5 European Startup Challenges And How To Overcome Them

Startups-Europe-US.pngGenerally speaking, the gap between how business is done in Europe in comparison to the United States is closing, at least in the startup arena but there are still significant differences between the two continents.

The most glaring differences, of course, are a fragmented market and language barriers but even without those, European startups have their work cut out for them.

One of the most obvious things that Europeans are saddled with when starting a business is their natural risks aversion. Europeans rarely go into something thinking it might work, as opposed to Americans who are bigger risk takers and chancers all around.

In this post I will compare the 5 most common challenges of every European startup and how these challenges can be turned into opportunities.

1. Mindset and Opportunity

One fundamental difference between Americans and Europeans can be traced back to the advent of the American Dream. The idea that everyone, no matter how insignificant their beginnings are, can make it big in the US is something that is lacking in Europe.

Young Americans are willing to go all out on an untested idea while their European counterparts are prone to a long-term view and believe that a bird in the hand is worth two in the bush – meaning that they will rather pursue a 9 -5 career and a secure paycheck than anything else.

This also has something to do with the fact that Americans are introduced to entrepreneurship at a much earlier age. An entrepreneurial spirit is fostered in schools and at college. Berkeley, CIT, and Stanford are major colleges that are mere miles away from the world’s largest tech hub –Silicon Valley. Major players from numerous companies hold teaching positions at those schools, which in turn fosters an entrepreneurial spark in young adults attending them.

European colleges lack that sort of collaboration with the business sector. Higher education is mostly theoretical, and while it is accessible to a larger percentage of people, it fails to connect those people to real-world needs.

This is probably one of two areas where the US has an upper hand on Europe – the second one being funding, more on that later. Other things can be viewed as problematic as well but European startups usually turn those problems into challenges to overcome, and eventually transform them into opportunities that allow them to get ahead of the curve when compared to their US counterparts.

2. Geography

The geo-political situation on both continents is probably the first thing people will single out as an obstacle for the European startups. On the face of it, Americans have it easy. They have a single unified marked that operates under a certain set of regulations and communicates in a common language.

European startups have to edge their way to conquering the market country by country and that’s difficult but rewarding in its own right.

This geopolitical fragmentation, coupled with the difference in mindset, is probably the reason why European startups are always more focused on early-stage revenue as opposed to American startups. Americans are aware of the fact that they have a unified market on which they appear and that the most important thing is growing a user base, even at the expense of losing money at the beginning.

European startups know that their primary market is only their first market – breaking even and starting to make a profit is crucial to scaling the business to other countries. This is why Europeans rarely move to a different market before establishing a firm foothold in the ones where they’re already present.

This is a plus since it makes them less vulnerable to losing market share once they decide to focus on other countries. Their operations in countries where they are established are strong and secure and they can focus on growing elsewhere without constantly looking over their shoulders.

3. Language

The language barrier makes it difficult for European startups to roll out a product that will be available and suitable for all the countries on the continent – or even in the European Union for that matter. American startups, on the other hand, can do just that without having to worry about localization while growing their user base.

This language barrier is not just a barrier in and of itself – it also breeds a different kind of challenge. Culture is formed by language. This is true both at home, in the privacy of your own house and in a business environment.

European startups have to masterfully navigate different cultural barriers that stem from people speaking different languages. And while the uninitiated will consider this an obstacle it is actually an opportunity that most European startups embrace and take advantage of.

Just imagine rolling out a service in German and English. You’re carefully growing your user base and making plays in different countries at the same time. Now, once the number of people using the international (English) version of your service in the Czech Republic grows, you will localize it and translate it into Czech.

In 9 cases out of 10, the number of users will quadruple – presuming your service is good. This is because you’re removing an adoption obstacle while at the same time having a vocal group of supporters in the people that have already been using the international version. People appreciate the efforts a company takes to get closer to them and their needs.

But the advantage doesn’t stop there. Marketing to different language and cultural groups also forces you to be more creative and to truly think out of the box. What works in Germany will hardly work in Portugal and vice versa.

We made it our mission to have our app available in as many languages as it makes sense. The only thing that dictates our localization efforts is client interest. In a way, this language barrier gave us an opportunity to get closer to our customers and offer a benefit that’s appreciated – an ability to do everything in one’s native language.

Currently, Xpenditure is available in 8 different languages and we have the ability to completely localize our app in less than 2 weeks, if necessary. Xpenditure will be available in 15 different languages by the end of 2016.

US startups do not have this luxury. Everything they do has to be tailored to win over a huge market where people think and act the same. This is rather limiting. And while it’s difficult to navigate a market fragmented by borders and language barriers, it offers a lot more opportunities for companies willing to go head to head with it.

4. Legislation

US market is governed by a set of laws and regulations that are mostly uniform from state to state. There are some minor differences but federal jurisdiction casts its net far and wide and almost everything falls under it. Being compliant is easy in the US.

Unfortunately, that is not the case in Europe. Even though most of Europe is consolidated under the European Union, countries have insane amounts of autonomy. The EU is not a country in the sense that the US is – it is a loose federation of countries that are very different. And every single one of those countries has different laws and regulations.

This makes it very difficult for startups to come up with a service that is compliant everywhere where they want to do business. However, if and when they manage to comply with the forest of regulations they’re set and can proceed to grow their business and their user base without being tripped up by bureaucracy.

In our case we have to deal with local tax regulations. Most countries in Europe have complex regulations that govern everything from daily allowances to how to issue digital receipts and why.

Xpenditure offers the ability to simplify everything and make it scalable across different countries. Our smart solutions counter these complex regulations and allow companies to focus on business, and not accounting.

There’s also the VAT rates differ from country to country in Europe – regardless of whether or not those countries are in the European Union or not.  Xpenditure app allows multinational companies working in European countries to set any VAT rate per branch or category and there is an added feature that allows them to calculate the VAT rate automatically.

Also, a lot of money is lost in Europe due to an expensive paper process that hinders VAT recuperation (close to 5.5 billion Euros yearly actually, so it’s definitely not something to sneeze at). Xpenditure app allows companies to simplify the process of tax recuperation and stop leaving money on the table.

5. Funding

The ability to raise money for rounds of financing is extremely important for startups on both sides of the Atlantic. US startup market is in a much better position in comparison to the European because of the fact that venture capitalists are more established and more willing to take a chance there. In the US, it’s common for money to exchange hands within 30 days after a startup meets up with an investor.

In Europe, the process takes a lot longer – usually somewhere between 3 to 6 months.

There are three major startup capitals on the European market and those are London, Berlin, and Tel Aviv. London is the only one strong enough and willing to fund a startup from the initial seed investment all the way through growth and expansion phase.

Also, European investors are not willing to take too many chances. This can be both a boon and a blessing for startups. On one hand, the possibility of not getting the money you need is quite real but on the other hand startups will do everything in their power to make sure their pitch is bullet proof.

This means that they will often have a proof of concept that will be of interest to investors.

American investors are more willing to go out on a limb when providing financing because there are afraid of missing out. It all actually ties in with the willingness to take risks that we’ve already mentioned.

Xpenditure Perspective

For us here at Xpenditure, it’s been a bumpy road but we’ve managed to take all of the challenges that the European market threw at us and turn them into opportunities that helped us grow our business.

The expense management industry in which we operate is ripe with challenges – every single country approaches the problem differently and there are different regulations that say what companies can and cannot shoulder and how expensing should be done.

We took our cue from that complexity and built a successful business by creating an app that reduces it and allows companies and individuals to reclaim their time and streamline the entire process. Basically, we aimed to succeed where others have failed and we’ve managed to do just that.

I am wondering what your biggest challenges are scaling up in Europe. Looking forward to your comments!

Boris Bogaert

Posted by Boris Bogaert

CEO & Co-founder of Xpenditure.

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