Starting from scratch, leaving the security of your paid job to start your own business takes courage, takes boldness and huge sacrifice. Growing up in a family where both parents are self-employed has spiked my curiosity in the area of entrepreneurship. From one side, it triggered interest in the trials and tribulations they face and how and what we as a society can do to help them thrive! On the other hand, success stories fascinate me and inspire me!
For that reason this article tackles some of the challenges of start-ups in Sweden, the new arena for disruptive innovations. The previous article identified global outlook of Swedish entrepreneurs from the very beginning as the main reason behind their remarkable success.
But what more can Sweden do? Stockholm has stolen the spotlight from Germany
Believe it or not, Stockholm has stolen the spotlight from Germany when it comes to innovative, start-ups. Don’t get me wrong, the German “Mittelstand” is still leading in industries producing essentials for manufacturing processes, but Swedish start-ups have outperformed when it comes to combining software, hardware and online services.
Still, Sweden has a lot to learn from Germany when it comes to providing incentives for entrepreneurship, assistance in key areas for start-ups and enhancing their growth. Namely, the German Government supports the “Mittelstand” on key issues like investment in R&D, the skills shortage, foreign trade and investment, financing needs, company start-ups and company hand-overs (Federal Ministry of Economics and Technology).
Sweden must be pro-active when it comes to supporting entrepreneurs, if the country wants to remain the most resourceful tech-hub in Europe!
Biggest challenges for Swedish start-ups
First of all Sweden has a small domestic customer base which has “forced” or better say INSPIRED Swedish entrepreneurs to go international from the very start. The globalization of the world has produced global customers with similar needs, interests and desires regardless of country of origin. Sweden has capitalized on this convergence of cultures and designed products and services for the global customer.
Swedish entrepreneurs are also facing skill shortages due to the small domestic market. Business services and Information and Communication Technologies (ICT) have the highest excess demand (Figure 1), particularly in Sweden.
Hiring skillful immigrants to address the “limited skill pool” problem has also posed as challenging due to work permits which take long period to be processed and approved. Another problem is the dysfunctional rental market where finding a place to rent or buy in Stockholm can take months. While big companies may be able to pay high rents for their foreign talent, “new hires of start-ups often sleep in their office” says Mr Waldekranz, the co-founder and CEO of Tictail.
Another major problem is Sweden’s focus on big companies where most of the capital goes, regardless of the great positive impact start-ups have on the economy. When compared with the US, Europe in general has lower levels of venture capital (VC) investments in the early stage of establishment where most of the money comes from friends and family or debt financing. The 2008 FC further deepened the gap between the 3F money and VC. Furthermore, banks applied stringent collateral requirements and risk aversion of investors increased tremendously causing a decline in the VC market for 50% (Poposka and Mihajloska, 2015:p: 56).
It comes as no surprise that efficiency and cost savings emerged as priorities for survival of start-ups in the post crisis period.
But, would you be surprised that in a period of major cost pressures, lack of talent in specific areas and difficulties of hiring skilful immigrants companies seek assistance from external partners?
Does the following picture come as a surprise?
Would you be surprised from the increase in outsourcing projects in the post crisis period?
What about the following:
Research from OpusCapita (2014) reported that 70% of Swedish companies have chosen to outsource all or parts of their accounting functions. Additionally they found that 52% of companies in Sweden are outsourcing billing and accounts payable (AP), while in Germany only 4% have chosen to outsource these functions.
PA Consulting (2014) has conducted a research on satisfaction from outsourcing where 73% of Swedish companies had positive outsourcing experience.
According to another research from Ciklum (2013), 44% of non-outsourcing companies in Sweden said they would consider / start outsourcing the following year.
Did you know that Skype and Slack used outsourcing to develop their solutions in the earliest days of their founding?
Skype, had 115 million customers three years from the founding, making it the fastest growing internet community at that time. Slack is another Swedish company which has experienced exponential growth being valued $1 billion just two years after its establishment. In an interview for fastcompany.com, Butterfield, the founder of Slack, emphasizes the importance of prioritizing your product’s unique features and becoming essential to your customers right away, while you can let go of the rest.
Skype and Slack are not alone!
Here are examples of 25 Successful Startups which were built bith outsourced development:
Regardless, there is still some scepticism among Swedish entrepreneurs where majority (80%) outsource their development within Sweden while Norway has identified Central and Eastern Europe (CEE) as the safe middle ground. Outsourcing companies from the CEE have repeatedly been recognized as an “extended team” in contrast to being seen as external partners. This helps employees in the outsourcing company to identify themselves with the brand and be truly motivated to help your business grow.
If you want to know more on how the “extended office” model work check the following whitepapers: