In the first blog in this series I discussed the lamentable failure of Europe and the UK to develop start-up companies into large gorilla-sized organisations similar to American companies such as Microsoft, Intel, Apple, Oracle and Google. Apart from a few recent exceptions, such as Vodafone, Nokia and SAP, Europe and the UK have lagged far behind. A number of plausible reasons why UK and European technology companies have failed to become world-beaters on the same scale as their US counterparts have been forwarded and include:
- A lack of appropriate funding and tax arrangements
- The absence of a large homogeneous home market
- An inability to bring products rapidly to market
- A lack of entrepreneurial culture and spirit
The current UK scenario, however, is not all doom and doom as the Cambridge University technology cluster, famously known as Silicon Fen, starts to come of age after thirty years of development. According to Doug Richard, founder and chairman of Library House and former judge on Dragon’s Den:
“The Cambridge cluster has just tipped over and a period of explosive growth is ahead. It manages to attract a very large quantity of capital without variation”.
Cambridge has already spawned a number of successful £1bn companies such as Arm, Autonomy and CSR radio. So do we have a Silicon Valley in the making or is this simply California dreaming? If Silicon Fen is to provide a lead role in nurturing the next generation of “gorillas” there are still a number of obstacles in its way. For example:
- There is a tendency for early stage entrepreneurs to exit their businesses through trade sales rather than undertaking a public flotation (this usually means selling-out to a larger US firm). According to Walter Herriot, head of St. John’s Innovation Centre in Cambridge: “If too many Cambridge companies are acquired by foreign companies the people and the intellectual property will disappear”.
- There is a tendency for European venture capital groups to invest smaller sums than their US rivals. The differential can sometimes be as high as 50%.
- There is a failure of leading UK companies to invest in entrepreneurial start-ups. Cisco invests in start-up companies which benefit from the funding they receive whilst Cisco gains access to cutting-edge research.
- There has been a failure on the part of European stock exchanges to attract young companies. Neither the LSE nor AIM are considered to be as attractive as the Nasdaq where new listings are able to achieve higher valuations.
Another way of interpreting the superior growth trajectory of US start-up companies is the American business culture itself. Europeans do not lack technical expertise (and Silicon Fen is living proof of this) but does Europe have the same level of ambition and attitude to risk as the USA? According to David Wither, CEO and founder of UK technology company Sarantel:
“In the US, you know from the start you are on your own. Nobody is going to look after you – there is no healthcare or safety net. It breeds a competitiveness, which is part of the culture.”
It might also be said that UK and European entrepreneurs are acting wisely by avoiding head-on competition with major organisations by adopting niche and complementary strategies, thereby avoiding conflict with larger rivals. This was a lesson that was learned by the pioneering UK personal computer companies such as Acorn, Sinclair and Apricot. Another interpretation is that by selling out early UK entrepreneurs are behaving in a totally rational manner. True serial entrepreneurs are good at starting and growing businesses but not well equipped to professionally manage them, so their early departure is not such a bad thing after all.
The problem is that they are not being acquired by other UK or European companies or as Walter Herriot, head of St. John’s Innovation Centre in Cambridge once commented: “I am slightly concerned that we are selling off the family silver”.
So should Europe be written off as a promising location for technology companies and is Silicon Fen really on hold until key obstacles are removed from the equation?
A CISCO Pokemon-style figure promoting the company in Cambridge
- 'Fen tries to be a valley' by Maija Pesola in the Financial Times on 16th Feb 2005
- 'The fertile soil of Silicon Fen' by Maija Pesola in the Financial Times on 9th Feb 2005
- 'Why progress requires ambition and risk' by Alan Cane in the Financial Times on 11th Feb 2005