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Tuesday, June 28, 2022

Symptoms Of The Norwegian Startup Ecosystem

This guest post is by Tor R. Grønsund. He is the founder of Lingo Social, a lecturer of Entrepreneurship at the University of Oslo, and the writer of the blog Methodologist. Follow him on Twitter at @tor.

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As inventors of the object-oriented programming language and the modern GSM technology, you would expect Norway to have the perfect ingredients for a vibrant startup scene. If you, however, search this or any other notable tech blog for news on early-stage Norwegian startups, you would find next to nothing. While Nordic and Baltic startups seems to thrive, why don’t we see any ventures emerging out of Norway, several Nordic and European professionals questioned me. After talking to a handful of entrepreneurs, investors, and scholars about why this is the case, I discovered seven symptoms of the Norwegian start-up ecosystem that might explain why Norway’s tech innovation is lagging behind that of its neighbors.

Found and lost

Called “black gold” the Norwegian oil imperium is the usual suspect and by long the cliché. But it is still the most used argument in explaining why Norway lags behind its Nordic counterparts. As Finnish Travelling Salesman (Kristoffer Lawson) reports from his visit to Norway in autumn 2010: “Software is not at Norway’s heart”. That needs a closer look.

As mentioned above, Norwegian researchers developed the object-oriented programming language back in 1960, which was later used for creating Java and many of today’s popular web application frameworks. In fact,  oil & energy industry is still dependent on specialized software to work its magic. Similarly, this industry needs communication systems and infrastructure. That is why today many Norwegian software developers work and have their customers in this space.

The problem, however, is that this space is pretty much owned by large service providers and consulting companies, and much of supply and demand exists inside of Norway. Although the oil & energy industry might not have a direct impact on tech startup scene, it plays a substantial role on the industry structure that makes up the startup ecosystem.

Going “public”

Norway has a grand public sector, which is also the primary customer and main source of revenue to many private companies. It is said that money flows within this system – among the public and its private customers, making service and consulting industries thrive. Consequently, this leaves out the good-enough products of startups.

Also at the expense of startups, it is believed that the best brains are recruited within the same feedback loop. But, with roughly 800 employees from more than 50 countries, Internet browser company Opera Software is mentioned among the companies who work against this and manage to attract top talent through international recruiting.

With the commoditization of web technologies, and despite a heavy service-driven industry, consultancies and agencies now begin to offer web products. Although not a Norwegian thing per se, this will hopefully continue and create spin-offs paying into the startup ecosystem.

Even though it is one of the wealthiest countries around with a large public sector, Norway’s total private R&D expenditure in 2009 was about 1.8 percent of gross domestic product. In comparison, EU average was around 2 percent. So, there may be some truth in saying that we don’t invest in what we request.

With nearly 5 million inhabitants, you may also argue that Norway is not a sustainable market for consumer-facing startups. But, at 5,3M and 5,5M this does not seem to bother Finland or Denmark respectively.

The Jante Law

In Norway today, you can perform well as long as you keep quiet about it. Several exchange students I’ve talked to, returning from an exchange programs in the U.S. had the impression that this – the Jante Law – strongly governs Norwegians. The Norwegian school is a classic example of how the Jante Law prevails; if a student in a class is distinguished several times, there is often envy among classmates. The same rule is said to apply to entrepreneurship.

Try come to Norway and pitch your business idea. You would pretty quickly hear that “this already exists” or you’d be told any other obstacle there might possibly be. I have myself heard this so many times that I started responding– “Good, then there is a market for this”. But since the author of the Jante Law is a Danish-Norwegian and has lived in Sweden, the Law is not only a Norwegian culture phenomenon, but also applies to the whole Scandinavian.

Nature vs. nurture

The Norwegian school’s test scores might be lousy in comparison to Finland, but in terms of entrepreneurial education Norway does its homework. Over the 10 past years, more than 1000 students have graduated from The Norwegian School of Entrepreneurship and its internship programmes with startups in San Francisco, Boston, Houston, Singapore, London, and Shanghai. Today, most large universities and colleges in Norway offer courses in entrepreneurship.

But be aware, entrepreneurship doesn’t exist in vacuum. Recently I pitched the relevance of entrepreneurship in design to one of the professors at a leading design school. The feedback was evident: “we don’t deal with business”. May I please remind you then: isn’t it because of entrepreneurs in the first place that many of your designers have somewhere to go upon graduation? Obviously the professor in question wanted their own work to exist and admitted that many academics work their own silos.

The 4th branch of government

Norwegian tech publications are perfectly good at what they do. Obviously, they love writing about the national divisions of large consulting companies and their billion-worth contracts with the public sector. Unfortunately, news about Norwegian startups, or Nordic, European, and US startups alike, is almost absent.

An example was the $350M sale of Nimsoft, a Norwegian provider of unified monitoring solutions in the cloud, to a US company. Norwegian tech publications wrote about it over a day later than the international blogs. So it seems that when there occasionally is news about startups, it is often a copy-and-paste translation from English speaking blogs – which the most curious tech people have already read.

It makes sense that news publications have their market and followers to sweeten, but as the “forth branch of government” media must take their part in covering the startup ecosystem.

Deep pockets

Norway might be a good place to run a business, but it is highly expensive. As an Inc. Magazine article reported, sales taxes in Norway are about triple and Payroll taxes are double those in the U.S.

Norway is expensive indeed, but obviously not that bad after all – Swedes are among the largest group of working migrants to Norway. It is easy and you can earn more than you spend. Why would this be so different for entrepreneurs?

It might be that with all this wealth and highly paid jobs, taking the pin as an entrepreneur isn’t too much of an option – unless off course the government sponsors you.

Beating the fat tail

I learned that most Norwegian first-time founders hold the government as the usual suspect when funding their startup. Governmental grants have sort of become a matter of “make it or break it”. Now there are several private agents that specialize in helping startups acquire governmental grants or get general incubation. The system optimizes.

Another common threat is that the Norwegian early-stage investment segment is said to be risk-averse and immature compared to that of Sweden and Finland. Although the majority of investments might be in oil & energy, and there are fewer and larger (fat tail) investments, Norway still stands out as the largest venture capital market measured in terms of number of inhabitants. Menon, a research firm, also reports that the Norwegian VC market is probably the most active in the Nordic market.

The bottom line

There might be ghosts, but no excuses. Norway is still one of the world’s best places to live. The government does its funding. VCs are internationally competitive. Tech and entrepreneurial education prospers, and startup weekends and hackatons are emerging. But for this support to continue, there must also be startups.

A Norwegian article addressing a similar theme summarizes the best: “The main reason why many fail is that there aren’t many trying at all”. For this to happen, entrepreneurship and startups must first be communicated, and that, my friends, starts with us. Norway certainty has something to learn, and talking to neighboring entrepreneurs may be a good place to start.

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