"In France the only way to get rich is to start a company," says Alpha AssociÉs' Dominique Peninon. In France new companies create about 600,000 jobs a year -- half the new jobs created overall each year. That figure illustrates a trend that, as in the United States, has unfolded since the hard economic times of the mid-1970s. Between 1975 and 1982, 1 million jobs disappeared from French companies with more than 500 employees, while in the same period 1 million jobs were created by companies with fewer than 20 people.
It was in 1974 that economic crisis struck France. The oil shock and inflation hit the aging, centralized corporate structures hard. "It took five years for people to react and another five years for people to decide what to do," recalls Bruno Dufour, president of Lyon Graduate School of Business. The school is the most active in France in teaching entrepreneurship. "We have a specific program for start-ups and an endowed chair for teaching about start-ups," he says. Each year the school turns out 25 new start-up managers, and in the past three years faculty at the school have started 17 new companies. Dufour believes that power will shift to more commercially oriented cities like Lyon as the economy continues to decentralize and French companies go increasingly pan-European.
Cross-border alliances linking ideas with money are becoming more prevalent throughout Europe. According to the European Venture Capital Association, transnational investments by its members more than doubled, from 323.1 million to 837 million ecus, between 1989 and 1990. (An ecu, roughly equal to a dollar, is the proposed common European currency.) That dynamic is reflected in the relationship between 3i, Britain's largest venture firm, and SCV Audio, a small French manufacturer, distributor, and installer of professional audio equipment, based near Paris in the suburb of Roissy. For four years running, SCV appeared on a list of the fastest-growing small companies in France, as tracked by a business monthly, L'Entreprise magazine.
Richard Garrido, an SCV founder and the company's marketing manager, recalls how that recognition elicited a cool response from customers. "Only about three picked up the phone and told us how great it was to be working with such a successful company. We heard indirectly that about 50 of our customers were unhappy. They said, 'Look how much they're making. Why don't they lower their prices to us?' They have no clue what profit is all about. In France making money is still taboo." But SCV's profit, while turning off some customers, was also attracting smart money. "The phone started ringing off the hook." The most ardent caller was 3i, which has arranged more than one-third of the 1,000 management-led buyouts that have occurred in the United Kingdom over the past decade. 3i told SCV that it could help recapitalize the business and offer strategic advice. Recalls Garrido, "They told us we had a Formula One car, and that they could turbocharge it." 3i advised SCV to acquire competitors in Belgium and Spain. Garrido was incredulous. "We had just bought a company in Holland," he says. To SCV Audio, which started life in 1978 with three guys kicking in $1,000 each and has now grown to a $20-million company with 18.5% market share in France, that acquisition seemed ambitious enough for the time being.
Not so, rejoined 3i. "You have to have critical mass because of the single European market," says Garrido. He notes that today SCV may have 18.5% of the French market, but come 1992 it will suddenly have only 4.5% of the European market -- unless it makes some acquisitions. He adds, "The way to reach critical mass is not to say, 'I'm going to sell in different countries,' but to use the existing tools in those countries -- make acquisitions." Despite the coming of the single market, says Garrido, "the cultures, customs, and languages are very different in Europe."
SCV has since made acquisitions in Belgium and France. It is working on a deal in Spain. In the course of acquiring, SCV has received three buyout offers itself. Swallow or be swallowed. SCV is not alone in its search for critical mass.
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While the big money scours the landscape for the Formula Ones that will dominate Europe in years to come, grass-roots start-up companies still struggle. Yet a new phenomenon is arising in the provinces: entrepreneurs who have built companies are now turning around to finance new ones. One of the more barren regions in France for new companies is in the north by the Belgian border, around Lille, population 171,000. Here, the old-line industries of textiles, steel, chemicals, and coal have been in retreat for a generation.
But Lille is also home to the Mulliez family, its wealth somewhat hidden, its instincts entrepreneurial. The family is a founding member of the Club des Gagnants (The Winners Club), a group of about 150 entrepreneurs in the Lille region, formed to raise the visibility of entrepreneurship. The Mulliez money sprang from the textile trade, but when that business faded in the 1960s, the family moved into distribution and services. It runs the second-largest superstore chain in France, which the family started from scratch nearly 30 years ago.
In 1986 the family started La Fondation Nord Entreprendre to help start-ups in the northern regions of France. The chairman of the foundation is AndrÉ Mulliez, 62. The foundation makes grants, which are repaid if the new company takes off. If not, the debt is forgiven. The grants are not investments. "We are nonprofit venture capitalists," says the foundation's director, Marc Saint Olive. "We lend money, we don't give it away. Otherwise there is no respect in the relationship. We always lend to the man -- to the creator, not to the company."
