I read Antti Hannula’s (Tikitagi) blog on Mårten Mickos’s comments on “How to build a Global Software Company” and agreed on him on all of the points. The challenge for the Finnish and other periphery market technology companies is the smallness – Finland is a pilot market, which means that it is easy to launch services, get a relatively high market share, but which is insuffucient to compensate for the R&D investment made. Secondly the Finns are notoriously bad in sales and marketing activities, or the national culture undervalues the importance of these activities compared to hard-core engineering and hard labour. Here is a summary of some points by Mårten Mickos, the founder of MySQL:
1. Finland is too small and expensive
- but maybe the engineers are the world’s cheapest ones, you get paid more even in China for high skill work
- Geoffrey Moore stated in the “Inside the Tornado” about the Bowling Alley Strategy that you should plan the how you turn over the Pins by the Word of Mouth – relations between the market segments. The first and worst property of the Finnish market is that nobody else in Europe understands the Finnish language (except for the Estonians) and thus the natural WoM-Pin Bowling Alley stops at the border. On the English -speaking world you can easily map the Alley, while by starting from Finland the Alley might not exist at all.
2. Finland is not good at producing software globally
- too many start-ups and SMEs investing (relatively) huge amounts on R&D create their softwares with Finnish-only interfaces – FAIL
3. Finns are slow
- the dominant idea is to risk-awersily get the products to the markets by starting small, and growing organically. Instead you should think big and design the products to be globally utilizable from the day one onwards.
4. Finns believe too much in subsidies and R&D grants over sales to customers
- in the other countries the governments don’t issue subsidies, but grant tax exempts for R&D activities and investments. Giving tax exempts is, however, against the core values of the Welfare State – everybody needs to pay a lot of taxes, unless of course, you don’t have any income (and you are applicable for grants and allowances).
5. Lack of will to fight – life is too easy
- why to bother to work hard if the social security system covers your livelihood, if you don’t work, and the high taxes ensure that you won’t get rewarded of your above-average gains
6. Unjustified belief in being on the leading edge (the country of Nokia etc.) and “test laboratory”
- too bad that you can’t make much money out of a test lab, since there are no customers
I have to admit that I have personally fallen in all of these traps with #CMAX.gg hosting marketplace. First of all we gained upto 70% marketshare on the Finnish online gaming server market in a relatively short time span and thought to expand to Germany to capitalize on our lucrative innovation. However, mostly due to bad execution and wrong people recruited for the management, not the business itself, the newly appointed Board managed to burn all the freshly raised capital just in 5 months in direct contradiction to the Business Plan, and the project was dead. This proves the lack of the bowling alley – nobody in Germany had heard of the market leader in Finland, or we would have known in advance about the market adaption challenges that faced us outside the borders. Secondly it seems that Finland is also missing the bowlers, who would have any experience on how to see where the pins are in the first place or how to hit them in the right place to initiate the domino-effect.
Producing the global software is also a more substantial challenge for the Finns than for example German or US companies, since due to the small market size we are missing the momentum to finance the functional expansion to adapt to the internationalization challenges. For example all international softwares have to support for example character encoding, locales, translations, currency conversions, tax regulations, legal differences and you can’t even host your website from Finland to Central Europe. The US companies have none of these extra challenges and have the access for larger amounts of customers and equity funding on their home markets. The EU tries to create a common internal market, but in many fields such as taxation it’s still a distant dream, and the fragmented language barriers won’t disappear by any Directive of the EU Commission.
Third, according to our initial plan we could have been able to start the internationalizations efforts already in 2005, but we had pitch for 2 years for different kind of small grants of a few 10k EUR’s before we finally got a VC convinced for a barely sufficient equity stake. We were already almost passed the opportunity window before the funding had reached the point that you could potentially have even a slightest chance to get the international business up and running, in theory. In the US we would have raised 10x the funding several years earlier and been able to provide adequate returns from the home market alone.
The fourth and fifth problem mentioned above are related to the grants, corporate managers retiring to the Start-Up scene and the too easy life provided by the Wellfare State. It might be also a good strategy to give money to the start-ups in small quantities, since otherwise it seems that the money is also quickly spent, especially if you let Corporate Managers to run a Start-Up (who have accustomized themselves to not care about the costs and who don’t have any substance or skill themselves, but outsource everything at a large corporation’s cost level). You can easily spend tens of millions of euros without ever seeing any return, and thus at least from the Government’s point of view it sounds like a good idea. The Start-Up business requires a different kind of management, or entrepreneurship, not management. Nevertheless the entrepreneurs, who have purified themselves from the corporate management culture, are still left with the Finnish national cultural backload of not trying hard enough, or not going as far what it takes to be truely succesful. This is instantiated in two phenomenon: the lack of sales effort and the tendency to ignore the necessity to do the hardest part of the work. The corporate managers are a better in the first part, they are accustomized to sell to B2B clients. However, the entrepreneurs are typically technology enthusiastics themselves and are anyway at least in their deep soul fearful from for example making cold calls or thinking about to be innovative in doing viral marketing (to cut costs). However, the lazy (or seemingly hectic) corporate life have accustomized the managers to 1) specialize and 2) to delegate, meaning that they offer little substance for the challenges of the daily life of a small company since you 1) need to know quite a lot about every aspect of running of a company, you just can’t make it if you are not willing to learn. The corporate managers are usually not willing, and 2) you don’t have the financial resources, departments and skill pool accessible for a large corporation, so you need to do often everything from accounting and cleaning to sales brochures by yourself in the start. Anyway, if you don’t know how to do accounting yourself, you don’t know how to outsource it either. Your outsourcing partner (accounting company) is mostly interested in how to charge you extravagant amounts especially if you don’t precisely know how the accounting should be run cost-effectively. There is simply no way out of the fact that to run a Start-Up you need to learn and fast.
Finally the Finnish national idea of being the “mobile technology test laboratory” has always been a strange idea for me, since I can’t see the money. Typically the customer requirements from country to country vary wildly, and by designing a successful service for the Finns doesn’t mean that it would be successful in Sweden, Germany, or in China, without some substantial modifications and local adaptions. To develop a global software, you need to develop the product to adapt by minimum two in different countries, to draw the generic design that is common to these markets. Otherwise you are building a local software company that can’t every grow to sizes that would justify the trouble in running a growth oriented Start-up. A good idea, however, is to start a local company on a large domestic market, like the US.