Two ways Europe can accelerate the creation & growth of startups

I recently had a fascinating dinner with a delegation of members of the EU Parliament who were visiting San Francisco and Silicon Valley to address global cyber security and privacy issues, and also investigate how best to drive more entrepreneurial activity and innovation across Europe. During dinner I was asked to offer some comments and insights on how the EU in general might accelerate their efforts to drive innovation, entrepreneurship, and growth.

When I was introduced by our hostess for the evening – Melissa Blaustein of Allied for Startups – she referenced my current book “The Other ‘F’ Word.”  So I made a point of including in my comments several references relating to the importance of developing a more productive relationship with failure to help drive innovation and growth. Especially since failure happens so frequently in startup ventures, with more than three out of four startups failing by most measures.

When we look at the crucial building blocks for a robust entrepreneurial ecosystems, there are a number of key attributes that are often identified, including by the World Economic Forum in some of their global assessments of global entrepreneurial environments. These include elements such as access to large and growing markets, a strong educational and research foundation, a qualified workforce, access to capital across all stages of growth, and more. Two areas I elected to address on this particular evening were culture and regulation.

On the topic of culture, I made quick reference to many typical attributes of our San Francisco Bay Area entrepreneurs, including: our willingness to take big risks, our desire to challenge the status quo, our attitude toward asking for forgiveness as opposed to permission, and the optimism and curiosity that permeates our community. I also discussed our somewhat unique perspective about the importance of experiencing failure, learning from it, and going on to build great organizations with the benefit of that knowledge and experience. Many of our visiting delegation were surprised to hear that an increasingly common interview question in the Bay Area is “What have you failed at, what did you learn, and how did you use that knowledge?”  Contrast our local perspective with that of most cultures in Europe, where failure is not a topic that is typically discussed or acknowledged. In Europe, for example, students always know their class rank; careers typically follow a more standard trajectory; and failures are often considered catastrophic in most domains.

I shared a very basic innovation equation that most of us take for granted, and it goes something like this: if you want to innovate and grow you must try new things and take risks; the more ambitious these initiatives and experiments and risks are, the more likely they will fail; therefore, to drive innovation, entrepreneurship and growth you must be willing to accept failure as a potential and likely byproduct, and to learn from failures when they do happen.

The general reply? “Yes, we want innovation and more startups and growth. But of course we cannot afford to fail.”

Sigh.

The second area I addressed was that of regulation, and how government and business regulations in many parts of Europe essentially preclude or sabotage the ambitions of many new startups before they even get started.  This is in part because regulations across much of Europe make it difficult, time consuming and expensive to start up a new business.  But perhaps even more insidious and damning is the reality that – when some of these startups fail, as they invariably do – the costs and time associated with shutting down a failed venture and letting employees go are prohibitively high and heavily regulated. In some areas of the EU, letting an employee go requires up to two years severance or ongoing compensation, or more. While well intentioned with regard to promoting job security, the actual result of these policies is to place such a heavy “failure tax” on startups and the entrepreneur that the potential rewards of success get more than outweighed by these huge risks and increased costs of failure.  

The general attitude was “Of course we want more startups, since more startups create new jobs and contribute to economic vitality. But once those jobs have been created, of course we do not want them to go away. So we have regulations to protect the workers and their jobs.”

As a result, the risk/reward math is just fundamentally worse in Europe for entrepreneurs and investors than it is here in the San Francisco Bay Area.  In fact, as I shared with my dinner companions, the reality I see with many of my graduate and executive education graduates and alumni from around the world is their desire – and often success – to relocate to the San Francisco Bay Area to launch their ventures because they find the culture and regulatory environments in their home territories to be far less hospitable.

From then on that evening, our conversation over dinner became much more lively. I know some of our EU visitors were less than enthusiastic regarding my remarks. But I believe most understood that my insights and recommendations were offered with the sincere hope that these leaders will work help create more welcoming environments in their home countries, and thereby help drive the innovation, job creation, and economic vitality we all seek.

mc

BTW – our dinner at State Bird Provisions was fantastic. If you haven’t been there, check it out. On lower Fillmore Street, in San Francisco.

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