Some European countries are becoming more entrepreneurial, but it is not without challenges. Europe needs to build better global ecosystems for entrepreneurship if we are to make the shift into a truly entrepreneurial society.
In Tallinn young people take part in a technological boom that has made Estonia the European country with the highest number of entrepreneurs per capita. Estonia is one of the few European countries that have transformed parts of its economy into a more entrepreneurial one, and it is starting to pay off. According to French economists at CEPII (Centre d’Etudes Prospective et d’Informations Internationales) Estonia will reach to the same level of living standard as the Nordic countries in only ten years.
However, Estonia does have one big challenge. Russian-speakers have not been able to handle the transition from a Soviet-led planned economy to a modern market economy. Until 1991, heavy industries were successful, but they have now closed.
Another country that is becoming more entrepreneurial is Great Britain. The country is experiencing a wave of ”entrepreneurship across almost all industries”, as professor Mark Hart of Aston University points out in our book Startup Europe[i], the Brits are among the most entrepreneurial in Europe.
There are huge benefits. Since 2011, unemployment has fallen from 8.5 to 5.1 per cent. Entrepreneurs have created 40 per cent of the new jobs.
But the transition towards an entrepreneurial society has its costs. Wage growth has been slow. In the Bank of England`s report “Self-employment: what can we learn from recent developments?”[ii], the bank wrote that the lack of increasing tax revenues and the boom of self-employed were the result of a structural shift within the labour market.
If we compare Estonia and the UK to the Scandinavian countries and Germany, it highlights one major challenge for a more entrepreneurial society. It is harder to regulate businesses, and to a certain extent, it demands more of the population itself. Skills are not always enough; you also need the drive to both start and grow your own business.
Challenge 1: Learning to live with risk
There are two challenges. One is about management, the other one about mentality or learning to live with risk. Europe has historically had a large problem commercialising R&D. In Oslo, the CEO of Oslo Medtech puts it bluntly: “Norway invests about ten billion kroners worth of research on health issues a year. On top of that, we research in the field of ICT and on other technological development. However, universities and research institutions spend little money commercializing the results of this research.”
How will investors know if a university has a good business model if no one tells them about it? This is why she feels that Norway should stress the prioritization of innovation and commercialization in universities’ and colleges’ budgets.
One reason for this problem is that while many researchers have good skills, they do not have the drive to become part of a start-up. There is a paradox here: In several European countries, the number of temporary positions at universities and high schools has risen. In Norway, only 44 percent of all employees at universities and technical schools have a permanent position. Still hardly any of them start their own business.
In order to change this mentality, we believe that the state can make a difference. One example of this is from 2015, when the German Minister of Commerce, Sigmar Gabriel, pointed out that Germany needs a new «Gründerzeit». In essence, this means that entrepreneurship is introduced as “a third career-path” for all its students.
Gabriel’s vision clearly indicates the direction Europe needs to follow, but perhaps it is not enough to start incubators at universities.
Many countries, such as Norway, the UK as well as Germany, face challenges in their educational systems. Too few with good technical skills are educated. Because of this, start-ups struggle to find competent employees. Schools also do not teach students to take risks. Children should learn that there is no conflict between being an entrepreneur and an academic.
Challenge 2: Learning to grow.
The second challenge for Europe is to scale up their new companies. In the UK, Mark Hart thinks it boils down to management skills. The Netherlands has similar problems. Professor Jan Sol at the Netherlands Organization for applied scientific research (TNO) point out the same trend.
“You can often see that the researchers who join new enterprises – or the founders, for that matter – have dollar signs in their eyes. At TNO, we can add technical know-how, but we need another type of person to run the company. And we need a financially capable person to do fundraising, and someone with sales skills. I think the “entrepreneur” or person with the idea should be the director of technology, but not the CEO”.
Hart and Sol both point to the need to create complementary teams to scale the business.
Perhaps the greatest challenge is the lack of scale up competence; leading to promising R&D companies getting sold too early in Europe.
A typical American investor will say, “You know, I love this project, but I hate the European laws. So we’ll leave the engineers in Europe, but we`ll move the main office to the United States. The ecosystem for entrepreneurship in Europe is growing better, but I need to have the business under my control.”
In conclusion, to manage the transition to an entrepreneurial society, all Europeans have to learn to live with greater risk. The shift of mentality starts at our schools and universities. Yet future generations will need to see role-models succeeding already now, if we are to see larger parts of Europe`s economies benefit and close the competitive gap with other growing parts of the global economy.
About the authors:
Nicolai Strøm-Olsen is a Norwegian author and editor.
Hermund Haaland is the founder and International Director of the Oslo-based think tank Skaperkraft.
Their recently released book is ”Startup Europe” (Frekk Publishing, Oslo, 2016).
[i] Strøm-Olsen, N. and Haaland, H., Startup Europe. 2016, Oslo: Frekk Forlag
[ii] Tatomir, S., “Self-employment: what can we learn from recent developments?” Bank of England Quarterly Bulletin 2015 Q1, London: Publications Group