Some Advantages of Founding a Startup in EU vs in the US (Pioneers Festival 2012 Talk)

(Slides available upon request)

At the Vienna Pioneers’ Festival in October 2012 I gave a talk during Investor’s Day.  I wanted let founders (especially local founders) know that it’s not always about moving to Silicon Alley as fast as possible. There are several advantages to founding and operating a startup in Europe.

My points were primarily:

1.    The extreme diversity of Europe can be very overwhelming for founders, and is indeed a huge obstacle to overcome for growth stage companies. But seed stage companies can use that diversity to establish niches and beachheads very quickly in their local markets, while their competitors struggle with legal and cultural challenges if trying to penetrate the same market.  This gives very early companies time to experiment and try various things, even in a winner take all market against larger competitors.

This can be especially advantageous for startups relying on Network Effects for growth (think, social network companies).  Such startups typically have a huge challenge early on, the chicken and egg problem.  Until the startup has a critical mass of users, it doesn’t bring much value for the new users who are thinking of joining.  A lot of startups try to get around this by spending tons on marketing (and forgoing any thought of revenue in the beginning).  This sometimes works, but is risky, especially with unproven teams.

Another approach is to shrink down the total “universe” of potential users so that the critical mass point is reached faster.  Best example is probably Facebook, which reached critical mass amoung it’s “universe” in only a few short weeks … with only a few thoasand users.  This was due to the fact that there was an initial limit of this universe only to Harvard students, meansing only a few thoasand users could still equal 70%+ of the undergrad class.

Europe’s diversity seems perfect for this kind of approach for such Networking Effects startups.  A company may struggle to reach 40% user base for Germany, which corresponds to 32 Mio. users.  But Austria shares many similair demographics as Germany (in addition to language and culture), and 40% there can be reached with only 3 Mio. users.  Or think smaller, only 40% Vienna at 680,000 users. Better subsets can be reached not only based on geography but on culture. Number of Christians in southern France (for a meetup web startup), number of secretaries in Berlin (for a distraction/user-content based web startup), etc.  I’ve heard that grocery chain Rewe uses it’s Austrian subsidiary Bipa to try out new technologies and methods, seeing how things look with an Austria only rollout before doing a potential rollout across much larger Germany.

2.     There’s alot less “noise” about startups in Europe right now than in the US.  (This is changing, however).  This means that with all other things concidered equal, odds are greater in Europe that that critical journalist or blogger will see your product; or a VC does get to your email sooner rather than later; or best of all: early adopters will see your product and decide to give it a shot. Think of the difference in ease of raising to the top page of Apple’s Appstore in France versus in the US.

3.     Average university students studying math, science, engineering, computer science in Europe: 13%.  Average in the US: 6%.  It’s no secret that engineers and developers are easier and cheaper to be had in Europe than in Silicon Valley right now.  I know of at least two startups that founded in the US, got US VCs to heavily invest in the companies, and then based themselves in Europe in order to get excellent talent cheaply.  Another interesting stat from  Riviera Partners in Q3 2012: average starting engineering salary in Silicon Valley (with under 3 years professional experience) at an early stage startup: $126T. Wow.

Again, this speech wasn’t about evangelizing europe as the best place to found a company, but rather an attempt to put into perspective that while there are many disadvantages, there are still many advantages which clever founders can use to remain globally competitive.