Concerning Optimism

Europe’s innovation scene starts to feel like it’s on fire. A closer look might be concerning.

If you have had the opportunity in the past year to travel through Europe’s Tech and Innovation Conferences, it almost feels as if the continent is on fire. Excited entrepreneurs from all over the continent meet with equally excited VCs eager to find the next Skype, Shazam, Spotify or JustEat. Corporates participate in round tables and bring outstanding speakers to give a vision of their innovation efforts — their open innovation, incubators, accelerators, venture capitalists and increasingly venture builders. Even international visitors — entrepreneurs, corporates, VCs — fly in to check out what is happening, how it’s happening and, mainly, to develop a stronger presence here. As I’ve felt myself in Vienna, Stockholm, Paris and Barcelona mainly, there’s a lot of excitement around the topics of innovation and entrepreneurship. Even, sometimes, people like to speak about Europe’s assets to develop a winning ecosystem, the most common of which is that “european entrepreneurs are internationally-minded from day one, because their local markets are usually too small’’.

But a cold look at simple, general facts is not too encouraging.

The data is not conclusive, but it does point at the fact that as technology and innovation have taken an increasingly prominent role in the economy, Europe seems to have lost its grip. Just as IT went grew from one to five of the world’s top ten publicly traded companies by market cap, Europe went from three to zero in that same ranking.

Why is there such an euphoria then? I can think of two immediate reasons. The first one is that there’s a bubble in America rippling across the atlantic. The second is that corporates and Governments have started to realise the threat of being left behind, and have started to heavily invest to catch up. Obviously, it could also be a combination of both.

The key question to address though, is if we are, as a continent, on the right track. Nokia’s R&D investment peaked in 2008, the year after the iPhone was presented by Apple (usually considered the year that kick-started the smartphone revolution). What happened to that investment? Was it too late for Nokia or did the new developments get lost in a labyrinth of corporate processes (as so many times happens with innovation)? The details of Nokia’s case are not the point though; the weariness comes from the concern in seeing the excitement around the continent’s hubs, we can only hope that Europe’s tech, entrepreneurial and innovation ecosystem is not going through what Nokia’s R&D went through in 2008.

Alarmist? Maybe, but although it’s probably too early to evaluate the effectiveness and impact of our efforts, there are reasons for concern. I admit, openly and before I start going through them, that I may be too pessimistic or even plainly wrong. But then again, only by trying to critically discuss our approach can we maximise the potential outcomes… and ensure we won’t be left (further) behind.

  1. First Concern. Innovation has become “too cool”. Every term related to “innovation’’ (think “design thinking”, “lean”, “mvp”, “prototype”, “pretotype”, “testing”, “iteration”, “VC”, “disruptive” and, obviously, the term “innovation” itself) seems to bring the promise of building a unicorn. Plus “innovation” seems to have to be “fun”, with all the colourful post-its, labs with ping-pong tables, lego pieces laying around, keynote presentations with thought inspiring pictures and algorithms written on glass. Yes, some of these elements are great tools to organise a team’s thoughts or to “un-load” the brain after hours of heavy working, but we must not confuse real innovation with what happens in the movies. Despite innovation being indeed, in my opinion, one of the most exciting things a person can do, it takes failure and grit, it means getting hands dirty and walking out speaking to potential customers, pitching, selling a product or a service, being told “no” and so many other things. There is no reward without effort and/or risk. If people don’t find creating the products and services of tomorrow per se then it means we are dealing with the wrong people.
  2. Second Concern. Innovation Theatre. It is concerning to see “innovation” exercises which, from moment zero have no specific outcome beyond the (obviously unstated) goal of entertaining managers or employees and having them try “something different’’. Then all of the aforementioned terms and tools come into play (ideally with a good photographer around). Again, innovation is not a movie and, if innovation is done as a branding or marketing effort, it’s important to state it from moment zero, so the right KPIs can be measured.
  3. Third Concern. Government Reliance. It is true that even Silicon Valley had money poured into by the Government in defence spending in the 1940s. But that is very different from creating a VC industry that is publicly financed. A study from the European Private Equity and Venture Capital Association shows how 40% of VC funds in Europe in 2013 were state-backed. The result? As The Economist puts it “Europe has delivered returns of just 2,1% a year since 1990, according to Thomson Reuters, making it perhaps the worst investment class outside Japan’’. Why does this happen? The first reason can be the strings attached to public money: the compromise to create jobs in certain countries or regions or to invest in preferred industries. That is obviously something private money would shriek at. The second reason may be concern number four.
  4. Fourth Concern. Over-Regulation: Governments should protect their citizens and Europe is a world-example for this. But we need to make sure that the return curve of regulation doesn’t become an inverted U. A hostile business environment creates a perfect context for real innovation emigrating. If we can’t use Uber or create solid alternatives to it, nor test or “drive’’ self-driving cars on our roads then we know for sure we won’t be at the forefront of the future of mobility. If we are imposed a “sun-tax’’ as the one in Spain we know we won’t be at the forefront of renewables, in this case solar in particular. If we need a license to fly almost any type of drone anywhere then it will be hard for entrepreneurs here to create better drones than those being built elsewhere. If users need to explicitly give consent for almost any use of data then it will be hard for start-ups starting locally to develop the powerful machine learning algorithms being developed elsewhere.

The final result if we mix the four in a cocktail? Tax-payer and corporate money being poured into fun and inspiring activities to create ideas that, if executed, will bring you legal trouble or will simply run into a regulatory wall. This has the danger of leading to huge disappointments, which will lead to a cutting back of efforts and will leave the continent at an even further disadvantage against the rest of the world in this area.

I hope to be wrong, and perhaps after the hype and the disappointment we will reach the desired plateau (just like every technology on Gartner’s curve). Also, it is indeed still early to evaluate the effectiveness and impact of what we’re doing. The benefits of innovation are rarely reaped short term. But we must raise questions and strive to be better — by working smarter and harder, by focusing on data, by becoming better leaders, by daring to try new things, by analysing and understanding the root of the challenges we face.

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Albert C. Mikkelsen

Written by

Co-Founder First Venturing. Chicago Booth MBA. I write about education and entrepreneurship. Retired Rockstar.

First Venturing

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