Students speak out

Comparing entrepreneurship in Europe and in the US

Philipp ReisingerI come from in Austria, a small country in Central Europe, which is also the birthplace of Dietrich Mateschitz, the founder of Red Bull. In 1987, he got together with a businessman from Thailand and introduced the now ubiquitous energy drink to the world. Other countries in Europe also have their own start-up success stories, like UK’s Richard Branson, who founded Virgin, or Xavier Niel, who created a mobile phone start-up in France. But stories like these are few and far between. Compared to the United States and other parts of the world like India and Brazil, Europe is lagging very strongly in the domain of entrepreneurship, and has to be careful not to lose track. This is not a new trend though. The majority of the big companies in Europe were all founded before the 1950s, and since then, only 7 new ones were created, compared to 52 in the States.

by Philipp Reisinger, electrical and computer engineering masters student, graduating December 2013. I have a passion for entrepreneurship and technology, and I think the US is the perfect place to be if you want to take that road.

There are many reasons for this phenomenon:

  1. The first one is the labor laws. Most European countries have very strong unions and therefore have strong laws protecting employees from being laid off, granting them large severance packages and long notice periods. Some of the former can be as long as 6 months, compared to one or two months in the US. This is very risky for young businesses because they cannot afford to cut staff during rough times in order to restructure.
  2. The second reason is that recovering from a failed business is not easy, since in some countries, bankruptcies are punished harshly. The Economist reports that it can take a French businessman up to 9 years to recover from a bankruptcy; in the US it takes less than a year.
  3. Another issue is the fragmented market, which stems from the different languages and cultures that compose the European continent. The market in America is much larger and homogenous than in Europe. It takes a company more time and money to reach a substantial amount of customers, since it has to spend a lot of money to adapt to the differences. The founding of the European Union has eased this by introducing free trade and free movement of labor laws. Still, some companies never get out of their accustomed area, and a lot of potential is wasted.
  4. Adding to all this, Europe does not have any “hot” start-up hubs like Silicon Valley or New York City, where an aspiring entrepreneur will go to in order to take advantage of specialized labor, funding and real estate.
  5. This brings us to the probably most important factor: venture capital. In order to grow a company from the early stages into a big and successful one, risk capital is needed, but that is very hard to come by in Europe. Since the bubble burst in 2000, institutional investors regard European venture capital as a bad asset class and are not willing to invest much in start-ups.

The question that needs to be answered then is who is going to provide the future jobs and growth? Especially in the tech area, the US is much further ahead. The Economist states that there is a huge problem, when “an economy so copiously provided with the technically educated as Germany’s has not produced a single globally important business-to-consumer internet company.”

The EU is trying hard to change this and motivate their citizens to become entrepreneurs. They are starting a campaign whose goal it is to create 500,000 start-ups over the next 3 years. But in reality, the governments will have to do their share of work to make this possible. They need to change the laws that make the place so entrepreneur-unfriendly if they want to get real results. New start-up hubs that are attractive for entrepreneurs will have to emerge, where people working in the same areas will congregate to create and build new ideas. Currently Berlin and Amsterdam are favorites for this position, since they already have an underground start-up culture, which has already spawned companies like SoundCloud and Spotify. Also the continent’s mentality concerning entrepreneurship has to change. People have to adopt a more positive view of entrepreneurship and risk.

Presently, many Europeans interested in starting up a business, like myself, are leaving the continent and coming to the States to try their luck here, since the circumstances are much more appealing. To recount my personal experience: I started an e-commerce business whilst studying at the Vienna University of Technology, and I was lucky that my father already had a business license, since it would have been difficult and costly to get one. Therefore, I was able to run the venture under his name and, in the end, it worked out well. On the other hand, if I would have been on my own, I wouldn’t have known where to turn, since the university itself also didn’t have any programs to support entrepreneurs and I didn’t see the same mentality towards entrepreneurship that I’ve encountered here at CMU. Everyone here is motivated and eager to learn and to help, and there are a lot of resources available.

To conclude, Europe has to think hard about this problem and try to fix it now; otherwise there will be serious consequences for the economy in the future.

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