Spains New Business Model
The article is published in: July - August 2012

The Spanish financial crisis hit the most vulnerable part of the country’s business community – small businesses. Without an official program in place to support small businesses, the Spanish government has resorted to funneling state funds to business incubators.

More than 200,000 small and medium-sized Spanish companies declared bankruptcy in 2009. New businesses continued appearing, but for each new company, ten bankruptcies were declared. And in most cases, the new company would shut down in a couple of years after it became clear that they wouldn’t be able to find a competitive advantage in the market.

Some growth was evident at the end of 2011, even though it was weak, but the overall trend has remained consistent – Spanish citizens are afraid to work for themselves. On one hand, this fact is not too surprising; with the absence of government subsidies, tight credit conditions, and an inability to market and sell products, only 40% of new firms survive their first year. And the main reason for this failure is a problem with financing. But on the other hand, the whole situation can be explained by a lack of motivation. In the Spanish culture, working for the state or a large foreign company is prestigious, while working in a small firm, or even developing an independent business, is the complete opposite.

The government, however, has decided to go another route – by funding business incubators. A special organization, “Madrid Undertakes” (“Madrid Emprende” in Spanish), was established in the country’s capital, an institution designed to distribute these funds. The incubators’ work is divided based on a model of the United States’ economy, with not-for-profit organizations, universities, and the city administration all working together. A business incubator is Spain is a complex that offers unique business opportunities to Spanish citizens, such as offices leases at reduced prices (at approximately 10 Euros per square meter a month), legal assistance, fundraising help, promotions, and maintaining the business process. The program is designed with a maximum incubation period of three years, and the performance records speak for themselves – 90% of new companies established with the help of the incubator continue operating successfully, through the first year and for many years after that. The remaining 10% are entrepreneurs who simply lost interest in further developing their projects.

All the parties involved are interested in the creation of new business incubators; the government stimulates the job market to increase employment, and both the administration and universities receive public and private grants. The Royal University of Madrid (“Universidad Rey Juan Carlos”) has created and developed two business incubators and an education program for entrepreneurs to date because of this provision.

“Incubators are created with state funds, but that alone doesn’t guarantee their successful development. Most simply cannot create the necessary climate for entrepreneurs to be successful. They have a lack of both skills and experience, and what they really need is to involve employees in the actual business processes of each project to decide whether or not that project has a future. Incubators that are supported by the University have already “fired” more than a hundred companies. People who want to develop the idea and keep their jobs turn to us for advice. We advise them, help them create a business plan, and train and support them at every stage. We also help these people with their finances and deal with the marketing of “incubator” companies. For us, a business incubator is not a building that allows you to just rent office space at ridiculous prices and does the rest of the work for you. A business incubator is, first and foremost, a program designed to support innovative ideas. It also serves as a motivation program for young entrepreneurs. Students begin seeing that they have the ability to create a business, and given our national identity, that is a very important step,” says Francisco Jose Blanco, the Vice-Rector at Queen’s university and the Director of the National Association of Business Incubators in Spain.

According to Blanco, the secret to the success of both the incubators and the program is in selecting which projects to support. Not all ideas are equally good, and some, particularly those that deal with retail or online services, need no office space or monitoring, because they have fewer risk factors involved. Some, however, are doomed to failure. But one thing is sure: supporting innovation is a must. That fact has been confirmed by previous trials, and 100% of the incubators’ graduates are innovative projects or ideas that did not previously exist in Spain.

“We create toys to help children overcome their fears – the fear of pain, the doctor’s office, the dark, or even nocturnal monsters and ghosts. So far, we have manufactured four of them, and each toy is aimed at overcoming a particular fear. Each of the toys are heroes from children’s songs and stories, with their own corresponding names, which adults can use to explain a frightening situation to a child and create a physical “foothold” for them. Each toy also comes with an e-book for parents, to explain how to use the toy and how to create a stable association with it for the child. The book also describes how to distract a child when they become scared or anxious,” explains Alberto Romero, the creator of a young company, Fluff. The founders of Fluff are all Queen’s University graduates, who decided to implement their idea in 2010. “We went to a university business incubator for help, who assisted us from the very beginning with everything, from creating a business plan to helping us search for material suppliers and early investors. I think our idea turned out to be a success. The incubator program is designed for three years, and we have been using its services for two years already. And even now, we are ready to work independently – we have regular customers, we have the means to afford a nice office, and our toys have attracted a fairly consistent amount of attention from the media. Of course, our success is all thanks to the assistance provided by the incubator program.”

Another notable start-up company is Taksee!, a company that significantly simplifies the lives of Spanish businessmen with an online taxi system servicing Madrid, Barcelona, and Valencia. The system is unique because reservations can be made online, by phone, or through the company’s smartphone application. By using the system, customers can get detailed reports about the taxi service, find out prices in advance, and figure out the best rotes to take before, optimizing the cost. “The Taksee! system is unique to Spain, where there are no fixed prices for taxi services and all the prices are paid according to the mileage counter. For Spanish taxi companies, this is a common occurrence, as it is easier and faster to move around major cities. We have signed partnership agreements with several private taxi companies, who offer us special prices for fixed routes. In return for this favor, we provide them with new customers. And customers are not the only ones to benefit from these prices – internet services also profit. We started thinking about developing this system a long time ago. None of the founders of the company actually studied at Queen’s University; we came to the incubator “from the street”, and they liked our idea. If we had not participated in the program, I think that we would never have decided to start a business so soon, because the development of such a system costs a lot in the early stages of the project’s development,” said Jose Canovas, one of the founders of Taksee!.

SuperTruper is one more successful company involved in the Spanish business incubation program. The company was created with the intention of competing against a popular online service to compare the prices of goods in Carritus supermarkets. The SuperTrupe application for smartphones allows customers to compare prices directly at the time of purchase – you simply scan the product’s code and upload it to the central database. Users actively participate in the project by creating the blog and collaborating with the network applications. Spanish consumers, as a result, can prepare a shopping list and save up to 40% by buying goods wherever they are cheapest. “The SuperTruper team was in the same situation that many other entrepreneurs faced – to develop their ideas, we needed money. We could afford to take out a bank loan, but the process of developing our system from scratch would cost a lot of money, more that our budget could spare. To add to that, we had a number of issues in the planning of our project, and we were never sure whether the idea itself was good. The incubation program helped us, first, by giving us the advice we needed. And we have managed to come so far because of the help of the incubator,” says Louis Dieges, a representative of SuperTruper.

Innovation does not necessarily mean projects that use the Internet. The recently-opened second business incubator at Queen’s University is currently working with “non-virtual” companies exclusively. However, these were also selected based on their innovation: the main idea is to bring something new to the table. Among these new projects, for example, is a company called Memorial, which is a store all about the “art of funerals”, both real and online. According to its founder, Francisco Saban, the company is “committed to revolutionizing the field of funeral designs – our customers are people who are tired of traditional headstone designs and traditional funeral ceremonies.” Another company to watch out for is Boom, an advertising agency. Its “innovative idea” is creating cost-effective advertising with photostock images, making “colorful advertising available to everyone.”

Text: Valentina Rinkon

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