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Summary:

European startups love to analyze their failures and look for reasons the continent finds it hard to build huge new businesses. Now a great, comprehensive piece in The Economist manages to show how the problems are deep, dangerous — and go back at least 50 years.

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photo: Shutterstock/Vinicius Tupinamba

There’s a must-read piece on the crisis in European entrepreneurship in The Economist this week. But before you go and pore over it, I’ll warn you: brace yourself, because it’s not going to leave you entering the weekend with a warm and fuzzy feeling.

It’s stuffed with factoids that may well induce depression. For example, not only were most of Europe’s biggest companies were built out of the industrial revolution but in fact continental Europe has produced just one of the world’s top 500 companies over the last 30 years (California alone, by comparison, has produced 26).

Europe produces plenty of corner shops, hairdressers and so on. What it doesn’t produce enough of is innovative companies that grow quickly and end up big. In 2003, analysing Europe’s entrepreneurial gap, the European Commission cited a study which showed that during the 1990s, 19% of mid-sized firms in America were classified as fast-growers, compared with an average of just 4% in six European Union countries.

[…]

If Europe were more entrepreneurial, says everyone from the commission down, it would not have been such a poor producer of big businesses. And it would have produced more successful new technology firms. Entrepreneurship doesn’t have to be channelled through the tubes of the internet, but over the past few decades a great deal of it has been. That an economy so copiously provided with the technically educated as Germany’s has not produced a single globally important business-to-consumer internet company suggests a big problem with entrepreneurship.

So why exactly are things so dismal?

The article identifies a set of familiar problems: Europe suffers from a lack of risk-taking; its entrepreneurs have an inability to access larger funding rounds; there are more restrictive labor laws.

But it also identifies a few bright spots, such as the fact that governments are actually starting to take a more activeand actually helpful — role in promoting startups.

Go, read!

  1. hmmm, so why Arkansas or Wales have not produced a Fortune 500 company ?

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  2. Not risk takers??? Who wrote that? The true is costs of running small company are so high, that is much better to give up and earn 3 times more on typical job for midsized company. Corporations now make the same content as small companies, so guess who wins this battle?

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  3. This is excellent article, right to the point. EU lacks entrepreurship guts, creativity and money willing to invest. Europeans prefer more secure and well paid jobs. Similarity with Greece situation is astounding and results will probably be same.

    That is something looming for a very long time. I as an EU citizen can see this negative outcome rolling for years. In EU when you receive a degree, you are settled for a life. Biggest possible mistake which EU will pay dearly.

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  4. How is government taking a more active role in promoting startups a bright spot? Despite what you may have heard elsewhere, people who created companies here “did build that”.

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  5. What do you want? the Germans still actually build products that people want to buy, the UK financial industry these days is smoke and mirror high finance derivatives, as long as Germany’s focus is on making something other than stock shorts, derivatives and co-signing European debt, they should be ok. The Mini-Copper, Cadbury and Bentley should have remained British. Disclosure I have a Dyson.

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  6. Who builds more efficient windmills than Vestas? How could you build 500m skyscrapers without German cement pumps? Being on Fortune 500 is like winning medals at the Olympic games, makes nationalists feel good. The Chinese have bought a number of small German companies with unique technologies. The Chinese have the money and the management skills to make them grow. Maybe these small companies do not generate fees for dealers and lawyers in Wall st. Or maybe they do not place irrelevant expensive adds in the Economist?

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  7. Actually there’s one HUGE factor in Europe which restricts growth: that’s the number of languages. It’s very difficult to grow many businesses because of all the borders and language gaps. Anything an American company does potentially targets 250+ million people. If a company wants to grow in Europe it needs to create multi-language documents and web sites, legal aspects per country and address different cultures.

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