Top 10 reasons why Startups are condensing in US

A long time ago (5 years!) I was trying to sell eutilia concept and services (B2B procurement SaaS) to a french CAC40 multinational. At the end of the first and unique 1 hour meeting I got with some key executives of this company, closed by the usual “well, great, let us some time to think about it, we’ll call you back”, one came to me and told me (whispering almost) in a one-to-one chat between two doors: “What you do with eutilia is interesting, but you are a startup. Within a couple of years, you’ll be winded-up. Don’t think I am pessimistic, I have many years of experience with startups (…). Don’t waste your time with us…”. I do remember this non-event as if it was yesterday. Eutilia was founded by 11 European CAC40 like companies and someone belonging to this french-successful-community was fool or honest enough to tell me a never-said-truth. I got the immediate feeling that something was wrong. Weird feeling indeed. I didn’t know the guy really, and I am not taking everything as granted without proven rationales. But, as he was not obliged to tell me that, to make the effort to be the bad messenger, I was at least convinced that coming years would be tuff and I did all my best to make him wrong. Now, after 5 years of real struggle with eutilia, eutilia is entering in a process of voluntary dissolution. He was right. I will tell him.

The reason I’m telling this story is because, since this very day, I can see and feel that innovation or entrepreneurial initiatives is happening in US but not at all in Europe.

Jealous? …hum somehow, but definitely admiring the ‘American way’ (on this topic ;-)).

Frustrated? … for sure, but not ready to give it up and more over, still excited about contributing in a way or another in creating something new here in the old Europe.

But my point is more about not really understanding why it is so. My worries are that the root-causes might be really deep in the (our) European history and culture and that it will take ‘aaaaaaaages’ to get something changed!

I’m not the only one and of course not the first one to raise the issue and I found today bloggers with talent talking about it and even lying down on their blogs where the see the problem. Have a look at those 4 excerpts:

Where are all the European web startups? | “Europe affords its citizens an impressive social security net, which you should think would make people more willing to take a risk of doing it on their own.”

Tech start-ups don’t grow on trees outside USA | “It’s not easy to re-create” the success of Silicon Valley, says Bjoern Christensen, a Dane who for years ran the venture arm of Germany’s Siemens and is now managing director of Viking Ventures in Woodside, Calif. He says the U.S. start-up culture “is like generations of people where the gene pool gets better and better. The magic is in the DNA.”

Why is Entrepreneur a Dirty Word in Europe ? | “In a top 10 list of startup friendly countries, Europe has one of the most hostile environments for startups, which deprives it of its essential seed bed of growth, the startups and entrepreneurs.”

Entrepreneurship In Europe | Starting a company is by its very nature a Herculean task. The odds are very much against you. As a general matter, people don’t like working for startups, companies don’t like buying from startups, building owners don’t like renting to startups, banks don’t like lending to startups, press don’t like talking with startups, integrators don’t like partnering with startups, lawyers don’t like representing startups, and investors don’t like funding startups. In Europe, each of these is more than a little true.”

At last, I read a great keynote from Paul Graham (may 2006), giving his TOP 10 reasons why startups are condensing in US and about the supremacy of the silicon valley. I kept below the excerpts that are, according to me, of strong interest for Europe but I recommend reading it all on his blog.

” Startups happen in clusters. There are a lot of them in Silicon Valley and Boston, and few in Chicago or Miami. A country that wants startups will probably also have to reproduce whatever makes these clusters form. I’ve claimed that the recipe is a great university near a town smart people like. If you set up those conditions within the US, startups will form as inevitably as water droplets condense on a cold piece of metal. But when I consider what it would take to reproduce Silicon Valley in another country, it’s clear the US is a particularly humid environment. Startups condense more easily here. It is by no means a lost cause to try to create a silicon valley in another country. There’s room not merely to equal Silicon Valley, but to surpass it. But if you want to do that, you have to understand the advantages startups get from being in America.

1. The US allows immigration. (…)

2. The US is a rich country. (…)

3. The US is not (Yet) a police state. (…)

4. American universities are better. (…) The German and Dutch governments, perhaps from fear of elitism, try to ensure that all universities are roughly equal in quality. The downside is that none are especially good. The best professors are spread out, instead of being concentrated as they are in the US. This probably makes them less productive, because they don’t have good colleagues to inspire them. It also means no one university will be good enough to act as a mecca, attracting talent from abroad and causing startups to form around it.

5. You can fire people in America. I think one of the biggest obstacles to creating startups in Europe is the attitude toward employment. The famously rigid labor laws hurt every company, but startups especially, because startups have the least time to spare for bureaucratic hassles. The difficulty of firing people is a particular problem for startups because they have no redundancy. Every person has to do their job well. (…) Performance isn’t everything, you say? Well, are auto workers, schoolteachers, and civil servants happier than actors, professors, and professional athletes?

6. In America work is less identified with employment. The problem in more traditional places like Europe and Japan goes deeper than the employment laws. More dangerous is the attitude they reflect: that an employee is a kind of servant, whom the employer has a duty to protect. It used to be that way in America too. In 1970 you were still supposed to get a job with a big company, for whom ideally you’d work your whole career. In return the company would take care of you: they’d try not to fire you, cover your medical expenses, and support you in old age. (…)

7. America is not too fussy. If there are any laws regulating businesses, you can assume larval startups will break most of them, because they don’t know what the laws are and don’t have time to find out. For example, many startups in America begin in places where it’s not really legal to run a business. Hewlett-Packard, Apple, and Google were all run out of garages. Many more startups, including ours, were initially run out of apartments. If the laws against such things were actually enforced, most startups wouldn’t happen. (…) Here’s a tip for governments that want to encourage startups: read the stories of existing startups, and then try to simulate what would have happened in your country. When you hit something that would have killed Apple, prune it off. Startups are marginal. They’re started by the poor and the timid; they begin in marginal space and spare time; they’re started by people who are supposed to be doing something else; and though businesses, their founders often know nothing about business. Young startups are fragile. A society that trims its margins sharply will kill them all.

8. America has a large domestic market. (…)

9. America has venture funding. Startups are easier to start in America because funding is easier to get. There are now a few VC firms outside the US, but startup funding doesn’t only come from VC firms. A more important source, because it’s more personal and comes earlier in the process, is money from individual angel investors. Google might never have got to the point where they could raise millions from VC funds if they hadn’t first raised a hundred thousand from Andy Bechtolsheim. And he could help them because he was one of the founders of Sun. This pattern is repeated constantly in startup hubs. It’s this pattern that makes them startup hubs. (…)

10. America has dynamic typing for careers. Compared to other industrialized countries the US is disorganized about routing people into careers. For example, in America people often don’t decide to go to medical school till they’ve finished college. In Europe they generally decide in high school. The European approach reflects the old idea that each person has a single, definite occupation– which is not far from the idea that each person has a natural “station” in life. If this were true, the most efficient plan would be to discover each person’s station as early as possible, so they could receive the training appropriate to it. (…)


There’s one item conspicuously missing from this list: American attitudes. Americans are said to be more entrepreneurial, and less afraid of risk. But America has no monopoly on this. Indians and Chinese seem plenty entrepreneurial, perhaps more than Americans. Some say Europeans are less energetic, but I don’t believe it. I think the problem with Europe is not that they lack balls, but that they lack examples. (…)

How to do better (…)

… if you want to beat America, design a town that puts cars last. It will be a while before any American city can bring itself to do that. … if you want to encourage startups you should have a low rate on capital gains. … A country that got immigration right would have a huge advantage. At this point you could become a mecca for smart people simply by having an immigration system that let them in. …”

Exciting huh? but it looks like we (Europeans, at least) will keep struggling for a while…

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