This is the question I was asked to answer at the EPFL Forum today. Well it was even “Is Switzerland the Startup Nation?” I did not answer the question but tried to provide food for thought and I invite you to look at the slides below.
Now that you may have read them, I will add two points I did not mention in my talk:
First Swiss newspaper Le Temps analyzed the issue: Are we, too, a start-up nation from the point of view of the Israelis? ‘I have a message for Switzerland, Dov Moran announces: you do not have enemies and so you do not have to spend 20% of your GDP on your protection. If you’re less entrepreneurial than us, it’s not that bad.’
Then again Orson Welles about creativity and war… “In Italy, for thirty years under the Borgias, they had warfare, terror, murder and bloodshed, but they produced Michelangelo, Leonardo da Vinci and the Renaissance. In Switzerland, they had brotherly love, they had five hundred years of democracy and peace – and what did that produce? The cuckoo clock.” in The Third Man, said by Holly Martins to Harry Lime…
After my introductory post about The Rainforest – The Secret to Building the Next Silicon Valley by Victor W. Hwang and Greg Horowitt, which focused on the importance of trust, here is a second piece about culture. The final part will describe how the authors claim they know the recipe to build rainforests. What is remarkable with the Rainforest is the ambition to explain that innovation is mostly cultural so that at the micro-level it cannot really be engineered, but at the macro-level rainforests can be built. I am not sure the authors are right, but the effort is really to be recognized.
One lesson of the Rainforest is that outcomes cannot be engineered. […] Serendipity itself cannot be engineered but an environment that is conducive to serendipity can be. [Page 65]
In their chapter 3 about People, they begin with Keystones, not Entrepreneurs. “What defines a Keystone? Over the years, we have observed certain individuals practicing a unique manner of human interaction that is critical to the growth of entrepreneurial innovation. […] These people are usually missing, or at least too scarce, in almost all regions that have failed at generating significant amounts of entrepreneurial innovation.” [Page 71]
These people are integrative, influential and impactful, they are brokers of social trust (by contrast to entrepreneurs who are people who absorb information, learn from practice and seek opportunities). “The San Francisco Bay Area has a vastly higher percentage of people who are involved in multiple firms. 4.5% of the actors counted in the Bay Area were involved in three or more startups, compared to 2.9% in Boston, 2% in San Diego, […] 1.2% in Austin […] 0.7% in Portland. […] The bay Area has a significantly higher share of individuals who are extremely connected and contribute to the growth of multiple startup ventures”. [Page 74]
The authors also show the diversity of psychologies, the diversity of backgrounds in people which are still connected and work together. “We see these unconscious behaviors at work with innovators everywhere in the world. Scientists versus entrepreneurs. Startups versus large corporations. Investors versus investees. These tribal conflicts can be obstacles to the development of Rainforests.” [Page 109] All the more that: “Similarly the process of building a startup company is one in which people must often rely on gut-level decision-making. Entrepreneurial innovation, by its nature, is virtually a never-ending series of educated guesses. Almost every decision is based substantially incomplete information.” [Page 106]
America is the building of a society not burdened by historical tribes. […] They are less chained to the past. Instead Americans tend to be identified by self-reliance. […] People still run to California today. It is commonly regarded as the land of pioneers, nonconformists, artists, and rebels. [Page 116] Culture is critical to the way economic systems function because it provides the rules of engagement between people that hopefully can maximize their collective well-being. [Page 118] The authors are not naïve but claim that all these people need to find the right balance. A venture capitalist is caught between trying to own as much of a company as possible and trying to leave enough equity in the hands of the entrepreneurial team to keep them fully incentivized. […] A VC wants to preserve a reputation. [Page 119] Innovative behavior is not driven by rational maximization. There are in fact other forces, which can be called extra-rational: competition, altruism, adventure, discovery, creativity, meaning, concern.
Here I cannot avoid mentioning the great (counter-)example of Orson Welles about the Scorpio and the Turtle… Hopefully nature is not everything, culture matters.
One mistake of policy makers is to underestimate these extra-rational motivations. “Governments and corporations often try to incentivize innovation by focusing on financial mechanisms, such as tax breaks, subsidies, grants and loans. But overall, this strategy has been poor. They cannot be only the ends in themselves.” [Page 127]
Traditional incentives, benefits and costs: [Page 124] Benefits:
Some possibility of making more money Costs
Sacrifice a stable income and career perhaps forever
Risk social disapproval from family, friends, potential spouses
Difficulty and fear of working with strangers outside conventional circles of trust, culture, ethnicity, language
Difficulty and extra effort in communicating effectively
Huge investment of time, effort, stress
Possibility of losing everything (depending on laws, regarding bankruptcy, partnerships, etc.)
Rainforest incentives, benefits and costs: [Page 126] Benefits:
Perceived and possibly real opportunity of making more money (following role models that have validated the path already)
Joy of discovery, novelty, adventure, creativity, passion
Social approval (as a peer member of a community of innovators)
Joy of friendship, sharing, love working on a team, building new trust, common values and goals
Fulfillment from the possibility of making a difference in society, leaving a legacy for future generations
Thrill of competition
Freedom and independence Costs
Little social punishment, often encouragement, from family and friends for taking a worthwhile risk
Some anxiety from meeting new people, but offset by the joy of making new friendships
Huge investment of time, effort, and stress, but viewed in a neutral or even positive light because pursuing a personal passion
Little risk of losing everything because new opportunities emerge in the process of experimentation
Much lower probability of failure from a broad community of fellow innovators.
And the authors claim what are needed are 7 rules [Page 156]: – Break the rules and dream
– Open doors and listen
– Trust and be trusted
– Experiment and iterate together
– Seek fairness, not advantage.
– Err, fail and persist.
– Pay it forward.
People usually think of Silicon Valley as an anomaly in the otherwise “normal” history of the world, but what if we reversed that proposition? What if we envisioned Silicon Valley as the natural endpoint of a 50,000-year story? Perhaps it could be the latest stage in the evolution of human society, from a culture based on tribes to a culture based on pragmatic individuals. [page 152]
At stake is the future of Europe. And we, the innovators, entrepreneurs, scientists, activists, and artists, need to step up and take ownership of this future. Because if we don’t, Europe will continue its downward trajectory that it’s currently on, and become what it many places it already has transformed into – a museum of history.
[…] The information and communication technology sector is now the dominant economic driver of growth. Think Apple, Google, Facebook, Amazon, Uber. Noticed something? Not a single European company. Only 1 out of 4 dollars in this sector are made by European companies, and all the indicators for the future are pointing down. Some numbers are even more dire: when you list the top 20 global leaders of internet companies that are public, you know how many are European? Zero. And among all publicly listed companies in the digital economy, 83% are American, and a mere 2% are European. 2%!
[…] So where’s the problem? Some say it’s VC funding, which is only partially true. Yes, the culture of VC funding is probably less mature in Europe than it is in the US, especially for stage A, B and C funding. But money will find its way into good ideas and market opportunities one way or another. Others say it’s simply the European market, and European regulation. I think that is an illusion. Look at AirBnB, the US startup that now has a valuation of over 25 Billion dollars. It was started as a three person startup in California’s Y Combinator, but it now gets over half(!) of its revenues from within Europe. And by the way, San Francisco is probably one of the worst regulatory environments you can find yourself in. AirBnB is currently facing huge battles in San Francisco, and a Californian judge recently ruled Uber drivers employees, causing a minor earthquake in the booming sharing economy. Indeed, California is probably one of the most regulated of the American States, and yet it does exceedingly well.
I think that the problem is actually quite simple. But it’s harder to fix. It’s simply us. We, the people. We, the entrepreneurs. We, the consumers. I have lived in the San Francisco Bay area for more than three years. What’s remarkable about the area is not its laws, or its regulations, or its market, or its infrastructure. What’s truly remarkable is that almost everyone is building a company in one way or another. Almost everyone wants to be an entrepreneur, or supports them. Almost everyone is busy building the future. Indeed, you can almost physically feel that the environment demands it from you. When someone asks you about what it is you are doing professionally, and you don’t respond by saying that you’re building a company, they look at you funny, as if to say, “then what the hell are you doing here”?
[…] It’s not a trivial point I think. The other day, I was in Turin in Italy, and I desperately needed a coffee. I walked into the next random coffeeshop, where I was served a heavenly cappuccino, with a chocolate croissant that still makes my mouth wet when I just think about it. Was I just lucky? No – all the coffee shops there are that good. Because the environment demands it. Sure, you can open a low-quality coffee shop in Turin if you want to, but you’ll probably have to file for bankruptcy before you have the time to say buongiorno. The environment will simply not accept bad quality. In another domain, I had the same personal experience when I was a postdoc at Stanford. Looking back, all of my best and most cited papers I wrote there. I don’t think it’s coincidence. Every morning, as I was walking across campus to my office, I could sense the environment demanding that I do the most innovative work – if I didn’t, then what the hell was I doing there?
So this is my message to you. I’m asking you to create those environments, both by doing the best and most innovative you can, but also by demanding the same from everyone else around you. These two things go together; they create a virtuous circle.
[…] Don’t ask for permission, ask for forgiveness if necessary. If you are waiting for permission, you will wait for the rest of your life. Most rules exist for a simple reason: to protect incumbents. Don’t ask for permission, just go and do it.
Orson Welles was best at describing why asking for permission is deadly…
[…] So please, let us all live in the future and build what’s missing – here in Europe. I am worried sick that the easiest way for me to live in the future is to buy a ticket to San Francisco. Just like the easiest way for Americans to relive the past is to buy a ticket to Europe, rich in history. I’m asking you to become even more ambitious, more daring, and more demanding, both of yourself, but most importantly also of your environment.
Salathe talks also about role models. His was the founder of Day Interactive, a Swiss start-up which went public in 2000 before being acquired by Adobe for $250M in 2010. So coming next… its cap. table..
in a nutshell, the entrepreneurial ecosystems need 3 ingredients – I quote: – capital: by definition, no new business can be launched without money and relevant infrastructures (which consist of capital tied up in tangible assets); – know-how: you need engineers, developers, designers, salespeople: all those whose skills are necessary for launching and growing innovative businesses; – rebellion: an entrepreneur always challenges the status quo. If they wanted to play by the book, they would innovate within big, established companies, where they would be better paid and would have access to more resources.
This reminds me of two “recipes” I often mention. First the “5 needed ingredients of tech. clusters”
1. Universities and research centers of a very high caliber;
2. An industry of venture capital (i.e. financial institutions and private investors);
3. Experienced professionals in high tech;
4. Service providers such as lawyers, head hunters, public relations and marketing specialists, auditors, etc.
5. Last but not least, an intangible yet critical component: a pioneering spirit which encourages an entrepreneurial culture.
in “Understanding Silicon Valley, the Anatomy of an Entrepreneurial Region”, by M. Kenney, more precisely in chapter: “A Flexible Recycling” by S. Evans and H. Bahrami
Second, Paul Graham in How to be Silicon Valley?“Few startups happen in Miami, for example, because although it’s full of rich people, it has few nerds. It’s not the kind of place nerds like. Whereas Pittsburgh has the opposite problem: plenty of nerds, but no rich people.” He also added about failed ecosystems: “I read occasionally about attempts to set up “technology parks” in other places, as if the active ingredient of Silicon Valley were the office space. An article about Sophia Antipolis bragged that companies there included Cisco, Compaq, IBM, NCR, and Nortel. Don’t the French realize these aren’t startups?”
Many toxic friends of entrepreneurial ecosystems have not understood this. But for those who have understood, building lively ecosystems remains a real challenge: bringing the rebellion, the culture, diminishing the fear of risk taking without stigmatizing (not rewarding– here I disagree with Colin) failure remains highly challenging whereas finding know-how and capital is not easy but feasible with some hard work…
Finally, I copy his diagrams which show ideal and less ideal combinations of capital, know-how and rebellion, adding my exercise for Switzerland.
Switzerland is probably 80% Germany and 20% France…
(A short addition on Oct 29, 2015) – The best description of Switzerland was given by Orson Welles. It explains a lot of things…
“In Italy, for thirty years under the Borgias, they had warfare, terror, murder and bloodshed, but they produced Michelangelo, Leonardo da Vinci and the Renaissance. In Switzerland, they had brotherly love, they had five hundred years of democracy and peace – and what did that produce? The cuckoo clock.” in The Third Man, said by Holly Martins to Harry Lime.