The Difference between Return on Investment and Return on Ego (@ tetuanvalley.com)

———-
NOTE: The following article was written by yours truly and published at Tetuan Valley‘s blog on December 21st, 2010

———-


Really hope this would be the case, but unfortunately...

In these times of economic turmoil in Europe, in which none of the guys that are (allegedly) leading our economies seem to have a clear strategy to get us out of this mess, there is an incipient trend that is dangerously starting to become business-as-usual for public administrations, large corporations and academic institutions: The incessant use of fostering entrepreneurship as a marketing tool instead of as a real investment opportunity.

As time goes by, it is becoming quite difficult for European entrepreneurs to know who is out there really doing something useful for them and who is just there making an effort to appear smiling in an article’s picture. Sure, being part of a relevant entity is quite easy to get the attention of the media if your face or your entity’s logo can be somewhat related to “entrepreneurship” or “start-ups” and it is obvious that this has a lot of benefitial attributes for their brands but who is really doing something for the sustainable development of a fully functional start-up ecosystem in our economies?

On one side, we have all the thousands of events that are suppossedly aimed towards fostering and supporting entrepreneurial activity. In essence, the mere fact that such events are growing in number all over Europe should a possitive indicator. However, the real impact of a lot of these events is sometimes counterproductive.

Now don’t get me wrong, I love that people are creating this type of events, but the fact is that there is a considerable number of these that have too much PR & Marketing spending but no real focus on the entrepreneurs: no Q&A or networking or even worse, a panel of speakers that either don’t have a background relevant for entrepreneurs or with a completely discouraging line of speech. We need more human interaction (networking and Q&A), more debates open to the audience on concepts such as “lean startup”, “bootstrapping” or “crowdfunding” and less lectures from important people that are only relevant to the media and that focus on worn-out themes like “the credit crunch”, “the impossibility to launch a entrepreneurial venture if you are not already rich” or “the difficulties of being an entrepreneur in Europe”. Let’s talk solutions, not problems! More so if those problems you are talking about are even more known and obvious to your target audience than to yourself and your proposed “solutions” solely rely on what others can do (a.k.a. the government) than what entrepreneurs can do.

On the other side, you have the European mainstream media that has historically left aside news related or relevant to the startup scene and now is suddenly flooded with articles about start-ups and big corporations and institutions supporting and even investing in them. To this I say: Yes, over the past year there have been some renowned transactions of successful internet companies to large conglomerates, and that is just fantastic (no irony here); kudos for both entrepreneurs and their new owners. However, these transactions have often been sold to the mainstream media as buy-out processes of successful start-ups because of the strong support & confidence of these large corporations on innovative entrepreneurial ventures on their early stages. There is where the press normally loses all grip with reality.

A start-up that is almost certainly way pass their break-even point, has over 4-5 years of development, over a half a million users internationally and more than 10 full-time employees without any equity share on their salary package can no-longer be considered a start-up: It’s a fully-operational company. Therefore, as a fully-operational company, such transactions are not more a support to early-stage entrepreneurs as it would be a potential buy-out process to gain control of Inditex, Virgin or any other major conglomerate still run by its own founders.

As of today, most european big telecommunications, media and technology companies have huge R&D budgets, and lately some of them have started to go shopping for start-ups at fully-operational stage (which is always great news). However, they are constantly leaving behind a great opportunity that could have a lot of positive macroeconomic implications by turning down investing in the early stages of our start-ups. Massive in-house R&D investments in business lines that are not CAPEX intensive are no longer sustainable these days without considering them a sunk cost from the beginning because early-stage start-ups can not only iterate faster and adapt better to the environment in terms of product development but also in terms of business model. As an investment, it would be much wiser for them to invest in these stages like many of their American peers do and thus, lower their in-house R&D spending and their efforts to obtain the government grants to support it whilst increasing their return on investment (ROI) in R&D and earning a deserved image of real supporters of the European entrepreneurs.

To sum up, as always the key problem is that too many important people have Return On Investment confused with Return On Ego, and that is quite a dangerous thing. Although some players have already started reacting to this, Europe is still in urgent need for real early-stage investors and supporters from big entities that are really aiming to make Europe’s start-up scene grow sustainably from its seed stage. A marketing-focused mindset disguised as acts of “altruism” in this field does nothing but perpetuate the continuous erosion of our competitive drive in high-growth/high-return ventures and the likely threat of an inevitable future brain-drain if we continue down this road.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s