The Paradox of Portuguese Entrepreneurship

My seed fund management company (Maverick), which is currently managing SeedCapital (a portuguese YCombinator clone), is organizing the 3rd edition of Kickstart, a workshop that we run every semester to help projects and ideas go into the startup phase and, hopefully, to choose some of them for investment.

In the past editions we have been pretty happy with the number of candidates, the number of selected teams and the number of projects with investment potential (see here and here). As for the current edition we have received zero proposals. Zero.

I’m currently teaching Entrepreneurship at the portuguese Catholic University and in one of the sessions we discussed the level of risk aversion in Portugal and the level of entrepreneurship. My students were very perplexed by this apparent paradox: Portugal is one of the top entrepreneurial countries; but its also one of the most risk averse.

Out comes the academic in me to provide literature supporting the argument…

Some years back, Geert Hofstede made a study of several countries’ characteristics, including risk aversion. At the time Guatemala was the most risk averse country and Portugal was second. The current version of the study shows that Guatemala got better and is now in 3rd place while Greece is now the most risk averse country in the world. Portugal? Still in second place.

Strangely enough, whereas Greece’s entrepreneurial level (52nd place) is consistent with its risk aversion level, Portugal is on the Top 25 Most Entrepreneurial countries in the world. Paradox? Not really.

Portuguese are quite entrepreneurial but are still risk averse. They are quite disposed and able to become their own bosses. But their entrepreneurial spirit is focused on creating small businesses and lifestyle businesses: a restaurant, a clothing shop, a bar, a hairdresser salon, a newsstand, a consulting/freelance job, etc. Something that basically doesnt defy the status quo, something that is safe, something that wont shock friends and family and that assures that one doesnt deviate from the norm. Portuguese are still provincial, they are rather happy to create businesses that are focused on our small country and that just provide living expenses. They are still uncapable of thinking with a European (or worldwide) focus. They are still uncapable of thinking big, of having a chance to make millions.

As for the start of this article, regarding Kickstart and the number of candidates, I guess that the small company, the on-the-side project, both usually complemented by a “real” job or a consulting gig providing “safety” (and most of all social approval), are the nowadays version of the hairdresser salon.

 

16 comments

  1. Wonderful article.

    In the past I’ve mentioned to some people that we, Portuguese, need to change the way we think business.
    Unfortunately I’ve found 99% of the people are part of the following 2 groups:

    1.) People who are afraid of risky investments for several number of reasons being the first reason the fear of bankruptcy.

    2.) The ones that are willing and have the financial capability to invest don’t have a clue how to do it in order to ensure some sort of success.

    I find people investing in markets providing services to whoever may acquire them. Most of theses services are on saturated markets.

    North-Americans are thought and encouraged innovate and create businesses that provide value to their “community” either it’s their hometown, state or country.

    In Portugal, are thought work for someone else and eventually start our own business doing what we’ve been doing all along.

    I haven’t seen a change in mentality at this level, we always end up doing more of the same and copping whatever makes success abroad.

    Just as you mentioned, we are still very afraid to break our comfort barrier and spread wings to the “unknown”.

  2. I speak for myself (and probably for others in the same situation as i am), when we have to provide not only for oneself but for others – wife, child, whatever – it’s very difficult to risk the not only our well-being but of our family as well.
    Having a job that may not be our dream come true but puts food in the table and some margin for other stuff in the current market conditions is not to put aside.
    Now that i think about it, if i was unemployed maybe i would have enough motivation to try something like this, there would be little to risk :)

    • >I speak for myself (and probably for others in the same situation
      > as i am), when we have to provide not only for oneself but for
      > others – wife, child, whatever – it’s very difficult to risk the
      >not only our well-being but of our family as well.
      >

      You speak as if you’re the only one with those issues :-)

      I’ve had them before and I have them now. Even the lack of money hasnt stopped me from starting up….

      — MV

  3. Manuel Padilha

    Replace “uncapable of thinking big” with “unwilling (…)” and I think you’ve nailed it.

    Portuguese, and mediterranean in general, pretty much have it all (the food, the weather, the layed back lifestyle) and therefor have little incentive to change anything.

    I don’t think it’s an inability at all, it’s not endemic, it’s environmental (Portuguese abroad tend to kick ass)

  4. Pedro Fernandes

    I just have to disagree on calling people who open small business like hairdressers, coffeehouses, clothing shops and so on entrepreneurs.
    Just because you run a business you’re not an entrepreneur.
    You’re an entrepreneur if you start a business that in some way brings innovation to market (well, you don’t really need to start or own the business but for the sake of the comparison I’ll leave it that way). That’s what stirs the economy in a positive way and fosters growth.
    We do have a lot of people opening small and easy businesses, the kind of business that requires minimal skills and that provides close to zero learning that can later be applied in a new venture.

    • >I just have to disagree on calling people who open small
      >business like hairdressers, coffeehouses, clothing shops and
      > so on entrepreneurs.
      >

      I totally agree. But we’d be discussing semantics :-)

      — MV

  5. I really don’t blame people for not being to ambitious with their business ideas. Here is a different view on the subject. The way I see it, its easier and safer to set up a small shop where you depend only on yourself than investing and betting the farm on a larger project. When you bet big, you end up having to depend on several other factors that are not under your control. Most important factors being :

    1 – The economy. In this case, since the Government basically intervenes in half of all of what is produced in Portugal, you better hope that they don’t run the country into the ground.

    2 – Regulation. Once again, the Government runs the show. They make up the rules, they tear them down. You better be on their good side and have a trunk full of the local “cunha”. Subsidies are handed out all the time, but you have to know how to qualify and most of the time it seems politics are very handy in scoring some funds.

    3 – Legislation. Just look at the ancient socialist labor laws. Who wants to be ambitious and assume risk in search for growth, when thats means hiring people? Which if in the end things don’t pan out, you’ll just be cornering yourself into alot of social trouble and financial pain.

    In the end, the it seems the entrepeneur ends up playing it safe. He’ll grow “sustainably”, try to take on as least debt as possible and only hire the bare essencial or proporcional to the guaranteed sales.

    Just my 2 cents.
    a.

    • >I really don’t blame people for not being to ambitious with
      >their business ideas. Here is a different view on the subject.
      > The way I see it, its easier and safer to set up a small shop
      >where you depend only on yourself than investing and betting
      > the farm on a larger project.
      >

      Perfectly legitimate, and I agree with the rest of your comment.

      But:

      1) you dont bet big you dont win big

      2) giving up on you or your country because of regulation, politics, legislation, etc is pretty lame. And it actually makes the game more fun :-)

      — MV

  6. You know Mário, my problem is this: I came to work abroad, I worked and lived in several countries and I’m more or less well paid (if you compare it to Portugal, I’m rich, if you compare it to Switzerland, I’m poor).

    I’ve put some money aside, in a couple of years.
    Now I’ve got the money, quite a lot and I’m getting even more nowadays.

    I want to have my own startup. I just don’t have the idea.
    I’m now a Project Manager btw.

    Kr
    John Doe

    • I’ll assume that John Doe is not your name and neither is your email :-) and so I’ll answer it here.

      You dont have ideas: everyone can have ideas. Take a problem you have and solve it; take one of your hobbies a level higher; and other stuff like that….

      But: the funny thing is that I mostly hear the other side: we have ideas and know tech but we dont know how to manage. I’m pretty sure that if you look around and make yourself visible, there will be small teams that would apreciate you giving a hand.

      — MV

  7. You know Mario, I have some know how in the tech part, I also have some know how in the management part.
    I don’t a concrete problem to solve.
    What I do in my day-to-day is to solve problems that my customers give me to solve. The thing is: I work in consultancy for a big German company (you can guess the name, for sure)

    I wanted to get clients with problems that would help finance the solution. Is so easy to sell my time to big customers but not software solutions, that was what I wanted.

    Even for SME :)

    I have a small team already ready including management team, dev team, but we just need the customers.

    Problems is that we don’t know when to risk. The only thing we know is that we have to risk it before we turn 35. :-)

    Good blog you have here. Hopefully I’ll have the chance to meet you in the future.

    Kind regards from Switzerland,
    John Doe

  8. I just want to add 2 factors that I think are important to understand why things happen like this in Portugal:

    1 – Everyone buys a house (myself included) – When you’re paying the loan of a house, you are more chained to the status quo compared to if you were renting a house. It is a big commitment.

    2 – our catholic heritage – this has a big influence on how we see the riches. Catholicism teaches you that you should keep modest. you should not think big.

  9. Olá,

    Concordo com a maior parte do dito no post e nos comentários, no entanto acho que também devias explicar as condições oferecidas pela SeedCapital durante o KickStart.

    Mencionas apenas o YCombinator, com uma rede de contactos e exposição enorme…
    http://ycombinator.com/faq.html

  10. There may be a few like me, that just don’t want to grow big. When I look at the future, I want to be happy doing what I like, and to have enough money to pay all the bills and have a good life. I don’t aspire to be rich, that’s not an objective. Of course I won’t run from it.

    Last year I quit my job as a corporate whore, earning very good money, just to start doing what I love. As a software engineer, I have lots of ideas and I know I can implement them. But my past experience taught me that I don’t have the other skills required. Reading about creating a business is painful. Business plan? Making estimates of earnings and expenses on the next years? Yuck, not for me.

    • >”I just want to be happy”
      >

      Perfectly OK and legitimate. You dont want to have a chance at hitting it big, you want to have a small business and/or a lifestyle business. Great.

      >”I dont have the other skills”
      >

      Been there. Went back to school and got a degree in Business Administration. Dont want to do that? Get a friend. Get
      advice. Get a co-founder. Get an investor. Solved.

      Or is it maybe that the problem might be of you having control issues? Of not wanting to provide schedules, plans, etc
      and to have to share decisions, control and compensation? Think about it. Maybe you have been badly burned by some
      corporate machine and now think that all businesses have to be like that.

      — MV