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News from Members Ready, steady … go start-up

Ready, steady … go start-up

June 22, 2018

Author: Constantin Măgdălina, Emergent Trends & Technologies Expert

We know that Romania is the country with one of the fastest connections to the Internet. We know that Romanian specialists are very good at information technology and that the share of the IT&C industry sector in Romania's GDP competes with that of the industrial production sector.

And yet, when we list the factors leading to the present development of the IT&C industry in Romania, we find few startups and entrepreneurial companies in technology. Few, compared to the Baltic and Central European countries.

At least this is what the data from The European Digital City Index conducted by Netguru - digitalcityindex.eu, where Bucharest is ranked only the 10th in terms of start-up ecosystem and the 6th as scaleup ecosystem in Eastern Europe.

We have few entrepreneurs in IT

Entrepreneurship is not very present in the information technology industry in Romania. There are initiatives that extinguished fast because of the difficulty to access the so needed funds, unawareness of the minimis funding schemes, of the financing through the AeRO stock market tier, or the lack of a rigorous business plan. The specific education is structured irrelevantly to the competitiveness in this market.

Many IT specialists prefer to be employees and not partners in an entrepreneurial business. They have ideas that they hold back by the fear of someone „stealing” their ideas. The spirit of association is deficient, and successful examples have hardly gone through public space.

Moreover, Romanian companies do not really buy the products or services of local entrepreneurial companies. The local environment punishes the failure of those who start-up a business and did not make it in one go. State support through the Startup Nation programs is hampered by administrative procedure and often slows down the development of very agile technology businesses.

Population does not have digital competences

But beyond the opinions, there is also the reality of the statistics that supports them. According to the Barometer of Digitization of Romanian Companies, for 40% of the local businesses there is a perception that there are no digital consumers in Romania. To some extent, the statistics of this local study can be supported by Eurostat statistics, which states that 71% of the population has digital skills below the basics, data relevant to B2C business in particular.

The generation of digitally native young people may soon change this reality. This generation has more initiative and courage to start a business. It comes with relevant skills for today's technological world. Young people of this generation coagulate more easily around ideas - they know foreign languages, they use collaborative spaces and remote data transfer and processing tools. They are still not majority and are therefore statistically assimilated.

We export by outsourcing

Perhaps more relevant for B2B companies are ANIS data, out of 4.1 billion euros, representing total value of the IT&C market, exports of products and services represent 3.15 billion euros (18.2% increase compared to 2016), in while the local market is just under 1 billion euros (0.5% increase versus 2016).
The question is who does these exports? The entrepreneurial or the multinational companies? We can quickly see that the number and size of local companies can not sustain this export and that it is largely due to multinational companies. At the level of the entire industry, 73% of the revenues belong to the foreign companies and only 27% of the Romanian ones.

Most of the time, local companies are a good outsourcing solution for international companies and fewer suppliers of proprietary products. Startups or scaleups are rarely highlighting itselves as IP vendors (intellectual property). In addition, venture capital instruments are quasi-nonexistent, and bank financing is very difficult to get for startups.

Therefore, Romania is not highlighted in the rankings regarding the entrepreneurship in technology due to the following aspects: 1. Education and entrepreneurial culture, 2. Lack of financing means, 3. Collaboration and poor association, 4. Focus outsourcing and not on the development of proprietary products, and 5. Non-coordination of state support.

Improvement actions at macro level

1. Partnerships between government agencies, companies and (poly) technical universities to support the creation of entrepreneurial ecosystems in technology
2. Partnerships of local companies in the field to create a pre-seed ecosystem in order to fund the start-ups at seed level
3. Business mentorship provided by business leaders through specific start-up and technology scale-ups programs to help strengthen entrepreneurial culture
4. Free legal advice from the state for start-ups and scale-ups for the licensing / patenting of proprietary products and services
5. Tax incentives for start-ups, accelerators, incubators and technology clusters

Improvement actions at level micro

1. The technology start-up team should include at least one person with experience in business, sales and marketing
2. A solid business plan that takes into account the progression curve and the funding required for each stage
3. Accessing networks of competencies and relationships (techhubs, associations, meeting-up groups) to help develop your business with the limited resources of a start-up
4. Affiliation to the association representing the interests of the industry to which the start-up belongs
5. Developing proprietary products and services and accessing relevant funding after prototyping

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About Constantin Măgdălina

Constantin Măgdălina has 8 years of working experience, while he performed in multinationals both in Romania and abroad. Constantin has a Master’s Degree in Marketing and Business Communication at the Academy of Economic Studies Bucharest. He is certified Lean Six Sigma and ITIL which provide him a good understanding of processes and transformations within organizations. The Chartered Institute of Marketing certification furthered on complemented his expertise and knowledge in business. In those over 4 years working activity in a Big4 company, he initiated and conducted studies which analyzed different aspects related to the business environment in Romania such as the economic growth predictions of companies in 2013-2016, knowledge management, the buying experience in the age of digital consumers, social media 2013-2015, the utilization of mobile devices in Romania. He is the author of numerous articles on topics related to innovation, the efficiency of business processes, social media, the consumers’ buying experience in the age of digital, trends and emergent technologies. He is invited as a speaker at numerous events and business conferences.

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