Article image

Jan Barkhed

Published on 9 April 2023

A healthy startup community

Building a healthy startup community in tech is a task spanning over more than one generation. It includes daring and adventurous founders who are willing to give up their regular job; talents in the form of software programmers, sales and marketing specialists; plenty of venture capital; a network of experienced and senior business people who are willing to help with contacts and advice; a hype machinery; and customers who are willing to test products not yet released. It goes without saying that most attempts fail, as most attempts lack one or more of these critical components. When governments also speak for a completely different model it is doomed from the start.

In this part of the post-industrial world, Europe, the entrepreneurial undertaking never starts with an investor who is looking for a founder to implement a promising idea. The venture always starts with a founder who is hooked on an idea, and people who are looking for work; the investor is usually the last actor on the stage.

Article image

Some observers say there has never been so much VC money as now. That is true compared to 20 years ago, but it’s true only for certain parts of Europe, even for certain regions in a single country. The rest are dependent on modest government contributions and government loans at horrible interest rates. In some rare cases can crowdfunding be available, usually for smaller ventures. Since investment capital is so rare, most startups have to bootstrap. Some use a combination of angel investors, government loans and own money. The most common approach is to moonlight as contractors, taking long breaks from their own work to serve a mega corporation with work the startup doesn’t care much about. Thus, when the government opens the gates to poorly regulated labour outside Europe it changes the game completely. Big industry is pleased, flooding the market with labour that is payed 30% less or more is what they want. Startups can forget to moonlight and acquire new contacts as the market is dominated by a few major employment agencies, some even foreign. Startups have either formal capital from external investors, or informal capital from the founders themselves. Sooner or later, informal capital needs to be replenished, but when poorly regulated labour floods the market everything becomes much harder.

European VC:s have discovered that the cost to develop a software product is far less than the cost to introduce it on an ignorant market. Markets are oddly enough slow to discover and adapt new technology. Organisations have cornered themselves, embracing ideas and technology that will be outdated within ten years, defending made decisions by prejudice and not seldom dealing with a market that is an oligopoly. VC:s on the other hand roam the country and even the continent for promising ideas, still reluctant to spend the night in another city.

The most important for a startup is oddly enough not to have access to capital or talent, but to have useful connections, people who truly want to help. Reality speaks a different language. People with real power and influence have little reason to help a small startup, either it is finance, contacts or future customers. Some view startups as competition, something that creates instability and therefore a potential threat; others want to spend their time on leisure activities or building their own network; most view the startup community with curiosity only. The fact that they were once helped themselves, by family members or friends of the family, is easily forgotten.

The machinery to start, build and grow a startup is sadly not in place, not in any scale that matters. Even successful and growing tech companies have few customers, the few they have is often found in the public sector. These tech companies often lack breakthrough innovation and act more like outsourcing functions to avoid red tape. To cut costs, they can neglect such things as security and interoperability, the capability to work seamlessly with other services.

Government policies can also compete with a small entrepreneurial community by launching state owned research institutes, who are only interested in working with billion dollar corporations; some research institutes even run their own projects without having a real market, believing it’s enough to do a tv or paper promo. It’s a weird situation that has been tried again and again without success. It usually ends with well-paid executives who make powerpoint.

One thing is to have lofty goals, like ”Becoming a leading space nation”, or a Nordic financial Center, or the best in 5G; another is to have believable strategies and a startup community that will get you there. The truth is something else and depressingly obvious for those who want to see: business development moves in the other direction and even mega corporations struggle to stay alive.