It’s not exactly an office that would feature in most firms’ brochures, but, for a startup software company, it suits the purpose more than sufficiently. Four tables pushed together, a notebook, and scattered papers from a printed presentation suggesting that there’s not a person in the world who can do without ca certain software to code private data. Twenty-four-year-old programmer Jakub Mahdal is racking his brain trying to figure out how to promote and put into wide-scale use the security program that he has been developing with friends from his dormitory. From the technical point of view, everything is functioning well, the program is user-friendly and features an attractive design, but Jan now has to solve the most difficult task: how to address customers that work with large volumes of sensitive data and are concerned that someone unauthorized may get to them.
In contrast to other startups, Mahdal’s has one essential advantage. His office is located in the South Moravian Innovation Centre, that famous Brno incubator of enterprises. Besides low office rent and telephone fees, there is a consultant at his disposal who advises him how to make good financial plans or how to do target marketing. Jakub Mahdal does not have to pay anything for services that cost several thousand crowns. The same goes for 30 of his colleagues also trying to transform their ideas into big business.
While in the United States this has long been a common manner of investing in new ideas, west Europeans have only discovered it in the last 30 years and in the Czech Republic it has just recently become hot news.
Staying one step ahead
Supporting innovative startups is generally understood as one of the ways that businesses in the west can compete with stronger – and more skilled – Asian firms. The principle is simple. Innovations are necessary because the established ideas are immediately “read” by Asian companies, which quickly offer similar products at lower prices. Two things are necessary for this: someone with a desirable idea, and a bold investor who is willing to support something untested while at the same time providing personal business experience.
In the United States, thousands of individuals and big enterprises alike deal with searching for and investment into prospective companies that promise big future profits. The last company to do so was Google, which is willing to invest several million dollars annually into this business sector. It’s not a risk-free field. According to the latest surveys, only one in three investments into startups is successful in the US. However, the Google chiefs have noted on the company blog that times of crisis, when established companies go bankrupt, make for ideal opportunities to invest into the “next big thing”. Nobody knows yet what exactly it will be. The company announced that firms dealing with ecological technologies, biotechnologies and healthcare, not to mention internet businesses and software development, are in its viewfinder.
The charm of investing into startups lies in the fact that basically anything can turn out to be the “next big thing”. The most popular international search engine, Google itself, was established in a garage where two now famous Stanford University students were originally only looking for a website evaluation model.
Don’t just believe: Make it count
Czech Television viewers also get to enjoy watching possible future successes now. However, startup entrepreneurs who are asking five rich investors for money in the reality show Den D (D-Day) have caused raised a few eyebrows with their bizarre ideas. According to Lukáš Franta, the show’s script editor, this was definitely not the intent, but the creators of the serial are glad that there is at least one offer in each episode that the investors are willing to consider. More than 200 people applied in the first series, which is based on a similar show on the BBC, and many of them thought a bit too highly of their own ideas. Viewers had had a good time watching people trying to make get rich with an electric boat designed for children up to 3 years old, a giant horizontal windmill or an idea to change the rules governing passing in formula one races.
“People forget that they also need to know what the competition is and who the potential customers are,” Franta said. “We always point this out to the contestants. And they surprise us over and over again how unprepared they are.” And that’s what the creators of the show want to change. “We want to show to people that those who are prepared, at least to some extent, can succeed,” Franta said. And success has already arrived. One of the investors on the series, successful businesswoman and former Informatics Minister Dana Bérová, is glad that both companies in which she has invested are developing successfully. “They should start making money this year,” she said. And the founders of the companies also praise the cooperation. “Thanks to Dana Bérová’s experience and contacts, we were able to quickly orient ourselves in focusing our marketing and promotion,” said Karel Chromý, the owner of a distribution company offering special carbon bandages.
‘From nothing to a global level’
There are three associations in the Czech Republic uniting investors looking for prospective startups. And their members agree that this business is still at its initial stage in the Czech Republic. A lack of ambitious plans and the fact that rich Czechs do not embark on seeking out startups much are the main reasons for this. Many western investors have earned a lot of money and want to relax from everyday labour, but at the same time do not want to give up on business altogether. They offer the ideal combination of financial and consulting that a startup needs. “Rich people want to enjoy life here,” said Jiří Hudeček, of the South Moravian Innovation Centre, where the lack of rich Czechs willing to invest is made up for and financed by subsidies from the city of Brno, the South Moravia region and European Union funds. “I’ve invested in 12 companies within 10 years, and I’ve made my living from it for the last five years,” investor Ondřej Bartoš said. “However, a true start up in the west is a company with an ambition to grow with lightning speed: from nothing to a global level,” he said. “I haven’t made such an investment yet.” For Czechs it will usually do to be the best in the country. At the same time, it is true that investors’ willingness to look for prospective firms can be boosted by the state, for example through tax write-offs. Since the time when France introduced something a similar programme, demand in startups has radically grown. Nowadays, there are about 70 organisations that link investors operating in that country.
Despite difficult conditions the situation is changing in the Czech Republic. “Since the very beginning, we were ambitious to be the best in the world,” said the 29-year-old director of Y Soft, Václav Muchna, who is dubbed Brno’s Bill Gates, because he similarly left university and started his own business. He has seen his share of failures, for example when his project to create an electronic encyclopedia was beaten by the success of Wikipedia. Muchna and his colleagues then settled in the entrepreneur incubator, and today he owns a firm producing software that operates copy machines, with branches in the United States, Israel, Denmark and Japan. He provides companies with a program that enables users to print from a computer but only after the user scans a special chip card on the printer. Users don’t have to worry about running to the printer and hoping they will find their printed pages in the heap of other documents. Also management can keep tabs on the expenses their companies have for the use of printers, copy machines and scanners.
Even with a turnover of CZK 100 million and 100 employees all over the world, Muchna feels that he’s only at the beginning. He has built his company without investors, with only the help of the enterprise incubator. Now, however, his business is starting to attract partners from across the ocean. “We want to show that even a business with Czech management and headquarters in the Czech Republic can bowl over international competition,” Muchna said. “I hope that others will be inspired.”
