Poland’s Startups are Doing Great. But Finance — Less so

Great products do not guarantee that a startup will be successful.

Łukasz Król
12 November 2015

A thriving startup scene

Evenings in Warsaw can be spent in crowded rooms, listening to enthusiastic startup pitches. There is a general sense of optimism and excitement in the air. Google’s Warsaw Campus predestines future successes in a country brimming with boundless ambition and packed with talented programmers. There is plenty to celebrate.

Yet none of Poland’s startups have broken through the barriers of obscurity to capture the public imagination in a similar scale to other European businesses such as Estonia’s Skype or France’s BlaBlaCar. Europe itself is far from producing a holy grail of a startup, a universal product such as Google or Facebook, or a unicorn, a billion dollar tech businesses,, and these are more prevalent across the Atlantic.

Money matters

Great products alone do not guarantee that a startup will be successful. Founders must also invest significant sums to swiftly expand and find new users. This is not an abstract obsession of wealth-loving venture capitalists, but a necessity to the survival of many startups. Their ability to easily scale up and rapidly grow also makes them easy to duplicate. Every innovative company must capture its target market before the competition does so with a thoroughly marketed, copycat, product.

There are two ways to prevent this from happening. A startup tackling the toughest technological problems, relying on multiple PhDs and decades of research experience, can create solutions that are nigh impossible to replicate. Competitors, for example, still struggle to beat Google’s search algorithms. Yet few startups offer such a technologically irreplaceable product. More often, their main asset lies in their business models, for example BlaBlaCar’s ridesharing. Rapid expansion, frequently assisted by venture capital, is the only way of ensuring that the competition does not copy and overtake a successful business model.

Unfortunately, Poland’s venture capital scene is still underdeveloped. Seed funding resources are much smaller than in Germany. Startup Poland is a newly established group that aims to study, represent, and help Polish startups, and in a recent study of theirs 59% of Polish statups finance their growth and development from founders’ savings and income alone. Those that do not rely on external finance tend to grow much more slowly, which can be fatal for tech startups competing in a field teeming with other companies.

Similarly, there is a dearth of good managers and effective networks. In the Startup Poland survey, half of founders argued that a lack of networks and staff held them back. George Berkowski, founder of the IceCream app, agrees, arguing that networks in London and San Francisco are better developed. In these markets, a virtuous cycle can occur, as one success in the startup sphere brings many more. Skype and Transferwise proved to be major Estonian success stories, and brought much needed expertise to the area. Yet it is almost impossible to set off a virtuous cycle like this without effective financing.

We are rapidly moving towards economies based on information, knowledge, and innovation. If politicians and investors do not do more to encourage strong venture capital regimes, a country’s innovations, which are often the product of state education and research funds, will simply be copied elsewhere. This eliminated the benefits that ought to go to the nation that originally invested.

Reasons for optimism

Still, there are many reasons to be hopeful. Several institutions, including Startup Poland, are beginning to powerfully lobby on behalf of Polish startups. Politicians are trying to score political points through their support for research and development, which should make it easier to finance innovative businesses, startups included.

Finally, there is little sense in judging a startup market solely by the amount of billion dollar firms that it has produced. Venture capital and rapid expansion certainly help ensure that innovative firms are not overtaken by copycat ones, but many startups have unique small-scale business plans that fulfil the needs of a particular niche, frequently in the B2B sector. Not every business can be an international blockbuster that encourages venture capital and big bets. Poland must keep in mind that much of its economic success is grounded on the hard work of small-scale entrepreneurs.

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