Dries Buytaert

5 things a government can do to grow its startup ecosystem

Ideas for how governments can help startups thrive, from tax breaks and flexible hiring to innovation hubs and a culture that celebrates both failure and success.

№ 913

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 with a competitive advantage, that could go a long way toward helping offset some of the disadvantages. In this post, I'm sharing some rough ideas for what governments could do to encourage a thriving startup 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 which companies deserve funding and which do not. They will never be the best investors. Governments should play to their strengths, which include creating leverage for everyone instead of 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 for the first 3 years or until the company reaches 1 million EUR in annual revenue.
  • No employee income tax or social security contributions for the first 3 years or until the company reaches 10 employees. Make hiring talent as inexpensive as possible: two employees for the price of one. (The cost of hiring an employee would effectively be the employee's net income. The employee would still receive a regular salary and social benefits.)
  • Loosen regulations on hiring and firing employees. Three-month notice periods shackle the growth of startups. Governments can provide more flexibility for startups to hire and fire quickly, with two-week notice periods for both employers and employees. Employees who join a startup are comfortable with this level of job insecurity.

  1. 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 and free Wi-Fi, and make sure there are great coffee shops.

  2. 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 themselves economically through hard work and risk-taking. In the end, entrepreneurship is a state of mind.