That's a deep question that is asked nowhere near enough. And when it is asked, my experience has been it's mostly been Americans doing the asking.
Here's a story. I was once visiting Silicon Valley for work and getting dinner with a friend who lives there. I'm a Brit who lives in central Europe. On the way over I'd bought a copy of Der Spiegel, which likes to write tabloid-esque articles about the Power Of Tech Firms. The front cover this particular week was one such article and I had found it kind of funny, so I was showing it to my friend and we were discussing it.
Next to us in the restaurant was another table with an elderly gentlemen dining alone. Suddenly he leaned over and joined our conversation. It turned out he was some sort of economics academic and one of his 'research interests' was this question of why the EU doesn't generate tech firms. He had a lot of insight and I've never forgotten that discussion: it has influenced my thoughts about how to set up my own software firm.
One of the points he made is that outside the USA there's no real culture of granting early employees equity, whereas in the US tech industry that's standard. ARM is apparently one of the few exceptions, in which the co-founders did in fact hand out equity early on. The incentivising effect this produces is profound. I've felt it myself - when I joined a startup, having an ownership stake as well as a salary made the difference between doing the work, and genuinely caring about the company, being willing to get into arguments and fight for what was important, etc. So a culture gap with respect to ownership is perhaps one reason.
The man made other points that were more commonly observed, like the different approaches to regulation. A few days ago people were surprised to discover that the UK/EU Brexit treaty mandates SHA-1 for some obscure data interchange format. This is typical for the EU. In the US people at least pretend to care about the innovation-harming impact of regulation, even on the left. There's zero culture of that in the EU. The EU views more regulation as inherently good, and anything that isn't caked in hundreds of pages of regulations as being merely on the TODO list. It also brooks no dissent: one of the EU's "red lines" in the negotiations was that they didn't want the UK to undercut their "standards", defined as regulation. Any country that attempts to deregulate gets taken to court by the EU Commission itself, in its own courts, which almost always rule in favour of the Commission regardless of what the law actually says. This creates a one-way ratchet of ever more convoluted and obsolete rules, which in turn imposes a thicket of complexity costs on companies that have other things to focus on. Many of these rules are justified on the grounds of making trade easier but often have the opposite effect.
Finally there are the very real cultural aspects. The US/Valley culture practically celebrates failure. This isn't necessarily good - failure is still failure, but family and friends at least seem to be pretty supportive of entrepreneurs in general and "failure" is very flexibly defined. For instance creating a company that never makes money isn't a problem in the US thanks to a mix of this culture and bottomless VC money. Whereas that would be perceived as failure by family and friends in Europe.
> It also brooks no dissent: one of the EU's "red lines" in the negotiations was that they didn't want the UK to undercut their "standards", defined as regulation. Any country that attempts to deregulate gets taken to court by the EU Commission itself, in its own courts, which almost always rule in favour of the Commission regardless of what the law actually says.
This is standard practice is almost any trading agreement. No trading entity wants to enter a tariff free agreement with another entity which operates lower standards, and thus makes it easy for that partner to undercut their local market.
It’s the entire reason why the US and EU hold tariffs against each other. They don’t want the subsidies or differences in standards to allow one to undercut the other.
The US has similar terms in all their trading agreements, its just that historically the US has sought to export its copyright, tax and drug laws. Hence why most of the western world has drug laws and copyright laws that are almost a copy paste of US drug and copyright laws. Indeed it’s why weed is still technically illegal in Amsterdam. It’s also how the US gets foreign banks to enforce FATCA.
Finally if you want to see some really repugnant trade agreement terms, look up Investor-state Dispute Settlement agreements that the US likes to put in their trade deals [1]
The USA is also one country, one culture, one language, 300 million people as an initial market and a continent. Each of these lower the barrier to entry. The last point point about being a continent is that I can ship across the USA for far less than I can ship from one side of the EU to the other. The USA has economies of scale that Europe still does not have.
>The last point point about being a continent is that I can ship across the USA for far less than I can ship from one side of the EU to the other.
I sell on eBay and Amazon. We Americans have no idea how good we have it in terms of shipping options.
I can ship via USPS a videogame that is, including the padded envelope, 4 oz or less in weight for ~$3 to anywhere in the US (even AK, HI, and PR and other territories).
I can ship as much as fits into a USPS-provided free padded Priority Mail envelope for $7.75, and reasonably expect that it will arrive anywhere in the US in two to three days.
After FedEx ended its relationship with Amazon, it gave eBay Amazon's previous steep discount. In many cases, FedEx 2Day through eBay is by far the cheapest way to get a package from one US coast to the other, even cheaper than USPS Priority Mail and Priority Mail Cubic. This is guaranteed two days or less, as opposed to Priority Mail; think SLA versus lack of same.
Such a discount is available to others, of course. I've written before about how I a month ago made $1700 in profit in three days by dropshipping a popular video game-related accessory from its manufacturer to dozens of customers around the country. I leveraged the manufacturer offering free FedEx shipping to fulfill my orders.
Regarding the expensive shipping in the EU point.
That really depends on the country one is shipping from.
Shipping from Germany is extremely cheap - even internationally (even cheaper than the rates you mentioned).
But shipping the same thing the opposite direction can easily cost many multiples more.
> The USA has economies of scale that Europe still does not have.
If anything Europe has larger economies of scale. EU population alone is 446 million and that's not including countries that chose not to be part of it.
Translating your product into 30 different languages is pretty expensive, as is finding local representatives who know their markets and can advertise efficiently. Americans are much more culturally alike to one another than they are willing to admit.
And from the standpoint of e-commerce, shipping charges across Europe are expensive compared to the US. We do not have any common, reasonably priced service similar to US Post. Sending a package to Spain will cost me more than twice as much than sending it within borders of my own country, and the delivery will take several days.
> For instance creating a company that never makes money isn't a problem in the US thanks to a mix of this culture and bottomless VC money. Whereas that would be perceived as failure by family and friends in Europe.
I guess that's related to the US dept culture too.
Not having money but borrowing it for all kinds of things and with that stacking dept upon dept is quite normal in the US while over here at the continent you usually want to pay it back asap.
So not having money or working for a company which doesn't generate any must feel much better in the US.
I would be terrified. I also wouldn't work for some startup which won't pay be but instead preach something about family values for example.
Earning money and owning stuff that I buy feels great. Wouldn't want to miss it.
Interestingly, in German the word for debt - “schuld” - is the same as the word for guilt.
Having lived in Germany for 7+ years, I noticed there’s a strong sentiment against owing money in general. Odd, considering the crazy high real-state prices these days.
People also seem to save a lot, and consume much less than in other western nations I’ve lived at, or visited.
This may be causing broad economic issues as the money is there, it’s just not moving around as much [1].
True but there is a difference between "jemandem etwas schulden" and a actual credit for a house or something:
Owing someone you know money is probably the worst. You want to get rid of that "Schuld" asap. Even if it's an Euro you borrowed for an Einkaufswagen.
Than there is the "credit" for things you should actually pay from money you have or otherwise not buy at all. Like a fridge or a TV or something like that. You usually don't go around and tell other people that you did that. You pretend that you actually paid for it and that it's yours. This is also where US debt-culture comes into Europe though. You can see for years now that shops encourage going into debt for those kind of products. They try to normalize it because it's easy to hide and pretend.
Third are really big investments like a house or a business. Taking a credit there and discussing those with your friends and relatives is nothing that is frowned upon. Nobody expects you to have that kind of money (and if you had, you'd probably not admit to it).
Well I can certainly say one thing, thanks to EU regulation I don't have to eat chlorinated chicken, the air is clean and I have reasonable working hours and holiday protected by law. You seem to suggest that regulation is always bad, I think a lot of people would disagree.
I visited the UK and the first thing I noticed when I was walking around the cities and towns as how much they stunk of diesel. Air quality made even the worst of US cities look good..
Not sure, if anywhere other than London is moving away really. Especially considering bad public transport outside London, many people has to stick driving to city centres with cheap diesels. My manager was paying £30 road tax for his old diesel whereas my ULEZ compliant car costs above £330.
diesel particulate emissions as a direct result of the EU legislation protecting EU industry cause about tens of thousands of deaths a year, mostly in Europe
No. Diesel, compared to petrol, is worst for short-term air pollution and better for CO2 emissions. And, ultimately, climate change is the biggest danger.
The latter two are perhaps good for employees but are definitely a problem for startup founders who need everyone to give 110% of the company is to survive at all.
As for chlorinated chicken, the EU likes to come up with bogus safety issues to protect French farmers, this is no news. It also has banned GM food, although the health problems Americans have aren't related to chlorinated chicken nor GM foods. The air one has been tackled by others already.
Well, the current European culture is deeply shaped by a immense counter reaction to those times when daring and enterprising men blew up the world twice.
That's why consensus building and failure avoidance are common in Europe. People want good enough without moonshots.
> The EU views more regulation as inherently good, and anything that isn't caked in hundreds of pages of regulations as being merely on the TODO list
One of the best examples of this are the digital tachograph design documents, which are hundreds of pages of legal gibberish mixed with a convoluted tech spec. 100% design by comitee. No wonder the top digital tachograph supplier is VDO and one if the lesser players, Stoneridge, has a much better designed and executed product.
In contrast with this, the US ELD is an 125 page document standardising functionality and the data output of the device.
Yes. Here you can find all the associated documents but I'm talking about Regulation EU 2016/799 and Electronic Logging Device Final Rule specifically.
I run a tech company in the Netherlands. I can corroborate most of this.
Giving employees equity in the Netherlands is nearly impossible without getting taxed to death. The position of the tax authority is that the sole reason you get equity, is because of your relationship as employee, and therefore the "gift of equity" is actually a form of salary, and therefore salary tax must be paid based on the value of the equity. In the Netherlands, this tax is around 50%.
Worse: depending on the exact legal implementation of the equity, you may end up having to pay the tax, based on its value on paper, before actually selling the equity, whose actual market price may be far lower. One could end up losing money just by having equity.
In the Netherlands, having a bankruptcy on your name makes you an ecomonic pariah. The process of going through a bankruptcy is not pleasant and comes with many responsibilities. Starting another company will be difficult. You will not be able to get a loan anymore. Oh, and your phone bill counts as a loan.
There is also a very weak culture of venture capital investment. There are very few such investors, and where they exist, the amounts they offer is tiny (like 10x lower) compared to US VCs, even though they ask the same amount of equity.
I am also not very impressed with the amount of advice/expertise VCs can offer over here.
The Dutch government likes to talk about how much they stimulate the tech and startup scenes. But when capital is concerned, their default answer is that you're supposed to get a loan. Lenders, unlike venture capitalists, are risk-averse (which they have to by law), meaning that they MUST get their loan paid back no matter what, which means that your business plan MUST be profitable, guaranteed, and that you must provide some sort of personal collateral, such as your savings or your house.
The sort of companies the government is thinking of, is for example a factory, where you need capital up front in order to buy machinery. The demand is known, so you know what profit you will roughly make. But this sort of thinking doesn't work for areas with high risk or a high degree of unknown.
For example let's say that you want to make a Twitter. You need money to pay for developers' salaries. But what will your profit be in year 3? It could be 1 million, or 0 (because nobody wants it). When banks hear this, they want a collateral equal to the loan amount. Why would I even get a loan then?
The best thing I can say about the Netherlands is the WBSO subsidy. When you do tech research and development on an area with risk (where risk is defined as being risky to you, e.g. because you have no experience with a particular topic or technology), then the government provides a subsidy for the amount of man-hours spent on this R&D. R&D includes software development too. This subsidy is implemented as a salary tax break.
Plus, when it turns out that your WBSO-subsidized product actually generates profit, then you get a corporate income tax break on the profits generated by that product. This is called the Innovatiebox.
WBSO and Innovatiebox are really nice once you have initial capital and have taken off. They won't help you when you start with near €0.
I"ll echo VC scarcity in NL as a main problem. Coming from Israel I really notice in NL bootstrapped Dutch companies of high quality that are quite happy serving the local market and maybe Belgium and that's about it. No expansion planned, or if one is planned it could take years and years. I read once its due to lack of ambition by Dutch entrepreneurs, but that isn't it. Without VC money its simply realistic to stay local; how are you gonna compete with U.S companies without money? Even the big names in NL like WeTransfer, Mollie, Bux, Bunq etc would have raised way more in Israel or the US. It's quite enough to raise a sizable 1st round in Israel, use connections + acquire traffic and customers to show growth, and then raise enormous subsequent rounds because you showed growth. I'm sure many Dutch entreprenuers could have done the same thing but it isn't possible for them without funding. So they "dream" small.
There are probably a lot of missed chances in NL. On the other hand if the tech VC market implodes again Dutch companies won't be hurt as bad.
>The position of the tax authority is that the sole reason you get equity, is because of your relationship as employee, and therefore the "gift of equity" is actually a form of salary
But they are correct in saying this. You wouldn't give equity to random people would you? And is it not worth money? You might not agree with the tax rate but the two reasons you mentioned are irrefutably true.
Do you really have a problem of obtaining good devs? Seems to me you can get good personnel in a bargain price in NL. It's also super easy to bring people from outside the EU. That's the main reason I think software devs are so cheap in the EU.
Here's a story. I was once visiting Silicon Valley for work and getting dinner with a friend who lives there. I'm a Brit who lives in central Europe. On the way over I'd bought a copy of Der Spiegel, which likes to write tabloid-esque articles about the Power Of Tech Firms. The front cover this particular week was one such article and I had found it kind of funny, so I was showing it to my friend and we were discussing it.
Next to us in the restaurant was another table with an elderly gentlemen dining alone. Suddenly he leaned over and joined our conversation. It turned out he was some sort of economics academic and one of his 'research interests' was this question of why the EU doesn't generate tech firms. He had a lot of insight and I've never forgotten that discussion: it has influenced my thoughts about how to set up my own software firm.
One of the points he made is that outside the USA there's no real culture of granting early employees equity, whereas in the US tech industry that's standard. ARM is apparently one of the few exceptions, in which the co-founders did in fact hand out equity early on. The incentivising effect this produces is profound. I've felt it myself - when I joined a startup, having an ownership stake as well as a salary made the difference between doing the work, and genuinely caring about the company, being willing to get into arguments and fight for what was important, etc. So a culture gap with respect to ownership is perhaps one reason.
The man made other points that were more commonly observed, like the different approaches to regulation. A few days ago people were surprised to discover that the UK/EU Brexit treaty mandates SHA-1 for some obscure data interchange format. This is typical for the EU. In the US people at least pretend to care about the innovation-harming impact of regulation, even on the left. There's zero culture of that in the EU. The EU views more regulation as inherently good, and anything that isn't caked in hundreds of pages of regulations as being merely on the TODO list. It also brooks no dissent: one of the EU's "red lines" in the negotiations was that they didn't want the UK to undercut their "standards", defined as regulation. Any country that attempts to deregulate gets taken to court by the EU Commission itself, in its own courts, which almost always rule in favour of the Commission regardless of what the law actually says. This creates a one-way ratchet of ever more convoluted and obsolete rules, which in turn imposes a thicket of complexity costs on companies that have other things to focus on. Many of these rules are justified on the grounds of making trade easier but often have the opposite effect.
Finally there are the very real cultural aspects. The US/Valley culture practically celebrates failure. This isn't necessarily good - failure is still failure, but family and friends at least seem to be pretty supportive of entrepreneurs in general and "failure" is very flexibly defined. For instance creating a company that never makes money isn't a problem in the US thanks to a mix of this culture and bottomless VC money. Whereas that would be perceived as failure by family and friends in Europe.