Reinventing our economy from within

It may go without saying that innovation is at the heart of entrepreneurship. What might need stronger messaging, however, is that entrepreneurship is becoming a pillar of a solid and competitive economy. The legacies of century-old institutions should not be discounted, but the start-ups of the 21st century have been game-changers. As a result of their growth and innovation potential, start-ups also have significant potential to add to a country's economy by adding jobs and market capitalization. A clear example of this is the storied growth of US-based technology champions that grew massively between 2000 and 2021 and bolstered the United States' leading global position. In just the last ten years, the US GDP has grown from around $16 trillion to $26 trillion. This pace allowed the United States to not just close its 12-percent deficit compared to Europe (including the EU-27, United Kingdom, Switzerland, and Norway) in 2012 but also arrive at a 20-percent advantage over Europe in 2022.

Launching and scaling up more start-ups has been a critical component of economic growth in the United States over the last ten years. Meanwhile, Europe has been falling behind not only in economic terms but also in terms of innovation. This development is highlighted not only by a lower presence in key innovation areas of the last two decades, such as information technology, but also in the key technologies of the future, including next-level automation, cloud and other infrastructure services, and next-generation materials. If Europe is going to close this gap, it must nurture its own start-up ecosystem. The good news is that across 29 countries, there are already start-up ecosystems in Europe that are performing exceedingly well.

Our analysis has distilled ten key best practices that build on existing success stories observed across the region. These priorities address the fundamental areas of the start-up ecosystem, including R&D, talent, regulation, capital investment (both amount and source), leadership, and accountability. By introducing these measures, a more competitive Europe would emerge, with individual countries adopting these best practices and finding that their start-up ecosystems have begun to mirror the successes of the countries that are already leading the pack. Of course, the landscape in Europe is far from simple, and the complexities of a region that is unified in many ways but highly diverse in others can be barriers to overall success, especially in terms of scaling up companies.

To this end, we offer three high-level strategies – largely rooted in cross-border communication and regulation – that seek a level of pan-European harmony that facilitates the growth of start-up ecosystems while recognizing and maintaining the uniqueness of individual markets. If European countries were to increase the number of start-ups founded and successfully scaled up by learning from existing best practices, we expect the start-up ecosystems of the average markets in Europe to begin catching up with their leading peers.

This would result in the addition of up to 200,000 additional start-ups across the region as well as the creation of up to 8.1 million additional jobs. Additionally, improving the performance of European start-ups by fostering their success could create significant wealth and more than double the current market capitalization of start-ups, taking their combined value from $2.3 trillion up to $5.6 trillion – a value 3.5 times greater than the German DAX.