Hard times in Europe may be a startup's advantage

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This guest post is written by Robleh Ali, founder of Zoinetworks.

Although the Internet’s killer application – the Web – was invented in Europe very few of the great consumer web businesses have come from here. The true giants, like Amazon, Google, Yahoo and eBay all rose to become profitable public companies, making billions for the Silicon Valley VCs who invested in them. And share options created hundreds of newly minted millionaires ready to seed the next generation of entrepreneurs in the way Andy Bechtolstein – employee number one at Sun – had for Google.

Europeans see the cash, the culture and dream of how much easier it is to start up in the Valley. Angels and VCs flock to promising founders hoping for a repeat of the last grand slam when Google began life 12 years ago. The following generation has produced some great services but not yet sustainable businesses. Including its most recent loan Facebook has so far taken $446m of external funds, Google needed $26m of outside investment between its launch and IPO. This ready availability of cash has tempted Facebook employees to start selling shares which led Sarah Lacy to wonder:

“It has become strikingly apparent to me in the last few months that this lauded culture of risk taking in Silicon Valley may not actually be so pronounced. In other words: Has our class of startup worker bees gotten soft and spoiled on us?”

Success is forged in adversity, all the great tech founders have been through the fire. Steve Jobs and Steve Wozniak’s first venture together, the blue box, was a failure. When Jobs left college he was reduced to sleeping on friends’ floors and reclaiming the 5 cents on recycled coke bottles. Wozniak showed the Apple I to Hewlett Packard and his bosses confidently predicted failure. In the 90s every big web company turned down Google because a great search engine would only take people away from their ad-laden portals. These founders carried on despite the setbacks.

The value of hardship

I know from founding a company that startups don’t have an easy ride in Europe. Our current environment is like the Valley of old when only visionary investors understood the Internet. Because there are fewer of those raising money is harder. Fortunately money is not the most important component of success – determination is. A few miles from me is Wimbledon. Every year the tournament produces vast sums which the Lawn Tennis Association pumps into the the best facilities, the best equipment and the best coaches. But British players still haven’t won Wimbledon in 30 years. Compare them with the current crop of outstanding Serbian tennis players. They had to train on cracked courts with old equipment. Current French Open champion Ana Ivanovic practised at the bottom of a drained swimming pool. Yet they win whilst the expensively trained British players languish in Futures tournaments.

Making do with less is actually an advantage. It keeps you focused on delivering products people want to use and imposes a discipline which evaporates when you have too much money. Cuil had $33m but it didn’t lead to a great product (so far) and made them think they could mask it with an expensive launch. At a similar stage Google had raised $1.1m and spent it all on perfecting the technology. Their “launch” was an email from Sergey Brin to his friends asking for feedback.

Europeans will continue to build up our own networks but we should play to our unique strengths and not always think “Valley knows best”. Right now we have fewer advantages and it is tougher, but easier is not necessarily better. Ultimately it is the hard times which make us.

  • http://www.thoughtsintime.com Sean Glass

    You make a great point. I remember seeing an article showing that many of the largest and most succesful sustainable businesses have been started during economic downturns. Not sure if anyone has done a quantitative study of this. It might be that during economic downturns, the scarcity of funds means that ideas and teams that aren’t as good go away faster, meaning there is less noise that the companies that are succeeding have to deal with.

  • http://www.businessitonline.com David Cruickshank

    Some excellent points Robleh. No wonder too that the Greeks & Turks have embarrassed the likes of England in recent European Football Championships.

  • http://ontechnology.wordpress.com/2008/08/13/on-hard-times/ On hard times « On Technology

    […] hard times 13 08 2008 I have a guest post over at Techcrunch UK so get over there and take a […]

  • http://jenslapinski.wordpress.com/ Jens

    I actually disagree. Fact is that quite a few very successful companies have come out of Europe over the last years. We also have just as many 100s million dollar exits over the last years as the US does. Problem is that we don’t shout about them. So, few people know.

    When Mike is back from holiday, I suggest he starts some sort of ‘hall of exit fame’, so we can all see what the companies were that made it big. I know that Simon Cook @ DFJEsprit has a list of all of the big exits from the last three to four years, maybe he can contribute that as a starting point and we can all fill?

    I start by nominating Skype, an even bigger exit than YouTube and a consumer company. What companies do you know? (Tip: online betting is massive in Europe…)

  • http://uk.techcrunch.com Mike Butcher

    Jens – I like the idea. Email me.

  • Margaret

    Does Skype’s day to day business make money? If so can someone explain to me how they do it? It’s a mystery to me.

  • http://www.zebtab.com wildirishguy

    The good news from this theory is — I am definitely getting thinner!!

    I agree with some of the article, the fire tends to tighten the idea and inplementation, but in the end it needs rocket fuel to get it exposed globally. You can only twist and turn and be creative for so long or you eventually miss the window.

  • http://phuser.com George Black

    Very interesting article, I agree that you have to get the technology right before launching into the publicity.

    I am intrigued by Jens’ point, if this is the case then surely it is the job of technology journalists to find out and report on these IPOs.

  • http://link Miss78

    This is a trick question, right? ,

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