A prominent VC and blogger, Fred Wilson, wrote an interesting blog post about his trip to Scandinavia, where he briefly analyzes the differences and similarities between startups in the US and the ones he saw in Scandinavia, and the respective markets they operate in. Here’s how Fred sees the dichotomy:
I saw two companies that participate in the online advertising technology business. One primarily serves the online agency market and one primarily serves the online publisher market. Neither were doing anything completely new (at least I didn’t see it), but both had built significant market share in the Scandinavian market. They had real customers using their platforms to run real campaigns. Both were looking for capital to expand to the rest of europe and then on to the US.
We don’t see that kind of opportunity so much in the US. The companies in the online advertising business don’t have an easily accessible market that they can get started in. Neither of these companies will be able to build a large (greater than $20mm per year) business if they stay in Scandinavia but they will be able to build a real business, serving real customers, with solid products before having to face the tougher competition of the rest of the world. And I see that both as an advantage and a disadvantage. I think its an advantage to have a “home court” advantage when you are just getting started. But I also worry that it can make it even harder to break out of the region when its time to do that.
It’s an interesting and important observation, not least to us living here in the Nordics. Fred is talking about the online advertising technology business in particular, but one can easily extend the argument to almost any business. It’s not the first time I’ve heard this argument, nor does it take a genius to figure out what kind of implications it might have. One of the most visible being the higher likelihood of an exit (vs. growing the company into maturity and eventually into a global business) for the Scandinavian startups. This is because a Scandi startup can many times choose an exit option at a stage where it has built a critical mass at home for a major European (or US) player to acquire the startup, but where the startup would need to jump on a whole different learning curve to start competing directly with the US equivalents on their home turf. For many entrepreneurs the former sounds a lot better than the latter after what has been many times years of bootstrapping.
Having said that, it makes building an online business somewhat easier here in Scandinavia, at least comparatively. This applies especially if you don’t suffer from the not-invented-here syndrome and you are brave enough to take something that works over at the US and give it a shot over at this side of Atlantic. And if you’ve have a business idea of your own which does not have a equivalent anywhere, that much better.
Just recently I talked to an entrepreneur who succeeded in building his business to a level that they had the critical mass in one country after which they were able to choose whether an exit or growing the business would suit their particular situation better. The advice I received from him was in line with what Fred is implying in his blog post for us here in Scandinavia (given you don’t have millions and millions of VC capital and a global network to math): Grow and test your business in one market (that you know) to a level that you’ve proven the concept after which it’s a lot easier to expand into other countries. This is something that is much easier for us to do here in the Nordics compared to the startups in the US where they have the world’s most competitive home market to work with when it comes to the web. If the US market is too hard for your business to enter, you’re already making money at home to finance the trip with, whether the trip is successful or not. And if you can’t make the business work at home, you might be better off failing fast and moving on the next idea.
What about the ‘harder to break out of the region when its time to do that’ -argument that Fred touches upon? In my opinion, if you are not up for an exit and your idea needs a bigger market to justify the investment use your home turf as a laboratory to prove the concept to the business angels, VCs and other fat cats that you need to finance your expansion. Thus, even if you start with your home market, you don’t need to get fixated on it, but it serves as a useful lab even if it might slow down you a little.
How do you see the trade-off, or is there one in the first place in your opinion?
Fred did also write about a couple of interesting Scandinavian startups, namely Issuu, myc4 and ESNation that owns one of the top videogaming teams in europe called Meet Your Makers (MYM). You can read more about them from Fred’s original blog post.