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Well-known start-up regions like the Silicon Valley seem to profit from a specific entrepreneurial culture. Photo: Courtney Keating/iStock

The number of innovative and high-growth start-ups in Europe as a whole is quite small, even though there are growing start-up clusters in a few major cities such as London or Berlin. Many of Europe’s countries and regions are experiencing persistent low growth and high unemployment, a problem which a boom of new companies implementing new creative ideas could help alleviate. Even in Germany, which has a much better macroeconomic performance than most of its neighbours, the number of companies being founded has been falling for several years.

There are strong indicators that Europe’s aforementioned weakness may also have a cultural dimension. Regions which are seeing particularly strong numbers of innovative start-ups being founded appear to have a strong entrepreneurial spirit. Well-known start-up regions like the Silicon Valley seem to profit from a specific entrepreneurial culture. This entrepreneurial culture comprises aspects like the personality structure of successful entrepreneurs as well as regional phenomena, e.g. an innovative milieu, and strong networks binding individuals to the region. With respect to the personality structure of entrepreneurs, a desire for autonomy, risk tolerance and trust seem to be especially important for success. Positive feedback and successful role models amplify regional entrepreneurial activity after an initial trigger like a university-related industrial park has led to the founding of innovative start-ups.

In Europe, traditions and informal norms as well as institutional arrangements tend to favour dependent employment over self-employment and start-ups, which reduces flexibility and innovation in a time of crisis. Furthermore, a „can do“ attitude is lacking. Individual risk aversion is high and the failure of start-ups is seen as a confirmation to this mind-set. In contrast, start-up hotspots in the United States possess a „culture of second chances“, where once-failed entrepreneurs can quite easily attract financing for a new business idea. In Europe, however, not much attention is paid to the experience the entrepreneur has gained in founding their first company; instead, a stigmatisation effect closes the door to financing a new start-up.

Efforts to foster entrepreneurship in the high-tech sector and growth areas like the digital economy must start earlier and encompass different fields in order to inspire a change of thinking in society and greater openness to new ideas. Specific recommendations to this aim are:

  • Cultural change can be achieved by initiatives that start at an early stage in the education system. These could then generate significant multiplier effects through role models and peer-group influences. Initiatives such as the JUNIOR student company programme should be expanded in order to familiarise students with the idea of self-employment and entrepreneurship early on.
  • In Germany, support for unemployed people looking to start a company has been massively cut back in recent years, even though the provision of start-up grants was evaluated as being a successful measure with a long-term effect. More encouragement for unemployed to start a business could have positive effects especially in European countries with high unemployment.
  • Online entrepreneurship courses could increase the reach of entrepreneurship education at a later stage in the education system. This applies especially to the mostly young refugees now entering Europe, who come from a culture that is characterised by high numbers of self-employed people. With the German Federal Employment Agency’s online course „Ready for Study“ and the newly founded Kiron University, a newly founded platform that allows refugees to start online courses at renowned universities, first steps are taken.
  • Innovative companies in the digital sector and small or medium companies in manufacturing industry should be encouraged to co-operate. Closer networking of activities would be beneficial to both parties and should be sought in order to develop the ideas generated by start-ups into Industrie 4.0 applications and transfer these to the SME sector.

IW policy paper

Klaus-Heiner Röhl: Entrepreneurial culture and start-ups – Could a cultural shift in favour of entrepreneurship lead to more innovative start-ups?

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