Comment by spaniard89277
4 years ago
So why does Europe have such hard time popping new software ventures like the US? Is it market fragmentation? Languages? Is it capital allocation related problems?
I feel that the ability to bootstrap projects in all the large EU countries is way harder than the US, or smaller euro ones (like the Netherlands or Estonia).
In Spain for example, the cost of something similar of an LLC is way higher than in the US, not to mention that you have to pay almost 400€/month (at minimum) just for owning the company as Social Security fee, even if I'm also working for someone else paying my social security through my salary.
It's a huge burden if you're in my situation, which is having an average salary, not a lot of savings and you don't have a family that bails you out.
Also, this listing lacks a few more that I listed here: https://iagovar.com/mapas/european-web-hosting-alternatives
I think the biggest problem is the small home market / fragmented market.
While the EU has a very well integrated market for industry goods, for services (where I would include software) the market is less than perfect.
The language barrier is the biggest strangle for EU software entrepreneurship / platform business in my opinion.
The second-biggest obstacle imho is funding. If you want to grow really fast, it is hard to get enough money.
Third, I would rank ecosystem in general, besides money.
I think over regulation is not as bad as it is often said. All developed countries have regulations in place, some more some less.
If language were a major barrier; then, how does one explain the US doing well in the EU?
I get that home markets may not be big and provide a springboard perhaps to other markets but even the big countries there don’t seem to dominate the small countries in terms of Software.
>> If language were a major barrier; then, how does one explain the US doing well in the EU?
By the time US companies reach the EU they are already big, worth billions.
That being said I believe the main issue in EU is funding.
One good entrepreneur said that focusing first on 2 markets would be ideal when starting out. They went for 5 markets and said it was too much hassle. In the end focused on US/Polish market.
IMO language is big barrier as just testing different text in UI is a lot of hassle when starting out - not to mentions laws, cultures difference, dealing with business partners etc. is much harder due to that.
IMO common law/company to easily hire people across EU would help.
Yeah, I don't think language is really the issue. I mean, it can be a barrier, but I doubt it's the most important one. I think access to money is #1. The US, especially Silicon Valley, has a culture of taking risks, of venture capital, and it has a culture of bringing people together in order to get that money in the hands of startups. Europe tends to be more risk-averse. We want to invest, but only once it's clear it's going to be a success. People are much less eager to take risks with their money, and entrepreneurs are less eager to risk bankruptcy.
> If language were a major barrier; then, how does one explain the US doing well in the EU?
Hypothesis: A lot of people read English well enough to use apps and websites even before automatic translation was built into e.g. Chrome and Safari; but translation into your mother tongue is much easier than transition into a second language.
A good question. I think the answer lies somewhere in the fact that one in five Germans speaks French but about half speak English.
I think this has been debunked? Just look at Sweden as an counter example or Israel.
I believe it’s just the lack of massive capital and the power law of VC investments. Start 1000s companies with smart people and a tiny fraction will get insanely big.
We’re starting to see this in Europe too now.
If Sweden and Israel are good counter examples, maybe there's something to that language barrier after all; Sweden and Israel are both countries with an excellent command of English.
Hiring SE in Sweden takes minimum 6 months. Take into account a Union to deal with. It's probably too complex for some startups. Does it make Sweden a good example for starting a company or bad one?
On the other hand, people in Sweden are positive about hiring (and sometimes being hired as a) freelancer. But that's not a company, right?
This is probably true, because I know many Europeans that come to America and start their startups. So it may not be that there are few European startups, just few startups targeting that market.
> I think the biggest problem is the small home market / fragmented market.
That doesn't explain why Israel doesn't have this problem, they have an even smaller home market. They just sell internationally.
Israel is economically very tightly integrated with the US, they have the oldest Free Trade Agreement with them (1985). One third of their exports go to the US and having such an old FTA means it has become very cheap for companies to setup branches overseas.
>So why does Europe have such hard time popping new software ventures like the US?
The US has a very mature and developed tech VC scene. Where's Europes isn't as mature. Also clustering is a thing -- why didn't Silicon Valley happen in New York either -- many of the conditions were there just like California but it didn't materialize and Europe was simply a mess in the aftermath of WWII there weren't going to be many tech revolutions taking place there.
In fact ironically enough there was such a congregation of talent in Berlin in the 1930s that some have predicted a second "Renaissance" was inevitable were it not for WWII.
You can look at the two world wars as an elaborate suicide attempt of Europe which resulted in handing over the world to the US. It's quite depressing really.
I can only speak for myself, but I find the amount of legal red tape you need to deal with incredibly discouraging.
I'll much rather build and run software for free in my spare time than start a business since the latter would mean having to spend dozens of hours every week dealing with all manner of bureaucracy.
I have the capacity and funds to start a business, but I just don't think it's worth the hassle.
I have a hard time to see how Europe would be any more bureaucratic then the US. Working for a European company that do business with American companies every now and then I can say that the contracts lengths and the legal staffing is a factor of ten higher every time we try to deal with an American customer. Heck involving lawyers just to sign standard contracts is not even something we have to do with European customers generally.
That's not a good example at all. You have to compare starting a company in the US (as a US citizen) vs starting a company in the EU (as an European).
Doing international business is always difficult and the additional hassle when you deal with American customers says absolutely nothing about the overhead of starting a domestic company.
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In the US, everyone is used to the legalism and you just fire over mostly standard units that get modified in known ways. i.e. you know where your levers are. Vendor contracts are easy to read because they're mostly standard.
In the EU, there's a lot of this "what the regulator currently will accept". By the letter of the law, in the worst case, our business in the EU could not have existed. But it did exist and thrive.
The standardization in the US makes it easy. But if I ever have to figure out something for Germany again, I'll slit my throat and feed lizards with my blood first.
For many, Big Government is probably a big part of it here in Belgium. The public sector is so big that many software engineers can spend their entire career as overpaid government contractors.
56% of GDP in public spending in no rush to become more efficient. In fact, quite the contrary.
Compare this with the cut throat competition in Sillicon Valley or the international arena.
That's how you end up with non existent tech offerings in Europe.
Military-industrial contracting in the United States seems to suck up a vast amount of developer talent, and that's all public spending. I'm not sure how you're distinguishing developers working in the fields of public health care, public education, public infrastructure etc. from those working under the secrecy umbrella of the military-industrial contracting system in this argument?
The amount spent does not say anything about efficiency if you don't consider what is provided with that money. Lack of free healthcare and education are some of the biggest complaints about the US after all.
Europe is also doing pretty well in several fields and you don't explain at all how tech in particular is affected by public spending.
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British limited companies are probably among the simplest and cheapest to incorporate and manage in the world but, well, the UK is no longer in the EU...
I have never understood why countries slap so much red tape and so many fees on this. The UK has got it right, IMHO: make it as cheap and simple as possible, there are only upsides [Edit: for society/the state] to people starting up a business.
Yup, costs £12 to incorporate, and it can be done entirely online. Then £12 a year to maintain.
The last time I incorporated a company in the UK it took a grand total of 35 minutes from start to actually having an incorporated company.
>there are only upsides to people starting up a business.
that is not true at all. The majority of business ventures fail and a lot of small businesses aren't productive, and at the end of the day someone needs to pick the tab up. Even Thiel used to say, don't start a business until you have a very good reason to.
What you actually want is to incentivize the kind of people to start a business who have a high chance of driving innovation and bringing about large, productive firms, you don't really want an army of self-employed people with low capital formation in a developed country.
I meant that there are only upsides for society and the state. Sure the people and investors who start a business take a risk, but the state does not: If the new business fails the state loses nothing, if the new business succeeds then wealth and taxes are produced. So make it as simple and cheap as possible to incorporate and to run a business and reap the benefits later.
(I have edited my previous comment to clarify)
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>at the end of the day someone needs to pick the tab up
Only if they have debt. Some companies never take on debt and then fail.
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This has been discussed before. Although the EU is a marketplace of 27 countries, it is not a digitally homogeneous marketplace. Adoption and acceptance of digital tools varies by country. Language is also important - the tech giants localise their apps and tools. But many software companies in larger European countries (France, Germany, Italy, Spain, UK etc) concentrate on their home country first before they focus on international reach. That makes sense. However, in smaller countries, where the software market is also smaller, software companies have a more international outlook (i.e. eyeing the US market).
Even when there are local apps available, many small businesses (and larger ones) will stick with services from big, well-known tech companies. Why? I guess because of inertia, or simply because those products feel safe and familiar.
Where are the pan-European equivalents to eBay, Etsy, KickStarter, AirBnB, Shopify, AbeBooks, etc? Europeans use these services entensively. You'll probably find local equilavents in each European country, but they are not pan-European or global in scope.
if anything the opposite should be true: A small homogeneous market with a language barrier is a great testing ground where a new product can grow and then become global. Facebook started in harvard, and some EU fintech startups are doing well in Sweden, i hear.
Global expansion is not an issue; every american company can easily reach the whole of EU. And there are many many european startups whose main market is america. Unless you mean that, products are so tailored to their home market that they don't have global appeal.
> So why does Europe have such hard time popping new software ventures like the US?
Because people in Europe still largely believe that a business should be an actual business. You know, operating and bringing profit.
Unlike the US where nearly every single "unicorn" can lose billions of dollars a year for over a decade, never see a profit, and still be lauded as a successful business.
Yes has to be a big part of it.
I can feel it myself. I am very reluctant to create a money losing business. It is a deep-seated fear (I'm creating a new business at the moment). Where I got this from, parents, culture, common sense, whatever, doesn't really matter. I would not personally feel successful if I had created Uber, I'd just feel stressed and kind of a fraud. End of story.
So for my new business I'm not getting VC funding even though I know some VCs and they made it clear I could get money from them. I want to build a real business that is actually sustainable on its own terms. This will inevitably limit my reach and likely means I won't create a "tech company", but I've made my peace with that.
Yeah those people earning half a million at Uber in the US are the real fools here, right? /s
It's great for employees, for now at least.
The question is what happens if/when it stops being sustainable. It's not so easy to adjust from those sorts of salaries downwards. The endless flow of VC money into absurd startups with no business plan worth a damn is caused by groupthink and extremely bad monetary policy by supposedly "independent" central banks. They aren't really independent of course, they're creatures of government and politicians can reign them in any time they want.
Why would they do so? Inflation. Bubbles. The sort of problems that have occurred repeatedly throughout history. And what happens when they respond by raising interest rates and ceasing to buy up all the low risk debt instruments? Well, suddenly boring but profitable businesses become useful to invest in again because they pay out dividends and the like. That in turn leads to a sucking sound as money flows out of the venture and equity markets, which makes it harder for those businesses to buy up all the talent, trashes the returns offered by VC funds and makes "sell $1 for $0.90" type business models unsustainable.
Fundamentally, the salaries we earn now from US firms may not be reflective of the value we're actually creating. They may be partially an artifact of money printing. Of course, the Eurozone prints money up the wazoo too so I'm not saying that in relative terms EU/US programmer salaries will get closer just that the very high salaries and proliferation of zombie fake businesses may go away.
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I never said anything about people working at Uber.
However, Uber as a company has so far lost over 20 billion dollars and only turned a profit once. Yup. A very successful and sustainable business.
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To be fair, Uber in EU pays local market rates. This means that salary difference between senior developers you mentioned and EU ones is 8-10x
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Someone else already said acquisitions but the other half of the answer is finance. The US has the most rich and ruthless financial system in the world, with gigantic flows with comparatively little oversight. There's simply enough built up to finance eternal unicorns.
probably because software engineers don't get paid nearly as much as in the US.
Also, there's less of an entrepreneurial mindset in europe. DO a good job, get paid, work life balance. Very different set of goals from america
You're oddly being downvoted for that. Not being paid nearly as highly in tech in general, detracts from how much money is in the ecosystem for doing start-ups.
If you can sock back a retirement working for big tech for 10-12 years (counting equity), it frees you up massively to do whatever you like, whether funding as an angel, or self-funding your own start-ups. It's not uncommon for people you know in tech in Silicon Valley to pitch in on early small funding rounds if you've started something new and are rounding up some early funds. Multiply that wide process by the scale of the US tech industry - at the small and large ends - and all the wealth that has been created in it over the past 30 years.
1.3 million software developers with a median salary of $110,000 is a lot of money just from the software developer worker bees every year (save N% per year of that pile, now it's available for investment in one form or another; and that's ignoring the equity value they're yielding).
Europeans are a lot worse at capitalism, in general, than Americans. Partly because we're not required to be. Western Europeans are more or less born into a massive insurance scheme that will bail you out whenever the going gets tough. This is mostly good, IMO, but not without cost.
What insurance scheme exactly?
Public housing is a nightmare in all of Europe, and being homeless is as much a risk as in the US.
The reason is that EU is an open economy that is not even TRYING to become independent.
China knew that America will try to crush them. It's a real, literal, life or death situation for them to come up with a Chinese Google. They have pumped trillions into the tech industry over decades.
Because we don't want them.
Ok I perhaps misspoke because we would want them, if they came without costs. And by cost I mean law and regulatory environment necessary for such companies.
In EU generally speaking law is in favor of the people (individuals) a lot more than in USA (there are huge exceptions to this like defamations (or anything to do with banks), but I still believe its true.).
There are stories about EU fining USA corporations and how that is unfair. But they fine local ones as well, so breaking things (as in breaking/ignoring law ) and moving fast ends up with law breaking you long before you are successful enough that you can shrug it off.
It's not hard to start business in EU, but it's hard to get hokey stick growth. There are plenty of small to mid level companies in EU that pay well to founders and it's employers.
But if you are trying to get hokey stick growth, EU is not optimal, so why even bother starting there since you can go straight to USA most of the time ?
And honestly speaking if we would have to import American style laws/ regulatory environment in order to get them here, I would rather choose not to have them
It doesn't. The problem is that anything that begins to show promise gets acquired by a US company before long. Europe works fine as an incubator.
This isn’t really a plausible root cause. These companies in the U.S. that are supposedly acquiring everyone (and they aren’t: there are record numbers of unacquired unicorns and IPOs recently) were small once too. That just begs the question: How did the U.S. get all the large acquirers in the first place?
because the internet got big in the U.S first and thus there were more companies being started over there and some of the companies started over there ended up the big ones?
in short, because time exists and effects all else in our reality.
I've talked to entrepreneurs about this over the years and even met a professor whose entire field of study (at that time) was why Europe/rest of world doesn't produce tech firms at the same rate as the USA. He had two explanations that seemed plausible:
1. The USA has a culture of granting equity to early employees. Equity grants are highly motivating. Such grants are expected and standardized. Rest of the world doesn't. Even as late as 2006, the Zürich tax authorities were needing extra time and special procedures to figure out what to do about Googler's equity and stock grants because a US firm setting up shop there was the first time they'd had to deal with this kind of compensation structure.
Evidence: one of the very few tech firms to get big in Europe (ARM) did grant equity to early employees.
2. USA is a large internal free market and this is a big deal.
ARM is a descendent of a computer company called Acorn. In the 1980s the UK was able to hold its own against US tech companies, in fact, Acorn RISC machines were in some ways technologically quite superior to the the US machines. I remember when I was a little kid, the teachers were constantly asking me to fix the school computers in various ways. The Acorn machines simply did not break, ever (well, maybe there were occasional issues with the printers). They were also easy to use and had a consistent UI, some great apps. Feeling kinda nostalgic to remember them really. The IBM PCs were just broken dreck that the schools put up with because they got them cheap via some subsidized scheme and had some unique apps, and Macs were nowhere to be seen.
Within a decade that situation had reversed and the Acorns were being pulled out. Why? Well, Acorn hit financial problems, partly because they were unable to sell into Europe due to bureaucracy and paperwork, and partly due to a failed attempt to expand into the USA, stymied partly by the same problems. The US firms didn't face this problem because of the ease of interstate commerce, so they were able to get big enough quickly enough that they could invest more into their tech and also hire the big legal/logistics teams necessary to move into foreign markets. The complexity of this is a large fixed cost, but the size you can get to before you have to tackle it isn't.
So, Acorn died off and ARM ended up taking on the low end microcontroller market. ARM grew quietly, getting big enough in a boring market that it could sell and hire internationally, and then the smartphone revolution hit and it grew very quickly. Why was it able to grow so quickly? Partly because by then it'd reached a size where it could do things like ... hire chip design teams in the USA. The UK is a country with 1/5th the population, after all.
'gets acquired', or chooses to go to the US because it sees no future as a european startup?
Yes, that too happens. Gitlab is a good example of this.
It's capital. We simply don't have it, or it's not allocated to tech.
All these silly fees you mention are marginal. It would actually be much cheaper to hire devs from Europe, so cost is not the issue at all. It is simply a lack of capital altogether. Nor is there the risk taking that is required.
Europe has no VC.
Cost of incorporating; cost of hiring and firing (this is a big one); and fragmented market in terms of policy, culture and language. Capital availability, until recently, but I don't think that's an issue anymore.
The costs you list are dwarfed if a company scales to any reasonable size and by that point they have enough of a team to consider moving elsewhere in the EU to better manage them. In fact, moving to the US might open up as an opportunity which some people take.
The biggest problem is funding due to the risk aversion of EU institutions and limited alternative sources. You have to be incredibly qualified to acquire the funding need to drive a startup forward in the way that happens in the US. This ranges from the small angel investors through to the first series of VC funding.
In the EU, if you are a business like a biotech or pharma you may be able to navigate this because those are well trodden paths with high risk adversity baked in. A software company has many unknowns, so you encounter problems with expectations. You can't fail in the EU because you only have one shot and won't get back again with another company/idea. In reality, it's very likely you'll stumble a lot initially and won't have the leeway that you have in the US. If you compared bankruptcy on both sides of the Atlantic you'd notice similar patterns.
I know those costs are nothing when a business grow, but having low barriers of entry means a lot more people trying.
I can understand having setup a company inside an EU country, but the lesson I got as a developer is that I need to think bigger if you want to have a sustainable business. You can build and validate startup ideas very cheaply by either using budget hosting, or trials of cloud products. EU companies often have to go down the path of consulting part-time, or building the product for one customer who covers most costs with the goal of extracting V2 as a general product.
Developers can have a very idea idea of cost management and what is valuable. They may be either blowing their employer's money on inefficient AWS solutions, or they are building their own k8s cluster on cheap VPSes because they felt that the managed solutions were expensive. It's an easy trap to fall into. You need to have a balance that is sustainable and productive. It was much easier to understand the whole space when we were building on LAMP or Ruby-on-Rails than it is now.
It's best to have a partner who is very business-savvy to help with navigating these options. If you only look at it from the tech perspective you'll fail quickly.
I would turn that question around. How have the US become this hub for tech-companies? Probably culture and momentum. The same reason a small country like Sweden managed to become the third-largest music exporter in the world.
And also European companies are moving to the US to start and/or grow their businesses there. Why is Spotify even listed on the NY stock exchange?
Another thing - most european companies will reduce your salary and treat you as a slave if you are working as a contractor outside the EU (since no one can punish them that way). I can confirm that an ex FB guy who went full-remote digital nomad style earlier this year and wanted to move as a senior developer for a French startup simply because he loves their idea (and it'd be easier for him due to timezones while he stays in Thailand/Cambodia) and guess what they did? They offered him less than half as compared to an actual junior position, even though they received milkions in funding, and the reason? He lives in a "cheap" place therefore he doesn't need a high salary anymore, who cares of his expertise, it's not going to be "fair" towards the other workers in the company.
I'd guess that the biggest factor is their Venture Capital firms are way more risk averse. The US in general has a more entrepreneurial culture, and therefore a bigger risk appetite.
Language is a big barrier. With my first startup waiterio.com we had to build a lot of custom tools to narrow the linguistic gap. I'm turning one of the tools into a public SaaS: https://www.polyblog.io helps you build multi-language blogs.
> So why does Europe have such hard time popping new software ventures
So what makes you think that "popping new software ventures" is a good thing for society? Isn't there enough software already? The problem is the mediocre quality of it, and decline (hello Adobe). Popping new software ventures is hardly a solution.
This is not even debateable. Software is eating the world and there's still a lot to eat. Europe won't be selling leather bags for much longer. The fact that it excluded itself from the future of the internet is a crime for the future generations.
New ventures is a solution for decline of old ones. The circle of life... It's a necessity, in fact. Cells need to divide and renew, organisms need to reproduce. Companies are the same.
You could look into Estonian e-residency for setting up a company outside of Spain. You’re usually still taxable in your country of residence within the EU, so it’s not a tax avoidance scheme, but it might change your personal insurance status? Just an idea, those 400€ sound awful…
Money.
The US had way more wealth compared to Europe, thanks to unbridled capitalism in the past centuries and not hosting a World War.
That wealth trickle down and converted in various shapes until the current VC class.
> and not hosting a World War.
Two.
Taxes and bureaucracy.
It is beyond insanity. And should you succeed in France/Belgium/Spain you'd be seen as the evil capitalist responsible for all that is wrong in the EU.
The whole mentality is rotten.
The EU has one big software company and it's... SAP. SAP is a drop in the bucket compared to the big US or Chinese tech firms (I don't think SAP is worth even 1/10th of any GNAFAM). But there's worse: I think SAP's market cap is worth basically as much as the next 50 or next 100 (or maybe basically all the others) EU software companies. Something crazy like that.
So one successful software company (thankfully we have Germany in the EU and SAP if, of course, German).
It's a failure whose level of failure cannot be understated.
A complete, total and utter failure.