Austrian business innovation

A Culture of Innovation

Austria often looks to America’s can-do approach to business innovation, but can it foster its own forward-­leaning ­climate while still preserving its heritage?

Anyone who has done business in both Austria and the United States will tell you the same thing. It’s like night and day.

This is not to say one is better, or more lucrative. It’s just very different. Some aspects are quantifiable, such as the scale and speed of the market, the range of business models, the availability of private or public capital and other funding – all of which define the respective country’s cultural approach to innovation.

Unlike Americans, who have a cultural and economic fascination with all things new, Austrians are not known for being early adopters. What they have instead is a deep respect for continuity and tradition, for preparation, professionalism and ­practical skills.

Both have strengths, and also limits that need to be understood.

Investing in the future
By looking at how each country makes capital investments, we see the underlying attitudes and approach towards innovation.

“Half of the 500 most actively traded companies in America have disappeared since 2000,” Erik Brynjolfsson, director of the MIT Initiative on the Digital Economy, told the German weekly Die Zeit. He credits this to the dramatic global shift to a digital economy. But it also reflects a U.S. culture of risk takers, and an acceptance of failure as part of the creative process. And the American marketplace continues to invest heavily in their economic prospects.

In his remarks to the Progressive Policy Institute, the Chairman of the (U.S.) Council of Economic Advisers, Jason Furman, cited U.S. internet services that have led the advanced economies in continuing to invest even during the post 2008 recession, “making the United States the world leader in 4G and expanded broadband fiber.” In a second example, Furman cited oil and gas, clean energy and the automotive sectors, all of which have rebounded through increasing investment.

Austria has been far more conservative. According to Deloitte.Radar 2016 – a study analyzing Austria’s attractiveness as a business location – the potential for innovation, research and technology is already high and continuing to rise. But it’s being stalled by investor restraint and bureaucratic hurdles. Despite low to zero interest rates, Austrian investment volume has shrunk for the third time in a row (by 0.1%), while the EU average has grown by 2.9%.

“Innovation requires brave investment,” said Josef Schuch, a partner at Deloitte Austria. “We need to create a business friendly climate – particularly for the many founders who are in desperate need of venture capital.”


Where Have All the VCs Gone?


Availability of venture capital is a measument that shows a country’s attitude toward risk and its ability to finance the growth of innovative businesses.

Venture capital investments (as % of GDP)
Source: Innovation Union Scorecard 2015



The comfort zone
But why has Austrian investment fallen behind that of America and even its EU neighbor’s? Sometimes the best things in life create complacency.

As the ratings of Mercer, Monocle & co. tell us, Vienna enjoys an extraordinary quality of life, with excellent social benefits, efficient transportation, and renowned cultural attractions. In addition, the country is picture-postcard beautiful, family-friendly, and incredibly safe.

There’s also a deeply rooted sense of tradition and nostalgia here in Austria. It’s found everywhere here from the revival of Trachten, loyalty to the Würstelstand and Sundays reserved for family time. From standing on the right on the escalator to exchanging “Grüß Gott” with passing ­strangers, shared customs and public courtesy oil the societal cogs. By remembering and celebrating the past Austrians find a deeper sense of who they are.

(click to enlarge)
(click to enlarge)

But comfort and nostalgia can also be enemies of progress. While Austria achieves highest scores on quality-of-life, it has slipped in 2015 from 16th to 23rd as a desirable place to do business, according to the World ­Economic Forum’s Global Competitiveness Index.

“We Austrians are preoccupied with preserving our historic achievements and maintaining our current status,” says Bernard Gröhs, Managing Partner at Deloitte. “But making no progress is ultimately taking a step backwards.”

While Austria achieves highest scores on quality-of-life, it has slipped in 2015 from 16th to 23rd as a desirable place to do business.


Fear of open source
Daniel Keiper-Knorr, a partner at the Austrian VC fund Speedinvest, thinks Austria should take more technological risk and embrace open-source innovation, and implores “business leaders to understand that this has nothing to do with industrial espionage.”

The biggest barrier may be European patent law, Keiper-Knorr believes, which discourages Austria from  adopting the open innovation it so desperately needs. “Over here, ­patent law is made to ensure that achievements are quickly made available to the public,” he explained. Not so in the U.S., where “it protects the commercial interest of the inventor,” enabling them to share ideas and maximize the resulting benefits. As Keiper-Knorr put it, in America, “once you dare to invent something and it works out, you’re a made man. Over here, not so much.”

“Competing in innovation today is about a willingness to embrace multiple and changing approaches to creating and capturing value,” adds David Slocum, Faculty Director at the Berlin School of Creative Leadership. “Having inventive and imaginative entrepreneurs is not enough,” he adds, citing the need for Europe’s legacy business and civic leaders to accept and act upon shared values.

Source: Doing Business Project 2016, The World Bank
Starting Up Is Hard To Do
Founding a new business here takes more time. Is Austrian bureaucracy stalling innovation? (Source: Doing Business Project 2016, The World Bank)

Slow and Steady
Anyone founding a business in Austria can tell you that it is a very inefficient process. In fact, the World Bank ranked Austria 106th in the world – 12th among Europe’s top 20 countries – in the ease of starting a business. It requires the most procedures (eight) and a lot of time (22 days, second only to Poland) for setting up a company. Estonia, by contrast, offers a simple E-residency to encourage non-natives to found businesses there.

Austria’s complicated startup procedure does have advantages, in that it serves as a defacto vetting process. One could argue that the added bureaucracy helps keep shaky businesses from being founded in the first place, or at least mitigates risk by encouraging a more solid footing.

Founders must consider plans thoroughly and have time to avail themselves of the national and regional agencies that offer favorable financing, subsidies and mentoring (see “How-to… Fund Your Startup”).

In America it can be easier to found a company (especially in states like Delaware), however funding for startups is mostly private or VC investment, and federal or regional agencies are rarely an option.

Follow the leader
Both new and long-established Austrian businesses have been slow to adapt to the internet era. The culture of instant information doesn’t line up very well with the business mind-set of legacy institutions and companies.

Age also plays a role. Austrians’ median age is 44.3 years, making its population the sixth oldest in the world. The USA ranks a distant 63rd with a median age of 36.7. ­According to, management directors in Austria are 59 years old on average, compared with 49 in Germany and 43 in Switzerland.

Such age gaps impede innovation. Market demand is skewed by an older population, which also makes up corporate leadership, whose decisions reflect the generational gap. No wonder Facebook use in Austria is amongst the lowest per-capita in Europe. At the same time, however, it is growing at the fastest rate – a classic laggard position that can be at least partially explained by the age gap.

Innovation Won’t Wait From the time when disruptive trends (yellow) emerge, to a tipping point just before the mainstream adopts them, there is time for businesses to jump aboard. Risk-averse “laggards” have waited too long – ­yesterday's ­innovation is already the “new normal.” ( Source: Mckinsey Quarterly, May 2014)
Innovation Won’t Wait
From the time when disruptive trends (yellow) emerge, to a tipping point just before the mainstream adopts them, there is time for businesses to jump aboard. Risk-averse “laggards” have waited too long – ­yesterday’s ­innovation is already the “new normal.”
(Source: McKinsey Quarterly, May 2014)

Austria, in short, is an “innovation follower”, says the Innovation Union, a Europe 2020 initiative (innovation “leaders” are Switzerland, Sweden, Denmark, Finland and Germany) ranking only slightly ahead of the EU average. Established businesses here often take a “wait and see” attitude, looking at developments abroad before pushing a more innovative agenda,  adapting their business models, or investing in the changes required to modernize.

Neil Capel is the co-founder and chairman of sailthru, a NYC-based startup offering marketing communication technology that parses Big Data for corporate clients. Since its founding in 2008, the company has raised over $48 million in funding. But in Austria, Capel has encountered massive doubt-driven pushback from the companies he has pitched to. “I think it is really inhibiting growth,” he told Metropole, “Fear is driving decisions that are not in the best interest of [Austrian] business or its customers.”

As an innovation follower, Austria does have the advantage of a digital crystal ball, but there is also huge risk in watching foreign companies establish themselves, only to see their success come to dominate the domestic market.

Risking and Failing

(click to enlarge)Amazon is a paradigm “innovation leader” in the digital age, much of which has depended on its ability to risk and fail – to adapt, experiment and evolve.Amazon’s CEO Jeff Bezos freely admits to making mistakes worth billions. Waving these off, he told Business Insider, “What really matters is…, companies that don’t continue to experiment, companies that don’t embrace failure, they eventually get in a desperate position where the only thing they can do is a ‘Hail Mary’ bet at the very end of their corporate existence.” Of course, what really matters is that today Amazon is worth over $300 billion, with over $110 billion in revenue in 2015.

Austria’s biggest successes have been the results of great feats of market testing and international expansion, and yes, pivoting after failure. The Salzburg behemoth Red Bull (where I was Digital Director and first Digital Editor in Chief from 2002-2005)  took the company from a no-name brand, which for years teetered on the edge of failure, to one of the biggest global players in the beverage industry.

Dietrich Mateschitz took a risk and initially failed. He had invested all his savings in the energy-drink startup and after burning through his initial investment, Mateschitz began expanding the market to Hungary and then Germany in 1993. Two years after expanding to U.K.  they had sold only two million cans and were $12 million in debt. Mateschitz fired the entire local staff, pulled Red Bull cans from the pubs, and appointed an Austrian marketing director who concentrated instead on clubs and students.

Each market, Mateschitz found, required a slightly different marketing strategy. Red Bull Canada, for example, is more involved in music and arts events. Red Bull’s U.K. operations have tried other new products like Simply Cola and Carpe Diem, an herbal drink. While none has been a great business success – something that must be considered as an issue –the freedom to pursue new strategies reinforces the necessary freewheeling culture of innovation.

This try-and-fail, autonomous approach has its downsides. Red Bull is “less efficient than it could be,” wrote Forbes in 2013, “because there are few efforts to share best practices across operations or to streamline processes.”

However it is also true that 10 years ago, an innovative marketing strategy and premium branding put an Austrian business on the map in unforeseeable ways.

Large, established institutions are often saddled by bureaucratic inertia, making them particularly resistant to a try-and-fail approach. However, Austria’s largest bank, the Erste Group, was able to transcend this problem by looking to startup culture. By launching a subsidiary, BeeOne (part of their Erste Hub project from 2012) and staffing it with business and tech experts, they accelerated the generation of new products.

When the time-honored institution launched their new online banking service “George” in 2015, they didn’t call it an “upgrade.” They offered the new version without making customers switch, much like a tech startup will beta-test an app before scaling it up.

“To enter the market with an unfinished product as a financial service provider takes guts,” Erste Hub head Boris Marte told earlier this year. “It was always our goal to perfect the platform based on user feedback, usability data and market research.”

But the progress being made with George online banking is not happening among managers but with the help of every-day users. With BeeOne, management took cues from developers in the startup community, and so far it seems to have helped move the product forward faster.

Creative Leadership
Businesses on both sides of the Atlantic face challenges in adapting to the tectonic shifts of a new digital economy. Whether in America or here in Austria – businesses must adopt creative leadership models that allow for strategic investment, risk-taking, fast-paced experimentation and, sometimes, failure in order to succeed.

Creative leadership is “crucial to fostering a culture of innovation and, more widely, building innovative firms and ecosystems,” said Slocum, who implores his Executive MBA candidates at the Berlin School to challenge the status quo. Creative leaders, he says, are “committed to analyzing current situations, envisioning alternatives, inspiring talent” and willing “to take risks and explore new possibilities anywhere in a company’s value chain” or beyond.

The key is to set priorities toward rapid implementation of small innovative steps, believes sailthru’s Neil Capel. “Teams need to be given permission and the encouragement to take risks and innovate.” Capel admires how Jeff Bezos rapidly led innovative change at the Washington Post, an ailing legacy newspaper business. “Since taking over the company in 2013, he is revolutionizing their business from an innovative, data-driven perspective.”

Daniel Keiper-Knorr Co-founder and partner of the Austrian VC fund Speedinvest
Daniel Keiper-Knorr
Co-founder and partner of the Austrian VC fund Speedinvest

Compared to their American counterparts, many of whom are MBAs, marketers or technologists, the leadership of large Austrian corporations may have a structural disadvantage. While Austria also turns out a lot of engineers, “we’re producing way too many lawyers and tax consultants,” says Speedinvest’s Keiper-Knorr. “These people do not generate value, they manage value … at best.”

Too many lawyers and tax consultants do not  generate value, they manage value … at best.

Daniel Keiper-Knorr, Speedinvest

Different educational backgrounds tend to promote different attitudes toward risk. An MBA looks for growth. A lawyer looks for a rock-solid deal. An engineer or technologist looks for innovation. Accountants look for detail and security.

While its overall assessment of Austria’s attractiveness is ambivalent, Deloitte is optimistic about Austria’s future as an innovative, business-friendly habitat. “There’s no shortage of recipes for trend reversal, for fresh new ideas from the private sector,” says Gröhs. “For the implementation, Austria now needs courage above all – the courage to change, to risk, and to make ­decisions.”

Heritage and Gemütlichkeit are vital parts the Austrian gestalt. The beauty of this country is unsurpassed. We need forward-looking innovation backed by creative leadership in order to protect our heritage and build our future … because you can’t invent the future by investing in the past.

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