Fanning Innovation, Euro-Style


By Stephen H. Wildstrom Europe seems to have everything it takes to be a hotbed of high-tech innovation: a highly educated workforce, great universities, a solid legal system, and advanced financial markets. Yet it is anything but.According to Simon Brown, general manager of developer and platform evangelism for Microsoft (MSFT) in Europe, the Middle East, and Africa, the region is home to only 143 of the world's top 1,000 software companies. Excluding Britain and Israel, just 88 are found in continental Europe. Identifying the reasons why and finding ways to change the situation inspired the recent Innovate!Europe conference in Zaragoza, Spain.

Participants, mainly European tech entrepreneurs and investors, did a lot better on diagnosis than cure, though they (including myself) have pledged to go on working in hopes of producing a white paper laying out an agenda for a European "innovation ecosystem." The general consensus was that it won't be easy, since the fundamental problem is a culture that fails to reward risk-taking.

GO AHEAD, LAUGH "The framework is here," said Anton Affentranger, CEO of Dartfish, a Fribourg, Switzerland, maker of video-production software. "But the drive and the ambition are not high enough for us to succeed." Affentranger challenged the popular view that the burden of government regulation is a big problem in Europe, especially compared to the U.S.: "It is wrong to talk about the U.S. and Europe as U.S. good, Europe bad. I was shocked at how efficient the French bureaucracy was when we opened a subsidiary in Nice."

"This continent is one of the most conservative places on the planet," said Marten Mickos, CEO of MySQL, a publisher of open-source database software based in Uppsala, Sweden. He notes that Europe has a long history of successful invention, but a weak history of turning those inventions into innovations, which he defined as something "that makes money or saves money." Real innovators, he said, "don't mind being laughed at. This is perhaps not the place for people with the courage to be different."

Some participants said fear of success can be as big a problem as fear of failure. "In France and continental Europe, the relationship with money is problematic," said Nicolas Gaume, who rode several startups through boom and bust and is now French media giant Lagard?e SCA's general manager of mobile games. "Businesses are either big companies run by government factotums or are small enough not to be seen as threatening."

SLOW TO CHANGE. Olivier de Montety, who ran Zebank, a briefly successful online bank based in France, said: "After we imploded, brick-and-mortar banks were very pleased, and French banks seemed to consider me a black sheep for having created something new. When we subsequently created the consulting business, nobody in the French banking sector wanted to work with me -- 60% of our invoices were with Anglo-Saxon and Asian banks."

There was general agreement that changing a culture deeply suspicious of the values that foster entrepreneurship -- ambition, the willingness to stand out and be different, a desire to challenge the established order, even a bit of greed -- will be hard to come by. The crushing defeat of the proposed European constitution in referendums in France and the Netherlands was universally viewed as evidence of the resistance to change.

Oddly enough, one spur to change might come from the U.S. Angel investor Doug Michels, former CEO of software maker Tarantella, says the U.S. regulatory climate has become more hostile to startups.

MAIN CHANCE? He estimates that the compliance requirements of Sarbanes-Oxley Act alone will cost small, publicly traded companies $4 million a year, and this might encourage many startups to look to the London Stock Exchange's AIM market over the Nasdaq.

In the U.S., Michels complains, investors want deals only when the possibility of acquisition exists, meaning that they anticipate their payoff by quickly selling the company. "No one is looking for the next big thing," Michels lamented -- an opening that just might be Europe's ticket for a high-tech future. Wildstrom is Technology & You columnist for BusinessWeek. You can contact him at techandyou@businessweek.com


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