Why Your Startup Should be More Swedish

Why does Stockholm produce so many billion-dollar scaleups?

Earlier this year, the music-streaming company Spotify went public, in a direct listing, at a valuation of $29 billion. Several weeks later, payments processing company iZettle was acquired by PayPal for $2.2 billion. Both companies are from Stockholm, Sweden, and are only the latest in a long line of successful startup exits that have given the Scandinavian city a reputation as a “unicorn factory.”

Why? Stockholm is not a giant city: the metro area has 2 million people, with just under a million in the city proper. Sweden is not part of the euro currency area, although it does participate in the European Union single market — as do most other European nations. Even the city’s startup ecosystem, while certainly vibrant, is not particularly large.

Size v. Success

According to our data at Startup Genome, Stockholm’s Startup Output (number of startups) is comparatively modest: smaller than places like Barcelona and Vancouver, and closer in size to early-stage ecosystems.

In our Ecosystem Lifecycle Model, Stockholm’s small size compares to others

at the Activation phase, yet its record of startup and scaleup success has driven the ecosystem into the Expansion phase. Stockholm’s rate of billion-dollar company creation is the second-highest in the world, behind only Silicon Valley — higher than London, New York, and Boston.

Put another way, Stockholm’s startup ecosystem is 85 percent smaller than London’s in terms of the number of startups, but Stockholm’s rate of billion-dollar success is 1.5 times larger.

We are not the first to wonder about the apparent anomaly that is Stockholm. Every time another successful startup breaks out of the city — Skype, Mojang (Minecraft), MySQL — the same questions are asked. Various explanations have been put forward. These include: a long history of government investing in technological infrastructure like high-speed internet and tax breaks for buying personal computers; an innovative national economy; re-investment by successful multinationals back into the next generation of companies; and, of course, being Swedish.

Global from the Start

The most common explanation put forward is that, given Sweden’s small domestic market, Stockholm companies must “go global” from the beginning. This makes sense, and is demonstrated in our global data across ecosystems. We measure Global Market Reach, which captures the extent to which startups sell not only beyond their country’s borders but also beyond their immediate continental region. It’s one thing for a Stockholm startup to “go global” by selling across the Baltic Sea to German customers within the European single market. It’s wholly different to go outside Europe and sell to Asian and American markets.

But that’s where Stockholm startups excel: on average, according to our analysis, Stockholm startups count nearly one-third of their customers outside their own continent. That’s almost 2.5 times the global median. This is not just a function of a small domestic market, since Stockholm startups are reaching markets beyond Europe to a much higher degree than their peers in other European ecosystems. And, startups in other ecosystems with small markets do not achieve the same Global Market Reach.

Clearly, selling to global markets beyond Europe is a principal cause of Stockholm’s outstanding record of billion-dollar production. Startups that go-global early on see their revenues grow twice as fast as companies that stay mostly domestic.

But why do Stockholm startups penetrate global markets to a greater extent than startups in other ecosystems? Its small domestic market cannot fully explain this.

Global Connectedness

Because startups in Stockholm have one of the world’s highest rates of Global Connectedness: they build quality relationships with startup founders in other places, especially in the world’s top ecosystems. Global Connectedness plugs founders into what our CEO JF Gauthier calls the “global fabric of ideas, knowledge, people and organizations.” Having a direct personal link to founders in other top ecosystems exposes Stockholm startups to the global frontier of innovation, to the latest thinking about global problems. It raises their ambition and drives them to develop solutions to those global problems. In other words, Global Connectedness helps import global know-how.

Nearly three-quarters of Stockholm founders say they are developing a brand new, globally-leading product. This does not happen by accident. Global ambition comes about through that exposure and know-how, which comes to Stockholm through a high level of Global Connectedness.

Those relationships may help Stockholm startups reach global markets, but they also drive Stockholm founders to develop products and services that are globally-leading and globally-appealing.

Because of Global Connectedness, they know what problems are worth solving and what ideas have been tried before. And their Global Market Reach proves they know what they are doing.

So how can you be more like a Swedish startup?

By all means, you should think global from the get-go, no matter the size of your home market. Just as importantly, you should build Global Connectedness. Attend international events and get to know founders elsewhere. Organize trips to your own ecosystem so founders from, say, Stockholm can visit and bring their ambition and know-how to town.

If Stockholm’s global unicorns are anything to go by, this will be a boon to your startup, and help strengthen the entire ecosystem.