The Secret Sauce of Swedish Start-Ups
Did you know that Stockholm, the capital of Sweden, has bred more tech unicorns per capita than any other region in the world save for Silicon Valley?
This month Fintech company Trustly joined the unicorn ranks, and there’s no shortage of runner-ups.
So what is it about the Swedish business soil that makes it so fertile for creative tech start-ups?
“There is some kind of climate here where Swedes are quick to test new services and products,” Oscar Berglund said in an interview. “It’s like there’s an ecosystem of funding and expertise.”
5 Reasons Why Sweden Is Such a Start-up Mecca
Having worked as a marketing specialist in the Swedish B2B SaaS space for quite a few years now, I’ve observed a number of things that I believe make up at least parts of this equation.
Flat hierarchies are a cultural trait commonly cited as a perk of working in Sweden. With few or no levels of management creating distance between team and executives, this structure reflects the general egalitarian culture in Sweden. From a start-up perspective, it’s most probably favorable, as the advantages include more empowered, self-driven employees and quicker decision making.
Sweden has a high degree of “intrapreneurship,” which refers to when coworkers collaborate on projects outside of their usual assignments. In Sweden, 28 percent of working adults were involved in an intrapreneurial activity in the last three years, compared to 11.7 percent of Americans.
Social Security and Accessible Education
This one is interesting. Some economic theories suggest that the dynamics of a high-tax and high-spend welfare state like Sweden are not very favorable to entrepreneurship. Studies have found that the higher government spends per capita, the lower the number of start-ups per worker. The hypothesis would then be that high taxes reduce the entrepreneurs’ incentive in terms of potential gains.
However, in Sweden, the reality is quite the opposite. Instead, it seems like the extensive social safety net helps entrepreneurs feel safe enough to take the leap.
“Even if you fail, even if you file for bankruptcy, Sweden has a well-known and ambitious safety net. So I do think that taking on risk is not as daunting in Sweden as it is in the U.S.” — Birk Nilsson, Co-Founder of Tictail.
Also, in Sweden, higher education is free. Students can get cheap student loans are available for everyone, which means anyone can pursue any degree. Health care is free, and childcare is subsidized. None of these social benefits depends on having employment, which may contribute to people being willing to take entrepreneurial risks.
Not too much bureaucracy
Ask any Swede, and they will probably disagree with this one since Swedes, like everyone else, love to curse the tax system and governmental regulations surrounding business. But you only have to try and register a company in Germany or apply to University in France to quickly understand how smooth and comparatively digital most processes are in Sweden.
An interesting World Bank study (2017) highlights another interesting fact: the higher the level of bureaucracy, the higher the level of corruption. This means that a lower level of regulations and paperwork levels the field in more than one way.
Historically, Sweden has had a heavily regulated economy where giant public monopolies dominated. This made it tricky for new, smaller players to compete. But regulations have since been eased. Today, Sweden is making it harder for monopolies to dominate the market, in contrast to the U.S., where things have been moving in the opposite direction, favoring big, established companies through overturning anti-monopoly laws and allowing for industry consolidation.
A high level of digitalization
As one of the world’s most cashless societies, combined with a tech-savvy population, Sweden has provided a platform for Fintech and new payment methods to flourish.
Given the tiny size of Sweden’s population, many start-ups here go global from the get-go, which means they’re primed to scale big from the start.
Fun fact: Sweden boasts one of the fastest internet speeds in the world.
The flywheel effect
Success is infectious. When one company sees great progress, it shows others what’s possible. This then becomes a positive spiral, where start-ups and founders are inspired by and learn from each other. Or, as Cameron McLain, co-founder of Giant Ventures in London, describes it:
“There’s a vibrant ecosystem of successful entrepreneurs, executives, and investors who have been part of generational companies, such as Spotify. These successes produce role models, experienced talent, and capital which then generates further successes, and the flywheel continues.”
This could also be the reason why Sweden ranks at the very top in the developed world in terms of perceptions of opportunity. In 2017, 65 percent of Swedish people aged 18–64 thought that the opportunities to start a business where they lived were good. In the U.S., the number was only 47 percent.
One of the things I find really interesting about the start-up success in Sweden is the contrasting nature of Stockholm and Sweden on the one hand and the U.S. and Silicon Valley on the other. Sweden’s success challenges many preconceived notions about what type of systems and cultures actually help drive innovation and growth. It proves that a dynamic innovation economy can happily coexist with relatively high taxes and an extensive safety net. There is even evidence to suggest that these factors have a causal effect in the success equation.
What do you think are factors that spur entrepreneurship?