Hand-ups vs handouts: What needs to change to make Ireland the best small country for startups

IT FEELS LIKE sometimes the key failure in current policy towards developing a fully functioning entrepreneurial ecosystem in Ireland is based on the assumption by government and related parties that entrepreneurs are morons.

Entrepreneurs aren’t dumb (well most aren’t) so those who want to start their own business don’t need to be treated with kid gloves. They’re among the most capable of us, they find a path in the chaos, they find innovative ways to get stuff done. Point them vaguely in the right direction and they’ll find their way.

However in the minds of our government and local officials, every entrepreneur needs to be led by the hand through the entire process of launching a business from start to finish.

We focus the limited resources our country has on a system that seems to replicate our national driving license setup: you get some lessons (mentors), fill in some paperwork (so much paperwork), take a test (judgement from a panel/board) and then, hey presto, here’s your entrepreneur license!

And then we wonder why we’re not creating more businesses with truly visionary ideas.

We put entrepreneurs, our best and brightest, some of the smartest and most energetic people our country has to offer, usually people with tremendously risky ideas, in front of well-intentioned people whose very jobs are dependent on taking no risks – and we expect them to have meaningful and productive conversations.

What we’re doing in Ireland is creating a support system that cradles entrepreneurs inside a protective bubble instead of creating a dynamic environment and market in Ireland that supports entrepreneurs, whether or not they choose to engage with the support mechanisms of the state.

We’ve created an advice economy where talk is valued over action, where drowning in paperwork is the number one* cause of death of most new businesses (* this may be a made-up statistic).

We need a modern system that creates a positive relationship between entrepreneurs and the systems of the state. We need policies that create a market in which entrepreneurs thrive and are the envy of their peers in other countries, not because of the handouts, but because of the hand up.

Here’s some ideas to start:

1. We need a system that creates learning from those who have actually been there

Government and state bodies, stop putting people who’ve never jumped out of an airplane in charge of teaching people how to jump out of airplanes!

Stop supporting an industry that gets paid to give horrifically bad advice on topics they know nothing about. In a world where ‘business best practice’ changes on an hourly basis, the only people qualified to give advice are those operating in it.

Those learning from books entitled ‘how to be a consultant’ need to stay far away from our startups. Create real conversations and real learning networks by bringing together entry-level entrepreneurs with actual successful entrepreneurs, not ones who are just successful because their Twitter bio says so.

Basically, we should stop paying people to ‘mentor’. Entrepreneurs who’ve been there will help other entrepreneurs because of the bond that exists between those who’ve chosen the world’s toughest profession. Stop outsourcing the transfer of knowledge between generations of Irish entrepreneurs and instead focus on it as a priority.

Solution: What we need is better described as coaching, or even better described as ‘getting a cup of coffee’. We need to facilitate more discussions between those who have done and those who are just starting to do and keep those who talk as if they’ve done away from the discussions.

2. We need a system that encourages risky behavior

This is something that’s very tough for the employees of government or semi-states to get their head around as in pretty much every other aspect of government you’re taught to avoid risk, embrace certainty and back the ideas with guaranteed outcomes.

There is no road map to success when you’re an entrepreneur, no secure path – and by discouraging entrepreneurs from taking risks we’re paralysing them when it comes to the hard decisions.

Take the Holy Bible requirement of most government programs and supports: the all-hallowed business plan. Anyone who tells you that you can predict the first three years of any startup business to the point of documentation is one thing and one thing only – a liar.

Your average startup business plan is designed with one thing in mind: giving validity and backup to whatever metrics and KPIs the reader and decision-maker needs.

Solution: We need an understanding that taking the ‘safe route’ usually results in the entrepreneurial equivalent of a thousand papercuts, stopping them from taking the leap of faith that helps them arrive at the promised land of profitability. Let’s revise metrics to focus on number of businesses started and then the success rate of those businesses, rather than an unrealistic obsession of jobs created.

3. We need a system that recognizes the lack of global borders

We don’t live in a world of 26 counties, we live in a world of 196 countries. When a company in Ireland launches, from day one they can be, and often are, a global business.

The idea that you crack the Cork market, then the Dublin market, then the Irish market, then the UK… oh f**k, we’ve run out of money! Business just isn’t that linear any more. For most new businesses, the Irish market is simply too small to allow them to create the sort of breakthrough growth velocity to successfully make it into orbit. They have to take advantage of technology and get things growing internationally from day one.

Secondly, startups often need to hire key people from overseas with very specific skills, at a particular experience level that our education system hasn’t delivered yet. Our third-level institutions have reacted well to the skills shortage, but in some areas if you need someone with 5-10 years practical experience in a certain field there may still be a need to recruit elsewhere.

We need to be able to easily facilitate these key hires to come to Ireland and work with the minimum of paperwork. I think Irish people will always have a bias to hire Irish people, so when they need to hire from elsewhere, there’s usually a key reason why – and we need to stop being a country that makes it overly difficult to do so.

Probably of most importance, from a policy perspective, is that the government needs to realise just how mobile startups are. Look at some of Ireland’s often-lauded success stories – companies like Stripe and Intercom, both of which it happen to be US companies.

It’s becoming increasingly easy for companies to bypass Ireland entirely and set up as US or UK companies, so government needs to realise that there is competition for where ‘Irish’ businesses actually set up in the first place.

Solution: We need to pay very close attention to what incentives other countries are putting into place to support startup companies. We used to be leaders in this space in Europe, but now we’re very much behind the times.

4. We need a system that encourages employment

Startups are nothing without their people. Probably one of the hardest things to do when a new business is getting started is to hire that first employee. It’s the moment when everything changes, when the risk becomes very real for a first-time entrepreneur as they become responsible for someone else’s livelihood.

The decision to hire is usually based around certainty of cash flow, the most important words in the English language for new entrepreneurs. Anything we can do to assist in this regard has a huge impact, whether it be a reduction in the cost of hiring that employee through reduced taxes or even direct subsidies.

This will have a huge effect on the number of people employed by our small businesses and might create the sort of growth conditions that allow a fledgling business to become self-sustaining.

Solution: We need to cut new businesses a break when it comes to taking on those first few critical employees. Austria recently introduced a system under which any startup is relieved of the burden of having to pay auxiliary wage costs for the first three employees during the first three years in business.

5. We need a system that prioritises speed

How do startups survive long enough to gain a market foothold in a world where every market has juggernauts trying to crush them? Speed and agility, because they can move so much faster than their corporate competitors.

Solution: Everything about our system needs to be designed for speed. We need 10-day, 21-day and 30-day guaranteed turnarounds for anything that involves interaction between a new business and a state body.

6. We need a system to limit the middlemen

I’m a huge fan and supporter of Enterprise Ireland and the work it does, however you can’t operate a semi-state venture capital fund without huge difficulties. Let’s face it, if an Irish company is the first one to create transporter technology from Star Trek, it’s a huge bet to take. Success means acclaim, failure means intense media questions around ‘irresponsible funding practices’.

EI’s exposure to so many Irish companies brings with it a huge amount of knowledge, which could be better shared through increased and more specialised training and networking activities. The experience and expertise of some within the organisation could be better harnessed than making them act as defacto loan officers.

Solution: Start by taking a small percentage of the money going to Enterprise Ireland and use it to finance direct support for entrepreneurs in the form of tax and employment incentives. Eliminate the absolute reliance on EI for direct funding of startups and let its focus on other areas, like training and upskilling.

7. We need a system that recognises that age no longer equates to experience

This isn’t a pot shot at the grey haired, just the simple reality that in this fast-paced, ever-changing era of modern business, age no longer automatically equals experience. Some skills and instincts improve with age and the expert knowledge that many of our more senior entrepreneurs and business leaders can provide in certain areas is invaluable.

However, 25 years of selling anything on the international markets only gets you so far when it comes to the huge changes in selling, distribution and marketing over the past two years alone. How business is done evolves on a near-daily basis and an entrepreneur’s ability to react to that is now completely independent of age.

Solution: This one’s easy, we just need to listen. We need to stop assuming that youth means inexperience.

8. We need a system that recognises that startups are a team sport

When traditional SMEs and business go well, they usually have one winner – the owners. So we have a capital gains tax system that recognises that. The trouble is that in startups, the team usually wins (and loses) as a team and their remuneration packages are designed to reflect that fact. Early startup employees usually have stock options as significant parts of their packages.

Compared to other countries, the Irish system for handling stock grants to employees is very difficult. This is the legacy of a time where only company directors and very senior employees were stockholders.

Solution: We need a manageable legal and tax system to allow for the sort of stock grants for your ordinary employees that are a standard part of the remuneration package in startups.

9. We need a system that makes investing a profitable and positive thing

Tax incentives – are they the dirtiest words in Irish politics? However, here are the simple facts: someone has to provide the capital for innovation to happen, for new businesses to be built. It can continue to be our state bodies like Enterprise Ireland, or we can create the space for the market to generate the investment capital.

Our current system doesn’t recognise or reward the risks that investors take when they chose to invest in startups and SMEs. The few successful exits mean that many investors wipe their brows and consider themselves lucky just to get their initial investment back.

Solution: We need a proper tax incentive for investment in startups and small business that recognises the tremendous gamble an investor is taking with their hard-earned money in backing a high-risk proposition.

How about a tax incentive tied to capital invested against an eventual payout? For example, if you invest €100,000, the first €100,000 returned on a successful sale is tax exempt. The government will still make its pound of flesh on the balance of the payout, but it encourages investors to place larger bets in the hope of a larger tax-free amount.

Secondly, we need some element of protection for the investor if the whole business goes belly up. Within two years of company formation, we should let the investor take a tax break of at least 50% of their investment. They still hurt, but when making the investment decision in the first place it helps mitigate the potential risk.

10. We need a system that recognises the hard work and sacrifice of our entrepreneurs

When entrepreneurs take on the huge risks associated with starting a business, a business that benefits the wider economy in terms of jobs, taxes and exports, surely they’re entitled to an expectation of a system that will do its best to support them and not just constantly put up roadblocks in their way?

Life as an entrepreneur is pretty tough: low or often no income, crazy hours, zero work/life balance, betting everything on red or black with often a single spin of the wheel. That’s the life they choose, but when the bet pays off, everyone wins.

Primarily, from a government perspective, we need to stop pretending that everyone is a captain of industry who’s just looking for another tax break. We need to support entrepreneurs with policy action to create an environment that makes their lives just a little bit easier. We need to minimise the red tape and always bias for action over talk.

Conclusion

In developing policy in this area, we need to do a long hard analysis of the risks and then see if there are simple solutions to help reduce the risk, or share the burden. We need a fresh look at much in this space.

Sure, the government might need to sacrifice some short-term tax revenues to put some of these ideas in place, but there’s a cost involved if Ireland wants to be the ‘best small country in the world to do business’.

In the end of the day, what’s holding Ireland back? From here, it looks like a governmental fear of the unknown, a lack of actual experienced people with ‘in the trenches’ knowledge to help guide them, an obsession with listening to ‘experts’ detached from the day-to-day struggles that most entrepreneurs go through, and a worry that being seen to be ‘pro-business’ will be seen as being elitist. And that’s no way to create a culture for startups to grow, develop and go global.

DC Cahalane is the co-founder of BUILTINCORK. He has previously led growth and marketing at high-growth Irish companies like Teamwork and Trustev. This is an edited version of a post from The Hustling.

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