The Swiss love precision. You can see it in their watches and reliable trains. You can see it in their founding myth, the story of William Tell. He had to shoot an apple that was sitting on his son's head to gain his freedom, and his success sparked a rebellion that led to the formation of the Swiss Confederation. High stakes! In recent decades, Switzerland has been known for banking services. After the financial meltdown, it became obvious to many inside the country that Switzerland needed to innovate very rapidly to create the wealth-generating companies of the future. But innovation is a messy business, the opposite of cold precision. How is the Swiss startup scene managing to square this circle? I recently spent a few days in Zurich to find out.

Who We Met

First, a big thank you to Reto Laemmler of Doodle, who introduced me to so many entrepreneurs. Reto is an engineer who returned home from the Valley after selling the Excel plugin that he created to eXpresso.

Here are the people we met in Zurich:

  • Paul Sevinc, Co-Founder and CTO of Doodle (see our coverage here).
  • Rinaldo Dieziger, Chef vom Ganzen, Supertext: a self-funded startup focused on translation services.
  • Credic Kohler, Creathor Venture. Creathor is a VC fund (it invested in Doodle). It is a long-established fund from Germany that recently set up in Switzerland.
  • Reto Hartinger is one of the Web pioneers of Switzerland, co-founder of search.ch during the first dot-com boom. Today he runs Internet Briefing and is building his next big thing.

We then took a short ride on one of those great Swiss trains to Biel to meet:

  • Alain Rollier, Founder of Axsionics, which has an interesting approach to Internet security.
  • Alexander Sollberger, CEO of Mobiletechnics, a fast-growing mobile services startup.

The Technoparks

Meeting startups in Zurich is easy. You just go to an old industrial district called Zurich Technopark. Almost all startups work there. Anyone who does not work there will happily arrange to meet in the lobby and go to their coffee shop of choice.

This is an incubator that most entrepreneurs would envy. As one person put it to me, "We have grown fast, moved offices three times, but all within Technopark. It is one thing we don't have to think about."

The Technopark in Zurich is not alone. There are three other Technoparks, in Aargau, Luzern, and Winterthur. But Zurich is the big one. The incubator hosts more than 250 high-tech companies, service providers, and research and higher-education institutions, all of which engages a total of 1,750 employees.

Government-Sponsored Innovation

Behind the Technoparks is the Swiss government and a fairly unique approach to encouraging early-stage innovation. The Swiss government is putting money into technology incubators to create the companies that will in turn create the jobs of the future. I saw many companies in Zurich that come from this incubator. The initiatives include Venture Lab and Venture Kick.

Although funded by the Swiss government, they are managed by a private company: IFJ Institute fur Jungunternehmen.

This is the most comprehensive program for encouraging innovation that we have seen in any country. It caters to everything from an idea to a spin-off from a university. The program is highly competitive: you have to run some tough gauntlets to reach the final stages. This makes it easier for investors, because the program does a lot of filtering.

Government funding of innovation may sound odd to American ears, but without DARPA we would not have the Internet. And we are now seeing states and cities getting more involved, including Mayor Bloomberg in New York City and an incubator in Memphis that goes after federal funds.

The Swiss program looks a bit like the Hottest Startups initiative in India, which is funded not by the government, though, but by entrepreneurs and private companies.

5 Swiss Advantages

  1. Good education system. Higher education in particular. The ETHs in Zurich and Lausanne compare to Stanford, MIT, and Cambridge. The Swiss are quick to point out that the ETHs have more spin-offs than Stanford and MIT. But in the same breath, being realists, they also admit that the standards for funding a spin-off are lower in Switzerland. Nevertheless, this list of 85 spin-offs managed by Venture Kick is pretty impressive.
  2. Global mindset. Switzerland is a small country, so companies tend to think beyond their borders early on. Having four languages in one country also makes them aware of language issues earlier than a venture starting in the US or UK. Switzerland, for a tiny country, has a good number of huge global enterprises, such as Nestle, Novartis, and UBS, though none as yet in tech.
  3. Wealthy economy. Based on GDP per head, Switzerland ranks very high on all three ranking methods.
  4. User-experience engineering. Think Swiss Army knife. Or just travel on their trains or through their airports. Swiss engineering is practical and user-focused.
  5. Branding. The Swiss have to sell up-market; they cannot compete easily on price. Which is why they have a long history of great branding. Whether "Swiss-made" as a brand will translate well to software is debatable. But a startup can certainly leverage branding experts when it needs to.

4 Swiss Roadblocks

  • Cost. Switzerland is an expensive country to live in. Labor costs will never be an advantage.
  • Lack of VCs. This is odd, considering how much money is managed in Switzerland. Historically, there have not been enough ventures to invest in. The zero-capital gains tax for Swiss residents might attract more investors.
  • Risk aversion. Banking, tourism, pharmaceuticals, farming/food: these are the mainstays of the Swiss economy. The lesson? Make good money, slow and steadily, without taking risks. Logically, Swiss people know that "fortune favors the brave," but changing their attitude will take a long time.
  • Lack of poster children. Risk aversion will shrink and VC money will flow in once we see big success stories. Israel had Check Point. India had Infosys.

    Paul Graham has the best observation on what makes for an innovation hub:

    "I think you only need two kinds of people to create a technology hub: rich people and nerds. They're the limiting reagents in the reaction that produces startups, because they're the only ones present when startups get started. Everyone else will move."

    On that basis, Zurich will likely grow as an innovation hub.