Finland's entrepreneurial ecosystem

Let me start by issuing a: long rant warning! :) I'm letting off a bit of steam here; much of which has been piling up along the entire length of my entrepreneurial career.

This blog post draws fuel from a few recent events:

Today Ramine Darabiha my fellow entrepreneur was speaking at the Parliament of Finland about the country's entrepreneurial ecosystem, as seen by someone with a non-native perspective. His presentation can be found here. Great to see Ramine there, great to hear that somebody at least is interested on the topic at all!

Also I was recently asked by the Finnish information society development center to voice some of my opinions regarding this topic in an upcoming event. In addition to this a certain political party asked my help to prepare a memo on the subject to offer more expert-level information on the matter.

I was also recently interviewed by Bloomberg regarding this topic. Very interesting stuff, indeed!

Thus I have been digging into this topic quite a bit recently (checking my facts, checking my assumptions, making more analysis etc) and while it is still a work in progress I decided to write a little something about it to get more discussion and reflection going.

(CC) image by aloshbennet@Flickr

Let's start with the positive things. There are many, and these are primarily the reasons why I still keep going as an entrepreneur in this country.

(sorry about the font size and the spacing in the list; this blog forces that format; can't seem to be able to affect it in ANY way with html codes, suxor ;))

1. Opportunity. It's there. It's possible to "get big" and get noticed from Finland, have seen it multiple times. Angry Birds anyone? =)




2. People. There are better people here than the country deserves to have. People who work hard, try hard, who are smart, competent, open-minded and a blast to work with!




3. Talent. Subset of the previous: there is genuine talent and creativity available here. Great engineers, inventors, creative people, thinkers, etc




4. Business freedom in Finland is one of the best in the world. Companies are relatively easy to set up and get rid of (if needed)




5. Property rights are mostly protected in a very good level. What you start and own as a business, is yours to keep (most of the time) supported by rather strong legal backbone




6. Entrepreneurship as a career; is still by far the best career choice in Finland. It is the career where you can not only make the most amount of Euros (a faith-based currency of no intrinsic value), but also explore the limits of your talent, competence and skill in a very demanding set of circumstances




7. Freedom to act; being an entrepreneur in Finland is still relatively free and open-ended. This gets risk takers excited!




8. Efficient infrastructure: Finland (a lot like Germany) is one of those places where things actually do work quite well and in an efficient manner. People don't "fuck about" doing inefficient time-wasting tasks (in general) but rather get the job done. Infrastructure is generally quite good, everything runs roughly on time and it all functions; right up to relatively low levels of crime and civil unrest etc




9. Betterment (excelsior). There's a lot of people in Finland that are deeply unsatisfied with the current situation and actively seek to better it. Get more done, do better, be more productive, etc. And this is excellent; it's what keeps the place alive instead of slowly dying when its occupants give up on it. Often Finns do this through whining about things; which can be mistaken as just plain whining or being negative about things - but actually often is just a critical take on the circumstances and contains the seeds to better & develop it.




10. Respect towards Reason. Finland is still a place where reason, evidence, proof, logic, fact and a rational mind is respected. Mostly at least. If we would ever lose track of this we would quite quickly slide to the insane abyss (Greece, anyone?). All tho politics seems to be a particular place where it is rare to see reason respected let alone acted upon




11. Finland is number 17. in the current economic freedom index ranking, above Sweden, Austria and Germany. Check the top list from here, and Finland's individual ranking from here. In fairness I have to point out that this index probably misunderstands the level and extent of Finnish corruption, which is often obfuscated in such ways that these kind of studies don't know how to account for it; so in reality our score would be lower (due to extensive corruption in this country)

(CC) image by KB35@Flicker

Things we could change towards the better.

Finland is an old rusty car; yes it's running and it functions. It looks horrible and it is a total joke when compared to our potential at our best. We could do so much better, and look so much better while doing it!

Here's a "short" list of things that have come up over the years, big and small issues we could strive to change towards a better world.

1. The government of Finland gives truly massive subsidies to mortgages and housing debt. Politicians have erected a multitude of mechanisms that encourage people to go as deep as they can (and over) into inflated king-sized mortgages in a clear housing bubble market. Government has (just listing a few things) for example erected these subsidies: special savings accounts for buying real estate, if you save to them the government pays a part of your investment. If you live in a house for more than 2 years the real estate sale from that is tax free. People are allowed to get mortgages with no collateral for 100% of the purchasing price of piece of real estate. Mortgage interest payments are tax deductible. You get additional tax-kickbacks and support if you are a first time home buyer. etc.. This is truly massive subsidy and in effect means that it functions as a mechanism to support banks, financial establishment and tie everybody up to their eras in deep debt. Also this mechanism ensures that those who don't take mortgages pay for the mortgages of those who buy real estate - the government has no money of it's own (it's the money and the property of its citizens) and when the government erects mechanisms like this it is in effect a direct wealth and property transfer from those who rent to those who buy their own place (and pay for it dearly to the banks, for decades to come). This subsidizing machine is so severe and extensive that it limits the amount of risk Finns are willing to take in their lives. If you are up to your ears and beyond in debt, and deeply invested in a piece of real estate with fake bubble value; how much risk are you capable of taking in your life? The answer would be; next to nothing at all. Thus we don't get more entrepreneurs, we don't get grass roots business angels (friends, fools and family don't have the capital to invest anything as it is all tied up in fake-value real estate subsidized by the state. And even if they did; they are afraid of investing any of it as they have to be capable of meeting the oversized mortgage payments), and in general we don't get people who are willing to risk anything as a result.




2. Tekes. The Finnish funding agency for technology and innovation (that funds startups) is very slow to react to any changes in the market conditions or in the ways how startups conduct their businesses. Grave examples of this are that it typically takes 1-1.5 YEARS to get any technology programme started in Tekes (if a hot area emerges first it takes a long time for it to be recognized as hot, eventually if somebody decides to start a program to fund it, it takes more than a year from that point onwards to become a reality). Agile methods (Scrum and the like) have been the daily life of startups for years already, and Tekes is still yet to adapt: they still have no processes to even evaluate an agile startup properly. This is slow, sluggish and non-competent behavior. The talented individuals in Tekes can do better I believe. This same inefficient and slow way of operating can be seen in many government instances across the board




3. Many decisions of government officials are arbitrary or even seemingly random, not uncommonly without proper justification or reasoning provided. I have many personal examples of this; one of these cases I even took all the way to the highest court in Finland and won my case (in this argument anyways). It was a classic arbitrary & random baseless decision by a bureaucrat trying to weasel out of a situation with the motive of self-interest. The worst horror stories of this topic are often related to the tax office and their decisions that go directly against tax law and their own rules and previous decisions. The actions of government officials can not be unpredictable - otherwise that constitutes a huge unmitigated risk for businesses




4. Entrepreneurs are NOT rewarded for the risk they take. Finland extensively uses what's called an "ability to pay" principle in taxation. Meaning that if you have property at all - that itself is used as a justification to tax you more, because you have the ability to pay. It doesn't take much consideration to notice how profoundly evil and morally bankrupt this is; treating the best and most talented of us as human sacrificial milking cows that can be whipped ever more in direct proportion to how much they produce. An entrepreneur takes the unmitigated risk and is "rewarded" by the tax schemes of Finland by a taxation that is always higher than any employee's. Naturally this goes directly against the economic principle of decreasing marginal utility and how you should motivate the most productive units in your system to produce even more. As a result we get disencouraged talented people that are pushed to move overseas; and many do so. We are experiencing a significant "brain drain" to the US and even to Estonia, which offers way better rewards than Finalnd does. I can clearly see and understand why this is.




5. There's a general negative attitude towards entrepreneurs. With some professionals in the media the attitude is more accurately described as "hostile" instead of just negative. The GEM consortium surveys and researches attitudes towards entrepreneurs world wide, and guess where Finland is? Often at the very bottom. Finland also has the oldest entrepreneurs in Europe; due to all the negative things and the demotivation of taxes and mortgages young people simply won't become entrepreneurs. In fact there's a popular saying in Finland that an entrepreneur is someone who was unable to get a real job - which gives a good anecdote of this attitude




6. If you are in any way involved in a bankruptcy of a company in Finland (as the CEO, board member, deputy board member, or former CEO or (deputy) board member during the past 6 months) you get a really rough sentence: you are slammed with a 6-year personal credit rating information smear saying that you are not only a total failure and a fuckwit but also a significant danger and risk for any business activity at all - thus as a result this negative credit rating follows you around to every single company where you might act in any trusted position and decreases & negatively affects the risk rating of that company; pressing it down a notch. Also people who view the risk rating of such a company get to know the reason; they are shown that the reason is that there's a person with "negative trust position history" in the company; meaning some particular failed bastard who committed the sin of bankruptcy. This is quite harsh indeed; especially when this negative rating will be slammed to you entirely regardless of the circumstances of your bankruptcy. Even if you simply discontinue your own one man company through the usual bankruptcy proceedings in a situation where the company doesn't even own money to anybody: you will still get this rating. It would be easy to fix this: just make 3 categories for bankruptcies; 1) those without any dispute and any debt don't get treated this way at all, they are free to go. 2) Those that have been initiated by an instance to whom the company owes money to could get a rating stating specifically this. 3) and those that are a result of economic crimes etc mischief would naturally need to get a rating also stating that as reason behind it. The current system that treats even every business angel in the board of directors of a failed company as a criminal is just simply mad and unhealthy




7. Employing people in Finland has been intentionally made very expensive and difficult. If you checked the economic freedom index from above this is also one of the fields where Finland gets a really poor score. For a startup nothing is as expensive as hiring people; with all the social costs included in there. It is also almost equally difficult to get rid of people if the startup needs to cut costs or simply let someone go due to their incompetence. This costly, heavy and inflexible structure severely limits the global competitiveness of Finnish companies and holds them back from growing faster. It also holds them back from implementing smart HR policies and actually rewarding people who perform the most; often also the reward side is strictly monitored and regulated in Finland. As a grave example; stock options have been pretty much entirely destroyed as an instrument to use in any situation due to the extremely negative taxation on them. If a company in Finland gives the employees 100K eur worth of stock options; it would have to pay truly massive taxes from that, tens of thousands of euros. The employees themselves would have to pay up to 65% of taxes; leaving them with remnants of the original value. This is madness (and not Sparta)




8. "the usual". A friend of mine (hello Rami) recently did an entrepreneurial document film in Finland; interviewing 10 rural area entrepreneurs running smallish firms. He was telling me that he might have just as well done 5 interviews; since all of them are the same, "the usual". Every single one of the interviewed people stated the same: madly negative taxes, frustrating bureaucracy, negative attitude and lack of support. "the usual".




9. Taxes. There's so much we could change towards the better in taxes that I'm not even going to go that deep to the topic here. Just picking up a few big-impact things. Estonia has no corporate tax at all if companies keep the money in the company and use it as capital to expand the business, very much smarter than in Finland where the companies pay around 135 million EUR of tax TO THE CHURCH each year by force (not optional) - let alone how much they are forced to pay tax from their earnings. This is often double or triple taxation: the government taxing money that has already been taxed at least once directly before. One particular madness is the VAT and forcing it fully on even the smallest companies. A one man company in Finland typically has to deal with VAT, making it a huge administrative hurdle taking up significant time away from the business. How much time I personally spend purely on VAT per each year? About 6 full days. That's 6 full days of my life per year that I'm never going to get back. 6 days that are stolen from me simply because of the bureaucracy. It would make perfect sense to exclude small and growing companies from this VAT bureaucracy all together and simply refund them the tax without the necessary administrative work. Or better yet, get rid of VAT entirely and implement a sales tax instead (just like in the US, and many other places, with more dynamic economies). Finnish taxes are so insane that corporations Finland even have to pay direct taxes from the government subsidies they receive! How crazy is that! (the government directly taxing money it itself gives out)




10. Too many bureaucrats don't want people to succeed. I have encountered this very troubling socialist attitude so many times over the years: having talks with bureaucrats who genuinely don't want people to succeed. Couple of evil lines heard over the years keep resonating in my head, like; "we give these subsidies to companies with the principle of: everybody has to get a little, and nobody can get enough". That's just total bullshit and leads to only vastly negative things. There are worse statements heard over the years naturally - extending all the way up to genuine fascism. Big corporations having very very close ties with the government officials, effectively forming an alliance against the citizens (not for them, but against), doing all they can to preserve the status quo and limit competition in every way possible. There are many apparent and good examples of this mentality in the Finnish economic structure: a bunch in how municipalities spend their public budgets on a pre-agreed status quo plan, many examples in the health care system, some with the insurance and banking segment, and a very apparent one in the mortgage / real estate market. This is the visible result of the Finnish obfuscated corruption I was mentioning earlier on; here you can see where it clearly shows.




11. Education policy in Finland is not producing entrepreneurs or even useful people for growth companies. Higher education has its emphasis in problem solving rather than problem definition. Changing the focus to problem definition capabilities, to the capability for independent critical thinking, would be a 1000 times more valuable focus than the current problem solving one. I have been talking about this for years already - however it is a topic that's very difficult to change. All higher education in Finland is public, there's no private universities around. Thus all education policy gets decided at the ministry and the board of education. These government instances are both clueless and totally absent from anything at all to do with growth companies and entrepreneurs. They desperately repeat models that are from last century and deeply hurt the potential and competitive advantage of Finland as a nation. Just one simple shift of focus; from problem solving to problem definition would spark so much more creativity, entrepreneurial activity and competitive advantage for Finland!




12. Foreign capital & investment. We don't have much of this in Finland, and it is very easy to see why: tax incentives and the rewards are simply not there. We are an economy for the remote backwater offices only (not headquarters of anything, and certainly not places where you would invest in). We would absolutely need a national agenda for attracting much more (say a 100 times more would be a good start) foreign capital and investments into Finland. The difference when compared to other regions we compete against is very visible and notable; we are totally the backwater of the world where nobody wants to invest in. Not nearly enough at least. One Google data center doesn't quite tip the scale yet :)

Image by me, in St. Tropez this summer. (heavily modified Ferrari Enzo)

How mend our old rusty clunker then? There's a few ideas we could explore and even implement.

We could change the nature of our politics, as I suggested around last independence day; in here.

a) Taxation obviously painfully needs to get revised and changed towards a more competitive climate: if we don't we will simply see more brain drain and companies escaping abroad. They already do that as we speak. The only thing preventing even more brain drain is the mortgages and establishing a family in Finland. Many who are already long gone had none of that baggage; thus it's an obvious smart choice to pack up and leave (while you can still escape). Why be here if there rewards are elsewhere? It's an entirely fair question. Punishment in place of rewards also directly tells talented people that they are not wanted nor needed here.

b) We could specifically use a dedicated tax-committee inside the tax office that concerns itself only with growth companies, Born Globals and potential great startups. This would be a group of people that actually understand and follow the space. Know what are the differences between high growth companies and the rest, etc. This group would be capable of making smarter fast decisions that are consolidated, and they could take real responsibility of the "customer relationship" (if you can call it that) of growth companies towards tax obligations and Joe Public.

c) Better focus of government subsidies. The opposite to the horrible attitude of "to each a little and to nobody enough". More programs like the young and innovative companies program at Tekes, or the Vigo programme. Either that or stop the subsidies all together; and refund the money back to the corporation by truly significantly lowering (-20%) or entirely abolishing their taxes.

d) Attitudes need to be influenced. We can't simply accept all the negative things out there. This is where http://hmea.fi and http://aaltoes.com and others do a great job! All thou even them should preach less to the choir of already believers and more to the general public with a mission to truly change these negative attitudes.

e) We should establish a "special economic zone" (as they are called) possibly with Aalto university or some other suitable instance for high growth companies that are truly born global and aim to become huge right from the start. This would be a great place for university spinoffs etc. Concentrated incentives, motivation, help, resources and encouragement for them (no to mention ample foreign investment if they need it!)

f) The truly vast and massive scheme of mortgage and debt subsidies needs to be taken down piece by piece. It is unhealthy, unjustified and it simply must go. I suspect it has to go gradually, otherwise there's too much of a near term shock involved; people could possibly even wake up to realize how deep in debt they really are and how overinflated the real estate bubble in Finland really is.. and we can't have that, now can we? =) One obvious thing to change in this regard would be the idiotic land zoning laws granting Finnish municipalities a total monopoly over new zoned lots for real estate - thus they limit the production as much as they can and cheat the game to their own advantage every day. (this is done by selling expensive lots, zoning land to big corporations who never build anything on them, and by a real estate tax that is tied directly to the value of the land; thus the higher the land value the more tax you get.. what would you do if you were in control of how much new land gets zoned? That's right; you would zone as little of it as possible, and keep collecting those high sale prices and high taxes).

g) deregulation, taking down harmful structures, etc must be ongoing, faster and deeper. We can't allow the kind of "status quo preserving" corporate-conservative structures to be in place for much longer. We need a liberal approach, libertarian even, free markets, less government regulation and influence, and more positive motivation rather than intervention. We also need better and progressive tools: e-government, e-healthcare, e-education, etc. Check Risto Siilasmaa's speeches and key notes regarding this: brilliant stuff indeed. Strongly supported!

h) The job market and the cost to employ people simply needs to change drastically: we have a very high unemployment rate that's being totally artificially maintained. If we were to remove obstacles from insanely high cost of employing people, we would see a lot of the unemployment melt way pretty fast. Strong labor unions also significantly promote unemployment as they only cater their own members and continuously strive to make it harder for anybody else (non-members) to get a job - very effective in making the structure and dynamic more rigid and limited.

i) we could do so much more to attract foreign talent into Finland. One obvious thing to do would be to give them tax relief or incentives to work here. In fact this is being done by the EU. There's an EU chemical agency in Helsinki: are you aware that managers there receive about 9000 euros of salary a month and they pay 0% tax from it? The EU uses tax incentives to attract talent from all across the EU to work in agencies placed in random countries. Smart thing to do; you surely get better people that way. Finland should do absolutely the same; give similar tax relief to people who are recognized as unique foreign talent, working here to speed up and help our growth companies succeed!

j) We could move the massive debt-subsidies of mortgages and real estate to a place where it would actually produce something; to subsidizing business debt, investments, r&d, organizational development and exports. Placed in this use it would actually provide a tangible return instead of just creating a massive real estate bubble, which is what we have now.

k) Incentives to keep accumulated wealth and capital in Finland (instead of moving it out). This would include incentives for startup exits: if you keep the money in Finland there's less tax etc. And other such similar mechanisms that don't exist now. In addition to brain drain we are also seeing severe capital drain; I know of many cases where Finnish entrepreneurs specifically don't establish their new companies into Finland, and they purposefully move their capital and assets out of the country to a place that's much more competitive globally - precisely as they should. They are just being pragmatic and smart about their own well-earned rightful property. This is where we, the people of Finland, lose however; we have intentionally erected structures that encourage this, are not competitive and hurt ourselves as a result.

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here's a few other issues:

* I don't see funding (VC's, Angeles, etc) as such of a problem; the FVCA does a fair job and great companies still do get funded as they should. There are inefficiencies for sure, but they are not as serious as the ones described above.

* There's plenty I didn't list in there that the companies themselves should be doing: they should be smarter, have better leadership, better interpersonal skills, take better care of their people, understand their business and customers better, be more bold to take on risk, want to grow more, etc etc. naturally only part of the burden rests on the government and society and a lot of it rests on the companies and individuals in them. They should get serious about doing much better as well.

* We are running out of time: whole of Europe is pretty much stagnating and falling behind in global competition. We will be the sore losers of tomorrow unless there's a genuine sense of urgency to do something about these things NOW. Waiting only makes the necessary changes seem more harsh later - as we have to make them anyways.

.. naturally there's more on my list, but as I said this is a work in progress.

Now what would you add in there?