By Marjo Ilmari

Innovative scale-up companies are vital drivers for productivity and sustainable growth, both on a national and global level, says Marjo Ilmari, Senior Director, Accounts & Industry, ICT at Business Finland, the Finnish government organisation for innovation funding and trade, travel and investment promotion.

Just before the coronavirus pandemic threw the global economy into turmoil, there was a lively debate in Finland about the need to boost the productivity and competitiveness of the economy. Research published by Matti Pohjola, Professor Emeritus in Economics at Aalto University, showed that Finland was suffering from a long-term decline of labour productivity in industry and had invested less in product development and digital solutions than its competitors.

Scale-up Statistics in the Nordics 2017, a report published in October 2019 by Nordic Innovation, also provided food for thought to economic policymakers in Finland and internationally. The report offered a fascinating insight into the contribution of fast-growing scale-up companies to employment and wealth creation in Denmark, Finland, Iceland, Norway, and Sweden in 2014-2017. According to the report, the Nordic governments have increasingly focused on enabling conditions for the scaling up of enterprises as a lever to boost productivity growth and competitiveness, which had also motivated the report’s mission to deliver more comprehensive statistics and analysis on scale-ups and their impact.

The depth of the harmonised data in the report and its approach were something new. Previously, the definition and analysis of scale-ups have mainly focused on their employment impact, no doubt reflecting governments’ priorities about creating new jobs and taxpayers. In the report, a scale-up is defined as a company with 10 or more employees and an annual turnover of EUR 2 million or more to start with, which successfully grows the number of its employees and/or turnover by more than 20% annually over a three-year period. Three types of scale-up enterprises are analysed in the report:

• Scale-ups by employment growth only (Employment Scale-ups)
• Scale-ups by turnover and employment growth (Turnover and Employment Scale-ups)
• Scale-ups by turnover growth only (Turnover Scale-ups)

The report’s findings show the growing significance of the scale-ups in the regional and national economies. In the period 2014-2017, a total of 6350 scale-ups were created in the Nordics, and they made a significant contribution to the region’s economy. For example, in the manufacturing and wholesale sectors, the Nordic scale-ups accounted for EUR 17.4 billion of goods in 2017, up from EUR 9.7 billion EUR in 2014.

However, only the Turnover Scale-ups experienced a positive development in their value added creation per employee, with an increase of 62% in the period 2014-2017. In fact, the Turnover Scale-ups generated an average of EUR 145,000 per employee in gross added value, which was 50% more per employee than the Employment Scale-ups.

Driving innovation and productivity growth

From Finland’s perspective, the report’s findings and Pohjola’s research represented an urgent call to action. Although Finland’s total of 1085 scale-ups in 2014-2017 was in line with the size of its national economy relative to the other Nordics, the statistics also showed that Finland lagged in last place in terms of its share of Turnover Scale-ups. The revelation that the Turnover Scale-ups create a staggering 50% more added value per employee than the Employment Scale-ups has raised awareness of their essential role as drivers for innovation and productivity growth in the future.

As the most productive businesses in the economy, the Turnover Scale-ups are also especially attractive to venture capital. A scalable business model, where the company’s turnover consistently grows faster than its cost structure while using as few human resources as possible, promises high returns to the investor. Business Finland’s latest statistics are more encouraging in this respect and show that in 2020 Finnish growth companies raised about EUR 1 billion in investments, which was a new record. The average investment also increased from around EUR 4 million to over EUR 6 million.

Growth companies can lead the rebound

It is crucial for Finland and all other countries that their scale-up companies survive through the current crisis. At Business Finland, we can already see that some young Finnish growth companies are playing an important role in the recovery from the recession. These companies have continued to grow even during the pandemic, increasing their sales by an average of 5% and their exports by 12%. This contrasts sharply with the general performance of Finnish export companies (about 50,000 in all), whose sales have fallen by an average of 9% and exports by 12%.

It is these growth companies that will also create many new jobs in the future. There is evidence that scale-up companies help create high-quality jobs with more satisfied employees and have a dynamic effect on local ecosystems, acting as role models and inspiring other companies. Their impact is multiplied when several scale-ups are clustered together, attracting and developing talent and building networks with the local ecosystem.

Some markets and industries will be transformed permanently by the time the pandemic is brought under control. The companies that have the vision and capacity to develop innovative solutions, services and products to meet the changing needs will be the ones that can succeed in the competition. Many of the most successful scale-ups operate in digital business sectors, and their significance is set to increase further in the coming years.

The smart way to recover and rebound from the recession is to support business renewal in the face of the global economy’s structural changes. The EU’s Green Deal can benefit from and accelerate the scale-ups’ dynamism. The aim is to mitigate the pandemic’s economic and social impact and to kick-start our economies towards a more sustainable and resilient future by grasping the opportunities of the green and digital transition.

According to Pohjola, innovation is the critical factor for sustainable economic growth. On a policy level, he calls for more investment in education and new technologies, policies to promote deregulation and more competition, and all possible measures that support the creation, introduction and spread of new ideas and the transfer of production resources from declining to thriving industries.

Scale-ups’ strengths and strategies for internationalisation

Each scale-up forges its unique path in terms of practical business strategies for fast growth and internationalisation. The qualities that often distinguish the scale-ups from other businesses include a ‘born global’ mindset that drives their vision and high ambition level for growth and internationalisation. For example, Finland’s domestic market is relatively small, so our innovative startups think internationally from day one. Their talented teams often include people from diverse backgrounds, which brings more credibility with international customers and the benefits of broader networks. For example, having an international expert on the company’s board or advisory board can open many new doors.

Other key strengths include an unfaltering customer focus combined with the adaptability, scalability and replicability of the company’s solution or service. The fastest-growing Finnish companies have based their business on solving the problems of the world’s leading companies. When a scale-up can bring unique value and solve an acute problem for a global leader, the solution can later be scaled to other companies, segments and markets. A successful company also understands that each new market requires adaptation and change. It chooses the target group where the value proposition and competitive advantage is most significant in that specific market while taking the competitive situation into account.

Fast growth is often also rooted in a truly data-driven approach and analysis where the company’s solution is continually developed and directed based on results and market feedback. Marketing performance is closely monitored based on metrics such as customer acquisition costs, customer value and churn.

Turning great ideas into business

Early-stage public innovation funding has been one of the most important enablers for many Finnish scale-ups, making it possible to share the risk related to their R&D activities. The exponential growth of Finland’s game industry from its humble beginnings is a powerful example of what is possible in this regard. Business Finland supported almost all the Finnish game startups with innovation funding when they worked on their first games 10-15 years ago. Today, the most successful companies like Supercell and their owners are some of Finland’s biggest corporate and personal taxpayers, business angels, startup investors and benefactors to society. In fact, the Finnish game industry contributed the most corporation tax to the government coffers from all the economic sectors in 2017 – an incredible achievement for this innovative group of companies whose line of business was not even on the radar of more traditional investors and industrialists for many years.

Today Business Finland is looking for the next global success stories and helping to make them happen. We want to make Finland the best possible location for starting and scaling up all kinds of businesses, from quantum computing to new types of food production and circular economy solutions – or something completely different. Business Finland is also actively attracting entrepreneurs from countries outside the European Union through the Finnish Startup Permit, making it possible for international growth entrepreneurs to build a company in Finland and become part of Finland’s vibrant startup ecosystem.

Higher productivity can also enable higher aims

The demand for new ideas, technologies and approaches has never been greater. Beyond the immediate challenge of protecting people’s health and livelihoods, we need solutions to combat climate change, for more sustainable business, production and consumption, and smarter services of all kinds.

According to Pohjola, productivity is the simplest and most useful indicator for a national economy’s success and the foundation for economic growth. Higher labour productivity is the result of technological progress, innovation and structural renewal of the economy.

Scale-ups are at the forefront of creating new services and more efficient ways of doing things. They are already doing good business in a fast-changing world. With more support, scale-ups can also become significant agents of change in the broader transformation of our economies, societies and the planet as a whole.

About the Author

Mrs. Marjo Ilmari, Senior Director at Business Finland is the leader for ICT Industry and Account Management. Business Finland is the Finnish government organisation for innovation funding and trade, travel and investment promotion. Marjo is also in charge of the ownership steering of Business Finland Venture Capital Oy, which invests in early stage venture capital funds. Before joining Business Finland, Marjo pursued a career in management consulting, M&A advisory and business development in global telecom industry. She holds a Master’s degree from the Aalto University School of Business.

References

• Technology, investments, structural change and productivity – Finland in international comparison (in Finnish), a report by professor Matti Pohjola, 4.2.2020.
  https://julkaisut.valtioneuvosto.fi/bitstream/handle/10024/162051/TEM_2020_05.pdf?sequence=1&isAllowed=y
  
• Productivity improvement should play a central role in social policy, a blog post in English by Seppo Kangaspunta, Ministerial Adviser, Ministry of Economic Affairs and Employment, 14.2.2020
  https://tem.fi/en/blog/-/blogs/productivity-improvement-should-play-a-central-role-in-social-policy
• Scale-ups in the Nordics, a report published by Nordic Innovation
  https://www.nordicinnovation.org/2019/scale-ups-nordics-2017

Dr. Ozan Ozerk is a successful fintech founder. Here, he shares his thoughts on entrepreneurship in a business landscape heavily impacted by the COVID-19 pandemic.

COVID-19 and the subsequent lockdowns have laid waste to numerous businesses. With a potential global recession on the horizon, it’s more important than ever to focus on the timeless entrepreneurial traits and skills that make up a successful businessperson.

Dr. Ozan Ozerk, founder of multiple global fintechs, is one such person. He’s a Norwegian medical doctor and entrepreneur of Turkish Cypriot descent, who has a long track record of establishing successful businesses in the social media and fintech space. Amongst others, he is the founder of the online trading platform EuroTrader, European Merchant Bank, Ozan SuperApp and the banking-as-a-service provider OpenPayd.

We sat down with Dr. Ozerk to pick his brain on what makes a good entrepreneur, and which pitfalls to avoid when starting and running a business.

First of all, what made you choose the entrepreneurial route?

Dr. Ozan Ozerk: Well, I worked on startups long before I got into medicine. For me, becoming an entrepreneur was never about money, but about freedom. It was about being able to try to do things my way, having an impact to do good. As a kid, and later at high school, I always tried to create small businesses out of what interested me at the time. But the true first step into commercial entrepreneurship started in my early 20s. In 2003 I co-founded an online media company in Norway, focusing on mobile based services and content. And later from 2005, we took that experience with us creating our first big success, the social media website Biip.no. Biip.no was very large in Norway, we had 80-90% of all teenagers in the country signed up as members. We eventually sold that for around $12 million in 2008, which provided a good stepping stone for my later entrepreneurial career.

So what came after Biip.no?

Dr. Ozan Ozerk: After Biip.no, I had to do my mandatory hospital service in Norway to keep my medical license, which didn’t help me focus on my start-ups. But I did enjoy working as a medical doctor and plan my move beyond the borders of Norway.

From an entrepreneurial perspective, I moved my focus from social media, to e-commerce and fintech and tried out various avenues with mixed success. To be honest – it was mostly failures. The fintech space was, and still is, a very competitive and regulated space to be in. But slowly my initiatives got traction, and I started to merge my various fintech and e-commerce start-ups into what today is known as OpenPayd. OpenPayd is a global payment and banking-as-a-service platform. As I got traction, I also gained the confidence to explore new venues within traditional banking. This led me to found European Merchant Bank, which offers online accounts, lending, cards, and trade finance to companies and individuals.

I have always been fascinated by the Chinese super app services, so we are currently testing our UK-based Ozan SuperApp in the Turkish market. This year I’ve also been exploring online trading services by launching EuroTrader in Europe. Soon, EuroTrader will be expanding into new markets as well. 

How has COVID-19 impacted your business?

Dr. Ozan Ozerk: My business, like most other online businesses, has benefited in the short term because online businesses grew very fast as a consequence of the physical shops being shut down. In the long term, however, I’m sure it will have a hugely negative impact on the global economy, and fintechs will feel the negative impact eventually too. People working in certain industries, such as in the digital space, have so far not felt the true negative impact of the pandemic, which overall will serve to widen the gap within the society, as well as between countries.

So what’s your advice to entrepreneurs who are struggling?

Dr. Ozan Ozerk: In the entrepreneurial world, everyone likes talking about success stories, but I am more interested in people’s failure. I think that is where the true learning is. For every success, I’ve had plenty of failures myself. I think it was Thomas Edison who said: “I have not failed. I’ve just found 10,000 ways that won’t work”. And I think that’s true.

Whilst Covid-19 undoubtedly will have a negative impact on the global economy, the pandemic also represents an opportunity for savvy entrepreneurs. There is huge demand for new products and services in categories such as logistics, at home entertainment, e-commerce, health and beauty and many, many more. My advice is that people shouldn’t be afraid of failing, of trying something new in a post-Covid world. People that never try never fail, but they never succeed either. True entrepreneurs embrace their failures. Even if some of them are painful and hard to talk about.

Do you think there are cultural differences when it comes to the perception of failure in business?

Dr. Ozan Ozerk: Well, I believe there are some cultural differences when it comes to how societies perceive failures. In general, I feel that in Europe a past failure is viewed as a liability. A person that once went bankrupt or failed in their business is often considered a rogue, or simply less reliable. I think this view is highly unfortunate, and absolutely wrong.

My impression is that in the US society however, the view on failures is very different. It’s almost like the bigger the failure, the better. A great failure means you’re thinking big, and your level of ambition gets credit even if you ended up failing. I think that’s a much healthier view on failure, as it inspires future attempts at getting it right.

But when the going gets tough, how do you stay motivated?

Dr. Ozan Ozerk: I’d say you shouldn’t be driven by confirmation from the outside – but from within yourself. If you have a strong gut feeling about something, even if you end up being wrong, try it out. Stay true to what you believe in.

For example; when my former co-founders Erling Andersen, Bo Myras and I started Biip.no in 2004, no one believed in social media. You had some social media websites even back then, like Classmates and MySpace, but many wrote the whole thing off as a trend. We, on the other hand, saw a big potential in cornering the youth segment online. Early-to-late teens in Norway and abroad needed a platform to communicate with value-added services – and Biip.no was the perfect market fit. Later, Facebook came around and proved everybody right. It just goes to show you have to focus on what you believe in – and work in that direction.

And money – that shouldn’t matter?

Dr. Ozan Ozerk: Well, money always matters. But, the discussion you have as an entrepreneur is not about what private jet to buy or adding Ferraris to your car collection. Most entrepreneurs are chronically underfunded, and are doing everything in their power to make the ends meet. If you’re fortunate enough to raise money, you’ll be even more focused on the needs of your business. Taking other people’s money is a huge responsibility which shouldn’t be taken lightly.

True entrepreneurs don’t live the lifestyle you see of influencers on YouTube or Instagram, with yachts and cocktails. Even those who have the financial means to do it. As a real entrepreneur, you’ll have to be honest with yourself. If you truly want to succeed you need to be determined and put in the work. There is no easy way, there are no shortcuts. If you cut corners, I promise you you’ll be more broke, isolated, and unhappy than before you started.

So what’s your general message to other budding entrepreneurs?

Dr. Ozan Ozerk: The message, in general, is don’t give up, but learn from your mistakes and don’t believe that anyone is better than you. Let’s just take the selection process in the army: People applying for active duty, such as special forces, are mostly very fit. But in order to succeed with the selection process you need to stay focused, being able to inspire yourself along the way, even on days where you’re sleepless, tired and are being told to give up. Business is no different

Far too often I feel people hype up talented people. Almost creating an excuse why you’re set to fail. Talent matters, but hard work and perseverance is much more important. Steve Jobs once said: “If culture eats strategy for breakfast, ambition eats talent and a whole host of other things for lunch, dinner and an evening snack.”. There is truth to that. I also strongly believe, failure should not be seen as negative. It’s often the first, natural step on your way to success.