Despite High Taxes and Wages, Denmark's Entrepreneurial Spirit Is Strong
Denmark has arrived late to the startup party, and still lags behind well-established entrepreneurial communities such as Stockholm and Silicon Valley. That said, I've seen massive improvement in the eight years since I co-founded Queue-it, a virtual waiting room SaaS solution, in Copenhagen. Starting up now would have been easier on many levels.
When business people think about Denmark, they often hesitate to start a company of their own in a country infamous for its high taxes and high wages. Despite this somewhat negative image, however, the entrepreneurial spirit is alive and well.
Denmark's entrepreneurial ecosystem was ranked sixth-best globally in 2017 by the Global Entrepreneurship Development Institute. Between 2014-2016, we saw 360 percent growth in the number of Danish small businesses. Month after month in 2018 has seen headlines of record-breaking employment levels. To tweak the famous Hamlet line, "something is blossoming in the state of Denmark."
So, let's talk about the two elephants in the room -- high wages and high taxes -- and how the Danish entrepreneurial ecosystem has adapted to them. I believe strongly that a strong collaboration across Danish government, investors, startup communities and enterprise companies has been instrumental in boosting entrepreneurship in Denmark. This is a takeaway that could potentially be an inspiration to other growing startup communities.
Why wages don't worry us
High wages are a cornerstone in the Danish economy, so entrepreneurs and other businesses realize that productivity is key. Denmark's economy is the fifth-most productive in the world, while also boasting the second-fewest actual hours worked. Some Danish companies are even experimenting with a 30-hour work week.
To achieve this productivity, task prioritization and resource management are central. As an example, our team actively welcomes the talents of student helpers and interns. We leverage their latest business knowledge from the academic world and the flexibility they provide to our resource management. They gain relevant work experience, and in the case of EU students, qualify for government student stipends above and beyond their work compensation. Overall this creates a good dynamic for the Danish community and injects talent into the startup stream from the get-go.
Don't miss the forest for the taxes.
Yes, taxes in Denmark are high. The Heritage Foundation's economic freedom index ranks the Danish tax burden as "repressed," which ranks us as the twelfth-most free economy worldwide.
But, as entrepreneurs we aim at seeing the bigger picture. The taxes pay for universal healthcare, which means I don't also need to play benefit-manager or contribute toward plan premiums, as in, say, the U.S.
Tax revenues also support free higher education, which has helped to make Denmark's workforce one of the most highly educated in the world and which contributes to Denmark's seventh-best rank in talent competitiveness. All Danish full-time students enjoy not only a free university price tag, but also receive a monthly student stipend (more than €800 in 2018).
The Danish startup scene is blooming with young founders. Instead of leaving the security of a well-paying job, many will leverage the safety of the student stipend to get a head start on founding their companies while they are still students.
How stakeholder alignment is the key
Regardless of the state of taxes or wages in your country, you may be inspired by Denmark's recent entrepreneurial progress. In my opinion, the most important driver has been the cohesion of Danish government, investors, startup organizations and enterprises in the Danish entrepreneurial scene.
The government is eager to reduce bureaucratic barriers. Entrepreneurs can establish their companies online and receive free support from government organizations, such as the tax authorities, in setting everything up correctly. As a more innovative example, the government has created an online forum for businesses to report burdensome regulations or inefficient processes. The government is then required to follow up on the proposals or clarify why it will neglect to do so.
As a SaaS co-founder, I know how crucial early stage funding is. My co-founders and I experienced how difficult it was to obtain funding eight years ago when we started Queue-it. Since then, investment opportunities have expanded nicely, with more than 500 entities on the Danish scene, from crowdfunding sources to angel investor networks to seed and venture capital funds.
Grassroots startup communities and initiatives have been critical to kick-start this process, led by key organizations like Copenhagen For the Win (#CPHFTW), TechBBQ, and WomenInTech.dk, providing meaningful forums for meeting other entrepreneurs and community players outside of an investment context. We can now talk openly about both successes and failures, something that's not possible in the typical "pitch the investor" gatherings.
And established enterprises have joined the movement, too. They are investigating and investing in the entrepreneurial community like never before. Our own Copenhagen office is located together with 30 other startups inside the headquarters of a publicly traded insurance multinational that has established a vibrant 300-seat coworking space for startups.
There's a bright future ahead.
Denmark's entrepreneurial environment isn't perfect. Tax schemes could be more business friendly, especially for personal investments in companies, and we still tend to let our government innovation funds compete with private money. Immigration policy could be smoother in allowing work permits for needed foreign talent. Each country's entrepreneurial ecosystem is unique.
But, I think Denmark's recent progress should be reason for optimism. Most importantly, I've outlined how successful stakeholder alignment here has been a key driver.
The entrepreneurial spirit in Denmark has definitely transformed positively in the past decade. I'm excited to see where the next 10 years will take us.