffic and navigation app. Google Waze relies heavily on both active consumer input and passive location-based data, combined with a sophisticated routing algorithm. The routing algorithm alone would not be enough to differentiate Waze from the other navigation systems of the world. Consumers are demanding more accurate maps and real-time traffic information, which could not happen without the use of data.
The future of software
There is another element in the rising importance of data: not only is the sheer amount of consumer data growing, but software is simultaneously becoming much easier to build. Developers can leverage new software programming tools, open source, and internet-based services to build more complex software in less time. As a result, the underlying intrinsic value of software companies is diminishing.
Netflix and Google are still disruptive companies, but no longer primarily because of their software -- it's their ability to use the data their customers produce to extend their engagement with customers. Their actual software is increasingly being commoditized; recommendation engines and navigation software both exist in open source and are no longer trade secrets.
Tomorrow's applications will consume multiple sources of data to create a fine-grained context; they will leverage calendar data, location data, historic clickstream data, social contacts, information from wearables, and much more. All that rich data will be used as the input for predictive analytics and personalization services. Eventually, data-driven experiences will be the norm.
And this basic idea doesn't even begin to cover the advances in machine learning, artificial intelligence, deep learning and beyond -- collectively called "machine intelligence". Looking forward even more, computers will learn to do things themselves from data rather than being programmed by hand. They can learn faster themselves than we'd be able to program them. In a world where software builds itself, computers will only be limited by the data they can or cannot access, not by their algorithms. In such a future, is the value in the software or in the data?
As value shifts from software to the ability to leverage data, companies will have to rethink their businesses, just as Netflix and Google did. In the next decade, data-driven, personalized experiences will continue to accelerate, and development efforts will shift towards using contextual data collected through passive user behaviors.
Companies of the future have a lot on their plates. More than ever, they'll need to adapt to all types and formats of data (closed, open, structured and unstructured); leverage that data to make their product or service better for users; navigate the gray area around privacy concerns; and even reconsider the value of their intellectual property derived from software. They'll have to do all this while providing more contextualized, personalized, and automated experiences. "Data-driven" will spell a win-win situation for both users and businesses alike.
Business model innovation is usually more powerful than technical innovation; it is more disruptive and harder to copy than technical innovation. And yet, so many companies are focused on technical innovation to compete.
Consider Airbnb. What makes them so successful is not a technical advantage, but a business model advantage that provides them near-zero marginal cost. For a traditional hotel chain to increase its capacity, it needs to build more physical space at significant cost. Instead of shouldering that setup cost, Airbnb can add another room to its inventory at almost no cost by enabling people to share their existing houses. That is a business model innovation. Furthermore, it is extremely difficult for the traditional hotel chain to switch its business model to match Airbnb's.
The same is true in Open Source software. While it is true that Open Source often produces technically superior software, its real power may be its business model innovation: co-creation. Open Source software like Drupal or Linux is a co-created product; thousands of contributors build and enhance Drupal and everyone benefits from that. A large Open Source community produces vastly more software than a proprietary competitor, and shares in the production and go-to-market costs. It disrupts proprietary software companies where the roles of production and consumption are discrete and the production and go-to-market costs are high. While established companies can copy key technical innovations, it is extremely difficult to switch a proprietary business model to an Open Source business model. It affects how they build their software, how they monetize the software, how they sell and market their software, their cost structure, and more. Proprietary software companies will lose against thriving Open Source communities. I don't see how companies like HP, Oracle and SAP could change their business model while living quarter to quarter in the public markets; changing their business model would take many years and could disrupt their revenues.
Take Amazon Web Services (AWS), one of the most disruptive developments in the IT world the past decade. While AWS' offerings are rich and often ahead of the competition, the biggest reason for the company's success is its business model. Amazon not only offers consumption-based pricing ('pay as you consume' vs 'pay as you configure'), it's also comfortable operating a low-margin business. Almost 10 years after AWS launched, at a time that vast amounts of computing are moving into the cloud, HP, Oracle and SAP still don't have competitive cloud businesses. While each of these companies could easily close technical gaps, they have been unable to disrupt their existing business models.
If you're in a startup, innovating on a business model is easier than if you're in a large company. In fact, an innovative business model is the best weapon you have against large incumbents. Technical innovation may give you a 6 to 18 month competitive advantage, but the advantage from business model innovation can be many years. Too many startups focus on building or acquiring innovative or proprietary technology in order to win in the market. While there is usually some technical innovation around the edges, it is business model innovation that makes a successful, long-standing organization -- it tends to be a lot harder to copy than technical innovation.
Happy 13th birthday Drupal! It’s hard to believe so much has happened with Drupal when it really just started as a little hobby project. I'm super proud of what we accomplished. After all these years, it continues to be a passion and labor of love to grow, maintain and sustain the larger community.
A birthday presents us with a great time to look back and reflect. Though there are many things we could reflect on, I'd like to use this post to look at the bigger picture and share my perspective on the market. This means this blog post mainly offers a business perspective rather than a technical perspective.
From web to digital
Drupal was grown out of my own interest in the web. Today, it is a critical component of many organizations’ operations. For most organizations, having an online presence -- like a website or mobile application -- is an essential part of running their business, and it only continues to grow in importance. The rise of mobile and social media means we no longer talk about having a “website” or having a “web application;” instead we talk about the totality of the “digital experience.” Providing visitors or customers with a great digital experience is no longer a nice-to-have; it is a make-or-break point.
From content to experiences
For Acquia, creating high quality content and driving traffic to our site was the #1 way to generate new leads in 2013. This is true for the vast majority of organizations; high-quality, valuable content remains important. Five years ago, this meant if you had a business, and you didn't have a blog, it was time to start one. Today, it involves so much more than creating pages or cranking out new sites; you create and manage your content, and find ways to promote and reuse it across multiple channels to generate awareness and reach more people. You track and measure all of your efforts and try to optimize the content for different users. Content is gold, but delivering the right content to the right user at the right moment in the right format is platinum. It's no longer just about publishing content; it’s about managing the entire experience of a site visitor or user over time.
From mobile to context
Just like in the last half decade or so, "mobile" has completely redefined the internet, in the next half decade or so, "contextualization" will redefine it once again. The next big challenge, and opportunity, for Drupal, is figuring out how to make it a platform not just for content creators to deliver essentially the same content to users in their preferred language on their preferred device, but a platform for content creators to deliver the most appropriate content to each individual user.
Digital experience platform
As the Drupal community, we need to stop thinking of Drupal as a "content management platform" and start looking at it as a "digital experience platform" used to create ideal visitor experiences. This means publishing content that is easily accessible on multiple devices, and ensuring the site can be easily integrated with other tools, such as social media sites and customer relationship, e-mail and campaign management systems. We've been doing this for many years but it doesn't hurt to recognize the trend, double down on it and evolve our vocabulary.
You may have heard me talk about Web Experience Management (WEM) in the past, but we should move away from that term. The fact is that “web” doesn’t capture all the possible touch-points for Drupal, be it a website, mobile device, game console, wearable device, or something else.
Creating better interfaces to develop structured content, and delivering that content to a variety of devices and channels, is an important part of creating ideal customer experiences. Another important part is the ability to personalize what content to present to a user. Though it will be interesting to see how CMSs facilitate this direction, it seems imperative that CMSs deliver tools to empower content creators to not only create great content, but to also help them make decisions about what content to deliver to whom, when and in what format. Over time, these content decisions will become more data-driven and automated, and less opinion-based and manual.
Few CMSs are actually growing in market share; our industry will continue to consolidate further in 2014. The fact most CMSs become less and less relevant isn’t a surprise since CMSs are becoming more complicated. The CMSs that will survive are those that (1) are able to keep up with the speed of the Internet and (2) offer the least amount of friction to adopt. Open source CMSs that foster a healthy community are well positioned to win in the long run. Drupal's biggest challenge going forward is to create a user experience that gets out of a user's way and lets them do their business regardless of how simple or complex their task is. This is why I'm so passionate about in-place editing, and usability in general, but also creating a great developer experience. It's important that we continue to focus on those goals in 2014 and beyond.
For a long time, there has been somewhat of a misconception about Drupal’s viability for the largest, most complex deployments. Analysts, technology decision makers and proprietary competitors such as Sitecore and Adobe will claim that Drupal is great for simple sites but lacks the scale and depth of features needed for enterprise deployments. They're wrong! They only have to look at how GE, White House, MSNBC and many others are using Drupal. Drupal 8 is in a great position to take this "digital experience management" to the next level and to further cement Drupal's reputation; from the mobile improvements, to the authoring experience improvements, to APIs, to getting even better at structured content, Drupal 8 is set up for growth.
We've come a long way in the past 13 years. I'm immensely proud of our community for making this awesome contribution to the betterment of the internet for everyone. But we also have a lot of work ahead as the internet, just like the drop, is always moving. Drupal 8 will continue to help democratize web publishing and digital experience management. This is exciting since we can bring these tools to the masses (including individuals, small and large organizations) rather than only being available to those that can afford the million dollar license fees sold by proprietary software vendors. Happy birthday, Drupal!
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.