Austria 2016: A hot-or-not place for startups?

After many years of being a token state in the EU, Austria is falling behind. Significant increase of unemployment, high taxes, thousands of unemployed immigrants, and a tremendous taxing of SMEs and entrepreneurs, has pushed the country back. It’s now far behind Germany, the “overwhelming brother” from the north of our country.

But Austria has an advantage over its EU counterparts. Austria is one of the world’s leading export countries. It is small and flexible and has a strong tourism industry, since it’s still a top location and it’s safe. But there is a disadvantage: We do not have enough experts. Especially in the field of digital, universities and colleges have been sleeping for years. There are only 4–5 innovative programs for digital business and marketing. The top digital talents are leaving the country very often to make their way to the UK, USA, Asia or elsewhere. Austria’s startup success, “Runtastic” (sold for € 22 M to Axel Springer in 2013), offers 25 positions right now, and they can’t find the right people within the country! “Only if Austria’s government is able to recognize digital technologies as a huge chance it will be possible to keep the position of this business location”, says Michael Zettel, Country Manager — Director of Accenture Austria.

In the past two years, we’ve noticed a new spirit. The city of Vienna is supporting young and fresh startups a lot, especially because Vienna wants to become a top “Smart City”. We should not forget; Austria is located in the center of Europe — with direct connections to the CEE region and especially to Bratislava and its “hungry young entrepreneurs”. Also a lot of Austrian companies and startups are involving cheaper development centers in Eastern Europe.

Many publishers are beginning to write about the startup scene constantly, and TV stations are presenting startup ideas along with their founders. This public assessment of startups and their idea-presentations — executed by tough investors (like in the show “shark tank”, or “Die Höhle der Löwen” in Germany) guarantees that. TV-stations like Pro7 want to partake of this startup movement. They take shares, and offer a new kind of investment: They don’t pay cash, but invest with TV-advertising time. So, if they take for example 10% of a startup, for a price of EUR 100.000, the startup gets TV-spots for 100.000.

Also some heavy weights are buying interesting startups; for example Austria’s biggest telco company, A1, created a campus, a1startup.net, which can be used for free by the best startups. They have to present their ideas and, if they fit to A1 and its business, they are invited to this campus and its infrastructure. In return A1 takes shares. But this is not just about money or shares; A1 also offers to sell partner-startups products and services through their own sales and distribution team. Usually startups don’t have a strong distribution power at the beginning, A1 supports it with its nationwide sales department. A great advantage!

Austria’s biggest TV station, ORF, founded recently a campus for startups, named “futurelab.261”, named because it is 261 meters above sea level. But those startups have to correspond to the business and content of ORF, being focused on digital information or education.

Behind this hype, what are the facts?
First of all: It is not easy to define “startup” precisely. There are various perceptions. It is about growth, it is about solving a problem in an innovative and “disruptive” way, yes. But being innovative does not mean it is only about technology. We have 30.000 “new establishments” every year, 77% of them are sole proprietor or single service provider, but you only can call some of them as an innovative, as a real startup with a disruptive approach. Beside that: After 5 years, 30–40% of all those new companies disappeared.

Pioneers Festival in Vienna (May 24, 25) has a list with exactly 318 Startups in Vienna. But how do they work, is it a story of success?

For the Pioneers Festival, Roland Berger asked 50 top investors, startups and universities. They wanted to know how satisfied startups and their founder are with the entrepreneurial spirit in the country and the existing infrastructure (educational institutions and possible partners, enough ambitious young digital experts and so on). The message is clear. Internationally Austria is not perceived as a top location for startups. There is too much bureaucracy, and startups would prefer one central campus with co-working spaces, which does not exist. No wonder that in the “Global Startup Ecosystem Ranking 2015” Austria is not a part of the Top 20. Also Basel III, which seeks to improve the banking sector’s ability to deal with financial stress, is a constraint for entrepreneurs. It becomes harder and harder for startups to gain fresh money, the credit risk often is too high. However: According to Pioneers (they interviewed more than 300 Austrian Startups) it is not that hard to get fresh money to get started. But after that it is very hard to get some additional money for expansion and reaching out across borders.

Also, most of the startups do not generate as many jobs as the Austrian government was hoping. Those young companies do not employ more than 7–8 people. Very often they stay with 2, 3 people, and cooperate with other small companies. Payroll taxes are pretty high. No one takes this risk, if not absolutely necessary.

I think, it would be a good idea for a young founder …
… not only to look at the top-notch cases like Runtastic or “mySugr”. It shouldn’t be only about the “next big thing”. It is a risk to get too much money in the first stages (early stage, growth stage). To start and spend too early can end in a disaster. To be patient, to wait for the right start (after having done all pieces of homework) for marketing and sales is essential!

Austria needs a real digital plan. Universities, investment people, our government and some business angels should be at one table to get this thing done, SEAMLESS.

Maybe international media-, communication- and digital-networks like Havas Media and their connection with other networks and their know how, should be the right partners for those leaders and governments. In the end we know best what kind of digital talent will be needed in the next 10 years. Only with that info we all can provide the right digital education, the best surroundings and atmosphere necessary for all kinds of startups.

Then Austria, again, will be among the top level in the EU.