Editor’s note: This article was first published in September 2015; its account of the bureaucracy and costs of starting a company in Spain, the Spanish self-employed fee, and the French and UK self-employment rules describes the situation at the time, and all of these have changed since.
We have often written about successful entrepreneurs, including young American founders who come up with a business idea and sell it for billions six months later. We publish these stories regularly, and more and more readers are asking themselves why such success stories rarely happen in Spain.
In fact, some give up, perhaps with reason, thinking that “that only happens in the United States” and that it isn’t possible here. But… why is it possible in the United States and not in Spain? What exactly is failing in our system?
It is probably a combination of factors that makes the United States the cradle of entrepreneurs, while Spain has just the right ingredients to kill any desire to develop innovative ideas of any kind.
It is difficult, but not impossible, although some of these factors don’t depend only on what most people think. I believe the mindset of Spanish entrepreneurs, as well as our mindset as consumers, also makes it very hard to create companies like Google, Facebook or Amazon.
1. Poor conditions for starting a company in Spain
It is no secret that, in Spain at least, when you decide to start a company, the red tape wears you out, again and again. Things are slowly improving, but we are still a long way behind countries like the US, and even some of our European neighbours.
On top of that, starting a company in Spain is really expensive compared with other countries. In fact, the fear of failure in Spain is justified to some extent, because failing in Spain costs far more than anywhere else.
When I published the story of Corey Capasso, the entrepreneur who failed 15 times before succeeding, I kept thinking that if he had been Spanish, he would have been ruined after his third business failure. In other words, failing in the United States is very cheap, and that encourages entrepreneurs to try, fail and try again.
In my opinion, the Spanish self-employed status (autónomo) is a bad joke. Forbes even laughed at the conditions for the self-employed in Spain. To give you an idea, in France you pay no contributions during your first year of activity, and once registered you are entitled to free health care, a pension, disability cover and so on, while in the United Kingdom the self-employed pay a fixed contribution of between 13 and 58 euros and don’t have to file quarterly VAT returns. At the end of the tax year they pay according to what they have earned.
These facilities for becoming a business owner may not encourage entrepreneurship, but at least they don’t discourage it. The self-employed status in Spain is a sad, cheap excuse to take someone off the unemployment register and turn them into a poor wretch, a “business owner who isn’t a business owner”, who has to pay before earning their first euro. And even if you earn nothing, you still pay.
Even the cost of setting up a limited company is much higher in Spain than in most countries.
2. Investors think differently, and that affects funding
Most hugely profitable companies, such as Facebook, Google and Amazon, started as crazy ideas that only a madman would have bet on. In the United States they are crazy enough to bet on companies that are not yet making a profit.
In fact, one of the premises of successful tech companies is to focus first on the user, not on the money. Venture capital funds and independent investors may put millions into a company with a large user base, even if it isn’t making money.
In many other countries there is no such willingness to take risks on companies with no profits, however much potential they have, and it is hard for investors to see a potential business in a crazy idea that users love. That is why the Spanish success stories we have had, such as Tuenti or Milanuncios, did the smartest thing when faced with an offer of 50 or 70 million euros: take the money and run. Entrepreneurs, in Spain at least, don’t consider the possibility of building a highly scalable business.
Just today Business Insider reported that US venture capitalists have invested more than $167 billion in new business ideas over the past five years, while around 20 billion has been invested in Europe. And clearly, without investment, ideas don’t mature.
3. And finally, what is wrong with us as consumers?
In the United States, entrepreneurs have the support of consumers (call it patriotism). In Spain, I’m sorry to say, that’s not quite the case. At times I have felt embarrassed reading comments on articles about the ideas of Spanish entrepreneurs, and even seeing people celebrate the failure of some of them. I’m afraid that attitude is part of who we are. And look where it gets us.
A couple of years ago I met several entrepreneurs who sold their own Android-based smartphones. They didn’t sell many, even though the phones were good and priced in line with their quality. When I saw those phones, I asked them whether they were using every available sales channel and had done everything they could to promote their product.
They told me they had carried out the relevant market tests to see whether it was worth investing further to grow the company, but discovered that Spanish users didn’t like “made in Spain” technology products.
Sony and Apple obviously make good smartphones, but if we as consumers don’t back the Spanish entrepreneurs who make their own products, those entrepreneurs won’t reinvest in improving them, and we will never have a strong Spanish technology brand.
Spanish investors know this very well, so they know that a Spanish idea is worth less than an American or Asian one, and they won’t take much of a gamble on it. In the end this becomes a vicious circle: investors don’t invest in Spanish tech companies because people don’t buy, and people don’t buy because entrepreneurs don’t have the money they need to keep investing in and improving the product to build a great brand. Now add the risk these entrepreneurs take on and their lack of capital to improve their companies, and you have the answer to the question in the title.
The United States is different. I admire its entrepreneurial culture, and I admire the “patriotism” of its consumers towards “creators”.
I’ll finish with a true story that illustrates this point perfectly. About ten years ago, in a neighbourhood of Granada, a young entrepreneur decided to open a clothes shop. The stock was very good, so all his neighbours started doing their shopping there. After his initial success, the young man took over the shop next door, brought in more new lines and made his first two hires.
It all ran like clockwork, and he started making a lot of money. He married his girlfriend and bought himself a really good car. The neighbours began to notice how well the young entrepreneur’s business was doing; he was already planning to open another shop. But his well-being and success didn’t go down well with his neighbours, who stopped shopping there so that he wouldn’t “live well at our expense”, as some of them put it.
Over time I have realised that this way of thinking is more common than we think in small circles, and probably in wider ones too. I have often seen how other people’s success annoys many Spaniards instead of being admired.
I don’t know to what extent this explains the lack of success of Spanish tech ideas, but I think it adds at least a little to everything above.
See also: Why failing in business has nothing romantic about it in Spain
Featured image: Coolcaesar at the English-language Wikipedia, CC BY-SA 3.0, via Wikimedia Commons.
