Start-ups and innovative entrepreneurs are drivers of economic growth in regions and nations. But European regions show a rather low number of successful high growth start-ups compared to the United States. Innovative start-ups in Europe are scarce, even though there are encouraging start-up clusters in a few leading cities such as London or Berlin. But really innovative start-ups with disruptive technologies that become global companies like Google or Amazon are not being founded on the continent. And beyond a few prospering clusters, many regions in Europe are experiencing unsatisfactory growth rates and high unemployment. Founding companies with new creative ideas could reduce this problem, but in most regions little has happened in this way. Even in Germany, which has a strong base of growing SMEs, the number of companies being founded has been falling lately and innovative start-ups are rare.
Start-ups have a cultural dimension
There are strong indicators that Europe’s weakness in entrepreneurship may have a cultural dimension, too. International studies show that regions which contain many innovative start-ups also have a specific entrepreneurial spirit. Leading start-up regions like the Silicon Valley or Tel Aviv seem to profit from a particular entrepreneurial culture. This culture comprises aspects like the personality structure of successful entrepreneurs as well as regional phenomena, e.g. an innovative milieu with functioning networks promoting innovation and entrepreneurship while also binding individuals to the region. With respect to the personality structure of entrepreneurs, a desire for autonomy, risk tolerance and trust seem to be important factors. Positive feedback and successful role models strengthen regional entrepreneurial activity after an initial trigger like a university-related technology park has led to a first cluster of high-tech start-ups.
European deficits in entrepreneurial culture
In Europe, traditions and informal norms as well as institutional arrangements tend to favour dependent employment over self-employment and start-ups, which reduces flexibility and innovation in a time of crisis. Furthermore, a “can do” attitude is lacking. Individual risk aversion is high and the failure of start-ups is seen as a confirmation to this mind-set. In contrast, start-up hotspots in the United States or in Israel possess a “culture of second chances”, where once-failed entrepreneurs can quite easily attract financing for a new business idea. In Europe, however, not much attention is paid to the experience the entrepreneur has gained in founding their first company; instead, a stigmatisation effect closes the door to financing a new start-up.
Recommendations for strengthening entrepreneurship
In order to foster entrepreneurship in the high-tech sector and the digital economy in general, we need to encourage a culture of failure and support a greater openness to new ideas. Specific recommendations to this aim are:
Strengthen entrepreneurial culture in schools
Cultural change should begin at an early point in life – that is, already at school. Strengthening the entrepreneurial spirit as early as possible in the education system could generate significant multiplier effects through role models and peer-group influences. International initiatives such as the JUNIOR student company programme should be expanded in order to familiarise students with the idea of self-employment and entrepreneurship early on.
Encourage unemployed persons to found companies
The provision of start-up grants is a successful measure against long-term unemployment. However, in Germany, support for unemployed people looking to found a company has been cut back in recent years, as unemployment receded. But with high immigration, there seems to be a growing potential for entrepreneurship among people seeking employment again. In Europe, particularly countries with high unemployment could benefit from unemployed persons founding companies.
Use massive open online courses (MOOC) to teach entrepreneurship
Online entrepreneurship courses are a very effective way to teach entrepreneurship particularly to those who have already entered the labour market or are at a later stage of the education system. This applies especially to the mostly young refugees that have entered Europe during the last years, and who oftentimes come from a culture that is characterised by high numbers of self-employed people. With the German Federal Employment Agency’s online programme “Ready for Study” and the recently founded Kiron University, a platform that allows refugees to start online courses at renowned universities, a start has been made.
Encourage connections between the emerging start-up scene and existing SMEs
Innovative companies in the digital sector and small or medium-sized companies in manufacturing industry should be encouraged to co-operate in order to realize bilateral advantages. Networking and bundling of activities would be beneficial to both parties. Ideas generated by innovative start-ups could be transferred into internet-of-things applications engineered by SMEs. The different mind-sets and organizational structures of start-ups and SMEs could trigger valuable synergy effects.
This contribution is based on the IW Policy Paper “Entrepreneurial culture and start-ups – Could a cultural shift in favour of entrepreneurship lead to more innovative start-ups?”
Dr. Klaus-Heiner Röhl is Senior Economist at Institut der deutschen Wirtschaft Köln – Cologne Institute for Economic Research, Germany.