The Startup-Cowboys of Budapest Interview with Imre Hild, Part Two

The world of startups is seething and continually changing, but there is a mode of operation that is the same everywhere in the world. Imre Hild, founder of iCatapult, talks about the American and Hungarian startup culture and what makes startups successful. Here is Part One of this interview.

You mentioned that there have been a sweeping change in the field of startups. What is the reason behind this transformation?

Imre Hild

The appearance of startups is mainly a response to the economic crisis of 2008. The economic operators in the United States didn’t know what to do with the large unemployed workforce that flooded the market in 2008. They noticed that they couldn’t expect conventional big corporations to expand, since they were firing instead of hiring, so they started programs like Startup America to create jobs. They looked at what had happened in the economy in the past 50–70 years and realized that since World War II, big corporations created exactly the same amount of jobs that they had terminated, so this field offered zero growth. However, the startup scene has created 12 million jobs. Therefore, the real engine of economic growth is startup companies (not necessarily technological). Big corporations are too big to see the real problems and give adequate responses.

Besides, there has been a real growth process in the startup scene anyway. This progress had been further accelerated by significant cost reduction for starting a new company in our technology­dependent world: you can put together an ICT startup in the blink of an eye at minimal cost, and become successful (the best example is Prezi, yet again). The European Union started following the American example. In Hungary, Jeremie I (Joint European Resources for Micro to Medium Enterprises, a program financed by the EU to encourage starting enterprises) started in 2009, and Jeremie II in 2012, then Jeremie III–IV. There are 28 venture capital funds in Hungary, and 90% of these did not exist 4 years ago.

They have basically created a new industry completely from above. There were government objectives on how to improve the field even in 2012, then in September 2014, they looked at how many new jobs had been created in Europe by new startup companies: between 3 and 4 million. This has been a huge success. New government programs were initiated; you have to remember the PIGS countries’ 25–30% unemployment rates—it was obvious they needed to build new enterprises.

They had no experience, however, so they needed to start training programs, incubators and accelerators. When we started iCatapult in Budapest back in December of 2012, there were 330 accelerators in Europe. Now, at the end of 2014, there are 1400. This means that their numbers have quadrupled. One accelerator generally deals with 30 startups a year. Do the math, and you realize how enormous the absorbing power of this is, and at the same time, how little natural growth there is. Young adults continuously enter the market, but there are way more accelerators than talent.

Simultaneously, the technological enterprises that are now shaping web 2.0 (Facebook, Google, Twitter) can pay any amount of money for the most talented programmers or technology experts. So you have on the one hand a serious demand for startups, and on the other hand, an even bigger demand for individual talent. So individuals will say, well I can go work for Facebook for 250k, or begin a startup in a pretty noisy and surface­focused environment. Many will go to Facebook to work and train for a year, planning on starting their own companies afterwards, thus talent can spread out over time. That is also why American and Canadian scouts come to Eastern Europe to look for talent. They appeal to them by saying “look at how much you’re making here, now multiply it by 6—or even 10 in Silicon Valley.”

What do you think the future looks like in the light of these changes?

I think it’s not the startups, but the accelerators and the servicing environment that are in danger, since they have grown too much too fast based on hype alone. The only way to have a new generation of competent entrepreneurs is to have an adequate educational background. The big accelerators, who invested based on values, will survive, while the ones working with state funds or public funds will close throughout Europe—there will be no need for them. A good startup can go to any of the big accelerators anywhere in the world.

I fear for Hungarian startups using the EU funds arriving in the next six years, which will direct their attention away from how a true startup is formed to a business that is based on grants and only a startup in title. Nothing is more important than focus!

What I would love to see in Hungarian startups is the realization that there is no shame in objectively learning the market they are targeting. What will probably happen, however, is that a lot of them will fail; they will run of out the easily­acquired funds quickly. Twenty­five percent of them will stand up and begin their next startup, 75% will go back to looking for a job at a big corporation. It is obviously not sustainable to build a startup using only investment funds. While it’s true that these investors will also have to account for the money they were entrusted with, since VC funds think in 5–10 year plans, it will take time for them to “get their results in.”

What can we learn from the American innovation and business development culture? Is there a gap that we can jump? Are they ahead of us?

These are clearly two very different cultures. Perhaps the biggest difference is that Americans have fewer excuses and are willing to listen to the real feedback the market offers. The strongest difference is probably in academia: in most cases, teachers have a background in the actual professional field they are teaching, meaning they inevitably teach using real­life examples and cases. In Europe, not only in Hungary, many young adults who come from a good university are shocked when they enter the economy because they were kept almost isolated, with very few ideas on how exactly an enterprise currently works. It is hard to expect them to know how important the customer is. This, of course, is a question of proportions: there are “deaf” startups in the US as well, but the rate of startups not tuning in to the market is surprisingly high in Hungary.

For Hungarians, innovation equals inventions. They think they need to invent some amazing, novel thing, that will make the masses go “Wow!” This obviously is not true—an innovative market doesn’t work like that. They need to learn that innovation is not primarily an invention, but that it can also mean new, more efficient, disruptive work practices, products, technologies and their combination.

In the US, universities are considered an important source of innovation. It is perfectly normal there for a big corporation to cooperate with a university’s innovation lab, and they continuously pour out inventions that are beneficial for both the company and the school. The attitude is more entrepreneurial, and the system is less bureaucratic and less regulated.

Another main difference is that in the US, it is acceptable if you don’t know everything—you can experiment and fail (if this should be regarded as failure at all), and the sooner you get to the point where you realize your original concept is not working, the more recognition you get and the more successful you’re going to be, as this will lead you on the path to success. The point of admitting failure is not the fact of the defeat itself, but the ability to stand back up. Continuous experimentation and teamwork defines the American innovation culture, and is the reason why American startups generally do better than Hungarian ones.

In Hungary, there is a strong cult of individual performance. It is a sort of a cowboy culture here. You are supposed to do and achieve everything alone, even in college or university. Although recently you can see changing attitude towards teamwork, we still notice that even the team­members in a startup don’t really know each other. They only ask each other questions when we start asking them questions. They don’t communicate very well, and they generally don’t talk about important issues.

What could be the strength of Hungarian innovation in America? Would it be something depending on a product or business model, or is there a Hungarian trait that could give us an edge?

Whenever we go to the US, or Americans come here, we usually get the feedback that Hungarian startup ideas are more surprising, not fitting in with the trends. It’s not like they read something on Techcrunch and build their own version, but more like they have more originality. I would say that it’s not like Hungarians are especially creative—not more creative than say, the Czechs—but they are more original, the ideas are usually not just repackaging an old corporate problem, or something befitting a current trend, but completely original solutions.

As for being successful in the American market: a product can create cultural confusion, even when we don’t think it will. We have to set aside the concept of developing something in Hungary and then expanding in the US, because the results will reflect the Túró Rudi Syndrome: we grew up in this culture, we are familiar with it, but they need an explanation, and even then they are usually reluctant. Most Hungarian products have the fingerprints of Hungarian culture and mindset all over them. This is exactly why we at iCatapult force startups to target global markets. The global market is easily reachable, and much better for validating ideas.

It is very important to know that there’s a niche group on the global market that is surprisingly like­minded. The way we sit and chat here happens the same way in Montevideo, Rio, Australia, Vietnam and Sweden. There’s a group that likes to bask in the idea that they are cosmopolitan, and relates to the idea of global citizenship. Thirty to forty percent of these people’s friends live in a different country, and they think of themselves as the minority in their country of residence, which is completely true—they only make up about 5–7% of the global population. But this is the group that has good higher education, is multilingual, has a large social network and has enough money to try out new things, new products.

Prezi, Ustream and LogMeIn services this very group on the global market. Many products could use the same business model. If Prezi can have 50 million users, and Ustream can have 20­odd million users, there could be a couple of million users for smaller problems that could make a serious startup company. Every startup should take this seriously, since this is the opportunity to show that you can be very successful even when you come from a small country that has very few natural resources.

How could this be fostered and promoted with a Trans-Atlantic collaboration?

Programs need to be organized, while individuals and groups must be taken abroad. It is perhaps more effective to send individuals than groups, as group dialogues and rivalry will suppress actual information gathering. Individuals need to be sent ideally in a way so they have no contact with Hungary, they just need to work at a company and be immersed in that culture and frame of mind. This is getting big, this is certainly the future, and we need to get in on it!

Is Silicon Valley far for us?

TThis is a persistent question: how much should we compare ourselves to Silicon Valley? In the long term, what puts things into context is if you find your own Silicon Valley. Clearly, Silicon Valley is supported by the kind of investing models and economic history that gave its birth: the most ambitious companies gather around large funds of capital. At this scale, it functions well and is sustainable. If people could absorb the dynamics of Silicon Valley and realize their potential in their own startup­ecosystem, be it anywhere in the world, that would be great.

Not everyone belongs in Silicon Valley, so being there only because the money or the world’s biggest startups are there is simply not worth it. Of course, if the company is very state­of­the­art, or B2C, or perhaps closely connected to one of the bigger platforms like Facebook or Twitter, they have a place there. However, if the business model is not cut out for it, it doesn’t have to be there. But it should absorb this very open, cooperative culture, because this will help shape its entrepreneurial ecosystem, whether in Budapest, London, Barcelona or New York.

They have to go and see it for themselves, because it is very different reading about riding a bicycle and actually riding onet. Openness is like a drug: once you’re into it, it’s really hard to stop. Flow of information is often the bottleneck for developing startup builders.

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