4 Major Challenges in the European Tech Startup Scene
Taking the startup plunge is always a crucial decision regardless of the geography you belong to. The traditional affinity towards lifetime government/corporate jobs seems to be bygone now. Greater number of young graduates are chasing their entrepreneurial dream. Regions across the map are longing to be the hub of innovation. Europe is, of course, not an exception.
Being a robust partner to a number of startups and scaleups across Europe, we are well-informed about the challenges that early startups face in these regions.
A Quick Survey of the European Startup Landscape
European ecosystem has undergone some positive changes to attract both aspiring and established entrepreneurs. The region witnessed a startup explosion around the year 2011 and is on a continuing trend.
As per the European Innovation Scoreboard, Sweden remains the EU innovation leader, followed by Denmark, Finland, the Netherlands, the UK, and Luxembourg.
As reported by computerweekly.com, the UK achieved Europe’s highest growth for startups (5.09%) over the five years between 2013 and 2017, with technology leading the way. France occupies the second place. UK is also home to the maximum number (13) of tech unicorns, companies with at least a billion dollars in valuation.
Switzerland, Sweden, and many Baltic states are experiencing the inflow of blockchain-based startups recently. London, Stockholm, Berlin, Paris, Barcelona, Amsterdam, Helsinki, Berlin, Poland, Vienna, Munich, Madrid, Copenhagen, Milan, Dublin, Oslo, etc. are all catching up as Europe’s major tech startup hubs.
All these do not mean that the tech startup scene is devoid of any challenges or difficulties. Let’s have an overall look at some of them.
Major Challenges Faced by European Startups
1. Talent Shortage
Most of tech startups in the Eastern and Western Europe confirm lack of talents as one of the hindrances. Hiring the right person for the right job is the most obvious way to taste success. But the talent crunch in the local market poses serious threat to finding and securing the right person with the right skillset. Most of them are fed up with switching between freelancers and the in-house team.
Many of them consider offshore software development as a non-viable option. Some are simply averse to it as they are ignorant about its advantages. Wearing the hat of agility is the need of the hour. There is huge need to act swiftly to counter the challenges posed by talent shortage.
Solution: Accessing smart talents beyond your region and tapping the global market is an excellent way out. There are global firms like Bridge Global that help these startups and scaleups to build distributed agile teams. These distributed teams with the right talents will function as an integral arm of your in-house team located in Europe. It is high time the European startups should realise that the quality of the tech team should matter more than the proximity of the team!
2. Idea Validation
Early stage software startups in Europe find it difficult to validate their startup idea. Though they are keen to become industry-leading problem-solvers with their fabulous idea, they are unsure about whether their solution is actually in demand. In other words, they need to confirm that the problem they are trying to solve is one that is faced by a sizable segment of consumers.
This needs R&D efforts, which is often impossible as most startups don’t have an efficient team of entrepreneurial persons who are capable of converting ideas into actionable insights.
Solution: Bridge Labs is a great solution that covers up your inability to undertake the necessary R&D efforts. Bridge Labs is an exclusive service model of Bridge Global that handles all the ‘idea-to-product transition’ worries effectively. It is a self-organized team of digital marketers, financial & sales experts, developers, designers and QA working together to understand and validate the idea, and suggest low-cost MVP plans to bring out the best results.
3. Issue of Fundraising
Raising capital is a major challenge for European startups. The VC scene in Europe is less healthy than that in the US. The lean scenario in Europe is mainly because of the risk-verse nature of European venture capitalists (VCs). In 2016, the VC investment in the EU amounted to 6.5 billion euros, while US in the same year got a whopping 40 billion euros.
The Venture Capital Report by Dow Jones for the fourth quarter of 2017 presents some happy picture. The report reveals that the European venture capital funds rebounded during the quarter both in the number of fund closings and in capital raised.
Solution: Startups in the US and China enjoy higher rounds and have higher exits because the investors there are ready to take up more risks. But European investors are reluctant to take risks, and hence get less returns. A change in the mind-set is what is needed here. European venture capitalists should show willingness to fund younger founders.
Startup Europe, an initiative of the European Commission lists different funding opportunities for SMEs and startups. There is no doubt that the funding ecosystem in Europe is becoming vibrant.
4. Cultural Mindset
The cultural mindset of Europeans is far different from that of the Americans. The former perceives failure as a negative thing, while the latter considers failure as an opportunity to learn. Startups in the European region rely on perfect planning that is not prone to backfire (as they believe). They are not ready for a trial and error learning process.
This kind of a rigid cultural outlook is the result of the diversity the region displays in terms of languages, culture, laws, history etc. across the collection of 50 countries. This is in typical contrast with the US which displays consistent culture across its 50 states. The lack of uniformity is standing in the way of fostering a progressive startup culture in the region.
Solution: The only solution lies in deliberately moulding up a culture that is compatible with the startup culture. People should adopt an attitude of tolerance towards entrepreneurial disasters.
Challenges are there to overcome. Europe is certainly booming towards a startup culture. Numerous premium cities are competing to be the hub of innovation. Business incubators, accelerators, co-working spaces, entrepreneurial campuses, etc. are increasingly built up in the European startup landscape. All these help the region to have a rosy startup setting that is never going to have a dull time in the near future.