According to the World Economic Forum and Global Entrepreneurship Europe’s Hidden Entrepreneurs Report (December 2016), Estonia has been ranked first in regards to the number of startups per capita from 2011 through 2015. This country of 1.3 million people has maintained consistent growth in many ways since its independence in 1991, with one exception in 2009 after the financial crisis. The secret to success might lie in the country’s approach to entrepreneurship and to the idea that less bureaucracy is better. In Estonia, it takes approximately 15 minutes to set up a company whereas, in the neighboring country, Finland, the process could take months. This is just one of the innovative approaches Estonia took to encourage high rates of entrepreneurship.
At the national level, Estonian schools have adopted entrepreneurship education at all earlier levels by introducing students to a program called “I am an Entrepreneur”. Originally, this program was launched by the energy company, Eesti Energia in cooperation with the Estonian Chamber of Commerce. It targets 13–19-year-olds and aims to bridge the gap between entrepreneurship education in the formal education system with the non-formal education system. There are more than 200 organizations and more than 70 mentors involved in the program.
In January 2017 Estonia launched a startup visa program to lure even more startups and employers to this growing startup hub. During the first month of the program over 50 applications were received. The reason for the program’s success lies in part with Estonia’s reputation for innovation, not only in technology development but innovation in how the government passes rules and regulations to allow businesses and entrepreneurship to thrive.
One of the success stories is TransferWise. In 2010 two Estonian friends, Kristo Käärmann and Taavet Hinrikus were living in the UK, but from time to time were forced to make cross-border money transfers. Käärmann was transferring money from Estonia to the UK and Hinrikus transferring money from the UK to Estonia to pay his mortgage and paying huge transfer costs. The potential for cheaper service in the currency swap industry was discovered when the two friends started to pay each other’s costs and TransferWise was born. Today this currency swap service company is worth more than one billion dollars, which is a huge milestone for any tech startup company. The company has attracted investments from Sir Richard Branson, which gave TransferWise even more credibility as a company.
TransferWise is openly fighting to bring transparency to forex transfers around the world and has been said to be taking “a machete to the hefty fees that banks levy to send money across borders”. According to TransferWise Future of Finance Report, the financial markets will look very different within a few years. Just in the past five years, the financial technology start-up companies have been innovating the finance sector. Cutting the traditional bank’s service fees and providing better service has been shaking the banking sector and the future looks bright for the financial technology, or simply just fintech, sector. The Guardian has called TransferWise the “Robin Hood” of currency trade – not many companies that have emerged from an old Soviet country have questioned the hundred years old banking sector.
TransferWise is not the first multimillion dollar company started in Estonia. The instant message and video call service provider Skype was developed in Estonia and the now Microsoft-owned company’s back-end development office is still situated in the capital of Estonia. Skype’s story isn’t that different from that of TransferWise. There was a clear demand for phone calls over IP and Skype answered that demand.
The success of innovative technological solutions in Estonia might lie in its history. Until 1991, Estonia was part of the Soviet Union where resources were scarce or unavailable. One of the investors in Skype, Steve Juvertson, was wondering how such a small group of people could build something so fast when it would take Microsoft much longer to develop products. Jurvetson said “I had the impression that maybe coming out of a time of Soviet occupation, when computers were underpowered, you had to know how to really program, effectively, parsimoniously, being very elegant in sculpting the programming code to be tight, effective, and fast. [That’s] not like Microsoft, which has a very lazy programming environment, where programs are created that have memory leaks and all sorts of problems, that crash all the time and no one really cares – because it’s Microsoft!”.
Even the Europe’s Hidden Entrepreneurs report says that “Aside from structural economic factors, the country has other drivers of entrepreneurship. First, Estonia has a long-standing history and culture of self-reliance and persistence, stemming from living in the shadow of large, sometimes even hostile neighbors. As a result, Estonian entrepreneurs pride themselves on the ability to be persistent and inventive, whatever the conditions. Second, in the last decade, Estonia has seen a number of success stories which has elevated entrepreneurship visibly in the public eye. […] Third, Estonia is a very small country, which means that entrepreneurs with ambitious goals are forced to think internationally from the start.”
The Estonian technology reputation has not gone unnoticed as more and more startups emerge from Estonia. However, even though Estonia has been proliferating startups there is an issue that Estonian companies have faced. Lower salaries in Estonia have not attracted the skilled ICT developers to meet the demand. The Nordic countries offer higher salaries to skilled programmers. To overcome the challenge of attracting talent from outside of the borders, the government has set in motion the Estonian Entrepreneurship Growth Strategy 2014 – 2020, a plan to address the shortage in these skills by offering education in targeted fields.