The reason behind the failure of the Italian startups

Image result for italy crisisIn this article, I’ll bring in some numbers and opinions to try to understand why Italy, part of the G7 and able to (or I should say “used to”) excel in many industries, full of talent and historically successful, in 2016 only received less than the 3% of the VC startup funding the UK received. Startups are the companies in the first stage of their operations, representing the future and the economy of a country, and these numbers don’t look good.

Looking at numbers:

Italian startups received in 2016 only $104M funding [source]. A fourth of what it was given to Spain in the same year, very low compared to France (10x Italy),  Germany (17x Italy), and embarrassing compared to the UK (44x Italy), a country with just 10% more the Italian population.

I grew up in Italy, and there I obtained my BSc and MSc in IT, worked as a freelance in the same field, and dealt with business, clients, and culture. I’ve also lived in London for the last 10 years, worked for a big variety of international companies, and I’ve seen enough how things differ abroad. I can, therefore, express some points, some of them backed by numbers, some others merely opinions, voluntarily provocative and hopefully triggering some useful comments. The level/caliber of the graduates coming out from Italian University (the differences in another future article maybe) is very high, and very appreciated abroad, but despite that, there must be reasons why businesses struggle. Here are my points.

Reason number 1 (the worst): (ridiculously) high fiscal pressure

Image result for tax high64.8% of fiscal pressure against a European average of 40.8%.
Let’s consider a real example around outsourcing some work to freelance in Europe. A UK freelance (contractor) pays 20-30% on the gross income, a bit more in Spain (Sociedad Autonoma), but in Italy a “Partita Iva” freelance pays basically twice more taxes, in the region of 50-70% (source). Source confirmed from what I’ve heard (around 65% excluding a bit of relief for the first years) and my experience there 10 years ago. I’m aware pension contributions are higher, but to take home 1000 (in whatever currency you want), the UK contractor (25% taxes) can just bill 1333, but the Italian (65%) has to bill 2857, meaning it’ll be very difficult to beat the UK competitors. You might argue that it’s cheaper to live in Italy and an Italian can still work for UK clients for example, but looking at the cost of living from numbeo, there is no such high difference between the two countries.

Too much bureaucracy:

Small and medium companies spend +52% more time dealing with bureaucracy than the rest of Europe, ultimately costing 2.5% of the national GDP [source];

culture  NOT ENCOURAGING ENTREPRENEURS NOR WORKERS’ GROWTH

The Esselunga founder (successful Italian retail store chain) wrote in his last will that his successful company became attractive, but at risk as heavy to manage and hard to own, also adding that “this Catholic country (Italy) doesn’t tolerate success“. [source]

Also, the Italian system (I think a combination of laws, market offer but mainly culture seeing somebody leaving the company somehow as a traitor), doesn’t reward employees constantly improving themselves, changing job and distribute experience, at any age. In the UK, I’ve always found it very easy to change job. In any new employment/contract, I ‘ve worked with people with a different balance of skillset (tech or business orientated, pragmatic or more creative, particularly skilled at specific things, and different mindset), different team size and business needs, different projects with different size, architecture, needs and testing strategies, and so on.

I’ve personally worked for Italian small clients and their frequent small-changing needs, one of the best founded UK startup, top high traffic e-commerce website, publicly-exposed government project, and now a finance project for a bank. A nice variety that allowed me to face different problems in a different context, acquire new skills, learn from others specialized in a particular (soft or not) skill, and also mentor others what I’ve learned from the previous ones. Everyone is doing the same, and both companies and employees benefit from that. Making it difficult to change job or having an excessive relation of servitude and loyalty between employers and employees might end up being  – in many cases – both detrimental to the company (struggling to acquire talent) and the employees’ growth (struggling to become that talent).

 

Quo vado
fantozzi

Staying in the same place and work the company has been the Italian dream for generations. It’s not a coincidence if the highest grossing film in Italy (Quo vado?) is about fighting for a guaranteed job as a public servant. Spectators tend to buy the ticket to watch what they make them identify the most with themselves. Not a coincidence either that another famous Italian Character  Ugo Fantozzi – depicting the servant employee sacrificing everything for his company – resulted in a cult with enormous success for generations.

The problem is that the Italian system does not reward hard work and innovation. It rewards staying at the same dull job for 30 years waiting for a nice pension. Although today’s youth aspire to much more, this was the “Italian Dream” in past generations. [source]

Lack of culture of failure (same in the rest of Europe), and tendency to avoid risks

 

This is due to the European school system awarding perfection, blaming for mistakes (red pen for them), and very rarely offering opportunities to try, fail and grow. As mentioned in the famous R. Kiyosaki’s book, the school creates workers, not entrepreneurs. Italy also tends to give lots of value to titles and degrees compared – in my experience – to the UK. The Chambers of Commerce also classifies a “startup” based on the number of co-founders owning a degree, and that says a lot about it;

No geographical proximity like Silicon Valley, London and Berlin

Startups are spread around Italy and failing to create a big HUB, making it difficult to create an ecosystem to find employees, services (in turn from other companies) and infrastructures. And some areas still don’t have decent broadband. Other points (bureaucracy, laws and culture) compoundly make this even more complicated to build. Having lived in London, I confirm how easy is to find opportunities and services in a big city, from both employers and employees. I’ve always thought that, and also read the same in more than an article like this one.

 

(more to come)

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