Where Do Tech Startups Come From? The Answer Will Surprise You

Have you ever thought about starting a business? The world is changing; industries are being disrupted and remade in our lifetimes. Music, transportation, space travel – you name it, it’s being disrupted. In every society, middle-men are being replaced by online services, and today we all have access to tools that allow you to make more money than you ever thought possible and change the world without having to go up against the “gatekeepers”. As Justin Timberlake says in the Social Network, “A million dollars isn’t cool, you know what’s cool? …A billion dollars.”

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So, how do you grow a tech startup into a billion dollar tech giant?

Try going to Stockholm in Sweden. This superpower city produces billion dollar tech companies for fun; in fact, in the last decade the city of just 911,989 people has produced more billion dollar tech companies than any other in Europe. At 6.3 billion dollar tech companies per million people, Stockholm is second only to Silicon Valley (6.9).

Or you could try making it work in Israel. Dan Senor’s 2009 book Start-up Nation explores how Israel, a country of just 7.1 million, has more tech-start-ups and a larger venture capital industry per capita than any other country in the world. Even though the country is in a constant state of alert due to geopolitical instabilities it still produces more start-ups than nations like Japan, China, India, Canada and the United Kingdom.

Don’t believe me? Check out just a few companies to come from these tech startup havens.

The past decade has seen Stockholm produce giants such as Skype, the telecommunications application that allows you to video-call your parents, as well as online music streaming service Spotify.

Here are just a few of the members in Stockholm’s billion dollar club:

Skype

What is it: Telecommunication application software.

Value: Bought in May 2011 by Microsoft Corporation for US $8.5 billion.

Public or Private: Public; the company has been incorporated as a division of Microsoft.

Spotify

What is it: Music streaming service launched in 2008; Spotify has over 60 million active users and over 30 million songs in its library. It is now available in 58 countries.

Value: A recent report from Manhattan Venture Research valued Spotify at $5.74 billion. The company is making any profit yet, but with 15 million paying subscribers (each on a $9.99 monthly plan) they have revenues of at least $1.8 billion.

Public or Private: Private.

Mojang

What is it: They are the video game developer best known for creating Minecraft, the third most popular computer game in the world. Minecraft is the ultimate sandbox game, where players can literally create whatever they want and make the game whatever they want it to be.

Value: The company was bought in September 2014 by Microsoft in a deal worth $2.5 billion. There’s a pattern emerging. Start a business in Stockholm and wait until Microsoft knocks on the door.

Public or Private: Public; incorporated into Microsoft.

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In Israel it is said that technology is the country’s number 1 export. It’s not just that the country had 4800 startups (in 2013) but even established tech companies in the area such as Intel, Microsoft, Google, etc. rely on Israeli talent to keep them on the forefront of the industry.

Here are a few of the hottest Israeli tech startups people are talking about:

Wix

What is it: Wix provides free and low-cost websites, allowing people little to no tech skills to create beautiful websites. In August 2014 the company had over 50 million users across 190 countries.

Value: Wix has a market capitalization of $733 million.

Public or Private: Public; Wix is listed on the Nasdaq and had its IPO in 2013.

Fiverr

What is it: Need 300 words of unique SEO web content? Looking for ninja tactics to help you find a job using LinkedIn? Maybe you just need someone to fix an HTML/CSS issue; whatever it is you can get it done on Fiverr. Founded in 2009, Fiverr is a marketplace for creative and professional services, with jobs starting at a cost of $5. The site is a haven for freelancers looking to offer their services to employers worldwide.

Value: Hard to say. Fiverr raised $30 million in Series C funding last August. Some sources say Fiverr could be worth $250 million. A recent infographic stated that the company sells a gig (or Fiverr job) every 6 seconds – Fiverr makes $1 on each gig so that works out to around $5 million in revenue a year.

Public or Private: Private

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To explain the multitude of startup successes in Israel, Dan Senor analyzes two potential causes: mandatory military service and immigration. He argues that because military service is mandatory for most Israelis, the country as a whole internalizes the culture and mindset of being in the military. The IDF (Israel Defense Forces) prizes an un-hierarchical environment where creativity and intelligence are valued over authority. If a junior officer sees his commanding officer doing something wrong, they call it out. Rank and age matter for little in the army. Soldiers are expected to all be leaders, and this mindset bleeds into civilian life.

Immigration also plays a role; 9 out of 10 Jewish Israelis are immigrants or descendants of immigrants. A nation of immigrants is a nation of risk takers, not afraid to start from scratch and fight it out. The twin pillars of military service and immigration interweave to create a culture where people and companies are fearless, creative and organizationally nimble – the perfect cocktail for a startup.

And so from Tel Aviv to Stockholm; the relatively small population in Sweden forces startups to think globally from day 1. Just as Swedish pop group ABBA found success by writing songs in English, Swedish startups now operate in English so that they are ready for a global market.

s3 Pictured: The pioneers of Sweden’s startup scene, ABBA

Swedes also attribute the tech-boom to good long-term planning by Swedish officials. Sweden is the owner of a fast and extensive broadband internet network many years in the making. The government effectively subsidised the cost of buying a computer and by the early 2000s Sweden had one of the highest rates of PC ownership. Sweden’s social democraticism and generous welfare state allows their citizens to take risks without fear; as the co-founder of Instabridge, a WiFi sharing app, says “We don’t have to worry that we’ll end up on the street like in the United States”. Add in industry veterans eager to counsel newcomers and today you have all the ingredients to an ecosystem that allows tech startups to thrive.

What the successes in both those countries teach us is this: start as you mean to finish. If you know that global outreach is going to be instrumental to the future of the company, why would you not make sure all the processes are tailored to that alignment? Instilling a particular company culture also goes a long way to ensuring success. A company is just a group of people, and reflects their personalities as a group. If the virtues of creativity, flexibility and fearlessness – the ability to question superiors – are apparent from the outset then you give yourself the best chance at success.

If that doesn’t work then try moving to Stockholm or pitching a tent on the shores of a Tel Aviv beach.

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