THE COLOSSAS ARE GETTING AGEING
The data shows us that continental Europe is struggling to create new businesses that are destined to grow. According to the Global Entrepreneurship Monitor, which provides comparable data between countries, in 2010 new entrepreneurs (TEA) were only 2,3% of the Italian adult population, 5,6% of the German and 5,8% of the French . In European cities the percentage is lower – in many cases much lower – than in American (12,3%) or Turkish (11,9%) cities, not to mention Brazilian (14,9%) and Chinese ( 24%).
European entrepreneurs are not only in short supply, they are also pessimistic about their prospects. A study last year by Ernst & Young, a professional business services multinational, revealed that German, Italian and French entrepreneurs viewed their country far less as a place to set up start-ups than American, Canadian or Brazilian ones. . Very few French entrepreneurs have declared that their country provides them with the best environment; 60% of Brazilians, 42% of Japanese and 70% of Canadians think there is no better place than their homeland. When asked which cities are most likely to produce the new Google and Microsoft, the businessmen singled out Shanghai, San Francisco and Mumbai (although, to be fair, London was named as well).
However, Europe churns out a lot of small shops, hairdressers and so on. What doesn't produce enough are innovative companies that grow rapidly to be big. In 2003, analyzing Europe's entrepreneurial gap, the European Commission cited a study which showed that, during the 19s, 4% of medium-sized American companies were classified as "high growth", compared with an average of just XNUMX% in six EU countries. The Kauffman Foundation - which promotes entrepreneurial initiative around the world - argues, convincingly, that one of the reasons America has surpassed Europe in creating job opportunities is its ability to produce new businesses and in growing rapidly, such as Amazon, an online retailer, or eBay, an auction site. And, in terms of jobs, small start-ups have an additional advantage over incumbent giants: they are less likely to outsource many tasks to low-cost Asian suppliers.
According to an analysis of the 500 largest publicly traded companies in the world, conducted by Nicòlas Véron and Thomas Philippon of the think-tank Bruegel, Europe gave birth to only 12 new large companies between 1950 and 2007; America, in the same period, produced 52. Between 1975 and 2007, only three new large companies were born in Europe; of these, two were born in Great Britain or Ireland which, compared to continental Europe, have an attitude towards entrepreneurship more similar to America's. Most of Europe's large privately owned companies were also born before 1950, often much earlier.
“Why wasn't Google born in Germany?” Konrad Hilbers, the former CEO of Napster, an online music service, asked at a conference last year. The lack of a risk-oriented entrepreneurial culture was the answer. Ventures like Skype, an instant messaging and online phone service founded by a Dane and a Swede, and Wonga, an online personal loan service paint a less bleak picture than it might seem. But European entrepreneurs are still under-represented on the Internet. "Although there are signs of life - says Yossi Vardi, a highly experienced Israeli entrepreneur and angel investor - the region is still half asleep".
TOO FEW VIRGINS, NOT ENOUGH RED BULL
Europe has entrepreneurial success stories. In Spain Amancio Ortega who started a clothing store at the age of 13 and then went on to found Inditex which, with the Zara chain of stores, is a real empire of "disposable" fashion. In Austria it was Dietrich Mateschitz who launched Red Bull, an energy drink producer. In France there is Xavier Niel, who this year has started a revolution in mobile telephony by offering devices at very low cost. England has Richard Branson, founder of Virgin. But the list is still short. Many European entrepreneurs – Sir Richard excluded – do not flaunt their success. Mr. Ortega has never given an interview to the media; there are only two photos posted. Ingvar Kamprad, the millionaire founder of Ikea, the Swedish mass-produced furniture multinational, assiduously avoids any plutocratic attitude.
Many inspired entrepreneurs simply emigrate. There are about 50.000 Germans in Silicon Valley and 500 startups in the San Francisco Bay Area with French founders. One of the things they find there is the freedom to fail. If a company goes under in France, says Dan Serfaty, French founder of Viadeo, a rapidly growing social networking business, there is no second chance.
Seeking to find out what hinders entrepreneurs, the Commission examined insolvency cases last year and found that many countries treat honest but insolvent entrepreneurs in the same way as fraudsters, although only a tiny fraction of bankruptcies are fraudulent. Britain recovers from bankruptcy after one year; in America even earlier. In Germany you can wait up to 6 years to start a business again, according to the commission; in France it takes nine years. In Germany, bankruptcy is a life sentence for a managerial career in large corporations.
A second major obstacle is finance. Raising up to one million euros ($1,2 million) as seed capital among “partners, acquaintances and family members” is easy enough. But to get to the 1,5-4 million euros that companies need to develop, and there is a dramatic shortage of money. In total, the money invested in European venture capital has halved, going from 8,2 billion euros in 2007 to 4,1 last year according to the European Association of Private Equity and Venture Capital. Much of this money now comes from governments rather than private investors.
In the third stage of financing, when companies try to raise up to 20 million euros or so to boost what appears to be a successful business, American money is always available; even since they depend on big successes to compensate for the dozens of past failures, American funds are willing to chase entrepreneurs back "home" because that's where these things happen, or in emerging economies with exponential growth. However, most European entrepreneurs hit a rubber wall long before they reached the 20 million stage.
The third major obstacle is labor law. To survive fatal mistakes or fluctuating demand, young companies need to be able to reduce personnel costs quickly and economically if necessary. This is much more difficult in European countries than elsewhere. The complexity and cost of layoffs in Europe is a major concern for American venture capital, said Georges Karam, chief executive officer of Sequans Communications, a French smartphone chipmaker that went public on the New York Stock Exchange last year. The costs of substantial allowances can be a huge burden for a small business. Generous severance pay also makes it much more difficult for start-ups to recruit professional managers capable of playing in Serie A. More experienced executives are reluctant to pass up such comfortable salaries in the event of a resignation.
European business founders find it difficult to master the entrepreneur's main tools: the stock options and free shares that make start-ups attractive to employees. The legal complexity of giving new hires free shares is prohibitive, says an entrepreneur who is trying to get someone off Google, and who regularly gives out stock options. Everyone advises against it, he says. This further limits the ability of entrepreneurs to attract managers to a career change where the risk is higher.
With so much adversity, the entrepreneurial leaps seen in Berlin, London, Helsinki and a few other places give us some cause for hope. If these "wild spirits" manage to survive in these conditions, how could they thrive if they didn't have everything and everyone against them?
WE WANT TO BE FREE
Even as demand has fallen and financing is increasingly difficult, the Great Recession and the euro crisis may also mark a long-term shift in Europeans' perceptions of risk. When large companies reduce their staff, going to work in a start-up is no longer a gamble for executives. Since the crisis began in 2007, says Martin Varsavsky, an Argentine "serial" entrepreneur who founded a number of telecommunications firms in Spain, it has been considerably easier for his enterprise, Fon, a global Wi-Fi community , recruit staff. Before the crisis, engineers snubbed him in preference to Telefónica, the telephony giant, or Prisa, a media conglomerate; now that those big companies are laying off skilled workers are more willing to work in a smaller company.
Actors trying to stimulate entrepreneurship are not strong enough to address the real problems of entrepreneurs, such as labor legislation. Again, the deep crisis of the euro can make possible a change that was previously unthinkable. Mario Monti, Italy's prime minister, says he will lower the cost of setting up a company from 10.000 to 1 euro. Italy and Spain are both taking steps to make layoffs a little easier.
