Last week I went to Portugal where I met with its president and got a close look at how this 10 million person country is seeking to reverse a nasty economic contraction — its GDP could tumble 4% in 2012. To reverse an economic slide, Portugal needs an entrepreneurial renaissance.
Portugal’s best days as an economic power were in the 1500s. That’s when its superior skills at using the stars to navigate the seas spurred it to map out shipping routes between its harbors and those in Brazil, India, Angola and even China and Singapore. The gold and spices Portugal imported from these countries formed the basis of its considerable wealth.
But my visit there last week suggests that Portugal needs to spend less time longing for the good old days and tap its long-dormant entrepreneurial DNA to launch a new wave of economic discovery on the global information superhighway.
That’s because this spring Portugal took a $105 billion bailout from the IMF that required the country to cut government spending – my colleagues in Portugal estimate that such spending accounts for between 60 percent and 70 percent of demand – and to raise taxes.
This policy is designed to reduce Portugal’s budget deficit. But it’s having an unintended side effect of creating what looks to me like a deflationary spiral. That’s what happens when a drop in demand causes prices to drop, companies to shrink and fire employees – Portugal’s official unemployment rate is 12 percent; and lower tax revenues – despite higher tax rates – due to a bigger drop in taxable income.
So Portugal’s leaders are applying at least two strategies. One is for Portugal’s Prime Minister Pedro Passos Coelho to visit Portugal’s oil-rich former colony of Angola with hat in hand asking for capital. For example, Angola’s got a $24 billion surplus thanks to Chinese demand for its oil.
This should not be too big a stretch because the daughter of Angola’s leader is already the biggest shareholder in two of Portugal’s biggest companies – a bank, Millennium BCP and a dominant Portuguese media company, Zon. But these investments will not help Portugal grow.
To grow, Portuguese companies need to export to markets with growing demand for their products and Portugal needs to turn its smart technologists into leaders of successful start-ups. These were among the topics I presented to a group of about 140 business leaders in Coimbra – a university town that’s a two hour drive north of Portugal’s capital, Lisbon.
Then I was a speaker at a conference in Lisbon called Silicon Valley Comes to Lisbon where I gave a two hour talk to a packed room of entrepreneurs at one of many former Lisbon palaces now rented out for meetings and tourists.
That talk got to the heart of Portugal’s biggest challenge if it seeks to grow – a culture of inertia. Unlike in India, whose entrepreneurs have no hesitation in getting on an airplane and flying to Silicon Valley to raise capital for their startups; Portugal’s young entrepreneurs have not yet shown they can do that.
But based on the dozens of entrepreneurs I met at this conference, there is a significant amount of energy, passion and technical skill that has come out of Portugal’s universities – many of which have world-class technology.
I had the opportunity to speak briefly with Portugal’s president, Dr. Aníbal Cavaco Silva, to discuss with him the work I have been doing to help change Portugal’s entrepreneurial culture since 2010 — such as leading a learning tour for business leaders from the Azores (a group of nine volcanic Portuguese islands in the Atlantic) to MIT and its spin-off companies.
And Dr. Silva himself had just returned from Silicon Valley from a trade mission to introduce some leading Portuguese entrepreneurs to Silicon Valley investors.
But I am convinced that in order for Portugal to take the enthusiasm that I saw and turn it into successful businesses, it will need to build a bridge that connects those young start-up CEOs to the capital providers around the world who are willing to take a risk on their ability to succeed.
And I believe that bridge ought to be built on shared technology expertise. Simply put, that means that the entrepreneurs must seek out the venture capitalists around the world with the greatest expertise in their particular technology.
If the Portuguese start-ups can learn how to persuade those investors to provide them with capital, then there’s hope that Portugal can reverse its economic decline.
But doing that will require a cultural transformation. Instead of inertia, Portuguese entrepreneurs will need to take responsibility for their own success and take risks — such as bootstrapping to find a viable business model and traveling to meet with potential capital providers who can help spur their further growth.
Perhaps they can find inspiration from the Portuguese explorers who left its shores in boats and returned with lucre. Or they can look at more recent success stories, such as Coimbra-based Critical Software, about which I wrote in June.
In a November 15th meeting with its CEO, Goncalo Quadros, I was impressed that he has the indomitable spirit needed to bash away any obstacles to Critical Software’s future growth. Among his biggest concerns now is making sure that the company does not become complacent.
And if Critical Software’s success — and that of other successful Portuguese start-ups — can serve as role models for its emerging ventures, Portugal’s entrepreneurial renaissance could indeed spur an economic revival.
Peter S. Cohan & Associates
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