Entrepreneurs face obstacle course in France

PARIS Thu Oct 18, 2012 9:23am EDT

1 of 4. Bruno Lo-Re, CEO of MAINtag, poses for Reuters at his office in Saint-Maur des Fosses near Paris October 16, 2012. It took some nerve for 10 engineers in a cramped Paris basement to take on electronics giant Fujitsu for a $20 million contract to supply European planemaker Airbus with a new kind of data tag for its aircraft parts. But Frenchman Lo-Re, who was 38 at the time, was sure his team had a headstart against the Tokyo-based company of 170,000 employees: he had already persuaded the French airforce to let him try them out on its fighter jets. It is a success story that stands out in a country that gave the world the word 'entrepreneur' but struggles with an anti-business mentality and barriers to financing that mean only the most determined start-ups will break through. Picture taken October 16, 2012.

Credit: Reuters/Charles Platiau

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PARIS (Reuters) - It took some nerve for 10 engineers in a Paris basement to take on electronics giant Fujitsu for a $20 million contract to supply European planemaker Airbus with a new kind of data tag for its aircraft parts.

But Frenchman Bruno Lo-Re, who was 38 at the time, was sure his team had a headstart against the Tokyo-based company of 170,000 employees: he had already persuaded the French airforce to let him try them out on its fighter jets.

"I knew our tags were best but it was having tested them on Rafales that swung it," said Lo-Re, whose start-up won the 2010 bid and instantly became the world's top supplier of RFID radio-frequency identification tags for aircraft, resistant to high-altitude gamma rays, extreme cold and roasting heat.

It is a success story that stands out in a country that gave the world the word "entrepreneur" but struggles with barriers to financing that mean only the most determined start-ups will break through.

France has a fleet of established multinationals, from insurance giant Axa to oil group Total, many of which were founded a century or more ago and built up over decades with strong support from the state.

But while U.S. newcomers like Google and Facebook have revolutionized information-sharing, Britain's EasyJet has shaken up air travel and young German firms are pioneers in renewable energy, few French start-ups are making inroads.

The lag is holding back job creation just as mass lay-offs in old industries like car-making, hit by low demand in crisis-hit Europe, drive unemployment above 10 percent.

Business leaders fear that 10 billion euros worth of tax hikes imposed on companies in the 2013 budget of Socialist President Francois Hollande will only make things worse.

"We have a culture where everybody wants a safe job with a big company. Nobody wants to be a Mark Zuckerberg and take risks," Guillaume Cairou, head of a French entrepreneurs' club, said of Facebook's 28-year-old founder.

STIFLED SPIRIT

The World Values Survey Association, a network of social scientists, found in a 2000 poll that nearly half the French think competition brings out the worst in people rather than fuelling new ideas.

Entrepreneurs suffer from a culture where bankruptcy is treated as the ultimate disgrace, unlike in the United States or Britain where an early business failure can be seen as a useful learning experience to bounce back from.

Regulations that kick in as firms grow, such as a legal requirement to create a works council above 50 employees, have slowed the development of mid-sized firms like the "Mittelstand" that are the backbone of Germany's economy. That in turn can make it tough for start-ups to find business partners.

"You have to be insane to start a business in France," said Lo-Re, whose company MAINtag still has only 20 staff and is treated with disdain by some at the big groups it works with.

As he worked to woo EADS-owned Airbus with tags that should slash maintenance costs over a plane's lifetime, Lo-Re had to invite its executives to his austere cellar workshop, squashed between a low-end clothing store and a Moroccan eatery and with a door that opened onto a smelly drain.

"They were worried we were too small," he said. "They rejected us at one point but I refused to give up. They pushed us out the door but we came back in through the window."

His persistence paid off and his tags will be glued onto 2,500 components, from engine parts to arm rests, in each of 800 A350 airliners that Airbus plans to roll out from 2013 to 2017.

After a decade supporting a family on little over the minimum wage he now glows with pride in a smart new suburban office with modish white furniture, black carpets and cacti.

NO FRENCH GOOGLE

Actually starting a company in France has become easier. The number of procedures to go through has been reduced from 15 a decade ago to five now - fewer than the six required in Britain and the United States, according to the World Bank.

An "auto-entrepreneur" status introduced in 2009 simplified the procedure for individuals to go into business and exempts them of social charges until they are profitable.

Yet the big barrier entrepreneurs tend to hit is the dearth of investment capital. A lack of tax incentives for private equity means that 92 percent of French firms must seek loans from banks that are more risk-averse than ever today.

They must also continually adjust their business plans to contend with frequent and often retroactive changes to small business legislation and funding rules in recent years.

"Our government is made up of civil servants and academics not familiar with the world of business. They don't realize how much these things cause us problems," said Emmanuel Gaude, 43, founder of French private equity fund Starquest Capital.

The gulf between the two worlds became clear this month when an on-line revolt by a group of entrepreneurs calling themselves "Les Pigeons" - French slang for "suckers" - prompted the government to back down on tax hikes in its 2013 budget.

The Pigeons said a plan to double the capital gains tax on equity sales to as much as 60 percent would have discouraged many from starting a company in the first place.

But Lo-Re, who started out with 40,000 euros of savings then attracted investment as he built up his know-how selling RFID tags to railway companies, dairy firms and African loggers, believes the biggest barrier is the French mindset itself.

Government efforts this month to persuade steel giant ArcelorMittal not to close two steel furnaces in France's former industrial heartland of Lorraine have grabbed headlines and reflect widespread French public concern about lay-offs.

"This is exactly what's wrong with France," Lo-Re said.

"We shouldn't be weeping over old steel mills, we should be weeping over the fact we don't have a French Google."

(editing by Mark John and Janet McBride)

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