Entrepreneurship in Europe

Can the entrepreneurial spirit that's thrived in the U.S. and flourished amid the bloom of the dot.com economy make it in Europe and, if so, what will it take?
by Kenneth Liss

Four European entrepreneurs joined HBS Professors Howard Stevenson and Walter Kuemmerle to explore these questions in the Global Alumni Conference breakout session "Entrepreneurship in Europe."

Stevenson and Kuemmerle set the stage with descriptions of four key characteristics of entrepreneurial communities and four recent trends in entrepreneurial activity.

The characteristics that make entrepreneurship thrive, said Stevenson, include: resource mobility; reinvestment in the community; joy in the success of others; and valuing change.

"When you think about what's happening in the world, I'm not surprised that we in entrepreneurship are benefiting," he said. "The climate for entrepreneurship has never been better."

Resource mobility, said Stevenson, is evident in product markets, where "anyone who doesn't believe they're competing against everyone else in the world is crazy." It's evident in labor markets, where the case of India and the software industry is just one example of how incredibly active things are right now.

"Of course, the idea market is what scares us all," he added. "Everything is moving with the speed of a click."

Reinvestment—where "if someone succeeds, their felt obligation is to put it in the community"—is also increasing, said Stevenson, not just through angels, venture capitalists and other investors, but through employees of successful companies who want to share that success with others.

The flip side of that, he said, is joy in the success of others, where "immediately, where one succeeds, the other members of the community celebrate because they believe that means they, too, can be on the road to success."

The last characteristic, valuing change, is tied to our increasing connectedness and the impact of our actions in one place on the situation in another. "We cannot deal without understanding the connections we're making," said Stevenson.

"You may want to look at these four points," he said, "and see where your country is going."

Four Key Trends

Kuemmerle began his talk with a contrast: "In 1995," he quipped, "an entrepreneur was defined as someone who did everything he could to keep from getting a real job.

"This year, the Time Man of the Year was an entrepreneur who had never earned a profit."

Four key trends that have contributed to this changing environment, said Kuemmerle, are: the dot.com wave; the emergence of global start-up firms; capital chasing entrepreneurs; and changes in supporting institutions for entrepreneurship in different countries.

The dot.com wave, he said, has launched new role models and provided a wake-up call for older firms and has been a catalyst for old economy start-ups, as well. It's also been a catalyst for developing an understanding of entrepreneurial activity outside the United States, he added, noting that German universities are looking actively at entrepreneurship, a field they hadn't considered academic for a long time.

The emergence of global start-ups, said Kuemmerle, has occurred very quickly. "An early global presence is very important, because business models are migrating so fast. Amazon, if they were starting again, would probably push into other countries more quickly.

"Building a functioning multinational firm is a huge challenge. There are many that underestimate it."

A strong rise in both venture capital and private equity funds under management shows that there is an enormous development potential both on the buyout side and the early venture capital side in Europe, said Kuemmerle. Europe, Asia and Latin America still lag behind the U.S., he said, but "the hunt for the best entrepreneurial teams is still on, so I encourage everybody who thinks they have a great model to go out" and take advantage of the opportunity.

On the question of institutional support for entrepreneurship within different countries, Kuemmerle pointed to several dimensions. "The good news is that there is increasing capital market transparency, and it will clearly increase. There are also new exit vehicles. Not so good is that there is a lack of entrepreneurial programs, particularly in Europe. It's a challenge to train entrepreneurs."

The second issue, in terms of support, is the widening digital divide. "This applies even in countries where there is a strong middle class. The Internet is just not enough of a part of the education system."

The third issue, said Kuemmerle, is that "red tape is alive and well."

Reconstructing For The New Economy

Echoing his concern on this last point was panelist Klause Krone, CEO of Krone Management and Technology in Germany. "We have to overcome the different bureaucracies we find in different countries," said Krone. "This sort of business has to be reconstructed in Europe according to the development of the markets and the new economy.

"If we're not enabling government into the change process, we will not be successful in the long run."

More generally, Krone said the key for Europe in its attempt to catch up to the U.S. in entrepreneurial effort is the ability, where money is widely available, to manage success. "The dynamism that has been developed in Europe in this area is enormous," he said, "and we have no experience in how to handle it. The old economy has to adapt, has to change. I think we are doing that."

Stefan Muennighoff (HBS MBA '99), co-founder and CEO of GloMediX, said entrepreneurs can draw on the strength of old economy companies through partnerships. "It would be foolish not to involve the incumbents," he said. "These companies have been in business for many decades, and there's a reason they have been in business. We need to be involved as partners with incumbents. They're not as slow as many people think."

Muennighoff also talked about a return to basics as entrepreneurship moves into a more mature stage in Europe. "There's a certain change in the investment pattern," he said. "Many venture caps have gone back to the old principle of doing due diligence, instead of just handing over money. They're looking at more fundamental things."

Brent Hobermann, founder and co-CEO of the U.K.-based Lastminute.com, noted that the growth of funding sources in Europe has made things easier. "Two years ago, when we were raising money, there were five companies we could approach for seed funding," he said. "Six months ago, there were easily a hundred."

Clusters Of Entrepreneurs

The growth in the number of entrepreneurs has also been a factor, said Hobermann. "There are clusters of entrepreneurs," he said. "Everyone in London, everyone in Munich knows someone who has been a success story. That's self-propagating."

A major challenge for entrepreneurs in Europe, said Hobermann, is "the publicity battle." Companies and individuals may be highlighted at first as success stories, but once the IPO comes, "the press have a field day."

"It says a lot about the press mentality toward entrepreneurs, especially in the U.K. You don't want success stories. We find it disappointing, because it is about keeping the focus on the business, not on the personalities."