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Three things Europe must do before it disappears into the sunset

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Europe is in crisis — and no, I’m not talking about financial situation. The true crisis is about traditional industries shifting their operations elsewhere.

The pace of change today is simply quicker than it used to be. A great example is Finland’s paper industry, which has traditionally been a big deal. The investment period between the country’s first and most probably last paper machine was 156 years, and now there’s news about major layoffs on a weekly basis. These cutbacks leave us with an educated work force that we need to re-employ. 

It’s all part of a bigger transition that these traditional industries need to go through in order to survive. Competitors operate in countries where it’s simply more effective and cheaper to do business. So what’s the cure?

I’m going to look at examples from Northern Europe — the Nordics, Baltics and Russia — because that’s where Startup Sauna, the accelerator I help run, operates. But the same things could apply anywhere else in Europe.

Simply put, Europe needs more startups. Here’s why: jobs.

According to the Kauffman Foundation’s research about job creation and loss in the US between 1992 to 2006, “startups create an average of 3 million new jobs annually. All other ages of firms, including companies in their first full years of existence up to firms established two centuries ago, are net job destroyers, losing 1 million jobs net combined per year.” In Finland between 2007-2010 it has been calculated that there were 668 startups which accounted for 4.4 percent of companies with over 10 people. This fraction created a net of 51,000 new jobs — over half of the total number.

Of course startups will not necessarily employ the newly available workforce completely, but you get the idea.

But what do Northern European startups need to grow into these employers of the future?

Ambition, Attitude and Know-how

Since 2010 Startup Sauna has organized over 50 events in Northern Europe, spent one-on-one time with over 500 startups and coached almost a 100 companies through in our acceleration program. Here are the three things that startups from Northern Europe seem to lack:

– The ambition to be the world leader in their industry
– The attitude where people think big and strive to create something new instead of focusing in processes and rules
– The know-how to build and grow globally operating startups

Here’s an example of where it’s changing. Rovio — which is located right across the street from our offices — was founded in 2003, made over 50 games and almost went bankrupt before Angry Birds became big.

How did it stay the course? One of the major investors has been a serial entrepreneur who had already successfully built and sold a company (Trema Group, 2006, now Wall Street Systems). For him it probably became more important to see how big Rovio could become, rather than selling out quickly with a hefty profit. This attitude seemed to have spread throughout the company – the entire team wants to create the next big thing from Northern Europe.

This attitude set the bar for their ambition. If they were not going to sell the company, why wouldn’t they say that they’re going to be the biggest entertainment company in the world? You don’t become something like that with a 100 million app downloads – that’s why it makes perfect sense that they didn’t stop when they reached that number. Instead, go for the first billion and expand your business. I think their vision was something along the lines to be in real-time and direct contact with a billion users simultaneously. I don’t think they’ve forgotten this.

And then the company made strategic moves to gain the connections and know-how that they lacked. Rovio wants to get their plush toys out to the US market, and presumably chose Accel as an investor as they knew they had connections to retailers like Walmart (s WMT). Rovio wants to enter the Chinese market, so they choose Atomico, where Niklas Zennström has experience with Skype (s MSFT) of becoming one of the few European IT companies that actually achieved success in China. This know-how is now being handed down to Rovio’s employees, and some of them will switch to another startup at some point and transmit their newly acquired know-how forward.

That’s great, but one Rovio or one Skype is not enough. We can’t simply afford to sit and wait for the next big companies to pop up here in Europe, and at Startup Sauna we have felt the urge to help out our region’s founders and startups to raise their game. It’s the only way to increase their chances, and it’s why we offer our acceleration for free.

Cowboy photograph copyright Shutterstock user Outdoorsman. Angry Bird used under Creative Commons license courtesy of Flickr user bfishadow

2 Responses to “Three things Europe must do before it disappears into the sunset”

  1. Jens Sørensen

    Daniel Thornton is on the right track. But despite the massive hype with startups, let’s not forget that the big traditional industries will remain, albeit smaller, and will by default employ a lot of people. Finland is practically one huge forest, so there is no way the wood and paper industry is going to disappear in full.

    Startups and technology are important, of course. But the big challenge is to find a new industry that also has the potential to employ people in significant numbers. Or close trade and localize production, taking us backwards a few decades.

  2. Daniel Thornton

    I agree to a large extent, but the other issue is that technology means new startups will generally be less labour intensive, therefore you’ll still have an issue with jobs and unemployment.