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Monday, March 18, 2013

Viljandi Incubator : How to waste 684,000 Euros

Viljandi Creative Incubator : Wasting 684,000 Euros

One sign of a bubble is when there is too much money chasing an insufficient number of good ideas. The Viljandi Creative Incubator (Viljandimaa Loomeinkubaatorid) was set up to fail from the start.

According to EAS records, they have received 684,715 EUR in funding over the past few years:

Who in their right mind would spend that sum on an incubator located in a tiny city of 20,000, to help companies produce clothing and handicrafts?

Let's look at some numbers.

Incubated Firms

According to their current webpage, there are 3 companies in incubation. Looking at an archived version of their site, another company (Tuuli Jõesaar) used to be on their list. To be fair, let's look at the results of all 4 companies:

  1. Kristiina Libe - Clothing design and production. Her website (a blog) is by invitation only, so we're going to assume this was not a success.
  2. Margit Varik - Clothing accessories design and production. Only post on her website is from November 2011, and there's no pricing listed, so we're going to assume this was not a success. (Though we will say her designs are nice.)
  3. Karolina Lehtma ja Liisi-Ly Viikin - Clothing design and production. Their site is just a Pinterest page with no contact information, nor pricing. We're going to assume this was not a success.
  4. Tuuli Jõesaar - Leather accessories design and production. Her website (a blog) was last updated in August 2012, and all the posts seem to be detailing the process to develop a product but still nothing for sale. We're going to assume this was not a success.
So of all 4 companies in the incubator, all of them have failed to succeed. This is the type of result that 684,715 EUR can buy?

Our Take

This project was set up to fail from the start, and we think the people who make the decisions were smart enough to know this. It appears the funding came via ERDF (a regional development fund) so it had to be spent outside major cities like Tallinn. Thus, they wasted this money in Estonia's 6th largest city -- a city with so few people that there are more people living on one street in Tallinn's Lasnamäe district than in all of Viljandi. Our theory is that they figured they had to spend the money or they would lose it, so might as well create a few jobs in Viljandi, for a project that was doomed to fail.

Why was it doomed to fail? As we can see from the 4 incubated companies, the focus was on the clothing and textile industry. This industry is extremely competitive, with enormous downward cost pressure and where marketing and building a brand is extremely costly. As far as we can tell, none of the people behind the incubated companies, nor behind the incubator itself, have experience in this area. It's one thing to be able to sew pretty dresses, but it's another thing to mass produce clothing, market a brand, and obtain wide distribution.

There is also little ability to protect the designs, so what's to prevent a major manufacturer like Zara from coming out with a similar product? We do know that Zara has the scale and efficiency to undercut (on costs) and out-produce any Estonian producer.

We do like Viljandi as a city, and we do like some of the designs of these incubated companies (with the exception of the dead rabbit photos from Jõesaar's site). However, the idea of an incubator in Viljandi to promote Estonian clothing producers is just a stupid waste of money.

13 comments:

  1. Viljandi is not just any city of 20,000. You make it sound like they just made a random selection. Besides the folk festival and related culture, they have a Tartu U. offshoot that teaches native handicrafts. I.e., money, including EU money, is also spent (gasp) on such things as birchbark canoe construction, blacksmithing, and loom weaving... I don't see how it's a bubble. I doubt the people in these areas live flashy lives and drive Mercedes. Better 600,000 of "wasted money" in the sticks than more chrome and glass in Tallinn, I say.

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    Replies
    1. I agree that this Glass cross shit in the middle of Tallinn is a disgrace. They could of lighted up the entire castle walls and highlighted the natural features, done some renovations, instead of this totally tasteless bling-ed out cross.

      Can we petition to just take it down. I'm sure we an get enough donations, without using tax payer money, and sell off the pieces of the cross back to russia for a profit. I hope that cross is temporary... right?

      Delete
  2. What does that have got to do with ".ee bubble" ?

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  3. Good job who ever made this "project" .To receive 600k EUR just by creating 4 half finished websites.Well Done by all means!!! I dont even see no blame for those people who start the project. Surely they didnt expect to actually get the money,probleby was more like long shot whaT ACTUALLY HIT THE MARK. And by MARK i mean corrupted/not competent official.And if thats they way to make money in Viljandi,go for it!!

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  4. Even though I generally think it is good you outline the problematic cases, I would think that it would be fair when you compare apples to apples. What is the overall success rate in government-funded initiatives? What is the funding rate of the thousands of mediocre accelerators in the world (leaving out YC, Techstars, et. al), what is the effect on GDP on having EAS-alikes in the rest of the world, etc.

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    1. I guess you are right in the sense that EAS is not worse than many other EAS-alikes around the world. However, it is difficult to understand why government should interfere in the first place. Government's task should be to take care of things which don't get done with private money. Now, the government collects money through taxes and pretends it understands something about innovation - which it doesn't.

      In the end, taxpayers' money is poured to projects headed by people who know how to lobby their "innovation". In the end, this only distorts competition and keeps alive companies which should not have existed at all.

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  5. Dear Anonymous,
    On Monday we found your blog post about Viljandi Incubator on http://doteebubble.blogspot.com/. We understand your concern about spending EU money. First of all, we would really like to show you what we really do here in Viljandi. Thus, we kindly ask you to visit us at Viljandi Creative Incubators. We understand that you have not found all the relevant and important information about us from our website. Therefore, we would be very happy to introduce our textile and metalwork incubators, our employees, partners and Viljandi.
    Unfortunately, we have to agree that information about us has been rather modest. We would also like to thank you for pointing out this weaknesses. This is something that we can work on and improve!
    As we understood you are blogging to point out what is important and to make a world better place to live. This ideology coincides with our goals as well! Thus, we would suggest a cooperation between us: how about letting your readers know about developments in Viljandi by writing guest-posts about us etc. How does this sound to you?
    You are more than welcome to ask further questions and we will do our best to let you know what we are doing here, why we are doing this and what are our plans and goals for future.
    With regards,

    Kristi Kivestu
    Viljandi Creative Incubators Foundation
    kristi@loomeinkubaator.ee

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    Replies
    1. Hi Kristi,

      Thanks for your feedback. Our analysis was based on the data available to us. You're welcome to write a response to our analysis, and we will post it on our blog. You can email it to us at doteebubble@gmail.com

      Our readers would probably be interested in numbers like the revenues of incubated startups, number of jobs created, etc.

      Delete
  6. I think it's also important to realize that there is a difference between an incubator like the one in Viljandi (which I assume is EU-funded and more of a local economic development effort).

    vs

    An outfit like Start-up Wiseguys, which is a group of people (with relatively few accomplishments in the technology field), trying to play the start-up lottery with other people's money.


    I also find it admirable that Kristi Kivestu has invited the blog's author to tour their incubator facilities in Viljandi. This is an admirable response and to me, shows a desire for open dialogue and improvement.

    I'm assuming there's been no such response from Start-up Wiseguys, and is probably indicative of the defensive attitude that have flared up from men such as Ragnar Sass and the like.

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    Replies
    1. Hey, I'd appreciate it if you would stop posting on your own blog under my name. It's really obvious. At least make me sound better!

      Delete
    2. TIL: There is only one person in the world called Greg

      Delete
  7. Dot EE Bubble - please provide us more examples.

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