Startups are often considered strange creatures. However, just like most creatures, they begin their journey being quite clueless, and the ones who learn fast and adapt faster will thrive. Startups, just like most creatures, like to gravitate towards each other, forming ecosystems. Some ecosystems do better than others, and the reasons behind the success can be extremely complicated. Lauri Järvilehto, AVP’s Professor of Practice, shares his insights on why the Finnish startup ecosystem has done exceptionally well.
An ecosystem means a group of interacting entities and their environment. Startup companies form ecosystems, where a relatively limited geographical area — often with a center of gravity such as a university or a concentration of technology companies — draws together key actors and stakeholders that gravitate towards growth ventures. These include new entrepreneurs, mentors, incubators, sources of talent such as universities and corporations, investors and supporting services like startup-savvy law and accounting agencies.
Because startups are so volatile entities, they need these kinds of support environments. Left to their own devices these nascent companies with scarce resources both in terms of money and knowledge are highly unlikely to be able to compete against more established entities in their target markets. Ecosystems can also explain why so many successful startups have originated in academically and economically strong areas such as Silicon Valley or Singapore.
What Does an Ecosystem Need to Thrive?
In order to thrive, an ecosystem needs typically a number of things to happen in conjunction. A successful ecosystem needs access to ideas and entrepreneurially minded people to pursue them. This often requires some kind of an academic backdrop, such as the Stanford and Berkeley universities in the Bay Area or SUTD in Singapore. The ecosystem needs also access to talent to be recruited to work in the growth ventures. Access to capital is also critical, as without proper amount of investment capital especially the growth phases of startups are likely to stifle; expanding to new markets using simply cashflow can be too slow to reach a critical mass to beat out the competition, whereas with investment capital the companies can accelerate growth and take over new markets. Ecosystems also need to be somehow close to the type of customer the startup serves.
Within an ecosystem there is sufficient proximity between key actors so that fast progress is possible. Entrepreneurs meet to exchange ideas and interact with universities and other talent pools to attract employees. Support functions like legal firms and accountants learn by interacting with the entrepreneurs the peculiarities of startups and can thus serve the startups better. Investors learn to understand better which types of entrepreneurs, teams and startups are most likely to succeed, and by enabling radical growth also increase the number of large scale exits. This in turn pumps new capital into the ecosystem by creating newly-minted startup-savvy millionaires, who are likely to feed both money and knowledge back into the ecosystem, and thus a positive spiral is created.
The Finnish Miracle
The Finnish startup ecosystem is quite peculiar compared to the more successful startup ecosystems in the US and Asia. In particular when the student-led initiatives built largely around Aalto University such as Aaltoes and Slush began roughly ten years ago, Finland didn’t have access to capital or talent that would have been in any way comparable to that of the Bay Area, Los Angeles, New York, Singapore or the Chinese Metropolitan cities. Nonetheless, a thriving startup community arose around the Finnish student activities, corporate spinoff strategies and quite unique government support. Ten years later Finland has been able to produce a disproportionately high amount of startup successes due to the peculiar nature of its startup ecosystem.
Instead of trying to raise to the challenge using the same tools as the richer and better educated areas elsewhere, a particularly communal spirit has arisen.
There are various reasons why this has taken place, but the likely explanation to the Finnish startup scene’s success is that instead of trying to raise to the challenge using the same tools as the richer and better educated areas elsewhere, a particularly communal spirit has arisen partly given the country’s social-democratic political roots. Where Silicon Valley and the Asian startup ecosystems thrive partly by singling out the best possible talent in both universities and corporations whose highly exclusive recruitment processes have been streamlined to find the best employees, in Finland both universities and corporations have more inclusive policies.
From Hypercompetition to Hypercollaboration
Silicon Valley and the Asian ecosystems thrive on being hypercompetitive, whereas in Finland, around the social-democratic ideal of inclusivity and the self-directed nature of the student activities, a hypercollaborative ecosystem has come to life. In addition, while venture capital has only recently become more freely available to Finnish startups, the Finnish government has supported its entrepreneurship ecosystem already for years through various non-dilutive grant and loan instruments through the entity now known as Business Finland.
While the individual actors may not have Ivy League degrees or millions of capital in Finland, the Finnish ecosystem is filled with great ideas, patentable technologies hidden in university labs and corporate research centers, and a hypercollaborative environment where these ideas and technologies are discussed and developed freely, some of them ultimately manifesting as thriving startups. Corporations such as Nokia have contributed to the startup ecosystem by spinning off patented technologies that were not in their core business into startups. And with a now thriving startup ecosystem, Finland has started to attract a disproportionately large amount of venture capital, talent from international growth centers and has generated dozens of new startup millionaires that bring their money and knowledge back into the ecosystem. In a way one might venture to speculate the Finnish startup miracle is only getting started.
The Finnish team doubled down on functioning as a team, pushing their collaboration on and off ice beyond the typical boundaries. As a result, the team glued together and the rest is history.
In a way the phenomenon is quite similar to the recent World Championship success of the Finnish hockey team when they beat NHL-trained juggernauts like Russia, Canada and USA to the gold medal with a team consisting mostly of young and inexperienced players, none of whom had NHL experience. Instead of competing on the terms of the teams consisting of better individual players with more resources, the Finnish team doubled down on functioning as a team, pushing their collaboration on and off ice beyond the typical boundaries. As a result, the team glued together and the rest is history.
The Next Decade of Startup Entrepreneurship
One might venture to say that Finland has had the optimal starting point for this type of hypercollaborative environment to have come to be: a social-democratic political background emphasizing equality and inclusivity; a large proportion of academically trained talent in quite good universities; a strong nation-wide emphasis and strong successes in various technologies such as mobile and computing; courage of the university leaders to give the student entities true autonomy to run their operations as they please; and government stepping in to patch up the lack of capital with its non-dilutive grant and loan instruments.
This has led to a vibrant and thriving hypercollaborative startup ecosystem where cooperation and inclusivity have managed to patch up the initial lack of talent and capital which now manifests in the many successes of Finnish startups such as Supercell, Rovio, Seriously, Wolt, Smartly.io and Beddit, just to name a few. And we’re only getting started
This text was originally written for the new Aalto University online course about startup entrepreneurship “Starting Up” that was designed by Kiuas Accelerator, Maki.vc, Aalto Ventures Program and Reaktor. The course is launched today and is now available at www.starting-up.org