Why Do Only 0.4% of Dutch Start-Ups Scale?

A question that is often pondered upon is why do only 0.4% of Dutch start-ups scale?

From my own perspective, and with the advantage of objective distance, I can come in and see things for the first time and though this does mean that I’m ignorant of local culture and customs, the flip side is that I don’t come with a lot of biases.

I see a huge emphasis on funding, but no real focus on removing the friction and fractures that exist in the European market.

The consumer market for products isn’t bad. You can get the same cliff bars in the Netherlands as you can in Spain, but if you look at business services there remains a huge amount of friction. That, in my opinion, stops the scalability that is seen in other parts of the world.

There have been exceptions, and there have been exceptional exceptions in some very regulated markets like music.

For example, Spotify has been an astounding success having started in Sweden. You couldn’t find a more highly regulated industry than music, and they’ve gone on to do great things, reviving the music industry with their business model.

However, we’re not all selling something that everyone can consume. Most start-ups focus on businesses, their b to b sales, and a number of them are software service companies.

When you start looking at that, and going across the border to scale in your own European backyard, you don’t have to go far before you hit friction.

In fact, it’s quite discouraging when you have the situation of entrepreneurs from the Netherlands wanting to cross the border into Germany and who require a simple German telephone number (so that they could talk to German customers) find that in order to acquire one, they would need to have a registered business address, which is an expensive proposition at approx €400 per month.

Every euro is precious to a small/medium sized start-up, but it’s the law. A local German telephone number can’t be issued without a German registered business address — which in turn can’t be acquired unless you have a German corporation. Incorporating in Germany requires a minimum of €25,000 in share capital.

That’s three of four significant friction points at the outset.

The solution here is found in the European Union, focusing not on mega-funding the next unicorn startups (see https://www.bloomberg.com/news/articles/2019-11-23/eu-plans-3-9-billion-fund-for-startups-in-valley-of-death) but in developing a single market. Focusing on those cross-border obstacles is far more challenging than assembling a pile of cash to scale startups. But it is something that only the EU can do.

Then we have the limits of language, and this, of all barriers, is the most common, and will be, in my opinion, the fastest to fall.

People associate language with identity, and the ability to translate content and communications into a local language is key to scaling your startup beyond its local language borders.

At WGP Global we all speak English, but we can now translate into approximately 37 other languages through Google or a program called DeepL. I can communicate with all of my Dutch stakeholders via email, and they can’t believe that the correspondence is machine learned.

When it comes to language, the Dutch excel in English. It’s a competitive advantage for them to speak the business lingua franca for the biggest market in the world. However, this advantage won’t endure. Google Translate, DeepL.com and OnAssist.co, all will make dealing with content and customers in multiple languages easier.

In summary, the market, friction and the heterogeneous nature of the market that limits how the markets scale.

Jerry Everett

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