What Makes the Nordic Entrepreneurial Environment Different?
For a small place tucked away in the furthermost corner of Europe, with only 25 million inhabitants, the Nordic region is punching above its weight when it comes to entrepreneurship. In the last few months alone, Spotify has IPOed with a market cap of $26 billion, iZettle has been sold to PayPal for $2.2 billion and Tradeshift has achieved unicorn status.
Other notable Nordic successes include Skype, King, Rovio, Unity, Just Eat, Endomondo, Bluetooth, Lego, Klarna, Trustpilot, Kiloo (Subway Surfers), Too Good To Go and Bang & Olufsen.
A recent analysis shows that Nordic businesses raised just over $1 billion in venture capital during the first half of 2017, with Sweden receiving the lion's share of the funds in the amount of $634.2 million.
At first glance, one could be forgiven for thinking that the economic social democratic model of the Nordic countries, where tax rates are high and the state provides for citizens in need, would discourage entrepreneurship as a risky venture. After all, the need for personal financial success is less in a society with a solid economic safety net. In that way, the Nordic region refutes the myth that necessity is the mother of invention.
Actually, corporate tax rates in the Nordics are comparable to the rest of Europe, and some of the countries, such as Denmark, have a liberal labor market where it's easy to lay off staff. That is not to say that the region's entrepreneurs are not challenged by the legislative environment that taxes warrants and capital gains highly, but perhaps this is partially offset by the region being among the least corrupt in the world, with effective structures of governance including a highly digitized public sector. In addition, the region enjoys a high overall digital literacy across the population. In 2010, Finland was the first country in the world to declare broadband a legal right.
Without a doubt much of the region's ability to create (for which the Scandinavians even have a special word, "skaberkraft," meaning "the power to create) stems from the high level of education. Education is not only free, but residents are paid a grant while undergoing higher education. The free education leads to a general education level that is among the highest in the world, providing entrepreneurs with an abundance of qualified labor in most fields.
Like all other regions in the world, current growth is curtailed by a shortage of engineers, especially programmers and technical experts. To satisfy this need, the region has been importing IT talent from countries with a less privileged lifestyle, such as Eastern Europe and India. With this "talent import" tradition in mind, the current rise in nationalistic right-wing politics which is happening in the region as in the remaining western world, is threatening the foundation of Nordic entrepreneurship, as many of the Nordic equivalent of these parties are trying to limit immigration.
Aside from a generally high education level, the Nordics also enjoy a particular style of education which focuses on problem-solving and critical thinking. This style of education, contrary to a form based on the ability to purely retain facts, provides entrepreneurial companies with employees who are used to challenging the status quo. For a startup, its ability to continuously learn and improve is critical, not least in the early phases where pivoting and adjusting is a necessity for survival. In combination with low power indexes, this creates a culture with flat hierarchies and where all employees, junior as well as senior, contribute to the innovation process with ideas, objections and concerns.
The flat management structure is combined with a good work-life balance and high salaries. This makes the region an attractive place for talent to relocate to -- despite the long winters. In particular, good quality childcare, schooling and family focus (maternity leave, for example, is typically nine to 12 months) makes the region attractive for talented 30-somethings with family who are tired of the rat race and urban congestion in cities such as London and New York. The lifestyle antidote is accentuated by the smallness of the capitals. If you combine all five, you end up with a mere 3.6 million people, equal to the city of LA, Cape Town or Busan. The advantage of the same smallness is short and pleasant commutes (which many people do on bikes) and the feeling of personal space and greenery.
The mere 25 million people in the Nordics are split into five countries (Denmark, Norway, Sweden, Finland and Iceland) with five separate languages, forcing its citizens to be highly versed in English and foreign languages to make themselves understood broadly. Practically all citizens speak two languages, and many speak several. It also forces young companies to be "born-global" as their home markets are insufficient for major success. As such, many companies (also from outside the region) use these small countries with their homogenous populations as a learning lab, a place to test new products and concepts relatively inexpensively, before the most promising ones are rolled out onto larger markets, typically the U.K., U.S. and Germany.
The region enjoys a (relative to other countries) high level of equality that ensures taking advantage of the 50-plus percent of the population that is female, homosexual etc., whose talents are underutilized in countries with high inequality.
In the future, one of the region's major opportunities may very well lie in its intrinsic concern for the environment, as the planet will need more and more solutions to combat climate change as global warming continues to worsen.
In recent years, the region has topped in global happiness ratings done by the United Nations Sustainable Development Solutions Network (in 2018 the top four were Finland, Norway, Denmark and Iceland), which frees the population up from worrying about basic human conditions (health care is free and unemployment benefits available) enabling them to turn their energy into more fruitful labors, such as building companies and being productive at work.
All things combined, the Nordic region is a testament to the fact that many economic models, not just the ultra capitalistic, can spur innovation and high-growth companies.