Why Poland is ready to hit the tech big time

While everybody in Europe talks about Berlin, Warsaw – or Poland in general – is rarely mentioned in startup discussions or publications. I believe that this is just about to change and you should keep a close eye on Poland. Here’s why it’s not just a patriotic claim on my side:

Don’t judge Poland by Warsaw

While in Germany the capital has clearly dominated the startup scene, Poland is a different case. Warsaw is probably slightly ahead of other cities in number of startups and access to capital, but I would say that there is at least as many interesting startup events in Poznan and Krakow as there are in Warsaw. And many of the most interesting companies do not come from Warsaw.

For Polish conditions, Warsaw is quite expensive. It’s at the same level or slightly more expensive than Berlin, but much more expensive than Poznan, Krakow or Szczecin. The former can be cheaper by 30-40 per cent when it comes to renting office space or hiring people. It is also probably easier to hire developers in these cities than in Warsaw.

And therefore it’s no surprise that many of the most successful web companies are located outside of Warsaw. So even though none of the Polish cities is making headlines as a tech hub (with some small exceptions – sounds like Mike Butcher’s a fan of Krakow), it is still a vibrant startup scene, just one spread across the country.

Copycatting is no longer an option

Poland has plenty of innovative companies with global potential, such as Appcod.es, Mobeelizer or Positionly. So why have there been no global successes, while there are such regional stars nearby as AVG (Czech Republic) or Rovio (Finland)? Many people believe – myself included – that it’s the size of the market. It’s large and yet, not large enough. 

Crowds at a Christmas festival in Warsaw – image credit: Flickr user Magic Madzik

Let’s crunch some numbers here. There are roughly 40 million people living in Poland and 22.5 million use the Internet. It’s more than three nearby markets combined: the Czech Republic – 6.5 million, Finland – 4.5 million, Hungary – 6.5 million. While Czechs, Fins or Hungarians have to be inherently global, Poles have more options to build local tech companies and still get rich.

Plus, the market has so far been less attractive for global giants than Western Europe, so Polish companies had more time than Germans to grow local versions of eBay (Allegro) or Amazon (Merlin). This is a fantastic business, adopting ideas verified somewhere else, so why take risks?

 Grafitti on a subway in Warsaw – image credit: Flickr user covilha

Here’s where it gets interesting. The market is now crowded (it took longer than for smaller markets) and the best models have either been copied or international companies have opened up in Poland. And when it comes to copying new Sillicon Valley stars like Pinterest or Square, nobody in Poland really stands a chance next to copycat professionals from Berlin. To find their place in the market, Polish entrepreneurs will now be forced to think bigger and be more innovative – or get more ambitious. Probably both.

Poland is Silicon Valley’s tech backbone…

Ok, this headline might be slightly exaggerated. But my point is that Poland has a good level of technical education and still has relatively low wages. Poland ranks third in the world in the Top Coder ranking and Polish programmers regularly take high positions in international coding competitions. And yet, a talented and experienced developer can be hired for €20,000-€40,000 a year. Try doing that in Berlin, not to mention Sillicon Valley, where an average developer makes close to $100,000 a year.

Adding the fact that Polish engineers usually speak good English and come from a similar culture to their Western colleagues, and you end up with a powerful mix. No surprise that Sillicon Valley reaches to Poland when it needs developers. Although you can outsource even cheaper to India or Pakistan, those who have tried would probably agree that the culture differences can be much greater.

Bright young things at Bitspiration 2012 – image credit: Basia Budniak

There is always demand for high quality programming and a good team can work from overseas. If you take into account that the same developer in Poland earns significantly less than half of what he would be making in San Francisco, there are good margins to be made. Now, multiply that by 20, 30 or even 50 developers and serious money come to play.

This is a very good business, in fact, so good, that many entrepreneurs choose to kill their own products to focus on the outsourcing business.

When I first met the founders of 10Clouds (one of the companies mentioned in this TechCrunch article), they were pitching their own Facebook app. They developed it and got some traction, but when I met them half a year later they had already ditched the project. “We are making good money on consulting services so we are just going to stick to that,” 10Clouds co-founder Michał Kłujszo (right) told me. Currently they employ over 20 developers and have contracts with a number of US-based startups.

…and we’re starting to leverage it

After a couple of years, though, these guys come back to the idea of doing their own thing, and it’s hard to imagine a better starting point. They already have a well organised, relatively cheap technical team, some seed money and international contacts on hand.

That is exactly the case of Applicake. Located in Krakow, they’ve been coding projects for businesses and startups from Europe and US for over five years. Now they are moving on and, while still maintaining their consulting business, they’ve started working on a new venture – Credictive.

Smart capital’s starting to flow

One of the key elements to Sillicon Valley’s success is the ecosystem in which successful entrepreneurs retire to being angel investors or VCs. Arguably the experience, knowledge and network they bring in, in many cases, is worth more than the investment itself.

Poland’s now starting to form a similar ecosystem. In Warsaw, there is Chris Kowalczyk from Hard Gamma Ventures (left). Zygmunt Grajkowski is probably one of the most experienced and successful investors in this part of Europe, while in Poznań Bartek Gola has great marketing background. In Krakow, Piotr Wilam, creator of Onet (the largest Polish portal), not long ago started his accelerator and VC fund.

On top of that, Point Nine Capital is actively investing in Poland and Pawel Chudzinski (right) is better known there than many local investors. These guys offer not only money, but more importantly – lots of experience and contacts including investors from Sillicon Valley.

We are one step closer to our own, Eastern European ecosystem, that is going to be different than the one in Silicon Valley or even in Western Europe.

We might not create the next global social network – but don’t be surprised to see more useful tools, regional behemoths and clever games hitting headlines soon.

For related reading, check out:

• The six bloggers shaping Poland’s tech blogosphere
• Positionly raises $300,000 from Point Nine and Polish angels

Maciek Laskus worked on several startups in Poland before moving to Berlin, and now helps companies from Western Europe and the US outsource to Eastern Europe. Here, he takes the floor to argue for Poland’s startup potential:

This post was originally published on VentureVillage, one of VentureBeat’s editorial partners in Germany.

Top photo: Meetup @ Hive53 startup hub in Krakow – image credit: PhotShot

This story originally appeared on VentureVillage. Copyright 2012