Time to change the cluster foundation

Being back in the cluster context on the Cluster Matchmaking Conference in #Copenhagen makes me think a lot about how we should fund and construct future cluster organisation. Traditionally we have used the famous triple helix model (Academia, Public sector, Industry) in order bring funding and knowledge to clusters. And I realise that this has been the wrong approach all the time and unfortunately brings the cluster organisations down instead of bringing them up. 

Talking to many excellent cluster managers on the conference strengthens my thoughts. They all say the same thing: To many people in the board and to many different agendas. The main issue is the time aspect. Industry wants fast results due to the quarterly economy. Politicians needs media coverage especially if there is an election coming. And academia stills thinks in 10 year plans and firm structures. Its obvious that this creates more conflicts than it creates positive forward thinking.

So what to do? Well there is no simple answer. But probably more clusters needs to find a more commercial angle to their work, without starting to compete with private firms. Working with internationalisation gives excellent opportunities to build revenue sharing models where companies that gain from the cluster activities also pay for it. I think that the time is over where we give everything away for free and start charging for the value we create. 

 

Thinking of going abroad - start looking at yourself

Barcelona

I meet many start ups that rely on advice that they get from more or less everybody they meet - friends, business developers, investors and others. Nothing wrong with that but first, think about what it is you are doing and chose your first destination from that. I will give you some examples:

Bootstrapping but also in need of developers?

The perfect choice would probably be one of the old eastern Europe cities - like for instance Sofia in Bulgaria or somewhere in the Balkans. But it is probably not as fun as you want to have it, so I had gone to Berlin instead. Berlin is still cheap when it comes to living and the German system with mini jobs is frequently used by start ups in the German capital. Even though there is a lack of developers, nearby cities in Poland still provides skilled talent when it comes to programming and development. And prices are reasonable even though it is more expensive than it was 10 years ago.

The financial sector is my customer

The next place to go is probably London. If you have established your company in Sweden, take the flight to the UK capital since it is also the financial epicentre of Europe. But you need to be prepared for high cost of living, expensive office space and expensive staff. On the other hand you have daily access to the biggest VC and business angel cluster in Europe. And they are used to high costs, which will probably increase the value of your company. Best way to start is of course to use the free co-working spaces at Google Campus in Shoreditch.

I’m into m-health

If you have a ready application in this really hot area, you want to go somewhere where the health sector is used to implement new technology. So, if you are patient and skilled in French, my suggestion is to go to France. In France they introduced Telemedicine many years ago, already in the 80:s. The French healthcare system is used to buying new technology and not as conservative as for instance the Swedish. But be aware that starting i company is much more complicated in France compared to for instance UK and that french is compulsory if you want to do business. In order to keep costs down you could also consider starting somewhere else than in Paris, for instance in Lyon, Sophia Antipolis (Nice) or Bordeaux.

For those not keen on learning french, the UK is probably a good alternative. Look at for instance Sheffield who offer low cost of living, reasonable access to talent and a very active business incubator connected to the university. Other attractive cities could be Nottingham, Manchester or Leeds.

Looking for money

If you are into funding it really depends on what phase you are in. For seed money Sweden is often enough at least if you can live with investors that maybe not will come with a lot of knowledge to your company (at least if you are looking for angel investors). But if you need more money - lets say 1 million sek or more - Sweden is normally to small. There are some options in Europe, Berlin and London as the most obvious - but there are also outsiders like Hamburg, Barcelona or Dublin where the flow of capital has increased during past years.

Technology

For those of you that develops hardware and are relying on fast prototyping, Europe is unfortunately not the best alternative. Either you have to go to the US or to China, depending on what your needs are and of course what you are willing to pay. In the pearl river delta in China you will find fast prototyping facilities that can make your prototype really fast (faster than Europe) and in the US (especially in Silicon Valley) you get high quality prototyping within for instance IOT technology faster and cheaper than in Europe.

Conclusions

So, going abroad is not just finding the best place for start ups. Its all about finding the best place for your start up. And that is a totally different thing.

The ”unknown” market that many start ups miss

riga

 

Running a start up in a small country also includes going international, very often on an early stage. The obvious choice for many companies are either the US or Asia. But what many companies don't realise that being located in Scandinavia you have a 130 million inhabitants market just around the corner - the BSR region.

The countries around the Baltic Sea are interesting for many reasons:

  • high buying power due to stable financial situation in most of the countries
  • easy access, most places within a one hour flight
  • no complicated visa processes
  • establishing a company is easy
  • cultural heritage, long historical tradition of trade within the region
  • early adopters, most countries are really ”tech-friendly”

So, what countries are we talking about?

Poland

With almost 40 million inhabitants Poland is a market that is worth discovering. The economy is raising (actually one of the most stable in Europe) and the tradition of trade with for instance Sweden is long going. The region around Warsaw has a well developed ICT sector, but also places like Poznan, Gdansk, Stettin and Krakow has well developed ICT companies and the possibilities to collaborate with polish companies is high.

Germany

Northern Germany has a long tradition of trading within the BSR area and is the strongest financial sector in the region. Many Swedish start ups has discovered Berlin as an alternative to Silicon Valley when it comes to seed funding and the large german companies still have high demand when it comes to new ICT solutions.

The Baltic countries

After the financial crisis the Baltic countries have re-established their economies and the states are now investing again. Countries like Estonia where one of the first in the world to introduce public digital services and also for instance mobile parking solutions, so for those who are looking for early adopters or test beds the Baltic states are close and easy to access.

Finland

Even though Finland has suffered from the difficulties that Nokia has had during the past years, it has also resulted in a vibrant start ups scene in Helsinki and Tampere. Investors have discovered Finland as a place to find new ground breaking solutions and the fact that the conference Slush attracts over 23 000 visitors shows that Finland is on track again.

Denmark and Norway

As mention in a earlier blog, these are already big export countries to Sweden so every start up should take a look at these markets before anything else.

So - how should I do it?

There is a large number of organisations working with the BSR region that can provide help, besides of course the normal inward invest organisations that for sure will help you. For those interested the Swedish agency Tillväxtverket has a number of BSR related activities. Also cluster organisations are very common in the BSR region, look for instance on the European Cluster Collaboration site to find potential partners.

First lesson going international - look at your neighbours

Most startups that I meet have the ambition to go international. That is almost compulsory when you have a small home market as Sweden. The most common mistake is how the internationalisation plan is thought to be executed. 

Either the company is looking to go directly to the US. In ICT most often the San Fransisco bay area or in later years also Los Angeles. Or they have been thought - often by different public organisations - that they should start looking at the BRIC countries (Brazil, Russia, India and China). Nothing wrong with these strategies for companies that are mature and already have tried exporting to other countries. But for start ups or even SME:s who are still in early stage it is most often a to big challenge (I am talking now about companies that are looking for customers, not those who is out looking for funding. That will come in another blog post). The main reasons for this are:

  • The further you go, the more expensive it is. Actually its simple, just think of going on vacation living in Sweden. It is cheaper to go on vacation in Europe instead of going for instance to China. Same thing when you start exporting, going to countries far away will be more expensive for you unless what you think. You will need to stay away for more days, travel costs more and so on. 
  • Business culture is radically different. Even if we think that there are a lot of cultural differences in Europe, it is nothing compared to what you will meet going to for instance China or India. That means that a business case that takes maybe 2 months to close in Europe will probably take a year somewhere else (except the US). And time is - as I am sure you are aware - one of the most valuable assets of a start up.
  • It will cost you a lot. Following the above, you have probably figured out that it will cost you. So unless you have raised an essential amount of seed money, you need to find ways also to bootstrap your internationalisation strategy. And going for away is most often not so good if you are bootstrapping.

So where should I go then, if I am located somewhere in Europe. Well probably it is a good idea to start looking at your countries main export markets. That information is in most countries free and if you are in Sweden you will discover that the main export markets are not the ones that everybody is talking about. The concrete advice for Swedish companies would therefore be starting up with these 4 countries:

1. Norway

Norway is the number one export market for Swedish companies. Especially if you are in ICT needs in Norway are huge and for instance Swedish consultancy firms are very competitive when it comes to pricing.

2. Germany

With Europes biggest market, Germany is the obvious choice for a Swedish start up. Swedish technology has very good reputation in Germany, the business culture is very close to ours and the German economy is still doing well. 

3. Denmark

Even though many people think that doing business in Denmark is difficult, business opportunities are good. Especially for those looking for collaboration with companies that has good sales drive, a danish partner can help boosting sales.

4. UK

London is the 4th largest city in Sweden, if you just count how many swedes that live in the UK capital. So if you want to find a market where also the financial sector is strong, UK is only a 1.5 hour flight away and Sweden has a fantastic reputation here. 

All these countries are accessible within a couple of hours, often with cheap flight connections and without complicated regulations around visa, import tax and company rules. So think of it. Maybe your next trip should go to Munich instead of Bangalore?

Next time I will write about Europes hidden market with 130 million inhabitants and a buying power comparable to Brazil.