Startups and Work: Europe vs the US

Michael Arrington of Techcrunch comments on the US vs Europe in terms of startups:

Joie De Vivre: The Europeans Are Out To Lunch

It’s a pretty rough and coarse-grained view of things, but there’s a grain of truth there.

I’ve written about this a little bit before. It’s something that I feel qualified to talk about, having lived and worked in both the US and Europe (Italy and Austria to be precise), and in that time, generally gravitated towards startups.

Here’s my quick take on a list of what’s good and bad about each. Please note that these are of course not true for everyone, that things are changing, but are still things I think are generally true, even when I could think of several counterexamples for some of them myself. Also, it’s very important to keep in mind how diverse “Europe” is, so most of what I write is really about Italy, and to a much smaller degree, Austria. I’d be very curious to hear your own experiences in the comments.

Europe

Bad

  • Less of a startup culture and mentality. It’s more typical to get a “job for life” and hang on to it for all you’re worth. Many Italians are tremendously creative, industrious, inventive people, but are going to find it more difficult to express that in some form of business.

  • The side effects of this mean that there are fewer people to talk with, and network with, fewer potential employees willing to risk a startup, and so on. For instance, people are at times more suspicious of a new company – both clients and suppliers.

  • As I mentioned in my other article, it takes a lot more money to get started in many European countries – something like 10,000 Euro in Italy. Other places like the UK are cheaper, and apparently Germany is introducing some legislation to ease the burden on new companies. I really hope this changes in Europe because it’s such an easy change to make: don’t extract money from companies until they’re making it.

  • More bureaucracy. I think that higher taxes, once you are profitable, might be worth paying for the social system you get in Europe, but the cost of sorting out paperwork falls inordinately on smaller, newer companies. Big, established firms can hire people to deal with all the rules and regulations, and probably have contacts in the government that can help them out in some cases. Smaller firms are the ones whose time is really going to be wasted running around to different offices trying to figure out what they have to do.

  • Smaller, fragmented markets. Localization is not a lot of fun in some ways, and trying to translate everything into all the languages of the European Union is a huge undertaking. In the US, you get a huge market with just English and the US Dollar. Even beyond language issues, the culture changes less in the US from place to place, meaning that you have a more homogeneous target.

  • Lack of acceptance of failure, both culturally and institutionally. If you go bankrupt in Italy, it’s a very serious problem. Apparently (although this is second hand, I’m not 100% sure of it – maybe someone can confirm whether it’s actually true?), you can even lose the right to vote. Plenty of people in the US try several times before they get it right.

Good

  • Even if your undertaking fails, you still have health care. Likewise, there are other bits and pieces of social support (that change from country to country) that mean you’re probably not going to land quite so hard on your rear if things go wrong.

  • Lots of smart, educated people. I never lacked for plenty of smart people to talk shop with in Padova, and didn’t miss the California bay area at all from that point of view. Open source is really big in Europe – perhaps, in part, because for many people it’s a better avenue for their talents than creating a business, when doing so is difficult and less common.

  • Work/life balance. Sorry Mike, but the amount of people who are truly going to strike it rich is pretty small. If they want to work hard, great, but it’s nice to have some other options, in terms of good, lasting friendships (rather than everything revolving around work), knowing plenty of people from outside your field, people living in and belonging to a community (how many people spend their whole lives in the bay area?). When I moved from San Francisco to Padova in 2000, I went from a world gone mad with money and the dot com craze to one where there were rich and poor, families, young people, old people, and many people who were not working for some dot com. That’s not to say that people don’t work quite hard in Italy – two hour lunches are a thing of the past for most anyone I know.

  • Smaller fragmented markets can be an advantage, too. By the time some valley-based startup finally gets around to noticing that languages other than English exist, it’s possible to capture a smaller market. Ok, so you won’t be the next Google that way, but there’s good money to be had in doing so.

  • In some ways, the staid, established, don’t rock the boat way of doing things in some industries may present big opportunities for outsiders to come in and pull the carpet out from under everyone. This is especially true of internet/web companies that can get started quickly and cheaply.

US

Bad

  • If you’re not careful, you can get completely sucked in to work – your life revolves around it, your friends are mostly work friends, and if something happens to your job, a lot of that goes poof. This is especially true in places like the bay area, where so many people are ‘transients’ – just there for a few years, without any real roots in the area. This is ok if you’ll potentially make a big pile of money, but long term it’s unhealthy.

  • Less of a sense of building for the long term. Personally, I don’t want a “job for life”, but I think there is some value in loyalty (the genuine sort, not the sort created by legally not being able to lose a job) between employer and employee that has been lost in the US. Being able to count on someone growing with your company, and as an employee, knowing that your company will do what it can to help you out even in tough times are things that capture some value. The US seems to be heading towards a “Coasian” world where everyone is a freelancer, and while that efficiency is hard to deny, I wonder what is lost in the process.

  • The competition is tough. Sure, it is in Europe too, but in Europe everyone may compete quite hard during the year, but still all take that one month vacation (although that is becoming a bit less common, especially amongst people my age), whereas in the US almost no one gets that kind of benefit – even if you wanted to take unpaid time off, people would look askance at that kind of behavior. That said, if you need to stay open in, say, August, in Italy, to compete, you are in big trouble, because for many businesses it’s simply impossible because it’s a chain reaction: all your suppliers and clients shut down, so you really have no choice.

Good

  • There are certainly bureaucratic obstacles in the US, but are much more maneageable, and don’t hit smaller/newer companies quite so badly.

  • It’s cheap to get started. As per my other article, the actual state filing fee in Oregon for an LLC is $55, and that’s all you really need.

  • The culture is definitely there, especially in the right places like the Bay Area, but even in plenty of others.

  • You aren’t bound to employees for life, and it’s easy to find freelancers. I know I’m contradicting myself, but I think it’s actually a complex issue, and there are definite advantages to not having people who expect or at least want to find that job for life.

  • A large target market. Go online in one state, and you can, for the most part, deal with customers all over the US, in one language.

  • Things turn around faster. I have more of a sense that when there are problems, they get fixed. Companies (the debacle of the automakers notwithstanding) are more often allowed to fail, or at least put in Chapter 11. Sometimes this means that when things are bad, they get really bad, but also turn around and get better sooner.

Conclusions

An interesting example of all this from my own experience was Linuxcare. The company was, culturally, a Bay Area startup, with the headquarters in San Francisco, founded by very startup oriented guys (one of whom, Dave Sifry, went on to do technorati, and is currently working on yet another venture). However, most of the actual open source talent was in our satellite offices, in Australia, Italy and Canada, places where, perhaps, people were not so distracted by the prospect of “make money fast!!! hurry!!!” that they had time to work, learn, and create some really great open source code.

To be honest, I find myself torn. Business-wise, I prefer the US. However, outside of that, there’s a lot to be said for Europe. I also think that some of what’s good about business in the US is coming to Europe, albeit slowly in some cases, in Europe. People my age here can see what’s going on elsewhere, and try and copy what they like. A lot of what’s good about Europe, though, might be more difficult to import into the US, especially the livability of the cities.

In any case, I can conclude that it’s a complex, difficult topic best discussed over a glass of wine.

Startups and the role of capital and investments

One of the most exciting things about the computer industry these days is the ease with which can get started. Decent computers can be had for well south of $1000, hosting is cheap, services like Amazon EC2 make it ever easier to scale rapidly should the need arise, and the only other things you need are an internet connection and a place to sit. This is leading to more people, like 37 Signals to question the need for investment entirely and others, like YCombinator to successfully make very small investments (thousands of dollars, rather than millions).

Sometimes, however, I wonder – is it just a passing moment in time, a window of opportunity, or is it a long term trend? Historically, to set up something like a factory required a great deal of money, putting it beyond the reach of anyone unable to obtain financing. Even in this day and age, there are plenty of endeavors that require large amounts of capital, and a lot of time, prior to seeing returns: that’s how things work in my wife’s field, biotech. Some fields have even become more expensive with time. High end computer games are very expensive propositions in this day and age, compared to the low budget stuff typical of, say, the Commodore 64 era, although it’s also true that the market has also grown a lot, and that there is still space for smaller-budget operations.

How does all this look historically? Have there been industries in the past where it was so easy to get started? Anything that was able to scale? By which I mean: it might have been relatively easy to start some kind of small business, but it would most likely always stay small, whereas things like Craigslist or 37Signals have the means to grow a great deal without adding lots of people. Will things change in the future so that one or a few programmers can’t compete with a big team? Or perhaps things will go in the other direction and more industries will become like computing is today and it will be possible to a biotech startup in your home office?

Startups: government help and hindrance

Aaron Swartz writes about what government might do to encourage entrepreneurship:

http://www.aaronsw.com/weblog/prostartup

As an American who has lived in Europe for a while, I’ve seen both sides of the coin (or pond, as it were), and feel qualified to add a few things to the conversation, even if many of these points merit a discussion of their own.

  • He’s right about health care. It’s one of those things with a huge downside risk that people in Europe simply don’t have to think about. You can change jobs, take a break from a job, start a company…whatever, and you never have to think about “what if”. Even if you have the sort of preexisting condition that can hang like a stone around your neck in the US. How to implement such a system (which of course has potential disadvantages as well) is well beyond the scope of this journal.

  • Universal education. I don’t think it’s as great as Aaron seems to think, but I don’t think it’s very influential one way or the other on startups. People get good educations in both places, although, by and large, the best Universities are in the US because they have more money, and have in the past attracted highly qualified people from all over the world. In both places, students manage to meet other like minded people with whom they can start companies. There are definitely improvements to be made to the US system, but that’s really just a political discussion: like I said, differences in universities are not the limiting factor.

  • Minimum income without having to work or even having to look for work sounds like an enormous can of worms. Might be good for startups, but has big risks associated with it, and wouldn’t be politically feasible in the US. Even in most European countries with that sort of thing, you don’t just get money: you have to look for work, do job training, or prove that you’re just not capable of doing anything productive.

And here are some thoughts of my own:

I think it’s best to focus on the startup “curve”, and costs associated with various points on it: when people are just getting started, keep state-imposed costs low. If someone makes a lot of money, worry about taxing it then.

This is quite different than what has previously been the norm in many places in Europe, which have policies akin to slaughtering the goose before it lays any eggs, let alone golden ones. Italy is a particularly bad example, but it’s the place I know best, and not too far off what happens elsewhere in terms of policy: fixed, sunk, startup costs are in the order of 10,000 Euro, which for most people is a lot of money. This creates a bias towards people who already have a lot of money, and away from random people who happen to have good ideas and a strong desire to execute on them. This is something that the US more or less gets right: it cost me $55 in state fees to start DedaSys LLC as a limited liability company (even throwing in money for lawyers and the like, you’re still far under the thousands it costs in many European countries).

Incidentally, it looks like Germany may be on the right track, if you look at the “Mini-GmbH” mentioned in the article. It’s progress, if nothing else.

Beyond that, there is a lot more red tape in Europe, and that, I think, rather than a bit higher taxes for companies that are profitable, is the thing that, outside of culture, probably weighs most heavily on European startups.

Culture, however, is also a very key factor, and not something that will change soon or easily. In Italy, there’s a lot of pressure to land a permanent job, from which you can basically never be fired. The idea of striking out on your own is probably simply not on most people’s radar screens. I think culture is what means that Europe produces tons of great open source software, for example, but relatively fewer startups (if you’re just counting open source startups though, Europe does ok). Perhaps this is slowly changing, but it will take a while, and without some policy changes, the incentives won’t even materialize.

Returning to things that government can do, something critical that many people don’t get is that government funded startups are usually big failures (see the French “Google competitor”) and a big waste of money that would probably simply be better to spend in lowering taxes, improving education, or other “level playing field” initiatives, rather than having government employees attempting to “pick winners”. This is a common problem in Europe, but also in many areas of the US that want to replicate Silicon Valley’s success.

Going back to the US, which was Aaron’s original point of focus, beyond health care, what could the US improve? At the moment, immigration seems to be the big problem: people from all over the world want to go to the US to work and start companies, but look at what kinds of hoops someone (who is coming to spend money and create jobs!) has to jump through to do so:

http://www.techcrunch.com/2008/05/02/coming-to-america-getting-visas-to-do-business-in-silicon-valley/

Embarrassing and shameful.

In conclusion, I think the common theme is that the government can’t really do much to actively promote startups, but can certainly hinder them by setting too high a bar in terms of bureaucracy and fixed costs. Lowering those fixed costs for new companies, be it through at least basic health care for everyone, or lower taxes and less paperwork should be what governments aim for. Given the right conditions and incentives, bright, hard workers will do the rest.

Sometimes I’m reminded just how cool the internet is

I’m just old enough to have only discovered the internet at about the time I graduated from high school, and have been using it for about 15 years. Every once in a while though, it comes back and hits me just how cool the whole thing is. Not “yeah, neat”, but a serious wow at just how amazing it is to be able to communicate with people the world over. I think the first time that happened was when I had been exploring some of the early nineties internet – gopher and the web with lynx. Which was neat, but not in the “wow” sense. Then I stumbled on to IRC somehow, and since at the time I’d already started taking Italian courses, I thought I’d see if there was an Italian channel. There was, and I think the conversation went something like this:

me: so, where are you guys?

someone: Italy, and you?

me: Oregon, but, no, seriously, where are you?

someone: Italy!

me: Seriously?!

It was a very concrete demonstration of the fact, that, thanks to this new thing, I could talk to people all over the world, for free!

Of course I’ve grown used to this, and take for granted that I can call my parents in Oregon via Skype for free, and a lot of other cool things, but once in a while something makes me take a step back and say “cool!”.

Most recently, a web site I follow that I follow has had an interesting back and forth between Paul Graham and David Heinemeier Hansson, with additional comments by the likes of Paul Buchheit, which, agree or disagree with their modus operandi, is an impressive cast of characters to be able to interact with, and learn from, without moving from my perch up here in the middle of the Tyrolean Alps.