Gylfi Zoega
ABSTRACT In this chapter we establish a common set of values and resulting attitudes that characterize the founders of four successful, innovating companies. Each company is founded on the basis of an indigenous innovation, not merely the application of new technology. Some of the values detected and determined will then be used in subsequent studies on the relationship between values and innovation at the national level.
In previous chapters, it was found that indigenous innovation in the 1990s was higher in the US, the UK, and Scandinavia than in the continental European economies and Japan after 1990 and picked up from its pace in the 1970s and the 1980s while it slowed down further on the continent and in Japan. The objectives of the four chapters in this part of the book are, first, to establish a set of values and beliefs that can explain this pattern and, second, to study the consequences for labor force participation and job satisfaction when such values are lacking.
The objective of this chapter is to determine a common set of values and resulting attitudes that characterize innovators by interviewing the founders of four companies. The results of these interviews will then be used to guide the empirical work conducted in the subsequent chapters using aggregate data on values and beliefs. The companies include two software companies, Solfar Studios1 and Plain Vanilla;2 one producer of prosthetic limbs, Össur;3 and one company that developed software to maximize airlines’ seat utilization rates, Calidris, now a part of Sabre Airline Solutions.4 Of the four, Solfar and Össur are still independent companies, Calidris became part of Sabre Airline Solutions, and Plain Vanilla folded its operations and fired its staff in 2016.
The interviews took place in September and October 2015 at the University of Iceland and Plain Vanilla’s headquarters. Each innovator was invited for an interview, and minutes were taken. The purpose of the interviews was to understand the founding ideas behind each company and, most importantly, to identify a common set of values and resulting attitudes among the founders.
We interviewed Thor Gunnarsson, founder of Solfar Studios. He has a long history and experience in the software business dating back to the early 1990s.
1.1.1. History. Most software companies existing in Iceland today trace their origins to a company called OZ, founded in the 1990s.5 The formation of that company was the beginning of innovation in the software sector. When OZ was dissolved at the end of the decade, the main players went on to create other companies. One of these companies was CCP Games, which creates computer games that allow people all over the world to play together.6 A third-generation company, Solfar, was founded in 2014 by three senior executives of CCP Games and OZ. These individuals, who can be characterized as “serial entrepreneurs,” had previously worked in the UK and the US. Our interviewee, Gunnarsson, was one of these three people. He said that when Solfar was founded, they had the notion that they could set up a creative studio in the entertainment software sector in Reykjavík, given the experienced talent base that had accumulated there over the previous 20 years.
The individuals who came from OZ had an interest in computer graphics; at OZ they combined real-time graphics with the social environment on the internet in a three-dimensional, multiuser setting. Hence, when they founded CCP, it was their personal interests and background that led them to establish an online computer game company. CCP had very limited competition until Solfar produced a new technology platform: the virtual reality headset.
These companies catered to new markets where their skillset—computer graphics, video games, and immersive three-dimensional environments—could be used. These Icelandic companies were propelled by the initial interests of the founders and their accumulated expertise dating back to OZ. The success of these software companies attracted overseas talent, which then set in motion a new set of start-ups. Creative destruction is common in the industry. Companies fail, and people move or start new companies.
The innovation that took place in Iceland was made possible by new technologies that do not penalize long distances. Software does not require inputs that must be imported, since anyone with the required skills can develop the software anywhere in the world. The cost of production in the software business is also limited, because the business is knowledge based. In effect, the cost of distribution was made trivial with the introduction of the internet, making it possible for distant countries to access the market. Other factors favoring Iceland include early and rapid adoption of the internet and cultural receptivity to innovation.
1.1.2. Values and infrastructure. The foundation for the creation of the new software companies was a pool of people who were trained in software programming, had studied abroad, and had a solid educational background. Iceland has good schools and universities, and many people go overseas for postgraduate studies. (One cofounder of Solfar studied physics abroad.) These students then take their academic learning back to Iceland, where a variety of people who have studied in different countries come together to pool their ideas and experience. In this sense, Iceland is not homogeneous but rather a melting pot of people with different educational backgrounds who bring together traditions and approaches from a diverse set of countries.
The culture of the country was another foundation on which the success of these companies was based. Iceland’s tradition of storytelling, literary history, fine arts, poetry, and music, when combined with programming skills, creates an environment ripe for innovation in this sector. Furthermore, Iceland is forgiving of failure and appreciative of risk-taking, whereas in the UK, for instance, failure is frowned upon. Risk-taking is a part of Icelandic culture. Hence risk-taking, good education, and creative individuals in Iceland helped the software industry to develop.
In terms of the institutional setup, the regulatory framework and easy access to financing made Iceland a good place to start a company, although it is more difficult to expand an already successful start-up without moving elsewhere. The country provides a good environment for families, with inexpensive kindergartens, free schooling, and subsidized healthcare. As a result, innovators with families do not have to risk their children’s schooling or their family’s healthcare when they set up a company. This provides further incentive to take risks.
Experience indicates that it is better to fail early and restart rather than spend substantial time forecasting and planning. Because the market is fast-moving, developing prototypes and testing the market is more useful than extensive planning. However, Gunnarsson started OZ with a detailed business plan because a business plan is a useful thought exercise and also required by creditors. A good combination of people and a good plan go together.
1.1.3. Financing and the macroeconomic environment. The financing environment in Iceland is mixed. Early-stage financing is reasonably accessible and includes friends and family, angels, and seed financing. In contrast, there is a gap in expansion capital—just over a million dollars—which has hampered growth. Larger-scale financing through banks and pension funds is also available, and more recently launched venture capitalist funds, such as Brunnur, support start-ups.
The capital controls imposed in 2008 and in effect until early 2017 hampered foreign investors wishing to invest in Iceland. Under the capital controls, bureaucracy was a significant impediment to capital inflows, and there was some friction involved in dealing with the Central Bank. In this sense, Iceland differed from other Western countries and more closely resembled a developing country like China. But abolishing capital controls does not solve all problems associated with being located in a tiny country with the world’s smallest independent currency. Before capital controls, there were exchange-rate fluctuations that nearly made CCP move abroad.
1.1.4. Trust. CCP decided to stay in Iceland despite the exchange-rate volatility and subsequent capital controls (from which CCP was exempt, but the country’s reputation among investors was nevertheless affected) because its executives were familiar with the environment and knew the rules. There are fewer frictions, laxer regulation, and more rapid decision-making in Iceland than in neighboring countries such as Sweden and the UK.
Icelandic companies have a less hierarchical structure; they are flatter organizations with less veneration for senior executives. This is part of the culture, due perhaps to small company size. At CCP, with 650 employees spread across many countries, one could see that the hierarchy in Iceland was flat compared with the other countries.
Moreover, there tends to be more trust in business relationships in Iceland. People trust each other until a lack of trustworthiness is proved. This is a function of how small Iceland is—most people in a particular industry know each other. Personal and business reputations come with individuals who are given the benefit of the doubt. In contrast, in the US or in China, one has no frame of reference for the people one meets; therefore, skepticism is greater. In the US, the default operating procedure is not to trust others until trust is earned.
Trust is one of the reasons for the rapid formation of companies in Iceland. There is also a large element of trust in employer-employee relationships, one’s relationship with one’s bank, with lawyers, and so forth.
1.1.5. Export orientation due to small size of country. Not having a home market has also helped Icelandic start-ups. The companies have to start out thinking about the international market; thus they immediately face competition from companies abroad. This also helped Nokia in Finland. Conversely, in China there are very large game developers that operate only in China and have no success in exporting because of a lack of competition from abroad.
1.1.6. Desirable qualities of employees and the values of founders. Employees should be independently minded, think outside the box, and be able to make decisions for themselves or the small team they are working with. Communication skills are important, as is education, but work experience can substitute. As the company grows, the need for more specialization sets in. Rapid decision-making and communication skills are important in the smallest firms (<30 people). The founders’ personalities will affect the kind of people who are hired, but as the company grows, a more diverse group of people is recruited.
Founders like the rewarding nature of working in a highly creative industry. They are attracted by financial independence and the prospect of becoming rich, although money is not the principal motivator. People who are attracted to innovation have an appetite for uncertainty and risk-taking, which often leads to successful start-ups. An appetite for challenge, the willingness to take risks, the ability to work in an uncertain situation, personal temperament, and background are key factors. Finally, innovators should be able to accept failure and not take it too much to heart. Societal attitudes toward failure may help or hurt, as the case might be. In Iceland, failure tends to be forgiven, which helps would-be innovators.
At Plain Vanilla, we interviewed Arni Jonsson, chief technology officer, and Thorsteinn Fridriksson, the CEO.
1.2.1. History. Plain Vanilla is the company that launched the unexpected hit Quiz Up, a trivia game that became very popular with more than 40 million users. Plain Vanilla employed 90 people full time in 2016. The company was founded by Fridriksson in 2010, soon after he graduated from Oxford University.
Before founding Plain Vanilla, Fridriksson had worked mainly for other start-ups. He was generally interested in the start-up concept and idolized innovators like Steve Jobs and Elon Musk. A turning point in Fridriksson’s life occurred during his time at Oxford when he participated in the program Silicon Valley Comes to Oxford. Some of the biggest names in Silicon Valley—including Tesla founder Elon Musk and LinkedIn founder Reid Hoffman—visited MBA students and spent a full week with them. Fridriksson found the program very inspiring, but when he came back to Iceland in 2009, the country was in the midst of an economic crisis. While working in start-ups for other innovators, he realized that he wanted to establish his own business.
Plain Vanilla comprises several divisions. One is in charge of sending survey questions to users. The company does not compose the survey questions; rather, it fields questions from experts, which it then edits. It also responds to users’ demand for new features in the game.
Most of Plain Vanilla’s staff members are programmers or engineers who create the Quiz Up apps for iOS and Android, run the websites, and perform data analytics. While the users are using the apps, the company tracks their moves. The analysts are notified, for example, if a majority of users use one feature instead of another, which helps the company gauge product performance. Company staff includes quality assurance and user support personnel, a product manager, graphic designers, a financial department, and a human resources department.
1.2.2. Funding. Securing funding for Plain Vanilla was not easy. One of the cofounders put all of his savings into the company, and collectively, the founders did several side projects for other companies to raise revenue. Plain Vanilla developed the Icelandic Dominos Pizza app, for example, which generated substantial revenue. However, what they raised was just enough to launch the game The Moogies.
“We basically had to make it or break it, and it broke,” said Jonsson. In spite of this setback, the founders managed to keep the company afloat by focusing on what had previously been side projects. These were gloomy times. They did not give up because they were able to raise minimum revenue by working as contractors for others, and they believed in what they were doing; they figured that as long as they could pay the bills, there was no point in giving up.
They managed to raise some capital from an Icelandic investor on the premise that they had an idea and were going to work with a foreign incubator. This investor gave them a few million Icelandic kronur in return for partnership in the company, but this was only enough to keep them afloat for a few months. They had exhausted the financial resources available in Iceland.
After the financial crisis of 2008, investors were skeptical, and even though OZ and CCP had been successful, Plain Vanilla was often denied funding because those companies belonged to the past and many others had failed since. Investors doubted that Plain Vanilla would be any different. Even though they carried on and contacted a start-up incubator in San Francisco through the friend of a cofounder, when the founders arrived in San Francisco, they were once again in a make-it-or-break-it situation.
When Plain Vanilla presented the idea to the US incubator, the response was lukewarm. In the incubator’s opinion, trivia games were some of the most boring imaginable. But they didn’t turn Plain Vanilla away. At first glance they thought Plain Vanilla was up to something good. The people at the incubator were experienced, but Plain Vanilla’s founders gradually came to realize that the people at the incubator had no idea what Plain Vanilla was doing.
The incubator helped found Plain Vanilla Corporation in Delaware, which is the parent company of Plain Vanilla in Iceland, and handled all the legal matters. All that remained was to sign the papers to transfer ownership to the Delaware company. Then, all of a sudden, the owner of the US incubator disappeared; the person, who turned out to be a chronic alcoholic, was drinking heavily and nowhere to be found. At this point, Plain Vanilla’s founders realized that they had to break away from the incubator. They hadn’t signed any binding agreement with the incubator, so they backed out. The incubator had gotten them working facilities with IGN enterprises, and Plain Vanilla’s founders negotiated with IGN to keep the facilities even though they had left the incubator.
There were limited funds to work with during the time in the US, so it was crucial for Plain Vanilla to find its first investor abroad as soon as possible. Its founders contacted another Icelander, the CEO of Unity 3-D, and presented their work to him. They had no previous relationship with him, but as they said, “You know Icelanders tend to help each other out in foreign countries, so he agreed to meet with us.” He became their first foreign investor. Unity 3-D is a very successful company that produces the game-development platform on which most mobile games run; therefore, the CEO has a huge network of contacts in this sector. The contact that proved to be most fruitful was Sequoia Capital, a venture capital firm specializing in start-up stage investments in private companies. The story of how they got a meeting with Sequoia garnered fairly extensive news coverage for a while and has become something of a legend.
The Icelandic investor had set up a meeting with the head of Sequoia Capital and the stakes were high. “So the Sequoia guy shows up and the Icelandic investor tells him that he is finishing a meeting with the CEO of PV [Plain Vanilla] and will be with him ASAP, but he should maybe join them for the last minutes, for he might be interested in this idea PV is working with. The Sequoia guy got a little irritated because the investor had tricked him into meeting with the CEO.” Within five minutes, the CEO managed to sell the Quiz Up concept to one of the most influential investors in Silicon Valley. Sequoia invested in Plain Vanilla, and that attracted other investors as well, so when Plain Vanilla’s founders headed back to Iceland, they had over US$1.1 million in equity—a huge victory.
1.2.3. Product development. The US incubator connected Plain Vanilla to a wide network in the US while providing financial support for the development of the founders’ new idea: creating a trivia game for mobile devices. The idea came about when they reviewed their earlier failed experiment of The Moogies. The Moogies relied heavily on videos, which made the content-creating process extremely slow. Plain Vanilla’s group of graphic designers and illustrators worked for over a year creating the video content for that game. “If you want to make it in the app store, you have to be quick to adapt. You have to constantly update your product in order to remind the consumer of it,” said Fridriksson. So the founders discussed among themselves what kind of games they could create and update every month. They saw a new opportunity in trivia games.
No one had really entered that market, and they decided to seize the moment. Trivia is a well-known concept in board games, and they had seen other developers use board game ideas as a springboard, including an app based on Pictionary and the Scrabble-based Words with Friends app. At this time, there was no trivia-focused app that could be considered successful.
What separated the Plain Vanilla trivia game from the existing competition was quality. It is very easy to create a trivia game for use in single-player mode by a solo player, but Plain Vanilla’s founders thought that playing online would be a more pleasant experience. So the company took its trivia games to the next level. Previous developers had focused on copying Trivial Pursuit instead of incorporating creative thinking into the process. This, of course, is a limiting factor. There are a limited number of topics and possibilities. But Plain Vanilla’s line of thinking was this: the user has a device that is connected to the internet; let’s take advantage of that and create an interactive trivia game with endless possibilities. In this sense, it was the first company to fully utilize mobile technology in this category of games. It planned to launch multiple apps, one for each trivia question topic.
1.2.4. On making plans. According to Jonsson, plans are all well and good, but an innovator must be willing to change them as the wind shifts. The world of technology is so fast-moving that it is not realistic to make long-term plans. Plain Vanilla started out with some plans but has made many changes over time. The original plan was to create a large number of small-scale apps, or satellites. It created Quiz Up Eurovision, which attracted 2,000 users; next came Quiz Up Batman, in cooperation with IGN, which had 200,000 users. Then it designed the official Twilight app, which was promoted by the producers of the Twilight Saga. The Quiz Up Twilight app had around 1 million users.
Next, Plain Vanilla was going to release what it called the “mother app,” with a vast number of categories to choose from. The plan was to direct users to the mother app through the satellite apps and to keep releasing new satellites every month. The mother app, Quiz Up 1.0, was released on November 7, 2013. It was an instant success. During the first week, over 1 million people downloaded it. Plain Vanilla’s founders had dared to hope for a million downloads over the first two months but considered that to be optimistic. Quiz Up 1.0 was the most downloaded app in the app store for several weeks.
By this time, Plain Vanilla realized that it should focus on Quiz Up 1.0, which meant no more satellite apps; the company had to change course. It had established a user base large enough to be its number one priority, so there was no need to do anything else. This is an example of plans changing virtually in the blink of an eye. Quiz Up 2.0 was released on May 21, 2015. The update introduced more social features. Each topic has its own front page where users can post pictures or links to a website related to the topic and have discussions. Users who like Game of Thrones, for instance, probably like both the TV show and the books; they are also likely interested in videos or pictures of actors who appear in the show, and so on. Plain Vanilla staff is constantly working on improvements for Quiz Up 2.0. Around the time this interview began, the company sent out a press release about a new game show on NBC, to be called Quiz Up America.
1.2.5. What makes innovating attractive? Innovating gives a level of freedom, including not having to be somewhere from nine to five. Then there is the need to create something. Jonsson thinks this line of work requires dogged determination. Sometimes the work requires 14-hour days for several months on end, leaving no time for anything else. But there are rewards, too. It is the combination of creativity, freedom, and the need for doggedness that is so appealing.
Jonsson has stock options and golden handcuffs, but that is not why he is doing this. He feels passionate about creating, but success requires having the ambition to generate a remarkable product. He wanted to create the best app in the world and spent a week perfecting the scrolling feature within the app alone. He wanted it to feel just right for the user.
Good taste matters as well; if a developer doesn’t have good taste, people will not like the product. Creativity and persistence are of little use without good taste, and the creator must set high standards.
1.2.6. Necessary qualities in staff. Jonsson values experience more than education. He said, “If someone didn’t go to university but had created his own app, I would hire him rather than some guy with a degree who has only done some school projects.” He looks for smart people, but the most crucial thing is the ability to communicate well. If they can’t communicate, then they might have great ideas but no one will hear about them. “Our employees have to function in a group and communicate with their peers,” he said. “Some members of our staff are musicians, but I think that is just a coincidence; at least, it’s not intentional. The hiring process is really tough. They interview you, and if you might be something they are looking for, they get you working for four to five hours on real projects, follow your every move, ask you to describe what you are doing, the reasons behind it, and so on.”
What the CEO values in his senior staff members is some element that comes with people who possess impetus. People don’t change very much from their teens onward, so he values what they’ve done in the past. If someone has set up his own business and failed, that is the best recommendation that person can get. Whether the person was active in her school’s social scene says a lot. “I think most of my senior staff was at some time the head of the student union in their college. Some people say that this title is meaningless, but there are some characteristics that come with it. They have initiative and they have impetus.”
1.2.7. On networking. Networking can be extremely valuable if one is presentable and willing to use people skills, which is just being good at networking. Ideally, networking should be methodical; upon meeting a person, one has to realize what it is one wants from them. This might sound a little bit cold and unemotional, but if an innovator is looking for investors, for example, and meets someone he or she realizes is unlikely to invest in the idea, the innovator must consider who that person’s contacts are. The goal with every meeting should be either collaboration or an introduction that leads somewhere else. The social structure of Silicon Valley is layered, perhaps not unlike the caste system in India. Those at the bottom have an idea but no funding. At the next level are innovators with funding, then those with established businesses, followed by those who have become investors, and so on. Participants must start at the bottom and tackle each level as it comes, just as in a video game where players gain experience points in order to reach the next level. As a player, one meets higher-ranked players who can make horizontal or vertical introductions. This is, without a doubt, a small world. The key is to get to the top of it.
Even when dealing with the large US businesses, it all boils down to interpersonal communications. Jonsson said, “If you are afraid to go in there and ask for an appointment with the CEO, you are making a mistake. You won’t always succeed, but you’ve nothing to lose and should definitely not be afraid. They are just people like you and me who sometimes have trouble at home and experience good and bad days. If you manage to establish a bond with them, that can be influential for your business. So in short, the most surprising thing is how human communications are when you are doing business at this level.”
Calidris was formed by Magnus Oskarsson and Kolbeinn Arinbjarnarson in 2002. The company provides revenue integrity and business intelligence solutions for the global airline industry. Calidris offers several advantages: first, an entry-level revenue integrity service, the Calidris Booking Integrity solution, which finds problems in airline bookings and supports the processes to eliminate them; second, the Calidris Total Revenue Integrity solution, which monitors bookings, reservations, tickets, and departure control to ensure that no revenue leakage occurs; and finally, the Calidris Empowerment solution, an integrated passenger and flight data store and process management engine.
There was a turning point when Sabre made contact in September 2009. Sabre and Amadeus are the two dominant providers of IT services to airlines and the travel industry. Sabre, originally founded by American Airlines and IBM, developed the world’s first e-commerce system. Sabre has 9,000 employees and is headquartered in Dallas, Texas. It offers a multitude of passenger marketing and optimization services to airlines and wanted to acquire Calidris because it needed a world-class revenue integrity system. The acquisition was completed on March 29, 2010.
A manager from Sabre moved to Iceland to integrate Calidris within Sabre. The founders continued for three years as product evangelists. The Sabre manager studied Iceland’s business culture and promoted the Iceland branch in Dallas, which was key to successful integration. The local office continues within Sabre and now has 55 staff members, up from 35 at the time of the acquisition. Calidris was the first Icelandic IT start-up to maintain a healthy operation in Iceland after being taken over by a foreign firm.
1.3.1. The background of the innovator. Oskarsson started his university studies in engineering but soon shifted to computer science, which was just starting at the University of Iceland. He earned a bachelor’s degree in computer science and began working at the National University Hospital of Iceland. He then finished a master’s degree in computer science in the US and an MBA in Switzerland.
1.3.2. Product background. After finishing his MBA, Oskarsson worked for Icelandair for six years and became quite familiar with airline operations. He created the frequent flyer program still in use and implemented a modern revenue management system. The objective is to maximize profits by balancing prices and seat utilization. The system forecasts demand for seats at different prices and optimizes revenue by limiting availability to lower-priced seats if purchased in advance and higher-priced seats if purchased closer to departure, thus taking advantage of the differences in price sensitivity and buying behavior of different market segments. This was a change from the practice of the 1960s, when all seats were sold at the same price. Prices are lower if you buy well in advance.
This idea for revenue integrity came up at Icelandair. To maximize load factor, the common airline practice was to forecast the number of no-shows and overbook to compensate for the expected no-shows. One peak-season day in July when all of the flights were fully booked, a flight from New York had 10 vacant seats despite significant overbooking. Looking for an explanation, Oskarsson then asked for a printout of the no-show bookings. A woman told him that she could have told him in February that these people would not show up. The reason was that passengers who book through a travel agent do not have to buy the ticket at booking time, and Icelandair did not monitor whether the bookings had actually been paid and tickets issued. Oskarsson realized that they were addressing this problem on the wrong level of detail: they should have been monitoring bookings and ensuring they were genuine and really paid for, instead of forecasting no-shows at the flight level. But it was not possible to implement these new processes in the 30-year-old IT systems that airline used. Two ideas emerged: first, to replicate the bookings from the old systems to a database that made it possible to do the work, and second, to use the data to find problem bookings and eliminate them if they were not paid for and ticketed at the prescribed time, freeing up capacity that could be sold to real paying passengers. No solutions seemed to be available on the market.
After leaving Icelandair for a stint as managing director of OZ, Oskarsson founded Stonewater International with an American partner and started to develop a system based on those two ideas. The system monitored the airline bookings, looking for fake names like Mr. Test and Mr. Donald Duck, passengers who had double bookings, and bookings that were not ticketed and paid when they should have been. Icelandair was the pilot customer and paid for the development work. This system reduced the number of no-shows by 60 percent in the first year of operation.
The American partner quit in 2002 and Oskarsson and his cofounder, Arinbjarnarson, an ex-colleague at Icelandair, founded Calidris, which took over the operations of Stonewater. At this time, the concept of revenue integrity was being established in the airline world, and Calidris was quickly able to establish itself as a leader in the field, initially by having the best technical solution and subsequently by creating the most value for the airline customers.
1.3.3. Expansion. Calidris started its international expansion with a contract with Finnair in 2001. While the terrorist attacks on September 11, 2001, reduced demand for the company’s services, work for Finnair kept it alive.
At this time, Finnair began to use a newly developed reservation system from Amadeus, and Calidris integrated its system with Amadeus, which proved to be a key to later success. The company continued to expand by adding leading airlines such as Emirates in 2004 and British Airways (which signed a large contract for the data replication and process management solution without the revenue integrity system) in 2006.
Mr. Test dropped from the bookings, as did Mr. Donald Duck. Passengers booked on two flights to the same destination could be dropped from one flight since they could not be in two places at the same time. The company found that travel agents were able to gobble up low-price seats and thus cheat airlines by booking dummy bookings to fill all available seats, then, when a real customer arrived, canceling one of the bookings and quickly rebooking to get access to low-cost seats when they should not be available. Calidris prevents such schemes. With the Calidris solution, Emirates increased its profits by $8 million in the first six months and seat utilization on high-demand flights rose from 92 percent to 97 percent.
Later, the company added Austrian Airlines, Avianca in Colombia, Virgin Atlantic, Czech Airlines, and a number of smaller airlines. The company also entered into a large contract with Cathay Pacific in Hong Kong for the data store and process management solution.
By 2018, the revenue integrity solution was in use at 50 airlines and Sabre had implemented the Calidris data store and process management solution at some of the world’s largest airlines, such as Southwest Airlines.
1.3.4. On operations and financing. For the first 10 years, Calidris relied on financing from operations for its development and did not look for outside financing. The revenue from the first customers paid for the first versions, and the founders initially did consulting jobs on the side, so there was less need for start-up capital. Good planning was essential in those years, although the plans never materialized quite as expected. All profit was used for expansion, such as more staff to develop better products.
The company was lucky to attract outstanding talent from the start. The first employees were computer science students who worked summer and part-time jobs, and later Oskarsson added a core team of old colleagues from OZ. The focus was always on hiring the best talent possible. In 2003, Calidris hired an external managing director, freeing the founders to focus on product management and sales.
The strengthening of the Icelandic krona by 20 percent in 2005 nearly killed the company, and to mitigate the risk, the company outsourced part of its development to India. However, the overhead of managing teams across cultures and time zones did not make this worthwhile.
Problems emerged in 2007 after a rapid expansion when sales plans did not materialize. At that time customers paid only an initial license fee but not for ongoing services. There were layoffs, but the company survived with half the headcount. New shareholders that joined the company owned 45 percent, the two founders 45 percent, and staff 10 percent. Oskarsson took over as managing director again and continued in that position until the sale to Sabre.
1.3.5. On values and keys to success. The company uses its three values, mutual success, enjoyment, and knowledge, as its guiding light. The main value, mutual success, is analogous to trust. It means that if the company creates value for its customers, the company benefits, and if the company does well, the employees benefit. All employees became shareholders in the company, earning the right to shares over five years. The company pursues a no-secrets policy and shares all financial information with employees.
Enjoyment is the other key value; working with interesting people on interesting problems for interesting customers is really enjoyable. And if the customers’ staff finds it more enjoyable to work with the company than with any competitor, they will continue to do business. The company emphasizes cooperation and teamwork and uses extracurricular activities to promote that, such as winning the cycle-to-work competition among companies year after year. The position of the office is unique. It is the only office building on top of Öskjuhlíð, a hill and a nature park in the middle of Reykjavík, a very central and yet very quiet location between a graveyard and a school for deaf children. The company hired a chef to serve high-quality lunches every day, encouraging the staff to sit and chat during lunchtime. Family values are important: spouses are invited to all parties and extracurricular activities, and kids have their own playroom in the office.
Other keys to innovation in Iceland include various cultural attitudes toward and beliefs about work. Knowledge, for example, is vital. Calidris is a knowledge company by definition. Other valuable attitudes include appreciation for the ability to create something out of nothing—for example, digital technology—the opportunity to engage in challenging tasks and rewarding work, and the ability to deal with uncertainty and ambiguity. Icelandic society also provides a well-developed social safety net with free education and healthcare, which, combined with a limited liability company status, eases the risk for employees at start-ups. Sometimes there are high rates of return; sometimes there are not. OZ was a great school in innovation and the group from OZ made a big difference to Calidris because they had been through similar experiences.
Taking into consideration the difference in cultures can also aid in success. In India, the social structure is hierarchical, and obedience is important. In the Baltics, this is not the case. Power distance differs from one country to another. In Korea, Belgium, and France, there is a high level of power distance, while in the Netherlands it is lower, and in Iceland it is very low, making it easy for Icelanders to work with anyone at any rank.
The global nature of the airline industry was also a key to success; airlines are used to working with vendors from around the world, so coming from a small, obscure corner of the world did not prove to be a problem as long as the company delivered superior value.
Finally, we can briefly describe a company in an entirely different business. Össur was founded in 1971 by Össur Kristinsson and currently employs 2,300 workers in 18 countries. Össur is an innovative company that produces prosthetic limbs. It started as a firm that repaired prosthetic limbs but branched out into production. We interviewed Jon Sigurdsson, its CEO.
The company was first listed on the Iceland Stock Exchange in 1999 and expanded rapidly through a series of strategic acquisitions. It has been listed on the NASDAQ OMX Copenhagen Stock Exchange since 2009. Össur is currently a global company, recognized as a “technology pioneer” by the World Economic Forum, with operations in the US, Europe, and Asia. Its main innovation was the development of a breakthrough silicone interface for prosthetic sockets. The company has added numerous life-changing products to its portfolio, such as dynamic braces that relieve the pain of knee osteoarthritis and the world’s first complete bionic leg incorporating bionic technology.
1.4.1. Financing and management. Retained earnings financed the company’s initial innovations. The founder relinquished control and left the company when operations expanded. The new management decided to issue shares in order to facilitate further expansion of its product line and a distribution system. The company also issued corporate bonds with the help of a commercial bank, which were bought by some of the country’s pension funds. Capital from the stock market and from bond issues, as well as assistance from the investment firm Kaupthing, allowed the company to take over an American firm in 2000. This was the largest takeover by an Icelandic company until then. The acquired firm had a distribution system in the United States, and the innovations introduced by Össur were new and not close substitutes for any existing products on the market.
Soon after the company began to grow, the capital flowing into Iceland created a stock market bubble. This drew the stock market’s attention away from a manufacturing firm like Össur as investors began investing in the financial sector. Össur management then went on a road show in other countries in order to attract capital. As a result, Fidelity Fund invested in Össur’s shares in the Icelandic stock market. A Swedish fund followed suit, as did a Danish fund and many others. The ownership of the company became non-Icelandic as a result.
With more capital, Össur could take over more businesses abroad; the foreign owners expressed the desire to relocate the company to a larger country. Despite the foreign owners’ recommendation of moving to a foreign bank, the Icelandic bank Kaupthing continued supporting Össur’s operations. This was because Kaupthing offered better terms on its loans to Össur. When Kaupthing collapsed in 2008, the company turned to foreign banks.
1.4.2. Planning and macroeconomic development. No business plans were made at the very beginning when innovative activity commenced, but they were gradually developed. The planning was made more difficult by the volatile business environment, which featured exchange-rate fluctuations and volatile wage growth. Because of the foreign funding and a lack of takeovers before 2008, the company was well financed when the financial crisis hit in 2008. Össur was the only company on the Icelandic stock market that did not need debt restructuring, while some of the shareholders were hurt by the collapse of the exchange rate because they had borrowed in foreign currencies in order to buy shares in the company.
From 2002 onward, the company’s accounts were in foreign currencies. The company requested that the shares on the Icelandic stock exchange be listed in foreign currencies, but this request was turned down by the Central Bank and the tax authorities. This is why shareholders who were leveraged in foreign currencies suffered when both the currency and share prices collapsed in autumn 2008. The introduction of capital controls in Iceland made the shares worthless to foreign investors. The company responded by listing its shares on the stock market in Copenhagen, in effect becoming a foreign company.
We have interviewed these innovators in order to establish a set of personal and cultural traits that are conducive to innovation. We can summarize them as follows.
– simple laws and regulations—the absence of red tape, easy access to financing and funds
– a flat organizational structure where employees are not afraid of saying what they think to their bosses
– trust in business relationships
– innovation for the world market and not starting with the home market
– a culture that is forgiving of failure and appreciative of risk-taking
– a welfare state—free education and healthcare