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💡 The Significance of Innovation for Small Nations: A Case Study of Iceland

Innovation is a multifaceted concept. It serves as the foundation for economic prosperity and a tool to address significant future challenges encompassing people’s well-being, environmental concerns, sustainability, technology, and education. For a small nation like Iceland, innovation presents abundant opportunities. Our small size, often perceived as a limitation, can, in fact, be a source of strength. In this article, we will delve into what innovation truly entails, why it holds paramount importance, what the future holds for innovation in Iceland, and how we can set an example for other nations in this crucial domain. Throughout this article, I’ve had the privilege of gaining insights from experienced experts in this field, for which I extend my heartfelt gratitude.

What Constitutes Innovation?

At its core, innovation is about creating something new or enhancing existing products or services, commonly referred to as product and process innovation. This pertains to innovations in products, services, technologies, methodologies, production methods, management structures, or sales and marketing approaches. It’s crucial to understand that innovation isn’t just about having a new idea; it becomes innovation when that idea or improvement is implemented[1]. Entrepreneurship is closely intertwined with innovation, involving the process of establishing a business around an innovative concept. Innovation can manifest within both startups and established organizations, with many companies even having dedicated innovation departments.

For an innovative idea to thrive, it necessitates diligent groundwork. Key aspects such as strategy, target groups, competition analysis, financial planning, design, and branding, among others, must be meticulously delineated. Recent instances of meticulously defined innovations that have successfully embedded themselves in Iceland’s business landscape include Hopp, Indó, Dropp, and Noona. What unites them is their accomplishment in the markets they entered. Hopp revolutionized the way people commute from point A to B. Indó eradicated payment card transaction fees. Dropp brought significant enhancements to delivery services, and Noona streamlined booking processes.

In academic circles, this process of innovation often goes by the term “creative destruction,” a concept coined by Joseph Schumpeter, often hailed as the father of entrepreneurship. In essence, it pertains to how entrepreneurial ventures, frequently driven by innovative ideas, introduce products or services that supplant outdated counterparts or revolutionize production and distribution methods[2]. A prime illustration of this phenomenon lies in the advent of the iPhone, a device featuring a touchscreen interface, a robust operating system (iOS), and groundbreaking smartphone applications (e.g., Apps). Prior to the iPhone’s debut, conventional phones with physical buttons were the norm for making calls and sending messages. Thus, it is my firm belief that innovation plays a pivotal role in advancing society. At its core, innovation strives to simplify and enrich the very essence of our communities.

The Interplay Between Entrepreneurs and Innovation

In recent years, the perception of entrepreneurs has evolved, as highlighted by Hrund Gunnsteinsdóttir later in this article. The traditional image of an entrepreneur as someone solely focused on launching one venture after another, regardless of success, has evolved into a more thoughtful approach. This shift allows individuals to tap into the flourishing innovation environment, refine their ideas, and execute them with due diligence.

Entrepreneurs come in diverse forms, but they all share a common desire to create value for themselves and their surroundings. The individuals behind an innovative idea play a pivotal role. Their belief in the idea is paramount, as without conviction, progress is improbable. It can be an arduous journey to bring an innovative idea to life, but success is attainable with courage, diligence, enthusiasm, and hard work. During the funding phase, the people behind the product or service often hold more importance than the idea itself.

The Innovation Landscape in Iceland

Hopefully, dear reader, you now have a clearer understanding of innovation and its significance. This naturally leads to inquiries about how to enhance support for innovation in a small country like Iceland. To delve deeper into the importance of establishing an innovative ecosystem and the role of government support, I had the privilege of speaking with Áslaug Örna Sigurbjörnsdóttir, Iceland’s Minister of Universities, Industry, and Innovation:

Áslaug Arna Sigurbjörns-
dóttir

Iceland’s Minister of University, industry and innovation.

“The environment for innovation is crucial in Iceland, a country where economic homogeneity has long been prevalent. To prevent economic fluctuations, we need to diversify our economic pillars, and innovation plays a pivotal role in enhancing people’s quality of life and opportunities. This environment should prioritize competitiveness, simplicity, support for research and development, and the transformation of individuals’ ideas into reality. Moreover, ensuring access to experts is vital to foster innovation in Iceland.”

Áslaug’s perspective underscores the pivotal role of innovation in Iceland. The nation has witnessed remarkable growth in innovation and entrepreneurial ventures in recent years, marking a departure from the economic homogeneity that once defined the country’s landscape. Companies like Marel, Össur, CCP, Controlant, and Hampiðjan, which are now integral to Iceland’s economy, began as mere concepts on paper. With an increasing number of innovative companies, opportunities for global expansion and their positive impact on the national economy have grown significantly.

Fostering Innovation for Growth

For innovation to thrive and continue its growth, certain essential elements must be in place, as Áslaug mentioned. These include a straightforward and competitive environment, support for research and development, and access to experts. Additionally, factors such as tax incentives, grants, access to venture funds, education from authorities and institutions, contributions from the private sector (e.g., Startup SuperNova, KLAK), patient capital, and access to foreign experts and capital all contribute to fostering innovation.

It’s crucial to note that creating such an environment isn’t a quick process. It’s a deliberate policy that Iceland has adopted, with clear long-term goals. According to a report published by the Government of Iceland, by 2030, Iceland aims to be:

  • A society where innovation is deeply embedded in culture and the economy, making it an ideal place for internationally competitive businesses.
  • A nation that leverages its small size as an advantage, establishing strong connections with the global arena of science, innovation, culture, and activity, facilitating ingenious innovation.
  • A society that respects and values entrepreneurs and creative individuals within both the economy and culture, serving as a model for sustainable development for other countries.
  • A community where the mindset, capital, market access, regulatory framework, and human resources collectively support innovation as the cornerstone of cultural and economic well-being.

 

In line with these aspirations, it’s fitting to hear from experienced figures in Iceland’s entrepreneurial and innovation landscape to gain insights into the country’s innovation environment.

Hrund Gunnsteins-
dóttir

Author, public speaker and former Leader of the Sustainability Center of Iceland – Festa.

“The innovation environment in Iceland has changed a lot recently. The last ten years or so, which are positive changes that include access to more capital, a stronger ecosystem around entrepreneurship, better utilization of research, and a very changed attitude towards entrepreneurs in general and the challenges that come with trying ideas and see if they work or not.
Our first unicorn, Kerecis, is an example of many things that can be learned from. It brings together the energy of entrepreneurs, history, and many people contributing to its success. These opportunities make a difference, the scientific knowledge is used for constructive purposes and it brings together patient capital, grants, and other investments. A great example.”

“In recent years, we have raised the bar in promoting the innovation environment, and increased grants for start-ups have had a lot to say about that. But the biggest difference has undoubtedly been that the number of domestic investors, who are looking for opportunities among innovative companies, has increased significantly. We still need more foreign investors and further connections outside of Iceland in this equation.”

Þór Sigfússon

Author, public speaker and founder and chairman of Iceland Ocean Cluster.

Þór Sigfússon

Author, public speaker, and founder and chairman of Iceland Ocean Cluster.

“In recent years, we have raised the bar in promoting the innovation environment, and increased grants for start-ups have had a lot to say about that. But the biggest difference has undoubtedly been that the number of domestic investors, who are looking for opportunities among innovative companies, has increased significantly. We still need more foreign investors and further connections outside of Iceland in this equation.”

Progress.

As gleaned from Hrund and Þór’s responses, the innovation landscape in Iceland has shown positive changes in recent years. Nevertheless, there are still avenues for further development. Þór’s mention of the need for increased international connections and engagement with external investors will be explored in more detail later in this article.

Hrund cites a notable example of successful innovation. Guðmundur Fertram, the founder of Kerecis, observed a game-changing idea using fish skin for healing wounds. Kerecis discovered that Omega 3 fatty acids, found in fish roe, naturally promote the healing of human skin cells, facilitating the generation of new skin cells. Kerecis applied for a patent for both the product and the production process, embarking on a successful entrepreneurial journey. The company’s history is widely recognized; it now employs over 500 people, and the latest news reports that it has been acquired by a major Danish company in the second-largest takeover in Iceland’s history. Guðmundur Fertram, in an interview with Samtok Iðnaðarinn, praised the environment the Icelandic government has fostered for innovation since the economic crisis of 2008, describing it as forward-looking and beneficial. He also noted that the weakness in the Icelandic system has been associated with advanced innovative companies rather than those in the technological development stage. Advanced companies require substantial capital for sales and marketing activities. [3]

These comments by Guðmundur are on par with what Þór mentioned above, as well as with what Hjörleifur Pálsson had to say when I asked him how Icelandic start-ups can use the innovation environment in Iceland for growth, here and especially abroad:

Hjörleifur Pálsson

Experienced Board Member.

“The first thing that comes to mind are the “cauldrons” of knowledge that have been created here and can be accessed. These sources are experience, success, and knowledge in a specific field. It is easier to advance if there is some solid foundation. An example of this would be software development, computer games, film production, medicine, prosthetics, or just something where there is already international experience that you can get in touch with. In recent years, there has also been knowledge and experience in this country of pairing innovation and international “strategic” capital. A good example of this would be e.g. Oculis as Brunnur ventures played an important role in getting the right investors in front of them to develop the company further. Of course, this aspect has a longer history, and is more organized and developed in many places abroad, e.g. in the United States, where there is practically a “menu” of investors suitable for every occasion. Financing is still too difficult and a heavy step for us. But it makes little sense to be sad that others are more advanced. You have to start somewhere and the development in the last few years has been quite fast.”

Hearing Hjörleifur’s perspective is indeed intriguing. As highlighted earlier in this article, we’ve witnessed the transformation of innovative ideas from mere concepts on paper into successful, well-managed companies. Hjörleifur underscores the robust foundation that accompanies these enterprises, facilitating access to knowledge for creative individuals in specific fields. While Hjörleifur’s acknowledges that financing remains a significant challenge in the process, he maintains an optimistic outlook on future possibilities.

Now, let’s delve deeper into the innovation landscape within the country by examining its strengths and weaknesses. I sought insights from Hrund and Þór to shed more light on these aspects:

Hrund Gunnsteins-
dóttir

Author, public speaker and former Leader of the Sustainability Center of Iceland – Festa.

“I would say that the main strengths of the Icelandic innovation environment are the grants from the Technology Development Fund. When you examine this fund closely, you’ll find that it has nurtured some of our most important companies, often requiring patient funding. Many of these projects delve deep into science, solutions, and technology. Kría is also a significant positive addition to the innovation environment, and the tax deduction has made a difference for both small and large companies, whether new or old. The tax deduction makes us more competitive with other countries in many respects and reduces the need for companies to seek solutions abroad.

The main weaknesses include the small size of the country. While our small size can also be a strength, as it facilitates easy access to people, it can sometimes undermine professionalism, conflict of interest prevention, confidentiality, and the open approach of investment funds towards anyone’s ideas. Another challenge is that we occasionally lack depth in the innovation environment. We are somewhat isolated in many aspects, and we don’t always have our finger on the pulse of the best global practices, although we may not always want to admit it. There is a growing demand for technology companies from venture capital funds that have the capability to grow rapidly and meet the requirements of a 10-year investment cycle. Deep tech solutions to complex sustainability and climate challenges need more attention from venture capital funds, but this often necessitates greater investor knowledge and patient capital. I understand that some Silicon Valley hedge funds are reevaluating their investment strategies with this consideration in mind. Another drawback is that venture capital funds and other investment vehicles allocate significantly more funding to men than women, as indicated by a recent Framvís survey conducted by KPMG. However, I’m aware that Nordic Ignite maintains equal investment in both genders and has a clear policy in this regard.”

“Both the strengths and weaknesses of the innovation environment in this country probably lie in our small size. We live in a small society where there is general trust between people and trust creates opportunities. The weaknesses of the environment lie in the instability of the economic environment that occurs due to the small size of the economy. I see enormous opportunities for innovation in the blue economy in this country, and the success that has been achieved can be attributed to a certain mentality in the fishing industry. Unlike many other countries, the general attitude in the fishing industry is that Icelanders should excel and invest in knowledge and technology. In many countries abroad, the refrain in the fishing industry has been that the technology or work methods that are available are “good enough”. This “what we have is good enough” is hardly known in the fishing industry in this country. If we manage to maintain this culture of innovation, there are by all means a lot of underutilized opportunities in the entire blue economy that we will see become a reality in the coming years.”

Þór Sigfússon

Author, public speaker and founder and chairman of Iceland Ocean Cluster.

Þór Sigfússon

Author, public speaker and founder and chairman of Iceland Ocean Cluster.

“Both the strengths and weaknesses of the innovation environment in this country probably lie in our small size. We live in a small society where there is general trust between people and trust creates opportunities. The weaknesses of the environment lie in the instability of the economic environment that occurs due to the small size of the economy. I see enormous opportunities for innovation in the blue economy in this country, and the success that has been achieved can be attributed to a certain mentality in the fishing industry. Unlike many other countries, the general attitude in the fishing industry is that Icelanders should excel and invest in knowledge and technology. In many countries abroad, the refrain in the fishing industry has been that the technology or work methods that are available are “good enough”. This “what we have is good enough” is hardly known in the fishing industry in this country. If we manage to maintain this culture of innovation, there are by all means a lot of underutilized opportunities in the entire blue economy that we will see become a reality in the coming years.”

As can be read from the interviewees’ responses, many aspects in this country are handled effectively, but there are also significant opportunities for improvement. Diligence and hard work have long been characteristic traits of our nation, aligning perfectly with the fundamental principles of innovation in terms of initiating an idea and perfecting it. It will therefore be very interesting to follow the progress of matters in this respect.

In Conclusion and Moving Forward.

We are a small nation and we can be agile. Innovation is a rapidly growing industry and a significant source of income in our economy. We should continue to support creative individuals and entrepreneurs, strengthen foreign relations—especially for expertise and capital. Factors such as tax deductions, grants, education, access to venture funds, and knowledge play a pivotal role in promoting innovation. Therefore, it is crucial that they are well managed.

However, a question lingers: Can we set even higher goals, like the possibility of Iceland becoming Europe’s Silicon Valley? By this, I mean that Iceland’s innovation environment could become so attractive that it draws entrepreneurs with innovative ideas from all over Europe. Such an achievement would be highly desirable, further bolstering our economic support. Examples demonstrate that this is attainable. The closest comparison is Ireland, which pursued unconventional paths to attract large companies, significantly boosting the country’s economic activity. Ireland provided multinational companies with a favorable tax environment, skilled workers, and access to the European market. Additionally, it established an efficient and straightforward regulatory framework and offered incentives for research and development. These factors encouraged numerous companies to establish offices and operations in Ireland.

This Irish example could serve as inspiration for our country. However, the key is to collaborate and nurture innovation in Iceland, whether through private or public entities. It is in everyone’s best interest for our country to have an outstanding innovation environment.

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    About Elías Larsen

    What I do

    I’m head of growth at brandr Index, focusing on developing strategic relationships that foster trust, reliability, and shared success. My role centers on connecting with forward-thinking partners worldwide to introduce innovative branding solutions across diverse markets.

    How I Do It

    My background in strategic business development and leadership drives my approach to growing brandr Index’s reach. I believe in a hands-on approach, crafting relationships that are as reliable as they are dynamic, ensuring every collaboration is both beneficial and enduring.

    My Mission

    As a young, ambitious professional, I actively seek challenges that enhance my skills and push the boundaries of what we can achieve in business strategy and development. My approach is always to inspire growth and operational efficiency through innovative practices.

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    I am deeply passionate about developing strategic approaches that not only accelerate the growth of startups but also enhance the scalability of established firms. 

    Leadership, to me, means having a clear vision and the practical skills to implement effective strategies that align with the dynamic needs of the market.

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    University Degrees

    I graduated with a Masters’s degree in Economics focusing on Entrepreneurship and Innovation from the University of Padova in Italy, and a Bachelor’s Degree in Marketing and International Business from the University of Iceland.