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Building a global mindset

The fear of collaboration kills the potential for innovation, says Andrei-Andy Linnas, Takeoff Business Incubator manager.

Andrei-Andy Linnas. Photo: Jevi Photo AgencyAndrei-Andy Linnas. Photo: Jevi Photo Agency

What is your experience with start-ups?

I started my entrepreneurial journey in 2006, when I co-founded a human resource training company in Estonia – it’s still in business. In 2008-2010, I worked as a business consultant, helping companies devise business and export plans to successfully get EU funding. Then in 2010-2012, while studying at the University of Chalmers in Sweden, I co-founded and led a high-tech start-up in mobile healthcare in Sweden, which eventually failed.

Since 2013, I have been managing different business incubators: the Start-Up Incubator in Estonia, which had a portfolio of 20 highgrowth innovative start-ups, and now the Takeoff Business Incubator at the University of Malta.

Running an incubator is like running your own start-up. I need to engage the right people, build valued services, and engineer the path to a sustainable and successful business model.

What have been the successes and challenges of Takeoff’s first year of operation?

Takeoff helps innovative growth companies that are either knowledge or technology based. We define start-ups as growth companies that have easy-to-scale business models. This means that we mostly help digital businesses and innovative concepts to scale up and get them in good shape to attract investments and grow internationally.

Our first challenge was to create the necessary value proposition for our early clients. We were new and had to build up a network of mentors, investors and consultants who can provide the right support. We also had to create a vibrant collaborative entrepreneurial culture almost from scratch.

A lot of energy has gone into defining lean and effective processes. It’s hard to prove value without any track record – this is the same challenge that any start-up faces.

We’ve had a promising start but a lot more is ahead of us. Together with our partners, so far we’ve supported local start-ups with investments of over €220,000 in grant money and over €60,000 equity money. The results are great – our 16 companies collectively are engaging over 60 employees, have raised over €1.2m equity funding, and have registered around €500,000 in revenue.

This does not equal success yet, as they still have to prove their sustainability and adapt to changes during high growth – however, it’s a promising start. We wouldn’t have achieved this without tremendous support from our partners, including corporates, governmental institutions and seasoned entrepreneurs.

Malta’s start-up scene is also in its initial stages. What progress has been achieved in recent months?

We’ve seen growth in start-up centred incentives, events and the start-up community itself. There is also increased interest from government institutions such as Malta Enterprise, Malta Information Technology Agency, Malta Communications Authority, and directly from ministries to facilitate the right entrepreneurial landscape. Various incentives have also been launched, including a tax break for businesses investing into start-ups – this was announced in the 2015 budget and is expected to facilitate much needed financial support that early entrepreneurs require for growth.

Other initiatives include the Takeoff Seed Fund Award, MITA’s Startapp, MCA’s Seed Fund Award, and the Malta Arts Fund. These initiatives allow the best entrepreneurs to get closer to the market.

Malta Business Bureau and University of Malta will soon launch the first local crowdfunding platform. This will allow early creative and local ideas to get that necessary support from the crowd.

There is so much going on and we see more and more people getting involved in the start-up scene. This is also thanks to the various networking events taking place, including the EY Exceptional Entrepreneur Speaker Series, MCA’s innovation event Disrupt.Startup.Malta, Start-Up Weekend, JA-YE Start-Up Programme, the student led Million Dollar Idea competition, and Microsoft events, just to name a few. These events bring international knowhow to the island and also connect and expose local entrepreneurs.

We are also happy to see engagement from the local entrepreneurial community to give back in kind and in much needed funding. Here members of the Young Presidents’ Organisation in Malta have a strong role to play in supporting young entrepreneurs as well as some more successful start-ups like Altaro, Hotjar and Oulala.

How does Malta’s start-up scene compare to that in other EU member states?

Malta can be proud of how quickly it’s catching up – yet there’s still a long way to go. Other leading start-up cities have been in this industry for a decade and have well functioning support structures like investment clubs, educational events, vibrant co-working spaces, pools of engaged mentors and government support. We are just starting to gain traction with these.

We have everything we need and we can skip some steps in the development – however, it’s important not to lose focus and create a successful foundation together. Successful start-up hubs put a lot of emphasis on the right entrepreneurial attitude and collaborative mindset, which is achievable through a widely accepted social contract – this is an agreement on mutual vision and values in supporting the local ecosystem.

There are also other areas where we need to improve. We need to collaborate even more in building a mutual international brand: Start-Up Island. Also, we need more investment to generate innovation through education. With regards to education, the path is dependent on the approach of teaching entrepreneurship through writing business plans and compiling financial projections based on overoptimistic assumptions. This does not create better entrepreneurs – good entrepreneurs grow through action based learning, collaboration and engaging with real life problems.

Also, support and incentives have to be built in a flexible manner with long-term benefits in mind, catering to the needs of entrepreneurs and not to the restrictions of EU funding.

We also need a change in mindset. Potential entrepreneurs fear that sharing their ideas means that somebody will steal them – the moment this fear takes the upper hand, innovation stops and fragmentation and competition will kill any potential for innovation. And we need to have patience – there are no quick wins and we need to give the entrepreneurial ecosystem time to grow.

It’s all about how we can unite to make Malta an internationally recognised, valuable start-up test bed. By getting our set-up right and inviting international teams to collaborate with local ones, we will be able to achieve greatness much quicker.

Does Malta’s size work in favour of start-ups, in that it pushes them to think globally?

Malta’s size works potentially in its favour in many ways. Theoretically many ideas can be tested here in a semi-controlled environment and then grow internationally. Malta’s geographic location also gives us easier access to three big regions: North Africa, Middle East and EU. Moreover, government representatives are quite accessible, which keeps the momentum going. People who think globally will take full advantage of these elements.

However, there are still many people who are somewhat limited by an island mentality – they haven’t travelled a lot and are not up to date with what they are competing against worldwide. This means that they are missing the complexity that awaits them to do things globally. To think globally is good, but to understand global trends is crucial. We need to get many leaders and upcoming entrepreneurs to visit international events and scenes to see what’s happening and to build global networks.

What is the tolerance for failure in the local start-up scene?

I think that failure is a phantom fear – low tolerance levels have never stopped true entrepreneurs from achieving success. Fear of failure is a great filter for Takeoff when accepting ideas for incubation, as it helps us distinguish entrepreneurs who will make it from the ones who will stay hoping and fantasising. Good fear of failure helps you to stay focused and not act foolishly. On the other hand, bad fear paralyses and isolates you.

Failure is part of learning. If you fail, the next time around you will probably not make the same mistakes. Many local established and serial entrepreneurs will tell you that.

What is the success rate of start-ups in Malta?

This is hard to tell as the start-ups are still an early concept in Malta.

How do we define the success? Is it a company that makes enough money to stay afloat or a company that meets the expectations of its investors? Also, how do we define start-ups in Malta? Are they companies created on the island, created globally by Maltese living abroad, or supported by Maltese capital?

On average, success rates in Malta will be the same as in other places in the world. It usually takes three to four years to see whether innovative and disruptive business models will be truly successful. I would say that in general companies that really have their team engaged and enough investments behind them should be happy if success rate is between 30 to 50 per cent. This is why investors invest in a portfolio of 10 to 20 companies, because only 10 per cent of them will make the big profit that rationalises the total portfolio investments, another 20 per cent will break even and the rest will not be as profitable as the investors wished for, or will fail.

This also means that local investors have to think globally when investing in order to ensure the success of their investment portfolio.

Do start-ups foster an increased sense of entrepreneurship?

Start-ups definitely add to the entrepreneurial culture. We must understand that a start-up is a totally different beast from an established company with a proven business model. It’s not a smaller version of big company. Many entrepreneurship programmes produce good managers who are very skilled in operations, budgeting, planning for growth, basing their decisions on historical data and expected projections. Innovative start-ups on the other hand usually need to create a totally new market, new need and disrupt previous technologies. Moreover, they have to achieve this without having enough resources. This requires a totally different skill set and the ability to work in an uncertain environment, where probably no one knows what would be the right thing to do or the right decision to make. You can’t learn that.

Thus having international serial entrepreneurs and already experienced start-uppers in Malta and being able to learn from their experiences will facilitate and increase the understanding of the new knowledge based entrepreneurship in the digital world. Down the line, many success stories will be a good first hand example for upcoming entrepreneurs.

What does a start-up need to take an idea to market?

There is no one-size-fits-all solution. The crucial part is to have the right people on board and committed to the project. The team has to have a very crisp vision of the problem they are solving – if they can’t say it in one short sentence, they probably don’t know enough yet. That requires a good relationship with the target audience and an understanding of the key buyer’s behavioural patterns.

The first prototype or minimum viable product should engage the first early adopters to gather enough data to keep developing the product in a value adding manner. Also, if the vision, team and early product are in place, a company can raise enough investments to grow and scale it internationally. This means bootstrapping or getting grants to live long enough to get to the initial investment.

You can also go to market without investments, but then it would take longer and you would risk losing value to competitors. On the other hand, in order to become self-sustaining and profitable, you need to become an established and mature business.

A start-up has to create an engaging organisation culture that keeps innovating and is customer focused as well as welcoming to new employees. Profitability comes from effective resource and process management – everybody knows what to do, decisions are made efficiently and quickly, and resources are invested and not wasted.

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