3 Factors to Consider When Deciding to Launch a Business in the U.K. or Eastern Europe
Why are so many businesses opting to scale their startups in the U.K. rather than their Eastern European counterparts?
Deciding where to lay the foundations for a startup is no mean feat. Scaling presents another host of challenges. Many factors must be taken into consideration and it begs the question: Why are so many businesses opting to scale their startups in the U.K. rather than their Eastern European counterparts?
It comes down to three main pillars upon which startup ecosystems are founded: talent, financial resources and mindset.
Widely regarded as the tech talent hub for Europe, London has the largest pool of candidates and houses more tech startups and unicorns than anywhere else on the continent. Recognizing these figures, in 2018 the Home Secretary announced a new startup visa route with a view to widening the applicant pool of talented entrepreneurs and making the visa process more efficient and smoother for those coming to the U.K.
In terms of talent attraction, the U.K. indisputably has the ability to compete with Silicon Valley. The prospect of support from organizations dedicated to upskilling and accelerating development, including TechStars and the SVC2UK Scale Up Club, acts as a significant pull factor.
However, the U.K. has only just begun to recognize the importance of developing practical tech skills from an early age, with plans now in place to teach computer science to every child at school level.
Interestingly, Eastern European countries such as Romania are already ahead of the curve. There is a huge focus on developing outstanding tech talent from a young age, which is encouraged by a highly comprehensive school curriculum teaching subjects such as computer sciences to an in-depth level.
Individuals are also incentivized to develop their tech abilities, with freelance work widely available in Romania on websites such as freelancer.com and peopleperhour.com. In the U.K., nearly 5 million people identify as freelance but there are calls for work to have better regulation like New York’s Freelance Isn’t Free Act, as self-employed workers earn an average of £160/week less than those in full-time education.
As a result of Romania’s education system, its capital Bucharest is experiencing a new wave of tech entrepreneurs and other cities such as Cluj are benefitting from the economic potential and stimuli of this generation of talent. In an interview last year, Cluj Mayor Emil Boc stated that the city’s “core asset” is its 100,000 students, and it’s true that companies are fighting to attract the top candidates. Unsurprisingly, tech giants such as Amazon, Gemini and Xerox are building offices or already have infrastructure in Eastern Europe and have established themselves as entrants in the competition for the wealth of tech talent available.
2. Financial resources
When it comes to financial resources, the U.K. has the biggest band of capital in Europe in terms of tech startup funding, with €7.1 billion raised in 2017 alone. It was a record year for startup investment and this continues to rise.
There is an abundance of investment schemes in place to support startups in the U.K., which facilitate growth and expansion. The incentives to launch a business in the first place are also more attractive than ever, with bodies such as Seed Enterprise Investment Schemes, Collective Investment Schemes and Enterprise Investment Schemes offering practical and financial guidance.
Capitalizing on this early startup environment in Eastern Europe are Romania’s first tech unicorn, UIPath, which is now worth £3 billion and has more than 1,000 staff; Clever Taxi, which has 17,000 drivers and 600,000 customers; and Vector Watch, which was launched in 2015 and has since been acquired by FitBit.
However, despite the impressive growth of these companies, according to the European Innovation Scoreboard, some of the most significant barriers hindering Eastern Europe’s startup development seem to be accessing venture capital investment. In fact, overall venture capital investments in Romania are equal to just 0.0001 per cent of GDP, compared to the EU average of 0.027 per cent, according to Invest Europe.
Other key inhibitors of progress in Eastern Europe include a lack of trust in the proven route to success, as well as very little support from the government or local councils when compared to the U.K.’s huge focus on encouraging and inspiring entrepreneurial behavior.
On a practical level, the U.K. has access to a great deal of real estate and equity, permitting individuals to come together and engage in creative conversations and collaborative brainstorms.
Eastern European countries are following suit, building and developing coworking spaces, with commercial property investors capitalizing on attractive locations such as Bucharest with its low cost of living and impressive technological infrastructure.
The essential component of entrepreneurial behavior, as I experienced when I set up companies in both Romania and the U.K., is that you must be incredibly resilient. An environment that is supportive will only get you so far -- and it’s all about having a determined mindset and an ability to focus.
There’s been a real shift recently in the number of success stories in Eastern Europe, and this sets the tone for a very exciting new phase in their startup and scale-up success trajectory, as it hopefully will inspire other entrepreneurs to follow suit.
The latest Global Entrepreneurship Monitor cited Europe as the biggest hotbed for what is called "Entrepreneurial Employee Activity" -- the mindset of employees working on a venture outside of their job. Two years ago, the World Economic Forum focused on global levels of what they called "intrapreneurial" behavior -- people providing innovative ideas within existing organizations, and Romania and the Slovak Republic featured within the top 10 European countries, ahead of countries that are traditionally associated with technology and fast-paced innovation, like Germany.
All this goes to show that the mindset within Eastern Europe is clearly growing -- and gaining international recognition. However, Romania’s vibrant startup ecosystem is in its infancy and is following a relatively untrodden path, with native entrepreneurs facing more uncertainties than those working in the U.K..
On the other hand, the U.K. clearly has an established network and background for fostering innovation and startups, providing a “safe” backdrop for budding entrepreneurs and a proven method to help people excel in the scale-up phase.
The U.K. and Eastern Europe provide different ecosystems for startups -- but the varying financial support is the most marked dissimilarity. The U.K. is home to the most diverse pool of talent and an excellent network of accelerator, mentor and funding programs, and Eastern European countries should look to the U.K.’s hugely supportive ecosystem for example.
Crucially, startups rely on raw talent, innovative ideas and the grit to succeed despite adversity -- whether it’s lack of money, support or time. Mindset is the most important element of a startup ecosystem, no matter where you are in the world. My hope is Eastern Europe will continue to rise up the global rankings of entrepreneurial spirit and continue to keep its fast pace of innovation -- as it is home to so many talented, skilled potential entrepreneurs. For now, the U.K. remains one of the best places in the world to start a business.