5 things a government can do to grow its startup ecosystem

Building a successful company is really hard. It is hard no matter where you are in the world, but the difficulty is magnified in Europe, where people are divided by geography, regulation, language and cultural prejudice. If governments can provide European startups a competitive advantage, that could come a long way in helping to offset some of the disadvantages. In this post, I'm sharing some rough ideas for what governments could do to encourage a thriving startups ecosystem. It's my contribution to the Belgian startup manifesto (#bestartupmanifesto).

  1. Governments shouldn't obsess too much about making it easier to incorporate a company; while it is certainly nice when governments cut red tape, great entrepreneurs aren't going to be held back by some extra paperwork. Getting a company off the ground is by no means the most difficult part of the journey.
  2. Governments shouldn't decide what companies deserve funding or don't deserve funding. They will never be the best investors. Governments should play towards their strength, which is creating leverage for all instead for just a few.
  3. Governments can do quite a bit to extend a startup's runway (to compensate for the lack of funding available in Belgium). Relatively simple tax benefits result in less need for venture capital:
    • No corporate income taxes on your company for the first 3 years or until 1 million EUR in annual revenue.
    • No employee income tax or social security contributions for the first 3 years or until you hit 10 employees. Make hiring talent as cheap as possible; two employees for the price of one. (The cost of hiring an employee would effectively be the net income for the employee. The employee would still get a regular salary and social benefits.)
    • Loosen regulations on hiring and firing employees. Three months notice periods shackle the growth of startups. Governments can provide more flexibility for startups to hire and fire fast; two week notice periods for both incoming and outgoing employees. Employees who join a startup are comfortable with this level of job insecurity.
  4. Create "innovation hubs" that make neighborhoods more attractive to early-stage technology companies. Concentrate as many technology startups as possible in fun neighborhoods. Provide rent subsidies, free wifi and make sure there are great coffee shops.
  5. Build a culture of entrepreneurship. The biggest thing holding back a thriving startup community is not regulation, language, or geography, but a cultural prejudice against both failure and success. Governments can play a critical role in shaping the country's culture and creating an entrepreneurial environment where both failures and successes are celebrated, and where people are encouraged to better oneself economically through hard work and risk taking. In the end, entrepreneurship is a state of mind.

Comments

William ADAM (not verified):

The problem in Europe is that the masses have been brainwashed by socialist dogma, against capital,the rich, and for the "we and the" attitude between workers and management. Union leaders and socialist politicians still promote this out of date thinking, which results in excessive taxation on managers. This prevents the essential savings needed to start a business.

Serious, trained managers, who aspire to run their own business, are discouraged from doing so. Socialist Governments cannot be seen to change their basic philosophy as support comes from the powerful unions.. Right wing Governments are forced to go along reluctantly, with socialist concepts in order to win elections or stay in power. This brought the UK to its knees saved by the courage and determination of Margaret Thatcher.

I left the UK as a successful CEO with an engineering background in 1967 when my tax rate was 83% making it impossible to save anything. But the large ambitious middle class has been destroyed.

Aaron Staker (not verified):

Regarding point 3, even startups have an obligation to the communities in which they reside, that would include the basic necessity to pay a reasonable level of taxes (a discount I can understand, a free ride I cannot) this puts existing businesses at a distinct disadvantage and I believe can be easily gamed by any smart guy who every third year will dismantle and reassemble his entity.

In addition less regulation in the hiring and firing of employees is something they do in the U.S. They call this "at-will employement. The problem is that it places too much power in the hands of an employer. At least under your current system it allows enough time to evaluate an employee, it also places a reasonable obligation upon an employer. For example if you bring in someone with the correct credentials and you find it's not a good fit (at no fault of the employee) why does the employer not have any obligation?

Paul Brees (not verified):

De essentie in enkele punten, volledig mee eens en je vraagt je soms toch af waarom het zo moeilijk is voor onze overheden om die stappen te zetten. Op termijn is dat ongetwijfeld allemaal budget neutraal door de extra groei. Fijn dat het nog eens in de verf wordt gezet.