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#estonianmafia: The insider view

It’s rarely when “mafia” actually refers to something positive. However, “Estonian mafia” (or #estonianmafia for Twitter users) has come to describe the entrepreneurial phenomenon stemming from the small country in the Baltics. The term was allegedly coined by the US venture capitalist Dave McClure at a well-known event for tech start-ups, Seedcamp in London. McClure apparently thought it was weird that from the 20 participants on the extremely competitive event, a whopping 4 participants were from Estonia.

I am honoured to be among the co-founders of two influential non-profit initiatives in Estonia: MobileMonday (established in 2007) and Garage48 (established in 2010). MobileMonday (MoMo) unites Estonian people connected to the mobile sector, while Garage48 is the first and, so far, most successful weekend hackathon (a hacker marathon) in Estonia, where ideas are put into tenetative action.

These initiatives and the fact that I have gradually turned into an entrepreneur have given me a certain overview about the goings-on of firms with lofty business plans that are firing up in Estonia, as well as a reason to ponder the problems in this sector.

Like mushrooms after the rain?

At the moment there is a lot of talk about startup companies and it might leave an impression that they’re really common, like mushrooms after the rain. London and Silicon Valley are paying attention to a small, as-of-yet unknown country called Estonia that keeps on delivering good and able teams with really high performance and great ideas.

When you start to count Estonian startup companies, you’ll soon realize that the fingers of two hands are enough to count the number of companies that are successful or close to being successful. Still, there’s no arguing that they are quite many when compared to our population. Hashtag #estonianmafia, which has lately had some Twitter buzz, might be the best recent example illustrating the success of Estonian start-up companies. It was first introduced in September 2011, by venture capitalist Dave McClure at the introductory day of Seedcamp, who brought attention to the fact that there were four strong Estonian teams among the 20 final contenders.

In autumn of last year, during the Garage48 in Tartu, I asked Jon Bradford, the co-founder of accelerators Springboard and Difference Engine, why he was visiting Tartu for the second time already. He gave a blunt answer: “In each incubation batch we’ve had an Estonian startup company. I want to know what’s going on here!”

At the end of September, four of 15 companies in competition at the Arctic15 conference in Helsinki were connected to Estonia or – upon closer scrutiny – Tartu. For some reason, Tartu is becoming the Silicon Valley of Estonia, and the eyes of the world seem to be on Estonian startup companies.

Is it because our heads are the right shape?

Surely one can say that the reasons for our success or good work ethic are obvious. Estonians have always served for material gain. We are hungry for success and obtainable things. As a nation, we possess the European work culture and the high quality control of the Nordic countries. “Work hard and feel the strain, then love will come as well”, is a famous saying around here.

On the other hand, it’s just that startup companies are popular right now. We can claim Skype and Playtech as our positive role models. These two constituted the real ‘Estonian Nokia’ back in 2005 when Nokia was a big success. By now, it seems the Finns have lost much of their former glory.

Many former or current workers at Skype or Playtech have good experiences with share options. If you work in the IT-sector in Estonia, you know the meaning of the word “option”. Lately, the media has noticed successful startup companies and initiatives like Garage48, as well.

All of this combined is bound to have some positive effect when it comes to emerging startup companies. Jevgenijs Kazanins, the co-founder of a startup company called Campalyst, conceived at Garage48, said, “In Latvia, you have to search really hard to find software developers motivated enough to accept a smaller initial payroll in our company. They just can’t grasp the concept of share options. It’s whole different story here in Tartu”. To back up his words, Campalyst has employed a 3-person development team in Tartu.

Why do we stand out?

One of the reasons why Estonian startup companies are noticed abroad is the fact that everybody spots a strange dog better in their own home yard. The name #estonianmafia illustrates that.

There are two reasons why Estonian startup companies leave the home market really fast. First, it seems there’s a lack of so-called smart money in Estonia. There is a rule that when looking for an investment, the money must be accompanied by competence. In more detail, this means competence in the very field that is addressed by the solutions of the startup company, and – even more importantly – contacts. Money with attributes like these is called smart money.

The microscopic size of our home market constitutes another reason for startup companies to escape their home country. The market is so small that only businessmen dealing with the primary needs of people, such as air, food, drinks, energy and shelter, can do considerably well. Most of the companies dealing with other fields have to look for a market outside Estonia. So, while living Estonia, it’s reasonable to found startup companies with global ambition.

It’s interesting that even after leaving Estonia, the manpower of our small- to mid-sized companies preserve their competitiveness. Sales and marketing departments could be located in London or Silicon Valley, but maintaining a development team is much cheaper in Estonia. Also, Estonian software developers have the right work ethic.

Don’t count your chickens before they hatch

Thus, one can conclude that the attention we have got comes largely from our striving for Western venture capital and Western markets, combined with our novelty. But its also well known that all hype has its end.

For me, only five Estonian companies are successful, as they have steady ground beneath their feet and positive cash flow: Erply, ZeroTurnaround, Fortumo and Kinotehnik.

Next to them, GrabCad, Transferwise, Guardtime, Sportlizer, Campalyst, Pipedrive, TaxiPal, Flirtic, Click and Grow, Zerply, Qminder, and Kurat, along with some others, might be on the road to success.

Time will show how many of them can reach the first five. Just one out of ten startups might make it.

Giving a push

We have to support startup companies and help them reach the level where they could do it on their own. Statistically speculating, to have a greater number of well-to-do startup companies, we have to nurture the birth of them.

It definitely requires greater flow of smarter money into Estonia, and it’s dubious if a venture capitalist from Silicon Valley would even want to go further east than New York or London. Also, it’s not entirely clear if a good accelerator could even be founded here, when venture capital and the related knowledge prefer to stay in the old location.

Of course, hard work is needed. One can see that the last years have brought good initiatives, that a proper incubator could be founded and smart money incorporated. Of course, there is still help needed that could come from the universities or endeavours such as MoMo or Garage48.

After all, entrepreneurship means, first and foremost, the ability to initiate – to enterprise. A successful entrepreneur also has the ability to turn an idea into reality. Surely, the amount of success depends on the potential of the idea, but smart and inventive implementation is even more important. On its own, an idea has no worth – only the realisation and the realiser can provide it.

To nurture entrepreneurship and increase people’s ability, the field must get some attention already in high school. The ability to initiate must be appreciated by the entire society, and co-working must be made as popular as possible. Also, people have to be encouraged. The entrepreneur’s road is a hard one, but the reward is worth it.

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Priit Salumaa is the Co-founder of software development company Mooncascade. He graduated from the University of Tartu in 2002 with a bachelor’s degree in mathematics and computer science. This article was initially published in the Estonian-language collected essays by UT alumni.

This article was first published by the University of Tartu blog.

Photos: Wikimedia Commons

Rise of The Machines – Skype’s co-founder Jaan Tallinn on why we need to give a serious consideration

One of the founding engineers of Skype and Kazaa recently visited Australia to sound a warning to the human race: fasten your seatbelts, as machines are becoming so intelligent that they could pose an existential threat.

Jaan Tallinn (40) argues that human-driven technological progress has largely replaced evolution as the dominant force shaping our future. Machines are becoming smarter than we are, but Tallinn warns that if we are not careful this could lead to a “sudden global ecological catastrophe”.

 

“It really sucks to be the number two intelligent species on this planet; you can just ask gorillas, they will go extinct.”

This sounds like science fiction stuff, but consider the breadth of domains where computers have already caught up to – and then dominated – humans.

We have already programmed computers to be better than us at classic games like chess, better drivers (Google’s driverless car being just one example), better at voice and face recognition and, as IBM’s Watson computer proved, even better at the game Jeopardy.

The US military is experimenting with robot fighter pilots, while the majority of trading on the stock market is done by computers in what is known as algorithmic trading.

“My core main message is actually that this thing is not science fiction, this thing is not apocalyptic religion – this thing is something that needs serious consideration,” said Tallinn, who gave a talk on his theory at the University of Sydney recently.

Tallinn isn’t your average programmer. The Estonian is a board member of the Lifeboat Foundation (tagline “safeguarding humanity”) and at university he majored in theoretical physics. His thesis looked at travelling interstellar distances using warps in space-time. He argues that we are witnessing an “intelligence explosion” – with neuroscience advancing in leaps and bounds to the point where scientists could replicate the human brain by the middle of this century.

The event when machines surpass human levels of intelligence and ability has been dubbed “the singularity“.

“In my view, the fact that computers caught up to humans and completely dominate humans in chess and some other domains already – says there’s evidence that yes, in principle they can be better programmers than humans,” said Tallinn. “Once computers can program, they basically take over technological progress because already today the majority of technological progress is run by software, by programming.”

The question then is how can you control something that can actually reprogram itself?

“Once you acknowledge that human brains are basically made of atoms and acknowledge that atoms are governed by simple laws of physics then there is no reasoning principle why computers couldn’t do anything that people are doing and we don’t really see any evidence that this is not the case,” said Tallinn.

It doesn’t take a rocket scientist to figure out what could happen to us humans if we’re no longer the most advanced, technologically aware species. “It really sucks to be the number two intelligent species on this planet; you can just ask gorillas,” said Skype’s co-founder. “They will go extinct, and the reason why they will go extinct is not that humans are actively conspiring against the gorillas, it’s that we as the dominant species are rearranging the environment; the planet used to produce forests but now it’s producing cities.”

“For example if the skill is to make sure that people are happy and the way the super intelligence is supposed to measure how many smiles are on the planet, the easiest way to achieve that is to sedate everyone and make sure their faces are stuck in a cramp or smiling.”

The key, he says, is to make sure that once we have systems that can rearrange the environment like we can, we need to ensure that those changes are beneficial to us. “We don’t want super intelligence to do terraforming projects; that means take the planet and change its atmosphere or soil or whatever,” Jaan Tallinn said.

“What we have to realise is that designing super intelligence is not a typical technology project because a typical technology project is something where we develop a first version of something and refine it. We can’t do that with super intelligence because in order to refine a first version of super intelligence, you have to basically kill or turn off the first version but if this thing is smarter than you, how do you turn it off?”

So, in the worst case scenario, smarter machines could rise up and destroy us all? Tallinn says the worst case scenario could be “even worse” than that. “If you build machines that understand what humans are and they really have some distorted view of what we want, then we might end up being alive but not controlling the future,” he said. “For example if the skill is to make sure that people are happy and the way the super intelligence is supposed to measure how many smiles are on the planet, the easiest way to achieve that is to sedate everyone and make sure their faces are stuck in a cramp or smiling.”

Thankfully for us, there is an alternative to this Orwellian doom. We can harness super intelligence to work for us.

“Once you have something that is smarter than you and is actively on your side, you can basically solve any problems really quickly.”

 

This article was first published by Asher Moses at the Australian newspaper The Age.

Pictures: Wikimedia Commons

Erply’s founder & CEO Kris Hiiemaa: “Estonian startups should take full advantage of the opportunities that they’ve been offered”

The energetic chap sitting opposite me is wearing an informal t-shirt and scans his eyes rather quickly through the pages of local weekly newspaper in front of him. By the look, age and dress code he’s fairly similar to Mark Zuckerberg. Like Zuckerberg, the young gent behind a coffee cup started his first technology ventures very young. Like Mr Facebook, he started his firm from basic facilities. But he’s not Mark – just not yet anyway.

His name is Kris Hiiemaa and he’s the founder and CEO of Erply, New York based enterprise software company focusing on retail and point-of-sale technology, helping companies deal with inventory control, bookkeeping, and other tasks, from their brick-and-mortar stores to online operations. And instead of basking under the Palo Alto sun, we are having a cup of coffee in a beautiful old café in Kadriorg, a leafy and picturesque part of Estonian capital Tallinn, stone throw away from residence of the tech savvy Estonian president, Toomas Hendrik Ilves.

Humble beginning

Programmer Kris launched Erply in 2009, tapping away on laptops and answering customer calls at a first  Estonian Republic era private home in Tallinn, Estonia – slowly but determinedly building up a local customer base. The same year, when it became clear that more funds and advice were needed for the Erply to expand internationally, they decided to try their luck and take part in Seedcamp’s event in London. Seedcamp, which is a London based early-stage micro seed investment fund and mentoring programme, was founded in 2007 by Saul Klein (previously involved with Lovefilm and Skype) to help European entrepreneurs successfully build technology businesses.  Slightly unexpectedly for themselves, Erply team won the Seedcamp’s business ideas contest and secured their investment of 50,000 euros – the first Estonian, Baltics and Nordic start up to do so. It was not long after when a technology blog TechCrunch described Erply as “the Skype of business software.” Investment rounds followed in London and in the US, and in 2010 Erply secured a $2m investment from Silicon Valley based Redpoint Ventures and Swiss based Index Ventures. That allowed Erply to hire a team in London and Silicon Valley and market the service in Europe and the US.

Move to the US

In 2010 they decided to relocate their offices and operations to US completely and have been based in New  York since. “It wasn’t easy to start in the US. We had to change a lot on our product and the retail business we are offering our software for, is actually pretty conservative and slow moving when it comes to new technology. ”, says Kris. “It’s not possible to conquer the world immediately with what we are doing. To gain a market share in Germany for example, we would need to hire German marketing and support specialists. Although the internet has got a global reach, it’s important to know the local conditions. That’s why we have so far been concentrating on the US, as the biggest market.” “When we first set our foot in the US, we had to compete with the likes of Microsoft, SAP and Oracle from the start – we couldn’t apologise that we are still a start-up firm and some of the functions on our software wouldn’t work yet – or that they only work for retail chains with 20 shops, not for example the ones with 100 shops. Luckily we had had an experience with few large retail chains in Estonia, that certainly helped” says Kris wryly.

Initially, Erply launched as a retail payment solution for small to medium sized businesses but have since expanded to bigger retailers and offer point of sale technology, inventory control, billing, business reporting, and custom barcodes. Their app gives retailers a quick overview of sold stock, as well as swift feedback about their customers. Additonally, Erply is cloud based, meaning that the retailer does not need to possess their own servers. Today Erply employs 35 people and has over 50,000 subscribers – from the 200 in 2009. Their biggest client in the US is a 500-store retail chain and their plan for future is…well, to expand. Their mentors include ex-president of Google and Seedcamp’s founder Saul Klein.

Kris as a senior startuper

Although running a barely 3 years old company, Kris himself is already seen as a potential mentor for start-ups in Estonia. He’s perfectly aware of the (well-deserved) positive hype which has started to surround Estonian (technology) start-ups in recent years. But he also thinks that there’s a long way to go for many to actually become successful companies in their own right on the international stage. “I have seen too many Estonian start-ups, including those taking part of Seedcamp, to stall at some point and not closing an investment deal for various reasons. Some of them think that their idea is so great that they deserve more than 50,000 euros (Seedcamp’s seed money) to start with, some of them are not keen to give away equity, some of them get sucked into pointless arguments about petty legal paragraphs with investors, scaring the potential investments away.” Kris is now getting more heated up: “My advice for fellow bustling entrepreneurs is this: try to close the deal and win your first seed money. Even if it’s just 50,000 euros, you can still do a bit with the money – but more importantly, it opens new doors and brings invaluable connections and therefore advice and experience, and may well lead you to secure substantial second round of investment, like happened with Erply. Do not waste too much of your energy and time contemplating, when a potential investor taps on your idea – before you know it, it has become an old idea and you’ve lost your chance!”

The capital of Estonia and birthplace of Skype hosts the European Innovation Academy 2012

The Tallinn University of Technology, in co-operation with tech giants Samsung and Microsoft organised a large-scale event in Tallinn – The European Innovation Academy (EIA) from July 16 to August 3, 2012.

It was the biggest training course in the field of innovation ever organised in Europe, bringing together experts from all around the world like Nobel Prize Winner Sir Harold Kroto, Professor Mark Harris, former head of Intel, as well as top-level professors from Nordic countries. The European Innovation Academy provided a platform to learn and try out innovation management in an entrepreneurial way. The European Innovation Academy issuitable for engineering, science, and business students as well as professionals who are intending to pursue a career in innovative management. Approximately 100 students from 25 different countries participated. A winter innovation academy is planned for January.

In my opinion the European Innovation Academy training is the best proof that small Estonia is at the forefrontamong innovative countries that offer outstanding opportunities to gain knowledge in the field of innovation, science, technology, and entrepreneurship.

Having had an excellent experience with the recent program, we invite you to take part in our intensive winter program. European Innovation Academy is offering you most stimulating academic environment, a vibrant community of motivated students and distinguished professors in Winter European Innovation   Academy, 21.01-27.01.2013 in Tallinn!

Estonian hackathon Garage48 opens a new hub in Tallinn (Video)

Hackathon Garage48 recently opened a new spacious and funky hub in the centre of Tallinn.

Garage48 hub is a community led co-working, inspirational space for start-ups and creative, tech and entrepreneurial people from Tallinn and anywhere else in the world. The working language at the hub is English and international members are therefore very welcome. Tallinn has fast growing start-up and technology community, but had so far no co-working space for people to work, learn, network, innovate and relax together.

The organisation behind the hub, Garage48 Foundation, was started by 6 active entrepreneurs from Estonian Startup Leaders Club – to promote start-ups and entrepreneurship in Estonia, Europe and Africa. The idea is to have weekend event series where people can turn their ideas into working web and mobile services within just 48 hours. So far they have organised events as far as in South Africa, Kenya, Nigeria, Uganda and Ghana, as well as closer to home in Finland, Latvia and Ukraine. The program is supported by tech giants Google, Nokia and Skype.

5 Reasons why Estonia is a successful start-up nation

Estonia is the 151st -smallest country in the world by population, yet it produces more start-ups per head of population than any other country in Europe.

  1. Skype was programmed by Estonian tech wizards. The internet-telephony company (now part of Microsoft) runs on software written by four Estonians and has its headquarters in the capital, Tallinn. Skype founders “look like rock stars” to Estonians and inspire imitation.
  2. Estonia’s leadership has been consistent and eager to embrace new solutions and technology since regaining the independence from the Soviet Union in 1991. It now has one of the world’s most advanced e-governments. Estonia held world’s first local and parliamentary e-voting, in 2005 and 2007 respectively.
  3. It has got a simple and straightforward tax system, with flat rate of tax paid regardless of one’s income.
  4. Estonians learned a can-do attitude during harsh Soviet times and became eager to create prosperity, once the Iron Curtain fell.
  5. Estonia is too small to succeed internally, forcing aspiring entrepreneurs to treat the entire world as their oyster. They know too well the famous quote from writer Ernest Hemingway:” In every port in the world, at least one Estonian can be found.”

Photo by VisitEstonia

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