Is Poland the best place to start your start-up?
Start-up scenes have long been a game almost exclusively played in the US and Western Europe. But, with multinational tech companies establishing themselves in Central and Eastern Europe, more and more people try are trying to make it big with their own IT companies, making the area now a viable option for new start-ups.
"Just a few years ago there was nothing," says Zuzana Fedorkova, an analyst who also writes for East Europe start-up blog Eastist. "But that changed into excitement, and now there is a lot more excitement. You see communities come together around incubators and accelerators. The scene is really bubbling up."
"For example, Budapest is taking off as a start-up hub. People from there would tell me that the word 'start-up' was not even in their language two years ago. Now the city has a small community. It is catching up."
The start-up scenes differ from country to country, according to Fedorkova. While some countries have one central start-up hub, usually the capital, others are more spread out. "Romania, and especially Bucharest, is growing rapidly," Fedorkova says. "Because there are many companies based there with tech operations and outsourcing companies, the area is full of people who have experience of working for large companies." An entirely different example is the former Yugoslav countries. "Considering the lack of accelerators or incubators, there is a very healthy entrepreneurial mindset there," she says.
By far the largest market for potential start-ups in the region is Poland. "Poland is a funny example. Most would think the start-up community is concentrated in Warsaw, but we also see healthy clusters in Krakow and Poznan."
Learning from experience
One of Poland's smaller incubators is Invemax. Its CEO Adam Labedzki co-founded the Gdansk-area based operation about six months ago, and has already attracted a small community of some fifteen new companies.
"Start-ups cannot find local investors, while investors have a hard time pinpointing start-ups close to them" -- Adam Labedzki, Invemax
The main reason Labedzki started an incubator was the difficulty he and two friends experienced when wanting to build their own company. "We wanted to bring a taxi application to market of the type that is already successful in countries like Germany and Israel," he recalls."We quickly ran into problems with finding investors, despite the fact that the model was proven in other countries. By the time we found a suitable investor, a larger IT company from Warsaw had picked up the idea. We decided the project was too risky, because we could not compete with a project backed by a large media company."
The experiment taught Labedzki some useful lessons. "It was a good learning experience. I found that the main problem was that start-ups cannot find local investors, while investors have a hard time pinpointing start-ups close to them. So that is why we started an incubator, and it has been growing ever since."
Labedzki's example is typical one for many start-ups, and taking an idea from abroad and adapting it for the home market is both the region's strength, and its weakness. (One of the best known examples of the phenomenon in Poland is GaduGadu, an ICQ-inspired chat program that became an immediate hit in the Polish market.)
The inspiration industry
But that's starting to change. "There is always going to be an 'inspiration industry'," says Fedorkova. "But I think we will see more ideas from this region that can't come from San Francisco."
One example comes from rural Eastern Croatia. One young entrepreneur from the region travelled to Silicon Valley as part of the 500 Start-ups program. "He returned to his hometown and started a business," Fedorkova says. "Matija Kopic developed cloud-based software to help farmers manage stock management using new IT techniques. Such ideas are less likely to come out of Silicon Valley, because there everybody is talking to the same tech-minded people.
"But here we have someone helping people who don't even know where Silicon Valley is. People here are drinking less of the Kool-Aid of 'there is an app for everything'."
At the same time, however, Fedorkova notes that true success stories are few and far between. "But the early stories are coming through, and we get launches that people abroad are excited about. Ultimately, it ought to lead to international success."
Invemax's Labedzki agrees that the region is shifting towards developing its own ideas. "It used to be very hard to find investors who would buy into an unproven concept. Many would think: 'OK, your idea is really innovative, but there has to be something wrong since it hasn't been done in America yet'."
That has been changing since a year or so ago, Labedzki reckons, while Michal Olszewski of the Poznan-based incubator LMS Invest says changes in the nature of investment programs in Poland are also having an effect.
"People here are drinking less of the Kool-Aid of 'there is an app for everything'" -- Zuzana Fedorkova
"Most start-ups get their money from special local funds that are derived from European programs," Olszewski says. Currently, the most popular program in Poland is the 8.1 program. "You don't have to have a good idea. You just need to fill out forms. Many of them would just try to rake in the money without doing anything worthwhile."
"However, that program is coming to an end. The terms get worse each year, becoming more of a loan."
That has a positive effect for Polish incubators like LMS Invest. "Start-ups more and more come to foundations like ours. It still is European money, but the rules are different. No limiting paperwork, but they need solid business plans."
While it makes it harder to gain initial funding, Olszewski notes that such start-ups are more likely to succeed. "I believe in a lean way to begin a start-up. In Poland, it is common that would-be start-ups would come in with a vague idea and they won't even start coding until they get the money. It is something that evolved from the 8.1 program."
The rise and rise of Central and Eastern Europe
So what is the main driver for start-up growth in countries like Poland and this particular part of Europe? Fedorkova cites the outsourcing industry that has been established over the years. Entrepreneurs usually don't come straight out of university, but have a background at a large company. Also, it provides for a large pool of mentors, especially in a larger country like Poland. "These people have tremendous experience working at large companies doing really specialised things," she says. "You don't find that in the smaller countries I've been to. You would have a hard time finding someone who can give you in-depth advice on user experience."
Labedzki thinks there the region has notable advantages for start-ups. "First of all, developers here can match for example the Russians and the Chinese in terms of technical skills," he notes. Like Fedorkova, he notes the experience many people have within larger tech firms. "Also, the costs to start a company here are lower than in for example Western Europe."
However, there is still some progress to be made. "Currently, it is more people with projects, rather than companies," Fedorkova says.
This is a repost of an article that appeared on ZDnet on November 16, 2012