We’ve had this discussion several times at different occasions. GigaOM recently asked the same question in one of his blog posts. Instead of asking, which city in Europe could possibly become as important as San Francisco for technology and entrepreneurship, I think the question is more IF it’s possible at all (in Europe). You’ll find a lot of start-ups in Berlin, London, Paris, Zurich, Tallinn, et cetera. However, no market is big enough to allow such a concentration of entrepreneurs as there is in SF. Each country will have its small start-up clusters. The bigger the country the bigger its cluster will be. But is there a potential for a handful of large specialized clusters in Europe?
Start-ups think differently
If a large company moves its headquarters, it evaluates different locations by their hard and soft location factors. These factors influence the companies decision-makers’ reasons why to move to a specific place. Start-ups think differently . In fact, Switzerland is one of the most competitive locations world-wide and has become the favorite country for European headquarters of multinational companies. This doesn’t mean, though, that Zurich or any other Swiss city has to be automatically as attractive for (technology) start-ups.
Minor factors: Quality of living, infrastructure and social stability are three factors, which are more important to large companies, because they plan 10 years ahead. Often, a garage start-up does not care about these factors at all. Neither needs it to look at the taxation levels, because it won’t be profitable for the first five years (let’s remain realistic). In addition to that, technology start-ups sell the longer the more online or in a niche, which forces them to sell world-wide. The location factor market size isn’t that important any more. For those who sell into a market (and therefore by its definition to a part of Europe and not to whole Europe), will have to focus on one linguistic region for the first few years. These companies will search a local cluster in a market they know best.
Important factors: quality of communications network, access to well-educated people, proximity to capital, wage costs, legal stability and the enterprise friendliness of the public administration. These factors are important, no matter what business a start-up is in.
Compared to other continents, I would say that almost every country in Europe offers the necessary level for all minor and important factors. Germany, France, Italy, Spain, and the UK have a large domestic market. Smaller countries instead have often a competitive advantage as far as the other location factors are concerned. However, as I mentioned, the soil for start-ups is fertile enough from Madrid to Helsinki. Since most entrepreneurs start a small basis first, they’ll start where they are, because they speak the local language and know local culture best. They’ll expand at a later stage. Hence, Europe won’t grow a Silicon Valley. It will get silicon freckles.
A slight chance for disproportional clusters
As the four largest countries in Europe not only have a large domestic market but also belong to a large linguistic area, they automatically grow a larger start-up cluster. Berlin and London are those capitals with the largest potential of an disproportional cluster in Europe – followed by Paris, Madrid, Warsaw, and Stockholm.
But this isn’t it. I’ve taken the most important factors out of the equation until now.
There are three key-factors that play a key-role in attracting entrepreneurs
- image of the location
- proximity of ancillary industries
- and proximity to research, education and development mechanisms
These key-factors are important for both, a large corporate and a start-up. In my view, they are crucial to the latter. If the important factors are given, the chances to grow a start-up cluster to a significant size comparable to Silicon Valley, it will need to fulfill these key-factors.
The Silicon Valley attracts geniuses, passionate people and investors. Why? Because of the famous success stories like Apple, Google, and Yahoo. Because they know that they will find like-minded people. Because they have a dream and hope to build another success story. If a small European cluster can gain a similar image, it will grow vastly. It will not reach the size of the Valley, but it can grow a high-tech cluster in a specific technological field, in which it can have a dominant influence world-wide. Success stories will help most – do something great and talk about it!
In addition to that, a specialized cluster is a multiplier itself. Other start-ups, large companies and universities nurture knowledge exchange, cross-industry ideas and people exchange. Therefore Google and Microsoft will accelerate the growth of Zurich’s cluster with their local presence of more than a thousand employees. Facebook showed how to lure great engineers away from Google.
So, will Switzerland be the next Valley?
Switzerland is developing well so far. If you look at this year’s Red Herring Europe 100 rankings, 14% of the winners are located in Switzerland (9% in the year 2008). To answer the question above, though, I would say: no, it won’t.
A lot of small tech-spots will be spread all over the continent. Market size is an advantage. Image and specialization of a cluster are however more important. Therefore, large countries like Germany, UK, and France will have a concentration of start-ups in their capitals. Other Countries like Switzerland, Estonia, Poland, and Romania will develop a specialized cluster for high-tech products or near-sourcing services. As the world flattens the longer the more, globally acting start-ups can operate from San Francisco to Shanghai. For this reason, I think each silicon freckle in Europe has now the chance to grow a significant tech-hub.
Many factors speak in favor of Switzerland to grow its tech-hub even bigger. But so do they speak for Denmark, Finland, Estonia, and many others.
Sources
IMD World Competitiveness Yearbook
European Headquarters in Zurich – List of Companies in Zurich
May 8th, 2009 at 5:09 am
As Paul Graham always points out, a startup cluster needs two things: 1) A great research university, and 2) it must be a place where rich people (ideally former entrepreneurs) want to live, because angel money is probably more important than anything else. Startups will automatically gravitate to such places.
I think Zurich has both. The rich people want to stay because the quality of life is high, and taxes are low.
When you look at the history of Silicon Valley (and similar clusters such as the Boston area), there was always a third ingredient: Massive spending of government money in the form of research grants and government-funded commercial projects, typically for the defense industry. And that’s obviously very difficult to replicate in a small country such as Switzerland.
This is a great and very detailed series on the history of Silicon Valley, BTW:
http://steveblank.com/category/secret-history-of-silicon-valley/
May 8th, 2009 at 6:03 am
Thanks for sharing, Andreas! Interesting thought about massive governmental spending. I’ll look into that a bit deeper. (btw comments are published immediately; sorry for that)
June 4th, 2010 at 2:43 pm
Okei, kuulostaa hyvältä ;D
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