The Little Giants Rocking Europe

High-tech startups are thriving, creating jobs, and grabbing share even as bigger companies falter

Christopher J. Horn, co-founder and chairman of Ireland's Iona Technologies PLC, likes to say that his company is on the wrong side of the Atlantic. The 42-year-old, a former university lecturer in computer science, has had a career typical of a successful U.S. entrepreneur. His software startup, whose product allows different computer programs to work together, made him a multimillionaire last year when he took it public on NASDAQ. Now, with five-year sales growth an astonishing 22,900% and 1998 revenues expected to top $80 million, Iona occupies the No. 1 spot in a new ranking of Europe's fastest-growing information technology companies.

Small companies like Iona are profoundly altering Europe's technology landscape. While national champions such as Philips, Siemens, and Olivetti announce one restructuring after another, a growing number of entrepreneurial companies are winning share in global technology markets. And they are doing so despite the rigid labor markets, high business costs, and meddlesome regulations that continue to plague many European countries.

The upstarts are creating jobs and wealth by selling into the U.S., challenging local rivals with novel technology and smart niche strategies. In Europe, meanwhile, many are cashing in on one-time events that are pushing formerly backward Europe into embracing new technologies. The rush to prepare for monetary union beginning in 1999 is forcing many European banks and companies to overhaul their information technology. There's also growing demand for computer systems and technicians to cope with the millennium bug. In addition, more and more Europeans want their homes and companies wired for the Internet.

By tracking their performance from 1992 through 1997, the new lineup suggests that Europe is becoming a place where technology startups can thrive. It is drawn from a study of Europe's fastest-growing small companies by Europe's 500 Assn., a nonprofit group funded by the European Commission. Of the original 500 companies, 151 are involved in computers, telecoms, or information technology services--50% more than were on the 1997 Europe's 500 list.

What's more, this group of hot tech companies greatly outperformed the overall 500 list in job creation and sales growth. Europe Unlimited, the Brussels-based research firm that compiled the study, estimates that this year alone, the IT companies on the list will add at least 13,000 jobs. BUSINESS WEEK ranked the top 15 entrants based on five-year revenue growth (table).

BRIGHT STAR. One of the brightest stars is Germany's Teles. Sigram Schindler, a professor of operating systems at the Technical University of Berlin, set up this telecom equipment supplier 15 years ago with $20,000 of his savings. Schindler supported his Berlin-based company through the mid-1990s, until he was able to raise $30 million from British and U.S. venture-capital funds. In June, he listed his company on Germany's Neuer Markt. Teles, which makes equipment for ISDN lines--phone and data lines that can carry more data than standard lines--is currently valued at $1 billion. Last year, net profits were $1.67 million on revenues of $63 million. Now, Schindler plans an acquisition spree to expand even faster.

Europe's attempt to catch up with the IT revolution is creating rich opportunities. France's Info Realite, No. 8 on the list, has seen its sales of machinery for electronic labeling in grocery stores zoom by 2,319% since 1992, to around $50 million last year. Its system allows stores to adjust prices almost immediately to fluctuations in inventory and customer demand. When the common European currency arrives in January, the systems of the Strasbourg-based company are likely to be in even greater demand, since many stores will want to double-label their goods in both national currencies and the euro.

Another engine driving the tech boom is the Internet. Europe's use of the Web is set to skyrocket from about 25% of the population now to an estimated 40% by 2002, says International Data Corp., a technology research company. That's likely to benefit outfits such as Dublin's Iona. As more companies start using the Internet to do business, they will need to mesh old software systems with new ones. Iona now has an estimated 30% of the global market in its niche.

Agile startups are pushing across borders, too. Progressive Computer Recruitment Ltd., for example, has seen demand in its home market of Britain explode as companies sought IT staffers who could retool their computer systems. Three months ago, Progressive opened its first office in Germany--soon after labor laws that blocked it from recruiting temporary staff began to relax. Chairman Bill Bottriell expects Germany to be the fastest-growing part of Progressive's business in coming years.

As this honor roll shows, some tech companies have already proved they can sustain fast growth over several years. Olitec, a French manufacturer of modems founded in 1985, has managed to thrive despite the sudden death of founder Olivier Lejeune. CEO Jacqueline Lejeune, his mother, has kept the $50 million company growing and its stock soaring. Says Hermann M. Hauser, a leading European venture capitalist: "We're starting to have some real success stories to talk about." Will the next SAP please stand up?

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