A conversation about European startup

For several years, I have a question but do not have the answer: “Why entrepreneurship is so successful in the U.S, in India and even in China but not in Europe? Why countries with similar culture and good education systems such as Germany, France, and England etc. do not have many startups?

Last week I met Business Professor Hans Werner from Austria when we both attended a technology conference in San Francisco. As we discussed about entrepreneurship, he explained the startup issues in Europe. He said: “Although Europe does have few successful entrepreneurs such as Richard Branson or Xavier Niel but compare with the U.S. or even India, Europe is still many years behind. Young European students there admired Steve Jobs, Bill Gates, Mark Zuckerberg, and Sergey Brin but they do not have anyone like that as role models. Entrepreneurship is still a vague idea or a far away dream among students. Most do not even think about starting their company because European market was controlled by few very large companies, it is very difficult for startups to compete with them.”

“European Union (EU) is basically a fragmented market, with several countries. Each has different languages and cultures. Therefore a startup will need more time and money to reach a large number of customers because local market is limited. Since startup has to spend a lot of efforts to modify their products to adapt to difference languages it will be costly and take longer time. Although the EU has free trade and free movement of labor but it is very difficult for any company to grow. If a startup cannot grow bigger, it cannot compete with larger companies or make money.”

“Most European countries have strong unions and strong laws protecting workers from being laid off. Startup needs to hire workers to grow but if it is not successful, it must let workers go. However European governments had laws that gave workers large severance packages. Workers could receive many months of full salary after they were laid-off. This is very risky for startup because it cannot afford to pay workers after they no longer with the company so few people even consider to start their own company. The nature of startup is to take risks and failure is common but in Europe, a failed business or bankruptcies are punished harshly. For example in France a business may need 10 years to recover from a bankruptcy.”

“Europe does not have technology centers like Silicon Valley or New York City where people working in technology areas can collaborate to create new ideas. They can start company, get investments from venture capitalists. To start a company and to grow bigger, capital is needed, but that is very difficult in Europe. Most European investors prefer to put money into well established businesses and are not willing to invest in risky start-ups. It may explain the reason that in the past 30 years, there were only few startups in Europe as compare with several thousands in the U.S.”

“The European governments often talk about entrepreneurships in speeches. They have campaign goals to create 500,000 start-ups to create more jobs over the next few years. But in reality, government likes to talk big, set ambitious goals but often do nothing afterward. Even if they want, they could not do much as nobody wants to change anything because change is risky. If they succeed, there is no reward but if they fail they will lose their career so nobody would risk their positions. In Europe, conservative is in every systems and it is difficult to change the laws to favor entrepreneurship. The education systems are a reflection of the no-risk culture as academicians do not want to change anything and that is why from the technology area, they are many years behind the U.S.”

“Of course young technical people who are interested in startup are often coming to the U.S, it is much easier and always welcomed here. Basically European countries lost a lot of the best and the brightest entrepreneurs to the U.S. The question is who is going to provide the future jobs and economic growth? Especially in the technology area? Since the economies of Spain, Portugal and Greece was already hit bottom, the next crisis will be in Italy and France and with millions of young graduates that have no job, the future is very sad. It is not unusual to see college graduates work in restaurants or sale souvenirs for tourists, it is a waste of talents. If Europe do not think hard about this problem and try to encourage more startups to create more jobs now, I think there will be serious consequences for the economy in the future.”

Sources

  • Blogs of Prof. John Vu, Carnegie Mellon University
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