Ireland

Today is the first in a new series by Alan Gleeson, managing director of the Palo Alto Software UK offices. The series will focus on business issues and commentary from the EU perspective.

John Dennehy is a serial entrepreneur based in Cork, Ireland. His latest venture Zartis.com is an impressive software-as-a-service application that makes it easier to manage the recruitment of employees. The software integrates with applications such as Facebook and LinkedIn and pulls data into a dashboard so employers can save time and money managing the entire hiring process.

Despite the difficult economic conditions in Ireland, entrepreneurship is buoyant. There are a number of reasons for this; a supportive government, a highly educated workforce, a falling cost base and a favourable tax regime. It is also a function of both attitude (Irish people are generally very entrepreneurial in outlook) and culture, i.e. the geographic context of being a small island with limited resources has meant that Ireland has always relied on overseas trade. For others, a career in entrepreneurship is a matter of necessity when compared with the less palatable alternatives of emigration or a stint on social welfare. The unemployment rate currently stands at 14.5 % (September 16, 2011) with a high portion of this being amongst young graduates.

Like many of his peers John’s outlook is global, with a strong focus on the US. The market opportunity in Ireland is simply too limited for Internet ventures like Zartis.com to succeed without looking overseas. An island population of 6.4 million is a far cry from the US with over 300 million. Europe can also be a difficult place to do business with different currencies, languages, legal systems and heterogeneous cultures. As an Irish Government Minister once said;

“As Irish people our relationships with the United States and the European Union are complex. Geographically we are closer to Berlin than Boston. Spiritually we are probably a lot closer to Boston than Berlin.”

Source: http://www.djei.ie/press/2000/210700.htm

The view across ‘the pond’, as the Atlantic is known, is very different depending on which side you are standing on though. For many US entrepreneurs the path is pretty straight forward; gain traction domestically and then look to expand overseas using Ireland or the UK as the first overseas outpost. The benefits of locating in the UK or Ireland are compelling as there are no language barriers, a well educated populace and well developed communication infrastructures. In Ireland’s case a compelling corporation tax rate and a strong Irish American diaspora has made Ireland the more popular of the two in many instances. As a result American behemoths such as Intel, Apple, EMC, Microsoft, Facebook and Google all have extensive European bases there.

From Europe, breaking into the US is a much tougher proposition. Establishing a US base is expensive and can be tricky given additional red tape with everything from securing work visa’s through to establishing legal corporations.

The popularity of the American search engine, Google can also serve to inhibit the growth of European Internet firms. The search results we get here in Europe typically contain numerous results from US sites displacing local sites that may have more relevance. Given that search engine results are hugely important in gaining market awareness, this factor makes it more difficult for many European Internet companies to compete favourably with their American counterparts. Of course there is more to the story than just that, in my view, Americans are also less risk averse compared to Europeans and more likely to embrace new technologies so customer adaption rates can be much higher in the US.

Despite some of these structural limitations, entrepreneurs like John do succeed. If you build a great application with a strong customer proposition and back it up with an effective marketing budget, the importance of location diminishes. Eventually you may end up with a call from a US Venture Capitalist or competitor looking to acquire you as Autonomy and Tweetdeck did.

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The negative relationship between property investment and entrepreneurship is not immediately obvious. However, the recent property booms in Ireland and the U.K. (amongst others) helps to demonstrate this relationship. In recent years, both countries have experienced phenomenal growth in house prices. That is, until everything came grinding to a halt at the end of last year. [1]

The net effect of this boom has been one where the incentive to become truly entrepreneurial was significantly reduced – why try and create a new product or service if there was a guaranteed high return from property development? Similarly, from an investment point of view, why consider any other investment opportunity if there was a perceived guaranteed high return from property development?

In Ireland, the short-term results of the boom were a huge increase in people ‘getting into property’ and in the U.K. every second TV show on Channel 4 seemed to focus on property, e.g. Location Location Location, Property Ladder, A Place in the Sun and Grand Designs. Now all manner of problems are coming home to roost as the market collapses and the scale of consumer debt is becoming obvious. [2]

The Irish Government was happy to continue to fuel the boom, rezoning land for development, and cosying up to property developers [3], given how the huge property related taxes were contributing to their coffers. As David McWilliams, a leading Irish economist points out, a national focus on property is damaging as a ‘country which experiences a property boom turns in on itself. The reason for this is very simple, property cannot be traded. Bricks and mortar are tied to the land and the land is fixed and can’t be exported. Therefore, the discipline of international competition is lost.’

I would go further than this, it also destroys enterprise – there have been countless examples of successful businesses in Ireland shutting down because there is a greater return to be had from selling the property for redevelopment than continuing the business as a going concern. [4]

As someone passionate about entrepreneurship however, I take the view that every cloud has a silver lining, and that the property collapse could prove to be an excellent stimulus for entrepreneurship.

As Michael O’Leary, M.D of low cost European airline Ryanair recently claimed, “I love recessions,” he says. “Recessions are much more fun. Good times are a pain in the bum. Good times, any idiot can make money. In recessions, the good get up off their backsides and start doing the kind of sensible things that they should do all of the time. It’s good for business”. [5]

Now that ‘property development’ is no longer a safe bet, and the Irish and U.K Governments realise that the boom is over, it is likely that entrepreneurship, in its purist form, should take off once again. Those who stretched themselves with high mortgages will face stark options: sell up at a loss, or try to make ends meet. For some, second jobbing will be their only option and this will also help to fuel the passions of entrepreneurship in people. It is also hoped that the respective Governments will play their role, after all their taxation policies and planning policies have helped to fuel the boom in the first place.

Alan Gleeson
Palo Alto Software

[1] http://news.bbc.co.uk/1/hi/business/7445864.stm

[2] http://www.grant-thornton.co.uk/press_room/amount_of_uk_consumer_debt_exc.aspx

[3] http://www.independent.ie/national-news/bertie-makes-his-own-pitch-for-the-banished-galway-races-tent-1393773.html

[4] http://www.rte.ie/news/2008/0523/mcnamarab.html

[5] http://news.bbc.co.uk/1/hi/business/7438315.stm

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