Better in America? Tech-entrepreneurialism in Europe vs the US

- by guest blogger Andreas Göldi

(Göldi is the former CEO of Swiss Internet consultancy Namics, and is currently attending a study program at MIT. Disclosure: I sit on the Board of Namics). (German version of this post)

The World Wide Web, MP3, Skype (peer-to-peer VoIP), Linux. These four key innovations have one common characteristic: They were all invented in Europe, but were leveraged into profitable products and services primarily by American companies, typically by relatively young ones such as Microsoft, Google, eBay, Amazon and Yahoo. Which would seem to confirm the old stereotype that Europeans are often the best researchers, while clearly Americans are better entrepreneurs.

Why is it so? I've spent now some eight months in Boston at MIT, one of the centers of American tech-entrepreneurialism. Based on the insights I could gather here and on my previous experiences as a co-founder of an Internet company in Europe, I would like to offer a few reasons why things are different in America for people that want to start a company. And what Europeans could possibly learn.

1. Scale and language: The obvious one. The US are the largest homogeneous market in the world with a common language, a consistent law system, a developed infrastructure and a pretty even prosperity level. Neither fragmented Europe nor China and India with their enormous differences between rich cities and poor rural areas can really keep up. A startup in the US has 300 million potential customers right on its doorstep, and in the growth phase that's a huge advantage. Internationalization is expensive, and early-stage companies have particular difficulties with it.
However, a consequence is that American companies often have even more trouble in adapting to other markets. Even the most obvious things sometimes seem to be hard for them. I have frequently seen expanding American software startups that could hardly believe that there are actually different currencies in Europe; that postal zip codes don't always have five figures; that different national mentalities can play a relevant role in a sales talk. This represents an opportunity for European companies, because they are forced to think internationally and multiculturally from the outset.

2. Entrepreneurship is worthwhile for (nearly) everyone. Recently, Google invited seventh grade (13 year old) schoolgirls to the Googleplex to present their business plans –  a great way to teach kids to think entrepreneurially. Here at MIT, students keep themselves busy nonstop with business plan competitions, venture capital conferences, start-up courses and more, and practically everyone constantly thinks about business ideas. In Europe, students typically prefer to go to corporate presentations by big banks or such.
The dream of upward social mobility drives Americans, and successful entrepreneurs are often admired role models. While Americans dream of having their own company, Europeans call for the State to intervene when things get tight.
This fundamental difference in mindset is of course difficult to overcome, but there is still hope for Europe. We should not forget that the admiration directed at entrepreneurs such as Bill Gates and Steve Jobs is a relatively new phenomenon even in the US. In the heydays of GM in the Fifties and Sixties, Americans looked at big corporations to provide jobs, rather than at their garage to house their tech startup.  Slowly, a better social recognition of entrepreneurship is emerging in Europe too.

3. The "Good enough" mentality. Probably nobody would claim that Microsoft, Oracle or Dell build products of immaculate quality. A honest European engineer would often be ashamed for some of the products that American software and hardware manufacturers sell. Americans seem to have different priorities: The product doesn’t need to be perfect, just good enough to attract the customer. Even in universities one can already sense this difference. Among computer scientists at MIT an elegant hack attracts more admiration than a diligently precise but boring piece of engineering work.
It’s another discussion whether this is an appropriate attitude or rather the origin of the many tech problems and bothers that confront us daily. But one thing is clear: in this regard, Americans deal with resources more economically and invest only what's necessary in order to achieve a usable result.
Of course this works well only when, like in high-tech, product cycles are very short and speed and creativity are more important than perfection. In mature industries this approach doesn't work as well, as one can easily gather by observing the breakdown of the American automobile sector.
Perhaps this represents a chance for European (and Japanese) software makers: as the software industry matures, customers will require higher quality and precision –  things at which other countries are better than Americans.

4. The right kind of immigrants. In over half of Silicon Valley's startups, a first-generation immigrant has been part of the founding team. Profiles like those of Andreas von Bechtolsheim (Sun), Sergey Brin (Google), Jerry Yang (Yahoo) or Pierre Omidyar (eBay) speak a clear language. The common denominator of most of these stories is that these entprepreneurs came to the US at a very young age, or as students. That's the advantage of an immigration country that attracts and lets people in who want to prove themselves. The European immigration policy instead is designed to let in only immigrants that have already established themselves and - that's the flaw - already have a job at a European company. Thus Europe doesn't attract entrepreneurs, but at best good corporate soldiers.
Nevertheless, Europe has now an opportunity, because for national security and political reasons the US are increasingly closing their borders. In the new EU countries many talented youngsters are waiting for their chance, and to them it should be given.

5. A more pragmatic role of the State. When European politicians want to promote entrepreneurship, they create large technology parks, in which startups were to settle. But tech-parks construction standards and prices are optimized more for big enterprises than for hungry startuppers. Sometimes European politicians even "mandate" innovation top-down, as with the grandly announced French-German Google killer "Quaero", which already is basically dead.
In the US one leaves all that to the private initiative. If a garage or an unused bedroom is often enough to get started, why should one build expensive technology parks? And the motivations of innovation descend from other sources than politically motivated programs.
However: Even the US government is not completely "hands off". The MIT for example receives a big part of its research funds from federal entities, often in the form of research mandates for military programs. Sometimes smart graduate students with a good idea take some of the resulting technology and found their own company, and that's an absolutely desired side-effect. The first preoccupation of the government seems to be not to throw obstacles in their way.
But here too, another chance for Europe: after the Enron collapse, the Sarbanes-Oxley Act has tightened IPO rules to an extent that the interest for going public has dramatically decreased - and some US startups have listed on the European stock markets instead.

There are certainly many more points to be made, but some of those often mentioned -- such as the Americans' higher willingness to take risks, or the larger availability of venture capital -- are in my opinion just results of the factors discussed above. But clearly they can't be easily replicated.

Still, Europe actually has many advantages vs the US. I even believe that the current trends speak in favor of Europe: the US is becoming more closed, while Europe is opening up (although more slowly that one may wish). London will probably soon pass NY as the largest financial center of the world, while the American venture-capital sector currently seems to be somewhat confused about its own future. Creative companies and business ideas from Europe (like Skype, FON, Plazes, MySQL, Netvibes, Trolltech) inspire potential young entrepreneurs, because they are more original than most of the stuff currently coming out of Silicon Valley.

If the dynamics in Europe continue to develop this way and Europeans lose some of their reserve and start selling their ideas with some more self-confidence, then there's an interesting phase for tech-entrepreneurship ahead.

UPDATE 19 Feb 07 - A few interesting things left in the comments (thank you!) and definitely worth reading: Dimitar has a subjective (but very detailed) comparison of Germany and the US; Gabor asks why startups "don't condense in Europe"; Paul has worked out some macro-economics statistics about the European startup landscape.

Comments

[Dimitar Vesselinov]

A subjective comparison of Germany and the United States
http://math-www.uni-paderborn.de/~axel/us-d.html

[Paul Willis]

Would Linux exist if not for Unix and GNU (U.S.)? I think most of the research that birthed Linux was actually done in the U.S.

[Bruce Juson]

Terrific post. I have spent a great deal of time studying the rise of entrepreneurship in the U.S., and writing about it. I am often asked about what it would take to reproduce Silicon Valley, in European cultures, but I have never felt I had the deep understanding of other cultures necessary to attempt a useful answer to this question. Now, I have a piece that I can recommend people read.

Bruce Judson,
Author, "Go It Alone! The Secret to Building A Business on Your Own"
Creator, VenturesWithoutCapital.com

[Gabor Cselle]

Hi Andreas & Bruno,

I agree with most of what you say here (and have written about this before):

http://www.gaborcselle.com/blog/2006/12/why-startups-dont-condense-in-europe.html

I'm not sure whether you got the facts of US immigration policy right, but other than that, good thoughts!

Gabor

[Paul Elosegui]

The nightmare scenario is where Europe lapses into being a technology consumer rather than supplier.

I worked out a few macro-economics statistics regarding the European startup environment in

http://blog.eucap.com/entrepreneur/top_countries_to_do_business_i.html

Top European Countries for Doing Business