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Introduction and Swedish culture
With almost as many tech startups as Silicon Valley, Stockholm in Sweden is fast becoming one of the global IT hubs. Internationally successful startups such as Spotify, Candy Crush and Minecraft creator Mojang all hail from Stockholm. We know about giants like Volvo, Saab, Ericsson, IKEA, H&M, ABB and Husqvarna, but how did a bunch of Swedish startups – from Skype, Spotify, Lunux and Mojang to MySQL, Wrapp, Klarna, Memeto and LifeSum – get so damn big?
A Creandum report showed that €2.6 billion (around £1.9 billion, $2.9 billion) is being generated per year from Nordic tech company exports, with more than half of this coming from Sweden alone. In this nation of nine million people, something is making tech tick.
Why are tech startups so numerous and successful?
Sweden's entrepreneurial purple patch is a direct consequence of the country's high taxes and generous cradle-to-grave welfare system. "There is free schooling, including getting paid a stipend for attending university, while healthcare is quite inexpensive and pensions are taken care of," says Jane Walerud, CEO of Stockholm-based Teclo Networks, and also a member of the Swedish government's Innovation Council. "It is relatively safe to start companies in Sweden, and more and more Swedes realise it." There's even a tax deduction for people who privately invest in startups.
Sweden is a risk-friendly place. "Sweden has a lot of safety nets from an income perspective, which reduces the risk of starting your own company," says Mattias Ward at Swedish startup Innometrics, who thinks that potential employees are also less wary of working for a startup. With cheap or free higher education, students from Sweden's excellent universities also do not have crippling levels of debt before they even start.
Fast internet
Technically speaking, Sweden has it all. "It has a strong culture of engineering, a world-leading telecom sector, a stable and well-functioning economy combined with a high internet penetration rate at an early stage of the internet era that resulted in a very potent mix," says Niklas Hedin, CEO at Swedish cloud-based tech company Centiro and Ernst & Young's Entrepreneur of the Year in the Best International Growth category.
Sweden is a nation of digital natives. "Stockholm is one of the most digitally connected economies in the world," says Niclas Sanfridsson, VP Nordic Region and MD Sweden at TelecityGroup. "Its overall broadband take-up rivals the early adopter cities in Asia, and over 91% of the population in Sweden uses the internet at least once a week."
Virtuous circle
Success breeds more success, with the likes of Spotify now inspiring a new generation of entrepreneurs and encouraging more 'angel funding' from abroad. "Most of Sweden's startups work in close proximity to each other and have formed a real innovation community," says Neil Sholay, Head of Oracle Digital EMEA, who thinks they drive each other to come up with disruptive ideas.
Swedish tech startups are also very good at developing the services to wrap around a product. "They don't build their business model on a product experience, but on a subscription experience, and this is what makes these companies so successful," says John Philips, Director of Northern Europe at Zuora.
What is it about Swedish culture?
The Swedish emphasis on design definitely helps foster tech-based companies, but there's plenty of hot air, too. "The way in which Nordic companies operate can be linked with the sauna culture," says Jean-Jerome Schmidt, ClusterControl Evangelist at Severalnines. "Whether you're the CEO of a company or a receptionist, once you're all sitting in a sauna together, barriers fall and everyone is at the same level."
"The country has a culture of 'all for one and one for all' – working without hierarchy and as an even unit," says Sean Farrington, UK MD and RVP Northern Europe at data discovery firm Qlik, which was founded in Lund, Sweden, in 1993. "Scandinavian companies realise that a business is only as good as its people."
And those people are free-thinkers with little awareness of class or status. "The intern's ideas are given as much respect as the CEO's, and a culture like this fosters genuine innovation," says Pär Hedberg, Chairman of THINGS, a new hardware hub that brings startups and large industry partners together in a collaborative environment. Hedberg also points out that Swedes are urbanised, secular, and very early adopters of new technology and ideas.
Science parks and government influence
Is the phenomenon restricted to Stockholm?
Stockholm is a hub for innovation, but it's not only Kista Science Park near the capital that's responsible for the success of startups. "With an open metropolitan network comprised of 1,200,000km of fibre optic cable – which could wrap around the earth 30 times – exciting young businesses are popping up all across the city," says Sanfridsson.
Clusters of tech companies can also be found outside of the capital. "Kista has certainly become one of the hotspots, but tech companies exist and thrive throughout the whole of Sweden," says Hedin. "Indie development is a strong undercurrent, and they typically thrive in non-corporate environments."
Science parks are spread around the country. "We've got science parks in connection to most university towns, like Ideon in Lund or Mjärdevi in Linköping," says Linda Krondahl, CEO of THINGS. "They all build a small local ecosystem, often joining forces with larger local companies in the area."
Does the government help?
Absolutely. "The Swedish government has invested over €10.5 million (around £7.8 million, $11.8 million) into the manufacturing industry over the past few years," says Jonathan Wilkins, marketing manager of European Automation. "At its core it aims to make the country a key region for companies to develop products in."
The Swedish government has done a great deal to establish an attractive environment for startups. "It has helped households buy PCs to promote computer literacy and ensured that the country's broadband internet connections are among the world's fastest, which has allowed local businesses to participate on the global startup scene," says Sholay.
However, the government has other goals for the tech sector. Females and immigrants are poorly represented in the entrepreneurial class, while funding for startups is often badly organised. "The good news is that Sweden is proactively addressing these problems," says Walerud, who adds that Sweden needs innovation in existing companies too, not just startups. "The fact that five ministers, including the Prime Minister, are on the council means that our ideas do get heard – and it shows how seriously the government is taking innovation."
Is Swedish innovation just a passing phase?
Innovation in Sweden is nothing new. "Look at inventions like dynamite, the safety match, colour graphics for computers and the Allen-wrench," says Hedin. "It's a long and very successful track-record."
That legacy of success shouldn't be underestimated. "Thanks to the recent global success of Swedish companies, we have a 'you can do it' feeling in the startup scene in Sweden," says Krondahl. "We do lack the access to the capital and investment-willingness that you can see in Silicon Valley, but our companies are therefore usually pretty bootstrapped from the start, and learn how to get as far as possible with limited budgets."
Sanfridsson points out that Stockholm's Royal Institute of Technology, founded in 1827, accounts for over one-third of Sweden's technical research and engineering education capacity, which helps keep the city as an international business and technology hub.
Why do many Swedish startups leave to scale-up?
The Stockholm culture encourages the development of many great ideas, but startups do struggle to scale up. "The Swedish market is simply too small and too dispersed to reach a critical mass of local users," says Philips. "The most lucrative user base sits in the US, but because of the time difference – up to nine hours – it's difficult to enter that market from Sweden."
A workaround is to split the business functions per country. "Spotify moved its HQ to London to look after business operations, while the Stockholm office still handles research and development," says Philips. However, the small size of Sweden means that startups' ideas will always be most successful outside the home market.
Tech leaders from the US and elsewhere now have their collective eye on Sweden. "In much the same way that during the early 2000s Israeli companies were given airtime by VCs after a number of innovations had come out of the country, Sweden has now earned its stripes by birthing Spotify, Minecraft, Memoto, and a number of other global success stories," says Sholay.
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