Reading: A devious problem killing European startups15 min
A devious problem killing European startups
European tech is broken, and the reason is we’re giving our startups dreadfully bad advice. Soaked by Slush found out who’s to blame and how to fix it.
© Luumu Jokelainen
“In the early days of building Unity, I was told to hire an executive that someone I look up to had previously worked with. Because of the warm recommendation, I went on to ignore my intuition that said something was wrong.
What happens next is the usual story of a bad leadership hire.
You’re too busy to notice that things slowly go wrong for the new person and his or her team. Old team members are alienated; new team members fit poorly or are misapplied. Pressure in the organization grows, but as the recommendation for this hire was warm and so many were impressed by their CV, it takes months to react. The hire reflects badly on the founders. Damage is done, and will take a long time to fix.”
—David Helgason, Founder of Unity Technologies, a real-time 3D development platform
In 2015, Sebastian Siemiatkowski, Co-founder and CEO of Klarna, said it out loud in Business Insider: bad advice is the biggest issue in European tech, and it’s holding back the whole startup ecosystem.
Four years have passed, and the monster of poor advice hasn’t perished, says Alice Zagury, the renowned Co-founder and CEO of the ambitious pan-European startup platform The Family.
“We Europeans have way too much respect for age and titles, and it’s harmful to our startups,” says Alice, who works with hundreds of startups annually.
Since the first pitch decks of The Family saw the light of day in 2013, Alice has been preaching about Europe’s ‘toxic’ startup culture. For her, toxicity means elitism, bureaucracy, pessimism about the future – and lots of poor advice, coming from traditional, old-fashioned businesses.
“We still have this old-school mentality that if someone is older and has a great company, even if it was built some time ago and has nothing to do with what we’re building, everything they say is full of wisdom. And I really, really don’t think that’s usually the case,” Alice says.
That’s what Kjartan Slette, Co-founder & COO of Unacast, a location data platform understanding human movements and behavior, learned the hard way:
“In our early days, when raising the first rounds of capital, we got advice from some of the many folks that start to buzz around your company after early traction and exposure. The advice was to use this one person as a link to the VC environment; for intros and to join in on meetings. This was supposed to give us access and credibility.
True, it felt off in the meetings, but we were still naive founders. After the first day of meetings with VCs in NYC, one of them asked to have a call with us that very same evening. The message was: ‘Drop that person NOW. That person makes you look weak.'”
Google may well defeat your advisory board
As a result, European tech gives heavy authority to long-established ‘ business leaders’ – even when these traditional tycoons haven’t themselves built startups with business models adapted to today’s landscape of digital entrepreneurship.
“New entrepreneurs have things like Slack, Wix, Shopify, tons of ready-to-use tools that change the whole game. And yet, they’re taking advice from people who built things with email (maybe),” Alice says.
Alice thinks the solution to building a better European culture of advice is two-phased.
Firstly, entrepreneurs need to stop listening to outdated advice and ‘just create their own knowledge.’ That’s what the most impressive startups she’s worked with at The Family, like Payfit, Fretlink, and Agricool, have done.
“Everything’s online these days! Don’t waste resources building advisory boards, seeking startup competition glory, or even making tons of connections. The best startups focus on building and selling their product, obsessing about making their customers are happy.”
This is what Bolt, the latest billion-dollar company from Estonia, going up against ride-hailing platforms across Europe, Africa and beyond, has been successfully doing with the leadership of Co-founder & CEO Markus Villig:
“We’ve broken many rules and gone against the general advice at Bolt, including not filling key positions with industry veterans. Sure, there are areas where it makes sense to work with people who have made it before. However, I’ve learned that, in many cases, you need to value motivation and intelligence over experience. At Bolt, we are building completely new products in a very young industry, so we need people who can think from first principles. Most of our core team has grown up with the company, performing much better than some early ‘senior’ hires that we did.”
Focusing on your product may sound simple, but according to Alice, finding real product-market fit is still a massive struggle for most European startups. It’s something many companies just fail to focus on. This is especially harmful in a fragmented Europe, where startups would really need to obsess about finding new solutions to customers’ problems on their own. There just isn’t as much relevant advice and examples around as in the knowledge-dense environment of Silicon Valley, for example. Luckily, hardships on home turf prepare European startups for global expansion.
“As the saying goes, if you can make it in Europe, you can make it anywhere.”
Help your future competitors – or die alone
Secondly, and most importantly, European entrepreneurs need to start helping each other. This is crucial for the ecosystem to boom. For Alice, that’s the most essential message.
“We in Europe have to learn the pay-it-forward mindset. That means I help you without knowing how it will come back to benefit me. If we can have 10, 20, 100 excellent entrepreneurs adopting this mindset, the effect is huge.”
This mindset, based on trust and optimism, is the foundation that allows any ecosystem to grow.
“And in times like these, I think we need it more than ever before.”
Even though the startup ecosystem needs organizers, educators, journalists, and politicians alike to thrive, Alice thinks the future of the whole European tech ecosystem is ultimately in the hands of entrepreneurs. But they don’t all get that – yet.
“There are these amazing startups in Europe that don’t understand the impact they could have on the ecosystem if only they shared their knowledge. We need to get them involved on the ground, using the power that comes with their huge counts of happy customers to support new initiatives.”
Importantly, this isn’t a question of self-sacrifice.
“In the end, it’s for their own survival. If you want to stay in the game and compete, you need to be surrounded by other entrepreneurs; others who are also bringing valuable new solutions to a number of industries. No one can stay relevant if they’re isolated and all alone.”
Cocky investors love fortune cookie advice
“Everyone, me included, has always gotten and will always get this fortune cookie advice, such as ‘Only hire the best,’ or ‘pay attention to your founding team.’ Like, yeah, thanks,” says Neil Rimer, a trailblazer in the European startup scene and a Co-founder of Index Ventures. The San Francisco and London-based venture firm was founded in 1996 in Geneva and is thought to have brought Silicon Valley-style investing to Europe at a time when ‘venture capital’ was still a new term outside the US.
According to Neil, good startup advice is always, to some extent, a paradox.
“The most exciting companies are generally doing something no one has ever done before. So the most relevant source of advice for them might be a direct competitor, who isn’t naturally inclined to share its knowledge.“
Often, it’s the investors that take on a mentorship role. An investor himself, Neil advises startups to be wary when listening to their backers. With the best intentions of reducing uncertainty and ambiguity facing founders, many investors express their advice with too much conviction.
“The investor should always make it clear that it’s their opinion, not a hard truth. There isn’t a lot of humility in the boardrooms in general,“ Neil says.
Overly confident advisors are something even the most prominent startup leaders like Hampus Jakobsson, Co-founder of TAT, an interactive user interface startup that was acquired by Blackberry in 2010, have struggled with.
“During the first three years of building The Astonishing Tribe, the most irritating and stupid thing people said to us was ‘it is too hard, you should not do this.’ That was absurdly unhelpful advice – not only because it sowed doubt, but also for being so unconstructive. If you voice your fears, uncertainties, and doubts, you should be as concrete as possible so that the founders can make something out of it. Building a startup is hard, and it is great to be paranoid. But the difference between good paranoia and bad paranoia is that the prior always has at least a grain of truth to it, and is measurable, verifiable, or at least concrete enough so one can mitigate the risks.”
While building Karma, a platform developing an application that lets restaurants, grocers and cafés reduce their food waste by selling their surplus to consumers at reduced prices, Co-Founder and COO Elsa Bernadotte has also witnessed investors cross the line of what’s appropriate.
”’Why don’t you also sell sex on the platform? That always sells,’ said an early investor of ours in our early days – something we still laugh about today.”
When building Index Ventures, Neil was himself in a position of creating something no one had ever done in Europe before. Index never wanted to ‘best in Europe,’ as it wouldn’t have taken them very far.
“European VC is not an asset class – global VC is. So to be able to attract money from the best LPs, we needed to aim for the top decile globally, not in Europe.”
One way Index assured this to happen was by only taking LP money from the toughest institutions.
“They made sure that we’d have to stay honest, and we’d have to do an exceptional job to get money from them going forward.”
And sometimes, you just need to keep your mind however much you’re questioned, like Elina Berglund, Co-founder & CEO of Natural Cycles, the first contraception app to get approval in the EU, has done:
“People continuously tell us to give our product out for free one way or another, but it simply doesn’t fit our business. We are a contraceptive medical device, and with that comes great trust, but also dedication. Having users pay $10 a month for using it is crucial for both of these components.”
How much are you willing to risk? That’s what should guide your actions
“Every startup I work with at Station F has received some harmful advice at some point, whether it’s ‘take that term sheet,’ ‘don’t take that deal,’ ‘hire that person,’ or ‘become a startup entrepreneur.’ Do a pivot, don’t do a pivot… People are always giving you bad advice,” says Roxanne Varza, the legendary director at Station F, the Paris-based startup campus that is backed by the French billionaire businessman Xavier Niel and the largest of its kind globally. Roxanne has also led Microsoft France’s startup programs, worked as the Editor-in-Chief of TechCrunch France, and co-founded Tech.eu.
According to Roxanne, navigating all advice is the hardest part of entrepreneurship.
“You could hear every piece of information there is, always know both sides to the story. And in the end, you just have to know which decision is the best for your company.”
Kaarel Kotkas, Founder & CEO of the online identity verification system Veriff, knows what Roxanne is talking about:
“As a CEO, the final decision always lies with me. So even though I talk to many people and am open to advise, in the end, I always make my own decisions and can’t blame anyone for giving bad advice. However, one principle that I bear in mind is ‘advice always favors the giver’. That means people have conscious or unconscious reasons or agendas behind their words. It’s important to be aware of the possible implications.”
When singling out the right advice for you, it’s best to keep in mind your vision, the culture you’re trying to create, and the industry you’re in.
“And also, quite frankly, the level of risk you’re comfortable taking. That’s absolutely central,” Roxanne says.
Choose your accelerator wisely, as there are some bad ones out there
One of the places startups go to for advice is accelerators and incubators, like the ones Station F organizes. According to Roxanne, the demand for these kinds of programs is extremely high in Europe now, and even though the market is already huge, she doesn’t think it’s saturated. One trend Roxanne thinks is definitely starting to take off is the acceleration of later-stage companies.
“Just because a company has a few customers doesn’t mean they can’t benefit from acceleration.”
And the quality of European programs? It is, naturally, all over the place.
“Some of the best ones are these independent programs where they take you with no idea or team, like Entrepreneur First. But even though corporate startup programs are criticized a lot, I’ve seen some of them do incredible things with companies.”
Whatever the model, Roxanne recommends startups to go for programs that enable peer-to-peer learning from other early-stage founders, as well as more seasoned entrepreneurs. At Station F, all of the programs are based on recommendations from other entrepreneurs.
“In our founder program, for example, it’s a complete peer-to-peer learning model. There are no mentors and none of that workshop stuff that you can find in a traditional accelerator.”
Instead, all of the entrepreneurs are put into groups where they have to share everything: advice, learnings, resources, contacts. And according to recent statistics, the Station F model works pretty well: Out of the hundreds of startups that have inhabited the campus after its opening two years ago, only 3 % have stopped their activities since. What’s noteworthy, though, is that 26 percent of the startups have made pivots since their arrival at Station F.
Turn to consultants for macro visions, not startup advice
Roxanne thinks the two deadly issues European startups particularly struggle with are product-market fit and co-founder relations. As both are operational problems, Roxanne recommends turning to other entrepreneurs with operational experience for advice. And who to avoid? People with pure financial backgrounds.
“They are the ones that I hear startups criticizing the most. People who’ve always worked at big consulting firms may have great macro visions, but not the kind of relevant hands-on experience that entrepreneurs most benefit from – especially in the very early days of building the company when all the roles are so operational.”
This is a pain Pietari Suvanto, Co-founder of Vainu.io, a sales intelligence platform, knows very well:
“Perhaps the weakest pieces of advice are self-evident no-brainers, presented in a confident manner, such as “A winning organization is the basis of a successful company.” That’s like advising a football team to score more goals than the opponent. This type of advice usually comes from either consultants or managers who work at corporations and are slightly alienated from everyday life.”
Roxanne doesn’t think Europe lacks platforms on which entrepreneurs can meet each other and exchange experiences. And yet, the knowledge isn’t shared. The reason is very humane.
“Many of us are just not spontaneous enough to go ask and get the information we need. Many entrepreneurs are so shy that they’d rather wait for the information to come to them.”
These are the kinds of situations where you have to go against your own internal advisory board, just like in this case shared by Lucas Carlsén, Co-founder & CEO of Hedvig, a company building ‘nice’ insurance policies:
“‘Postpone the launch until you’re further down the road” was a piece of harmful advice I got from the scared and perfectionist devil on my shoulder. Luckily, the confident and pragmatic angel on my other shoulder and my wise co-founders talked me out of it.”
Bad advice is the result of a bad culture – and the media is partly to blame
Roxanne also notes that the culture of bad advice, which is an emblematic problem of all young ecosystems, is rooted in a bad culture. Roxanne, for example, isn’t at all pleased with the culture of visibly celebrating funding in the media. She sees many first-time founders adapting to the single-minded pursuit of funding, even when it might not be the best solution for their business. However, it’s not just the media that is responsible for fixing this.
“I’ve heard from a lot of journalists that they’re tired of just announcing funding rounds. It’s like ‘there’s a lot of money, we get the point.’ Raising funding doesn’t mean you’ve done anything yet, you just have the means to do it now.”
Roxanne sees the problem as a vicious circle.
First, founders started to notice that when you raise funding, you become visible in the media. This encouraged startups to merely share their funding news with the press, so that’s what the press keeps reporting about. The result is a vicious circle that everyone is caught up in.
Roxanne would love for startups to tell other stories, and journalists to listen to and write about these fresh narratives, instead of merely repeating the eternal loop of funding news and congratulations.
“Someone told me that raising funding is similar to when you have a baby. Everyone congratulates you, but actually, that’s when your troubles start. It’s the same thing with funding news; we should tell the stories that come after.”