
Why European Startups Fail to Scale - twiceuponatime
http://www.arkley.vc/blog-quotes/why-european-startups-fail-scale
======
slavoingilizov
The author has some very good points, but I think he's trying to find a simple
explanation to a complicated problem. Of course there's no single reason for
this scale difference. If anything, Europeans appreciate cultural differences
more than people from the US.

What I think plays a big role is aggression. Startup founders in the US would
do whatever it takes to succeed. Sometimes this leads to hard work (80+ hour
weeks), other times to unfair play (Uber licensing and traditional taxis come
to mind). Generally, in the US there's a "win by all means necessary"
attitude, while Europeans prefer their work-life balance and don't "break the
rules" too much. All this is based on personal experience and I have no data
to back it up.

That said, I see the same difference between northern and southern European
nations. Southern ones are more carefree and want to relax. They even have
words and concepts around this (think the Spanish siesta). It's part of
culture which translates to work behavior.

I think this difference in founders and employees might contribute more to the
scale of startups than what the article talks about. I see value in both
approaches.

~~~
edko
The Spanish siesta is a break in the middle of the day because of the high
heat. Spanish workers are the ones who, in average, work the longest hours in
Europe (38 hours/week) after the Greek (42 h/w) and the Portuguese (39.3 h/w).
Please stop the prejudice.

~~~
JohnStrange
I have something to say about that. I live in Portugal as a foreigner and the
working hours mean nothing. People are making coffee breaks all day long and
the amount of sloppiness and incompetence can often be mind-boggling. As an
example, my German girlfriend works in a dental laboratory and her Portuguese
colleague would not possibly understand why it's not common practice in a
German laboratory to watch Youtube videos on your cell phone while working. He
really, honestly didn't believe it when she told him that German bosses don't
appreciate that.

To be fair, salaries in Portugal are ridiculous, I have no idea how people get
along with 600 Euro/m, 800 Euro/m tops, when at least in Lisbon rents are
high. Some hard working people seem to literally live off toasted bread and
coffee. This is disguised by the average salary of 1000 Euro/m after taxes,
because the gap between rich and poor is very high.

I myself work at university, and I can attest that what takes 1 day at maximum
anywhere in Northern Europe is projected to take 1-3 weeks here. I have a
colleague who surfs on the Net the whole day and gets paid for it -- again,
extremely bad payment, though.

So no, mere presence does not count and work hours don't count either. For
Portugal, I blame the bosses, though, who seem to be universally incompetent
assholes and reliably manage to create a catastrophic working atmosphere.

Sorry if I've offended some Portuguese, but that's my impression of the work
ethics here after nearly a decade of living here. It has its advantages but
productivity is not one of them.

~~~
devuo
You have not offended this Portuguese. However, if one was to go exclusively
by your account, one would come out with the understanding that is a country
of incompetent slackers, and I'm sorry, but that simply isn't true. I do
however concede that most of management in here is fairly amateurish and
incompetent.

~~~
JohnStrange
I agree, it wasn't meant to be generalized and is only a relative thing. If
the horror stories I've heard are right, Portugal is a shining beacon of
diligence in comparison to Angola. My point was just that if your boss is an
asshole and you only earn 600 Euro/month, this can hamper your motivation.

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andreasklinger
> European startups fail to recognize that they have to confirm to the rules
> and expectations of the new market they are entering.

While i agree the article makes it a bit sound that this is the delta to US
startups. US startups don't recognize this neither and still grow insanely
big.

> The United States is far from a homogenous market.

Consumer media and consumer market is cross continental in the US. And that's
the big difference.

If you launch in boston there is a good chance people in portland will hear
about it. If you launch somewhere in new jersey there is a good chance that
somebody in LA will hear about it (worstcase via NYC media)

If you launch in portugal nobody in poland will notice. If you launch in
serbia poeple in finland will never know.

That kind of launch acceleration startups in the US have enables them to "fall
forward" while doing mistakes.

TL;DR: EU VS USA - Same downside (fail) - completely different upside
(succeeding) [especially in form of early stage market pull] leads to
different scaling patterns ("rocketships"), risk awareness (investments) and
companies that are (need to be?) build

------
CM30
Or in other words, diversity in cultures and languages that isn't as prominent
in the US. The US has 350 million people with one language and a general
shared culture, Europe has 740 million people with tons of languages and very
different cultures between them.

But I think the article misses an important point. Namely access to venture
capital money.

Put it simply, it's much easier to raise a lot of money for a startup
(especially an early stage one) in the US than in Europe. So European
companies often operate on a shoestring budget in comparison to the US
counterparts. Heck, many of investments I've seen for UK companies wouldn't
pay for a single engineer in the valley. Or at best, they leave a lot less
cash available for marketing later.

Just seems like there's less access to money or a support network in Europe.
So as a result, US startups can operate on a much larger scale.

~~~
Inthenameofmine
Fully agreed. I work with several startups both US and EU side. I see 3
hurdles, all solvable:

1\. No unified capital market and banking union, hence funding is restricted
to per country Capital accumulation.

2\. Still no unified digital products, payments, and IP market. The cost of
selling any sort of IP in the EU is orders of magnitude higher than in the US.

3\. Most countries have some sort of ridiculous immigration and work permit
regulation, hindering startups to hire people easily and from anywhere.

At this point it is easier for somebody from the EU to incorporate remotely in
Delaware, setup a bank account through Atlas Stripe, do fundraising in the US
through Angellist, hire globally through any number of online platforms, and
close deals with ready made YCombinator SAFE notes, and travel with a visa
waiver every quarter cheaply to the US, than to even try incorporation in the
EU.

~~~
k-mcgrady
>> At this point it is easier for somebody from the EU to incorporate remotely
in Delaware, setup a bank account through Atlas Stripe, do fundraising in the
US through Angellist, hire globally through any number of online platforms,
and close deals with ready made YCombinator SAFE notes, and travel with a visa
waiver every quarter cheaply to the US, than to even try incorporation in the
EU.

Maybe you can go into this in more detail because my understanding below seems
pretty simple:

1\. Register an LTD company in the UK online, in minutes, for £20 through the
government website.

2\. Hire anyone that lives in the EU with very little restrictions or
paperwork. I don't see why most companies would need to hire from outside the
EU and that is a huge talent pool.

~~~
Silhouette
_Hire anyone that lives in the EU with very little restrictions or paperwork._

Hiring anyone at all is a significant hurdle in much of the EU, whether it's
from your home nation or another member state. If we're talking about startups
just starting to grow beyond the founders here, you're not going to have
anyone on board yet who is dedicated to dealing with HR, legal and payroll
issues. Those won't necessarily be a full-time job with employee #1 either,
but they're already a significant overhead the moment you start looking to
hire that person, and if anything unusual or adversarial happens it can
quickly become an actual full-time job.

~~~
k-mcgrady
>> "HR, legal and payroll issues"

These aren't issues for US based companies?

~~~
Silhouette
I'm sure they are, but as I understand it, the amount of regulation involved
in most of Europe compared to the US is on an entirely different level.

For example, in much of the US, employment is typically at-will. Make a bad
hire, or simply change direction so an early hire is no longer a good fit, and
you have minimal obligations.

In much of Europe, employment immediately or almost immediately involves
things like not being able to fire someone without being able to show they are
either genuinely redundant or not just really bad at their job but also not
capable of improvement to the point they could be useful.

Obviously there are issues of employee protection and fair employment
contracts to consider as well, but it's hardly surprising that given the very
different employment relationships either side of the Atlantic, small US
businesses thinking about taking on their first employees can be much more
liberal in hiring new staff because they have much less commitment.

------
tonyjstark
The reason could be that in Europe investors are more conservative, too. I
can't imagine that a startup gets half a million dollar here in Europe because
they let send you a friendly Yo to your buddies. (If I'm wrong here, tell me,
I got some code laying around doing stuff like that). And with Uber and AirBNB
don't tell me about embracing local laws and taxing.

~~~
ccozan
I cannot give this comment enough points so that is the top one.

But this is actually the single concern I have: conservative VC. It is sooo
bad, you guys in US cannot even imagine.

If, let's say, 5-6 years ago you could get away with a broken demo and a nice
paper describing the idea , plus a business plan, now unless you are having
3-4 customers and everything already works they don't even look at you. And
don't get me started on the accelerators. Biggest BS ever.

All in all, above even connections, money matters. You can build your stuff in
50 languages, perform 1000s of studies how to market, etc, if you have the
capital for this. This should not be expensive, but this is the stuff you need
_before_ you can expand or even reach a customer. But at this stage, you are
left on your own, or give away a big chunk of shares for some little change
from an accelerator.

------
k-mcgrady
This seems completely wrong to me. I'm guessing that the assumption 'European
startups fail to scale' is in comparison to US startups. I haven't seen any US
startups change branding colours or change UI for European markets. They
succeed in spite of this.

We're also assuming that 'scaling' is the goal and considering the writer is a
'growth hacker' it's good for business to pretend it is. But if we're talking
about cultural differences it's important to consider differences in the
overall goal. Profit seems to be a much bigger driver in Europe - scaling to
billions of users and then trying to squeeze some money out of them isn't as
appealing. I don't think you can say one approach (scale vs. smaller but cash
flow positive) is better than the other.

------
digi_owl
Oh, thats rich. If i have ever seen companies less interested in adopting to
local laws and regulations, its the US ones...

------
rb808
Its similar to why East-Coast companies Fail to Scale? Perhaps scaling isn't
great. I think its largely that investors don't throw money at companies with
a dream and little else.

I'm not convinced the Valley in 2016 will turn out successful as the previous
few decades. Maybe the East Coast & Europe are the smart ones.

------
bambax
> _Whereas Europeans are lenient to typo’s or faulty grammar, Americans are
> not (...)_

> _the main reason they don’t succeed to scale is because European startups
> fail to recognize that they have to confirm to the rules..._

I have been punished for this before, but I can't help notice when someone
starts lecturing about typos, and can't proofread their own prose.

~~~
programLyrique
Is it about Europeans being lenient to typos or faulty grammar in another
language than their native tongue (i.e. English)? That's for sure.

But for instance, French people are not lenient at all with typos or faulty
grammar in French...

~~~
wott
Well, now we are forced to be lenient, because half of engineers and other
highly educated individuals who come out of school nowadays cannot write a
single sentence without at least one fault :-(

Yeah, it sounds like I worship the _good old days_ , you have to see it to
believe it.

------
mtgx
Two words: language barrier.

In the U.S., you can launch a startup in NY, SF, or Texas. It doesn't matter.
You can still reach everyone in the U.S. with a web service in a single
language from the same location.

It's very different if you launch a site in Germany, Estonia, or Spain. You
just won't have the same reach by default, especially if you only offer the
service in English.

If you want to reach all of Europe and most people, then you'll have to offer
the service, the ads for it, and the support, in 20+ languages.

Alternatively, you can stick to English...but you'll reach far fewer people.
Search for a certain type of product or service on Google Adwords in say
Estonia or Poland in English, and then in the native language, and you'll see
at least an order of magnitude more potential traffic/clicks for the native
keyword.

It may be easier to scale physical products than services in all European
countries, but it still won't be as easy as such expansion would be in the
United States. You may still need to deal with locals in their native
language, so you may have to hire some people in those countries that speak
that language.

Hopefully, Google or someone will solve this issue through technology, so that
in 10 years it won't matter if your service is offered in English only.
Because otherwise, it will probably take another 50 years before 80% of the
European population speaks English well by default and _prefers_ to search for
everything they want to buy online in English.

~~~
ActsJuvenile
Are you the founder of MtGox Bitcoin exchange?

------
koalaman
'The Flamish are earlier adopters, are more experienced, and access English
language websites or apps. Whereas some Walloon users might still hope for a
Minitel comeback and tend to believe clickbait links.'

Without citations this reads like the author is bigoted. Chose to stop reading
at that point.

------
internaut
I think it is culture with a pinch of geopolitics.

You can't replicate a Silicon Valley without grokking SV culture. I have yet
to meet a fellow Irish in the flesh who understood it, any of it, except
perhaps at a Hackerspace one time in a different European country.

Europeans should do as the Japanese did with the English/Dutch before they
made the foreign technologies their own.

Synchronize with the hive. Places like SSC, LW, HN. Read their books. Think
their thoughts. That's part of why I spend some time here. Perhaps, like the
Japanese, we would pick up things we do not quite need, like umbrellas and
Victorian pocket doors, but also something less tangible, less capable of
being denoted on a PowerPoint presentation.

Silicon Roundabout and other government led projects are Cargo Cults.

------
vidoc
"Growth Hacker" LOL

~~~
msd81257
Best comment right here

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Mz
_American consumers behave as if they have already seen and done everything._

In recent months, chatting with a foreign friend has made it uncomfortably
clear to me that Americans are bad about thinking all white people who speak
English and are successful are American. America is kind of narcissistic (such
as when so many of us assume you must be American when you post to a
predominantly American forum). I suspect one thing that helps foreign
countries succeed here is "passing" for American, which many foreign countries
likely make no effort to do.

~~~
pixl97
> uncomfortably clear to me that Americans are bad about thinking all white
> people who speak English and are successful are American.

Don't worry, if you're black you're African-American too.

~~~
Mz
Yeah, my sons and I recently discussed some of the problems with calling
people African-American or even Hispanic-American. I noted that we don't call
whites "European-American" \-- a term I am tempted to start using ironically,
in part because I increasingly object to surveys that ask if I am white or
some long list of other labels, none of which is really accurate. There is
never an option that really fits me or a means to write in "German-Irish-
French-Cherokee ethnicity and American citizen by birth" or something.

Signed: European-American with a dash of Cherokee who finds the entire system
offensive.

------
mixedbit
Today the distinction between an European and US company is blurred, as it is
easy to register business abroad or in multiple countries. Many European
startups incorporate in the US from the beginning, but operate from EU, many
open sister US companies at some point. Should these companies be counted as
successful EU or US companies?

------
Silhouette
While there certainly is more cultural diversity across Europe than within the
US, this article overlooks some other fundamental problems faced by new
businesses in Europe as they try to scale out to different markets.

For one thing, you have to figure out how customers can pay you. This is not a
trivial problem, particularly for B2C companies, because there is nothing even
resembling a universal method of payment. Credit cards are near universal in
some countries but hardly used in others. Direct bank charging via SEPA or
other Direct Debit schemes is popular in some countries but not others. There
are national schemes that are widely used but only in one country.

Then there are the tax rules. The EU is absurdly bad at this, as anyone
affected by the VAT rules can tell you. I've talked with local businesses here
in Cambridge UK that are considerably larger than any of mine, and some of
them still say that with hindsight they would have simply dropped all of their
customers from within the EU but outside the UK when the rules changed last
year, because the compliance costs simply aren't justified.

There are also very different legal environments in fields like consumer
protection and intellectual property, which can have a big impact depending on
your line of business.

And finally, there are the overheads of starting and running a business at
all, which obviously is a prerequisite to scaling. The UK is regarded as
relatively business-friendly compared to some of our European neighbours, yet
the current government has already hurt small business owners with not one but
two major tax hits since taking office last year. Those apply even for small
all-director businesses, which might be the case for the stereotype three-
guys-in-a-garage kind of startup, but as soon as you take on any employees at
all you're in for a whole new world of joyous regulations, form-filling, cash-
grabbing and statutory obligations. It's a crazy situation that makes setting
up a real company that can grow and create jobs a significantly worse
proposition both financially and in terms of regulatory overheads than just
going it alone or in a small group and all being self-employed. And as I said,
this is in the UK, which is paradise for entrepreneurs compared to some other
European nations.

Ultimately, the factors that give startups the best chances to become
established and then scale up are mostly about flexibility and moving money
around easily. You can go too far -- I wouldn't want to give up reasonable
protections for employees to exploit them in the way that US companies
routinely do, for example -- but in general, most of Europe has a lot to learn
from our friends in other developed economies about those two key areas.

------
Myrmornis
> The Flemish are earlier adopters, are more experienced, and access English
> language websites or apps. Whereas some Walloon users might still hope for a
> Minitel comeback and tend to believe clickbait links.

I doubt that's an uncontroversial statement in Belgium.

~~~
fnord123
It's uncontroversial because only Flemish people can read it. Zing!

------
gwbas1c
One of the things that the article misses is that Americans are constantly
assaulted by marketing. This is why advertising is so expensive, and why
Americans are only interested in novel products.

------
vmorgulis
And not enough money in general...

------
ufmace
The subject is interesting, but I don't think the article author gets into the
real issues. I'm thinking something broader - it seems like there's virtually
no business/tech innovation in Europe at all. How many innovative American
tech companies are big in Europe? Apple, Google, Uber, AirBnB, Facebook,
Amazon, etc, just off the top of my head. Can you name an innovative European
company that's big in the US? I can't think of any that I could call
innovative with a straight face.

What's behind this, though? Excessive business regulation? Investment
regulation? Culture of entrepreneurship? All of the above? Something else?

~~~
fnord123
> Can you name an innovative European company that's big in the US? I can't
> think of any that I could call innovative with a straight face.

BMW is innovative and big in the US. I'm sure you can keep a straight face.
Also, Audi.

There have been plenty of companies in the past like Skype, Nokia, ARM,
Mojang, CCP. But many of them get bought.

In any event, it's obviously more lob sided towards the US. There are many of
factors. If I were a researcher I would probably begin by investigating how
many Europeans move to the US to start or join companies (lots) and if there
is any 'patriotism effect'. For example, I've only seen the severe distinction
of "domestic" vs. "import" (e.g. cars, beers, etc) in the US.

