Reading the German startup press, it is all about high-growth companies, leveraging digital technologies and the race for high valuations. The quick exit is what the typical business school alumn is striving for. A hockey stick-ish venture capital story serves as the major startup role model in the global unicorn race. Everyone seems to follow the steps of world-dominating companies such as Google, Uber, Amazon, etc.
When working with researchers all over Europe, you enter a totally different world. A startup per se is not an aim. Considering it nevertheless is highly driven by the motivation to get this piece of technology into the market after investing years of sweat, passion, skills and realizing that incumbents are too conservative for adopting a new invention. The need for impact substitutes valuations. And making sure that this impact is long-lasting and backed by a strong technology seems to demand total control over the startup by the inventors.
A critical mind, observing the European hightech venturing ecosystem, might argue: although the impact motive is well-intentioned, staying in control prevents you from gaining critical resources, growing quickly and ultimately being able to compete against the competition from Asia and the US. The global unicorn distribution clearly shows that the startup world is dominated by these two regions. Only high growth helps you to survive as a business, which ultimately enables you to create the impact that you have always been dreaming of. But how come that some of the smartest people opt for staying away from growth stories, venture capital and .. success?!
According to Noam Wasserman, an American academic, and his book The Founder’s Dilemma you, the entrepreneur, have a fundamental choice to make: become king, or become rich. Stay in control, or benefit from the resources of others (venture capital, experienced co-founders, professors, …) Slow growth, or high growth. Achieving a business, or a global business. In the majority of circumstances (statistically) the wealth accrued by entrepreneurs is inversely correlated with their percentage ownership stake in companies.
And from my very personal experience, European researchers want to be king. This leads to two important questions:
1. Why is that?
2. Can being king also be a winning strategy?
The most relevant reason, from my perspective, is the highly hierarchical system in academia. Arriving at the top of the hierarchy entails a huge gain in terms of power and control. Until then you serve your professor, institute’s director or similar positions and work your ass off for them. Although we know that hierarchical organizational systems are not conducive for innovation, researchers are socialized in such a system and are expected to build the solutions of the future. So when it comes to founding a new company, the same reasoning is applied: gaining control paves the way to success.
Which leads us to a second and related aspect, since the definition of success might also explain the „king syndrome“ of the European hightech venture world: if success is defined as being at the top of the hierarchy (“the professor“), possessing control and having a strong reputation, you should become CEO, stay CEO and dictate the path of your venture alone. With such a mindset, raising venture capital, or taking on an experienced co-founder with a business background does not make sense at all. And this is what I have experienced a lot in the past. Strong technologies, convincing market opportunities, yet very conservative execution by the researchers driving the spin-off.
I have supervised several spin-off projects over the recent years that exhibited exactly the characteristics as described above. The pattern is often the same: at the time you get in touch with the projects the market and spin-off potential is not yet clear. You start working with the team, size the market opportunity and plan the technology transfer concept. The team consists of researchers that are very hesitant when it comes to leaving the research institution for a spin-off. After it becomes obvious that a spin-off would have potential, you bring in external entrepreneurs and/or investors to create a new company. They do see the potential right away and get excited. And suddenly the alarm bell starts to ring: who are those external people that want to take control over my technology? Why should they get rich, although I developed the technology? Everything they can do, we can do better. And the team of researchers ends up thinking about debt financing, or a slow growth market entry that lets them retain control.
Okay, it seems like science-based spin-offs are less prone to pursue a high growth path. But is this necessarily a bad thing? Historically, the German economy is well-known for its „Mittelstand“ and family-owned enterprises that evolved following mostly a „king strategy“. But of course there are several reasons pointing at an inferiority for „kings“, such as the pace at which new innovations emerge in global markets, or the mechanisms of digital business. Yet, there is an even more severe issue: the necessity for the „rich strategy“ mostly occurs due to a lack of resources. And especially science-backed ventures are expensive to launch and therefore demand lots of resources. This makes a „king strategy“ particularly risky and quite often a promising technology never hits the market, because the decision makers behind it do not want to lose control.
There is no need for an Europe full of kings, if it lacks the wealth for feed its people.