I was invited to Finland as part of Stanford’s Engineering Technology Venture Program partnership with Aalto University. (Thanks to Kristo Ovaska and team for the fabulous logistics!) I presented to 1,000’s of entrepreneurs, talked to 17 startups, gave 12 lectures, had 9 interviews, chatted with 8 VC’s, sat on 4 panels, talked policy with 2 government ministers, 2 members of parliament, 1 head of a public pension fund and was in 1 TV-documentary. More details can be found at www.steveblank.fi
This is part 2 of 2 of what I found. Part 1 can be found here.
Toxic Business Press and Contradictory Government Incentives
Unique to Finland with its strong cultural emphasis on equality and the redistribution of wealth is a business press that doesn’t understand startups and is overtly hostile to their success. When MySQL was sold for $1B and the cleantech company the Switch got acquired for $250M, one would have expected the country to celebrate that they had built these world-class companies. Instead the business press dumped on the founders for “selling out.” In 2010 it got worse with an Act in parliament about the Monitoring of Foreigners’ Corporate Acquisitions. Many founders mentioned this as a reason not to incorporate or grow their companies in Finland.
While the government says they love startups, the first thing they did this year is raise the capital gains tax. While it might have been politically expedient, it was not a welcome sign for long-term investment. I suggested they consider an investment tax credit for pension funds that invest in Finnish based VC firms.
Nokia as “He Who Must Not Be Named”
I was in Finland three days before I realized that no one had mentioned the word “Nokia.” After I brought it up in a meeting, you could have heard a pin drop. Nokia was Finland’s symbol of national competence. Most Finns take their failure as a personal embarrassment. (Note to Finland – lighten up. Nokia was blind-sided in a classic disruptive innovation. 50% the fault of a Nokia management that didn’t see it coming, while 50% was due to brilliant Apple execution.) Ultimately, Nokia’s difficulties will turn out to be good news for Finnish entrepreneurs. They’ve stopped hiring the best talent, and startups are not looking so risky compared to large companies.
Nanny-Culture, Lack of Risk Taking, Not Sharing
What makes Finland such a wonderful place to live and raise a family may ultimately be what kills it as a startup hub. There’s a safety net in almost every part of one’s public and private life – health insurance, free college tuition, unions, collective bargaining, fixed work hours, etc. And what’s great for the mass of society – a government safety net verging on the ultimate nanny state – makes it impossible to fail. You find early stage employees expecting to work normal hours, to get paid a regular salary, and not asking or expecting equity. There isn’t much of a killer instinct among the masses.
It’s the rare region where risk equals experience. By nature Finns are not good at tolerating risk. This gets compounded by the cultural tendency not to share or talk in meetings, sometimes to the point of silence. This is a fundamental challenge in creating an entrepreneurial culture. This extends to sharing among startups. The insular nature of the culture hasn’t yet created a “pay it forward” culture.
Summary
The young entrepreneurs I met are bringing impressive energy and intelligence to their goal of building one of Europe’s leading technology hubs in Helsinki. Finland itself has significant engineering talent, and is also attracting entrepreneurs from Russia and the former USSR. It will be fascinating to see if they can lead the cultural change and secure the political support (in a government run by an older generation) to support their vision.
Lessons Learned
- Finland is trying to engineer an entrepreneurial cluster as a National policy to drive economic growth through entrepreneurial ventures
- They’ve gotten off to a good start with a start around Aalto University with passionate students
- Startup incubators, business angels and VCs are starting to emerge
- The country needs to figure out a long term privatization strategy for Venture investing
- Finnish culture makes risk-taking and sharing hard
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Filed under: Business Model versus Business Plan, Customer Development, Teaching, Venture Capital |
This is not only true for Finland but most of Europe. Add to that the stigma of failure that is prevalent in most parts of the world and it is clear why there is only one Silicon Valley and most Entrepreneurs leave Europe as soon as they can.
re: “I suggested they consider an investment tax credit for pension funds that invest in Finnish based VC firms.” To be fair – under EU laws this might be a challenge. Finland up until 2006 Finland had an incredibly generous system to encourage those funds to invest in traditional Finnish firms: any dividends received from Finnish firms could be applied essentially as a tax deduction. After this was challenged by an investor as counter to the EU principle of freedom of circulation of money and people, they government unified dividends and capital gains under the same tax rate – applying the same rate to these profits regardless of source (domestic or foreign).
Dude, you’re like soooo funny it’s hilarious.
Americans commenting on business abroad. Will wonders never cease.
Should one size fit all?
People become entrepreneurs because they listen to a different drummer. Entrepreneurship is a mechanism to express one’s passion, full time 24×7. Money is only one component of that drive and may not be critical.
Silicon Valley entrepreneurial model is hugely successful because of the money drive. But there are other social entrepreneurs, for example Salman Khan of Khan Academy.
Perhaps Finnish model needs to evolve to meet the needs of their drummer.
Speaking as a Finn, the problems in both the business and the arts realms are the same, and well described here. Finland is slowly killing its own culture – design, literature, TV, film – as well as business, and right now there is nothing in sight that will change that. Young generations quickly get indoctrinated into the system and stop trying to make a difference by their late thirties.
I come from a country like Finland, 4-5 million, with a different attitude to life and what is important to oneself and family. I also have been in the heart of Europe developing companies spun out of venture capital that have successfully towed the commercialisation tract and marched forward.
What disturbs me, is where some would equate market behaviour and innovation in central Europe and America as being leading edge – at this point in history – I would say they have it wrong, and it starts with an approach to what is important.
And perhaps Finland and others, like New Zealand with populations at about 4-5 million have the balance right. Maybe too many bad businesses ideas have been given the freedom to surface and a bit of austerity is just what is needed to build a platform of change and understanding. I for one cannot see how one can stand on the pulpit of western business innovation at this point in time and not consider the full picture ! It’s not about more – it’s about doing better with less. Maybe that is a good barrier to have?
I have to say as seen the many business cultures the past decade I have come to the following conclusion about how my ideal corporation would be build:
Research and Development division would be in Finland where education is a one of highest in the world, if not highest and salary level of engineers is in mid-level globally. The many countries e.g. like Germany are trying to adopt our school system.
Manufacturing division I would place to China (not R&D).
Head Quarter, VC, Sales and Marketing division I would place to business oriented place, North-America.
This is a good tip for somebody ;=)
But Steve is right about that our government is too careful and their do not see “the big picture” and the most people who are sitting in the government does not have a real experiences of strategy and business development… how you can expect those people to manage success?
It’s always easy to save the money, but how to make it money that is a totally unknown area for those people in government.
I would lower corp. taxes and it would support smaller companies to grow and attract even more foreign companies to come Finland, because of high knowledge base and education model. VC is the other story its own.
ija – what you describe is the structure of Meta Watch: R&D in Finland; production in China; sales/mktg/biz dev in US.
I’ve written about this before, but I am not sure if we can ever compete in the same way than american startups. It’s paradoxial that the more equal (=better) society you have, the harder it’s to make people hungry for success (or money).
There might be a different startup culture out there, that proves to be valuable to the world .
I’m not sure if we Finns should even try to imitate the startup culture in the Silicon Valley, but look for a more natural way of bringing value to the world, which suits better for our Finnish nature.
We have a unique set of characteristics both in behaviour and in our climate and society. We can use those as an advantage to be better at few specific areas of innovation, so that we have our own one niche market.
as a person that has lived in 4 different countries so far (including Finland but I am not a Finn), and is currently in USA, I can say that author of this post completely ignores the meaning of cultural differences.
It is as the world should be modeled as the “winning” formula for success to business and this world is the USA.
USA is a great place and have great innovations, but this does not necessarily mean that the same model should and must be exported as it is.
Different cultures have different development models and their path to success.
Rovio is the latest example of innovation coming from Finland.
Japan has a different corporations model and still its companies have shown great leaderships. Should they adopt the American model? Probably not.
This is not a critic to USA, but a critic to this post that has a clear restrictive view of the world.
I suggest the author the following book:
Organizational Culture and Leadership by Edgar H. Schein
This probably going on a side track a bit, And I apologize in advance if someone see this as threadjacking.
But since cultural topics and educational system were mentioned in the previous comments I wanted to share an interesting article about the educational issues (comparing Finland and the USA)
http://marketplace.publicradio.org/display/web/2011/09/26/pm-for-education-reform-dont-blame-the-teachers/
I really lack the expertize to say if this has anything to do with entrepreneurship though!
Actually there is even better blog related to my previous post:
(Thanks “OP “for point this out.)
http://www.washingtonpost.com/blogs/answer-sheet/post/ravitch-why-finlands-schools-are-great-by-doing-what-we-dont/2011/10/12/gIQAmTyLgL_blog.html?wprss=answer-sheet
still no idea if this is related to “nanny culture” and risk avoidance?
…perhaps this could be a research avenue for someone with educational studies.
Hi Steve, here are still some general comments on the current state of affairs covering the Finnish startup and R&D scene from the Tekes point of view:
Most startup growth enterprises are in need of public and private funding in Finland.
As one of the major public players Tekes has a role in funding the startups and the Tekes strategy especially aims to balance the current market shortfalls by co-funding a number of most promising seed stage startups with small investments. The criteria (market potential, team etc.) used in funding is very similar to the risk investors (angels, VC). However, at the seed stage, there is high risk and no certainty of the companies’ chances of success, and local private investors are thus rarely prepared to fund them.
The next step, or the startup phase, is more selective and based on co-funding with private investors.
In the growth phase, funding must be found on a commercial basis, as you are suggesting.
The current accelerator model for startups (VIGO) comes from Israel. It could not be launched on private funding alone. In the future, such programmes can hopefully operate without public input.
Tekes has modelled its activities also on practices in the United States, where the government is an active startup phase investor. A significant funding programme titled SBIR is operational in the US. Tekes funding for young innovative companies is based on practices similar to those employed in the United States.
The majority of Tekes funding is targeted at R&D activities. In Finland, the level of R&D funding directed at companies is about one third of the US levels in proportion to R&D investments made by the companies themselves.
Connecting “nanny state” with lack of innovation and risk taking bothers me. I think you aren’t considering the flip side of the equation — you have the _freedom_ to take risks, because your basic needs are going to be met, even if you fail.
One of the things that Americans often fail to realize is that in social or semi-socialized countries there’s a great deal of freedom to take any job you want to, at any time. You aren’t risking your health insurance by doing so. You’re free to form a company any time you want to, without losing health insurance.
It seems that you’re trying to imply that a country that chooses to provide health care, education, and so forth has less innovation.
What about Germany? Aside from its long-standing dominance in many sectors, Germany has many fine software firms, and there’s a ton of software research being done there. Compared to the US Germany is definitely a “nanny state”; it doesn’t seem to be impacting their ability to innovate (and dominate).
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