We headed into Day 2 of the journey through e-Estonia with
our heads still reeling at the extent of the innovation and the possibilities.
Selling the Estonian E-Miracle
So, it was perfect that we had a chance to sit down with Indrek Pällo,
the Director of Estonian
Investment Agency at Enterprise Estonia, and the guy charged with actually
taking this “product” and selling all of this globally.
He’s tasked with attracting jobs, direct investment, helping
to create export markets, and increasing e-residency. Like almost any marketer, he faces the
challenges of Awareness and Perception.
On the pro side, what Indrek has going for him is a country
where doing business is easy, the IT education and training is very strong,
English is essentially a 2nd language, taxes are low, and work ethic
is high.
Estonia ranks 13th among economic freedom, has
top credit ratings from the various agencies (we’ll leave out “The Big Short”
wisecracks here), 80% internet usage and a per capita GDP of 13, 210 Euros.
They have more startups per capita than any country in
Europe and are #2 in the world behind Israel, so innovation is deep in the DNA.
On the con side, what Indrek has going against him is a
location challenge (not super central) that is exacerbated by its neighborhood
(read: Russia) and a small market/employee base.
And bigger than all that, is an awareness problem globally
that Estonia is truly the “real deal” or perhaps, better said, that Estonia is
even out there as an option.
Still, all that notwithstanding, Estonia has managed to
become a regional center of excellence for offshore work for Swedish, Finnish,
and Danish companies. They have no desire to become a low-cost center like
India, for example. Not only because of the economics, but because of the
scale.
For example, if a huge company shows up in Estonia and says,
“ok, we need to hire 2,000 people,” that’s not necessarily a good thing…initially. They just don’t have the (talented) bodies.
So they either need to attract them (see www.workinestonia.com)
or grow them…which takes time, the technical universities of Tallinn and Tartu
are leaders in that respect.
Indrek’s team is more likely to say, “let’s start with 40 or
so and see if it makes sense.” They are looking for highly-skilled jobs in
InfoTech and mechanical engineering, not vast numbers.
It’s a different
mindset. Think Navy Seals versus a
battalion.
When companies think “regional hubs” or “easy to do
business,” they might think Singapore, London, Berlin, Dubai.
With 15 salespeople (essentially) worldwide, Indrek’s job is
to change that and he and the team are on their way.
They were responsible for generating over 20% of the total foreign
investment in Estonia in 2015.
Still his job won’t be done until Estonia is listed as #1 in
“Top Global Places to Do High Value Knowledge Work” (not sure that’s a real
index, but you get the gist).
The “Estonian E-Miracle” story needs to be known by far more
business leaders than it is right now.
X-Road at the X-Road
of the Estonian E-Miracle
We then had a chance to go deep into the heart of what makes
the Estonian E-Miracle work. That would be the X-Road system. Developed at a cost of 50 million euros
(compared to the 2 billion that Finland has spent and the 20 billion that the
UK has spent—and which aren’t done), it is the core plumbing, if you will, that
connects all of the government services with each other in a secure way.
Built
by a company called Cybernetica, and led by
CEO Oliver
Väärtnõu, it “create[s] a secure and standardized environment for
interconnection or enabling data exchange between a multitude of different
information systems.”
Simply put…it makes
Estonia work as smoothly as Estonia works.
The technology is
peer-to-peer, which means that there is no central server or data center that
is vulnerable to attack. It works over
the public internet, so there’s no private network that needs to be maintained.
It is decentralized.
As Oliver says, “X-road
was build to support the democratic process.”
With X-road (or as
Cybernetica now sells it to other countries the Unified eXchange
Platform), countries (or cities/municipalities) have the ability, as Oliver
says, to “create government e-services…or just leave it in the corner or use it
as a hammer. Whatever they want.” But
they have the technology to make government really work well and serve as an
enabler.
That’s a ridiculously
powerful concept and so foreign to most of the world…but it’s the essence of
modern Estonia.
And now, Cybernetica
is bringing it to the rest of the world, along with their other cutting-edge
solutions in border surveillance (they help protect Estonia’s eastern front),
maritime radio communications, and visual aids to navigation.
These guys are HARD
CORE. Of their nearly 120 employees,
over 80 are involved in R&D and Oliver says that “this is the lifeblood” of
the company.
In fact, 20% of the
employee base is in a separate business unit that is a non-profit R&D
function. That’s how committed they are.
It has been since
Soviet times, actually. The institute was founded in the 1960s to do basic
research and was actually responsible for many contributions to Soviet
technological development.
Through a unique
partnerhip with the government after independence in 1991, they were able to
continue and then, in 2000, management bought the company from the government.
As we spoke
w/Oliver, I felt like we were at the absolute epi-center/ground zero, if you
will, of the e-revolution that should impact government entities around the
world. (Bonus points if you can zoom in on this picture and figure out what is
printed on their walls).
Exploring FinTech
We also dove deeper into the Estonian start-up entrepreneurial
scene, having two meetings with FinTechs startups Funderbeam and Fundwise. [FinTech is shorthand for Finance
Technology]. These are companies that are either seeking to seriously disrupt
the way that banks and financial institutions do their business or significantly
improve it.
Mads, the
CMO of Funderbeam, is a man possessed by a passionate vision…namely, start-up
investing shouldn’t be limited to the rich and connected. It should be
democratized and available to anyone who wants to put in a few hundred or
thousand dollars. Joined at the end of our meeting by Bjorn, a native Minnesotan,
successful Jobbatical placement, and Sprinklr fan who saw my Swarm check-in, I couldn’t help but think
that we were getting a sneak peek into the future of a part of finance.
Instead of a few, well-placed and well-connected investors
putting tens or hundreds of thousands of dollars using a heavily paper-based
process, Funderbeam sees a world of Kickstarter-like projects, but instead of
an item or experience, you get shares (sort of) in the company.
Led by syndicates, you can find a company that looks
promising, put your money in (I’m leaving out some details), but you get a “token”
that is cryptographically secure and backed on the blockchain, representing
your interest. And the best part? These tokens can be traded freely. So, unlike
most early-stage investments, you don’t have to wait for an exit or spend a lot
of time looking for a buyer of your portion of the company. You float the “tokens” and sell them on an
exchange.
Think Nasdaq for any private company. Not so surprising since their CEO, Kaidi Ruusalep, is a
former Nasdaq Tallinn official.
My only issue with Funderbeam? As an US citizen, I can’t
participate in it…yet. SEC/IRS laws make it really difficult. Aaargh!
Attacking the challenge, albeit from a slightly different
angle is Fundwise. The CEO, Henri is working with the
Estonian business registry to simplify the process of crowdfunding private
companies. There’s a pretty
nice video on their website.
These two teams were a microcosm of the entrepreneurial
energy that is sweeping the country.
Is everything perfect?
Of course not.
I failed miserably in my effort to set up a bank account. My
mistake was in not registering a business first. Fortunately, the law has
changed that in-person visits to the bank will no longer be mandatory and later
this year, I should be able to fix that via Skype.
Still…what you have here is a country that is “digital by
default,” is committed to innovation, has a need for innovation for both
economic and security reasons, and has created, and this is perhaps the most
important thing…a culture of innovation.
Overall, we had 9 meetings in the course of two days. It was
pretty action packed, but as my friend Jacob said before I left, “there’s value
in immersion.”
And indeed there is.
If you are fascinated by innovation, technology, geo-politics,
or having it stay light until 10pm in the summertime….Visit Estonia.
Notes: Click here
to see the entire e-Estonia itinerary.
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