Startup birth rates + Europe

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In my last company our growth was pretty impressive (50-75% for several years until we hit ~$100m) and we were usually pretty smug delivering numbers to investors. Everyone was understandably quite pleased except for Hussein, who was the only one who would constantly ask ‘but why aren’t you growing faster?’. It took me a while to figure out that he was forcing me to more deeply understand the constraints of our universe (was this a customer issue or a sales resource issue?) rather than just asking a question for the sake of it. It was a useful American perspective on a European startup.

There is a generally held view that Europe has ‘a growth problem’ which, depending on who you’re talking to, is either a regulatory issue, a founder issue¹ or an investor issue. At a macro-economic level though, it’s undoubtedly true (for 2010-2023 US GDP grew by 34%, while EU GDP grew by 21%).

I’ve been wrestling with CGPT’s Deep Research to see if it can produce something like a business fertility rate for each country i.e. the number of new (non-shell) companies started each year as a percentage of existing. This table below is pulled from somewhat reliable sources (U.S. Census Bureau & BLS, Eurostat, UK Office for National Statistics etc.) but like a lot of AI research, I would treat it as directionally likely rather than specifically accurate.

New company birth rates (source: ChatGPT Deep Research)

On one hand you can read this and go ‘hey Europe (and especially the UK), you guys need to start more companies’. On the other hand you can also say ‘you guys need to start more BIG companies to compensate for the lower volume’.

When it comes to starting companies though, I think a lot of people confuse growth with ambition and impact. The startup industrial complex has largely conflated these three things in the minds of both founders and investors. I get into a lot of conversations with founders about not just ‘how to grow’ topics but also ‘am I growing the right thing?’. It’s very easy to spiral into paralysis when your definition of product-market fit has to include both societal merit (‘will this company save civilization?’) as well as business fundamentals (‘will this company make money?’).

Charlie Songhurst has a filter question for founders which is some version of ‘do you want to be rich, famous or impactful?’ and I continue to think it’s a useful surfacing tool for your own feelings.

My own mental model for starting companies is a reasonably broad church: It’s totally okay if you want to start a company ‘just’ to achieve wealth. It’s equally okay if you want to devote your life-energy to building the next semiconductor paradigm. What’s important is building economic engines. With the accelerating demographic rotation (i.e. a lower base of younger people supporting a larger base of older people), the math is very straightforward: we need significant productivity gains if we are not prepared to reduce social spending.

Go build.

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LeoStayTrill ‘2s and 3s’

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I’ve written about the concept of seed-strapping a few times before (only ever raising one round of capital) and I feel that it’s a logical conclusion of AI advancements. I haven’t seen data on the average software tool startup but based on anecdata I’d be willing to bet the average founder team has reduced in size. Netting out the employment impact, this may turn out to be the most important leverage opportunities which the UK and Europe has in terms of tackling their declining business fertility rates.

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1. Although, after listening to Tyler Cowen’s interview with Gregory Clark about social mobility, I wonder how much the expression of ambition (due to social constraints) is really a measure of anything other than local norms?