4 Reasons Why Starting Up in Italy Is a Nightmare
Free Preview: Start Your Own Business
What is the entrepreneurial environment like in Italy? Ranking 79th out of 180 countries for "economic freedom" according to the the Heritage Foundation's 2017 index, Italy is unable to shake off many age-old and unsolvable dilemmas that have created an odd paradox: Although Italy's creative and entrepreneurial excellence have been recognized throughout history and there is no shortage of world-famous entrepreneurs (think Silvio Berlusconi, Enzo Ferrari and Donatella Versace), business-wise Italy cannot even remotely compare with other major European countries and suffers from an abysmal share of overall startup investment.
Reasons are both infrastructural and cultural, and mutually enmeshed: Red tape and enormous tax burden have typically spawned behaviors like corruption, mistrust and defeatism, that have over time become firmly socially embedded and are actually self-reinforcing. These elements have created a startup context that is all but nightmarish.
1. Red tape and funding obstacles
The amount of bureaucracy is such that it's a wonder Italians have any enthusiasm at all for starting their own companies.
According to the WEF's most recent Global Competitiveness Index, Italy ranks 43rd in the world for business attractiveness. Despite recent reforms, an overall improvement in goods market efficiency as well as higher education and training, nonetheless labor markets and financial markets remain weak points that continue to be crippled by inefficient government bureaucracy, prohibitive tax rates and regulations, restrictive labor regulations and difficult access to financing.
The funding process is very difficult, whether you are trying to secure a grant, or raise capital. Italy ranks 105th in "getting credit" according to World Bank statistics.
It's hard to find good investment cases in the country.
2. Complexity of the job system and work relations
You can't fire people when they don't perform, and yet there is a poor work ethic in the national labor force and individual achievement is typically neither prized nor rewarded. As Rick Zullo, American expat and Italy insider, sums up in his blog article, "The Italian system does not reward hard work and innovation. It rewards staying at the same dull job for 30 years waiting for a nice pension." This is clearly not conducive to startup success, when what innovative new companies sorely need is to be able to execute quickly, pivot and reshuffle the team when necessary.
3. Lack of a national hub and an overall startup culture
One of the critical weakness of the Italian ecosystem is the lack of a robust startup hub. Northern Italy currently offers the best overall conditions for startups to grow, central regions are improving, and the overall economic environment is shifting to accommodate new and less traditional entrepreneurial experiences.
However, there is no real geographical density of startups such as seen in Silicon Valley, London, Paris or Berlin. PoliHub Polytech Incubator (managed by Fondazione Politecnico di Milano with the support of the City of Milan) and Luiss Enlabs (a government-certified accelerator located in Rome) don't seem to generate enough momentum to truly impact the entrepreneurial space on a nationwide scale. Symptomatic of this is the policy implemented by the Italian government in April 2016, to attract and retain overseas talent. Conversely, and regrettably, Italian entrepreneurial talents often go abroad to innovate.
4. Ingrained attitudes and cultural patterns
Although definitely growing, ecommerce in Italy compared to the U.S. or U.K. is still in its infancy, and lagging behind other European countries like Germany, France and Spain. It is taking time for Italians to build up the confidence to purchase products and services online. The December 2017 ISTAT (National Institute of Statistics) report states that "the integrated information framework on the use of ICT technologies by citizens and enterprises shows an increasingly widespread and advanced use of these technologies in economic activities and in everyday life. However, a significant gap is persisting compared to other EU countries, especially for the use of ecommerce as a channel for the purchase and sale of goods and services." Add to this a national cultural mindset characterized by lack of boldness and a strong risk avoidance mentality, according to Hofstede Insights, and what you get is a deficit of ambition, low market awareness and a mostly nation-centric mindset. Not good elements for helping startups flourish.
Where does Italy's entrepreneurial future reside?
Italy's top startup, Musixmatch, is ranked at a mere 79th place worldwide by Startup Ranking. That's very, very far below U.S. tech startup giants such as Airbnb, Medium and Uber. In a recent exchange I had with Italian startup expert Emil Abirascid, who has for decades been monitoring and documenting the national entrepreneurial scene, he admitted to me he is resigned to the idea that "the great illusion that Italy might one day be capable of creating a startup ecosystem on a par with other European countries like France seems pretty much over -- although, as Italians love to quote, hope is the last thing to die." In a context where businesses are incessantly handcuffed by inadequate laws, lack of funds, a subsidized venture capital industry and the absence of a solid startup culture -- where the term startup has in fact become synonymous with rubbish -- there is no hope for us to replicate anything close to Seoul's Gangnam, also known as the Silicon Valley of South Korea.
We have no proper entrepreneurial ecosystem, but we are still a repository of rare excellence, innovation and talent that are capable of attracting attention and investment on an international scale. In Abirascid's words, "The new Made in Italy covers many industries and sectors: from energy to biotechnology, from pure to applied digital in the areas of food, fashion, finance and mobility. We must therefore acknowledge these assets in the perspective of potential future investments and industrial partnerships."