european-startups

Glance At The Business Models Used By European Startups

According to the European Startup Monitor (2016), the most used business models in the European ecosystem are IT/software development, followed by SaaS and Industrial technology/production/hardware. The greatest challenge is related to sales and customer acquisition. 

Introduction

Finding a common pattern within the European Startup ecosystem isn’t simple. Historically European countries have had diverse profiles, cultures, and economies. This is also reflected in the startup ecosystem. Having that in mind, we’ll look at the European Startup ecosystem by zooming within each country to gain a richer understanding.

Let’s start from a basic question: What are the key elements and ingredients that make European startups successful?

According to the European Startup Monitor (ESM), in 2016  over fifty percent of startups founders saw their products as an international market innovation. Over forty percent of founders saw technology improvement as another crucial differentiator. Twenty-eight percent thought of business model innovation as a key element. Lastly, over twenty-eight percent saw their processes as another critical ingredient.

In short, among the key elements for a European Startup success, the four of them that mattered the most can be broken down into:

Why it all goes back to business model innovation

A business model is made of many moving parts. More precisely, a proper distribution combined with a product that the market wants (product/market fit) and a technology that makes the users’ experience seamless is part of a process called business model innovation.

If you look at the companies that today dominate the entrepreneurial landscape (Facebook, Amazon, Apple, Netflix, and Google) those all came up with innovative business models. What does business model innovation entail?

Business model innovation entails new strategies and new ways of doing things. However, innovative business models also result from a combination of existing patterns. For instance, back in the 2000s, Google launched its advertising machine, called AdWords (now Google Ads). Google got inspiration from an existing search engine, called Overture (formerly GoTo). Overture had for the first time introduced an auction system based on a cost-per-click mechanism. Google took that system, improved on it, by adding a quality score system, which became Google’s cash cow for years to come.

This is one of the many examples of how business model innovation springs up from existing patterns.

A glance at the European startup ecosystem

Europe is comprised of countries with high diversity, in terms of language, economy, and cultural barriers. For that matter, the European Ecosystem is pretty fragmented. Let’s dive into some key facts and statistics.

Based on the European Startup Monitor analysis for 2016 (which used data from 2,515 startups from all 28 European member states and other important countries in the European startup ecosystem – like Israel) three out of four startups were independently founded. While around ten percent was a spin-off from a university or university product. And the remaining startups were a spin-off from existing companies or other research projects.

Over seven percent of these startups were no older than four years. The overall age of startups part of the ESM study was an average of two point four years. With a minimum life of one point three years in Greece and three-point four in Finland.

Of these startups, twenty-two percent were still in a seed stage. Therefore they had not generated any revenue. Over fifty percent were in a startup stage. And over twenty-three percent in a growth stage. Only above three percent of these startups are in the later stage or in standby.

What business models were they using for their operations?

Prevailing business models in Europe

According to the ESM study, the prevailing business models could be divided into ten primary categories:

  • IT/software development
  • Software as a Service (SaaS)
  • Industrial technology/production/hardware
  • Consumer mobile/web application
  • E-commerce
  • Bio-, nano-, and medical technology
  • Finance/finance technology (FinTech)
  • Online marketplace
  • Education
  • Consulting company/agency

It is interesting to notice that each European Country used a primary business model. For instance, Austria, Belgium, Finland, Ireland, and Spain primarily run on a SaaS business model. Other countries like France, Germany, and Italy run primarily IT and software development business models.

More than fifty percent of those companies offered products or services that addressed B2B users. And over sixty-seven percent generated revenues through B2B customers. Countries like the United Kingdom, Switzerland, and Spain focused on B2C users. While Finland, Belgium, and Portugal focussed on B2B users.

If we look at the four key elements for a startup success (product, business model, technology or product innovation) countries like Finland and Belgium led in terms of product innovation. Ireland and Finland led to business model innovation. Hungary and Ireland led in technology innovation and the UK, Ireland and Finland led in process innovation.

Key takeaway and conclusions

Business model innovation in Europe proved so far an important ingredient to startups ability to create a long-lasting advantage and to compete in a globalized marketplace. In some cases, business model innovation springs up from creating new business methods. However, business model innovation also springs up from taking existing patterns and improving on them to come up with a unique model. Among the most popular business models in Europe, SaaS, consumer applications and marketplaces played a key role so far.

Infographic on European Statups

As reported by the European Startup Monitor:

To provide an overview of the industries in which the startups are operating, the respondents were asked to match their startup to one of eighteen industry categories. The results indicate the relevance of the digital economy for innovative European startups; the digital economy accounts for five of the seven major categories. Most startups stated that their venture belongs to the IT/software development sector (15.0%) followed by software as a service (12.2%) and industrial technology/production/ hardware (8.3%) . The most frequent categories on the level of individual countries are IT/ software development (8 countries) and software as a service (8 countries).

europe-startup-business-models
According to the European Startup Monitor (2016), the most used business models in the European ecosystem are IT/software development, followed by SaaS and Industrial technology/production/hardware. The greatest challenge is related to sales and customer acquisition.

Most Popular Business Models of European Startups (2016)

IT/software development 15%
Software as a Service (SaaS) 12.2%
Industrial technology/production/hardware 8.3%
Consumer mobile/web application 6.8%
E-commerce 6.6%
Bio-, nano-, and medical technology 5.8%
Finance/finance technology (FinTech) 5.2%
Online marketplace 4.9%
Education 4.8%
Consulting company/agency 4.6%
Online service portal 4.2%
Green technology 4.0%
Food 3.4%
Media and creative industries 3.3%
Games 1.3%
Offline services 1.3%
Stationary wholesale and retail 0.6%
Other 7.9%

 

Prevailing business model by country

Austria SaaS
Belgium: SaaS SaaS
Cyprus Industrial technology/production/hardware, Consumer mobile/web application
Finland: SaaS SaaS
France Consumer mobile/web application; IT/software development
Germany IT/software development
Greece Industrial technology/production/hardware
Hungary IT/software development
Ireland SaaS
Israel IT/software development; SaaS
Italy IT/software development
Netherlands Other categories
Poland IT/software development; SaaS
Portugal IT/software development
Slovenia IT/software development
Spain SaaS
Switzerland Finance technology (FinTech)
United Kingdom e-commerce
Other EU countries SaaS

 

Greatest challenges for European Startups

Other 0.8 %
Team development 3.1 %
Acquisition of staff 5.6 %
Processes/internal organization 5.7 %
Profitability 5.7 %
Internationalization 6.3 %
Cashflow/liquidity 7.6 %
Raising of capital 12.1 %
Growth 16.6 %
Product development 17.1 %
Sales/customer acquisition  19.5 %

Sales and customer acquisition is the biggest challenge European startups have. As pointed out many times over on this blog, sales and distributions are among the most challenging part for any startup. At the same time, it is also the reason why many startups fail and many others do not succeed.

Reference for the data: European Startup Monitor

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which he brought to reach about a million business students, professionals, and entrepreneurs in 2019 alone | Gennaro is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate and become profitable | Gennaro is an International MBA with emphasis on Corporate Finance | Subscribe to the FourWeekMBA Newsletter | Or Get in touch with Gennaro here

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