Sweden is a small country that consistently punches above its weight-class in terms of technological prowess. Among its Scandinavian neighbors, which include Denmark, Norway, and Finland, Sweden has a reputation as the most progressive place for growing technology businesses. Until recently, the country was best known by many as the originator of furniture giant Ikea or global clothing sensation H&M. Those who are more plugged-in to the world’s competitive startup scene know better, and recall that Spotify, Skype, and dozens of other tech mainstays began in Sweden.

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In just a few decades, Sweden advanced from an exporter of steel and automobiles to a cutting-edge country where technology firms achieve the biggest valuations. It is now a place where workers regularly ask their employers to be embedded with microchips which allow them to open doors, store digital currency, and buy treats with a simple wave. There are many reasons for this breakneck pace of evolution, and the most significant will surprise even the most astute observers.

Looking Outward

With a population of just under 10 million in 2016, Sweden has marginally more residents than New York City. Though one might expect that a small population would hinder tech development efforts due to a scarcity of human capital, it has the opposite effect in practice. Swedish business ventures naturally understand that their domestic market is too small; an unfortunate inevitability that puts a cap on potential revenues. Accordingly, firms almost never target Swedish audiences exclusively, and instead market to global audiences by default.

This mindset was prevalent even before Sweden became known as the startup capital of Europe. Auto manufacturer Volvo quickly established itself as a global name in reliability and safety in the decades preceding the new millennium, and other companies like Electrolux and Ikea succeeded using similar global-oriented strategies.

Fostering a Digital Focus

Before Swedish companies like Ericsson became globe-spanning tech and communications powerhouses, the accomplishments of mature corporations like Saab inspired officials to adopt a new trajectory for their country’s policy. Witnessing the increased interconnectivity of global markets in the 1990s, these policymakers worked to implement special budgets to develop technological infrastructure, including the most important factor— high speed internet. The government also established tax breaks for citizens who sought to buy personal computers.

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Thanks to this foresight, Sweden has regularly maintained a top-five position among countries with the fastest internet speeds, and has benefitted greatly from a population that grew up with this infrastructure. From the outset, Swedes were equipped with the tools to learn and develop digital products, understand the global market, and grow up immersed in the internet.

Therefore, it’s no coincidence that some of the most valuable “unicorns” emerging in the last years have come from Sweden. A unicorn is a term to label a startup formed after 2003 that has since grown to be valued at over $1 billion. Spotify, Skype, King (the company responsible for the wildly popular Candy Crush series of games), and Mojang (of Minecraft fame) list among the most well-known. These giants still call Sweden home, but more so, they still contribute to the growth of the country’s younger startups. For several reasons, investors and developers have largely chosen to stay, and continue to feed the trend propelling Sweden to the forefront of technological innovation.

A Culture of Contribution

Some distinctly Swedish characteristics also cement the country’s advantageous position among its peers. This includes “Jantelagen”, a national mentality that favors the group over the individual. This idea is the catalyst of many of Sweden’s best tech startups, which seek to solve widespread problems and improve quality of life, rather than make money. This simple idea—that the best solutions tout the collective over the citizen—is a likely reason why Swedish startups become so successful.

One relevant example is Spotify, a music streaming service that has gained immense popularity since its founding in 2006. Following iTunes’ mainstream success as an online music library, Spotify further disrupted this á la carte model by offering easily accessible streaming for a monthly membership, instead of forcing consumers to buy the songs they want individually. The company is not the first startup from Swedish founders Niklas Zennström and Daniel Ek: they were behind the popular torrent website uTorrent.

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Sweden’s financial system also helps startups adapt and grow. Demonetization efforts have encouraged Swedes stop carrying cash and start using digital payment methods instead. Central bankers have even considered other payment solutions like a national cryptocurrency. The flexibility with which the country’s citizens can change their habits is a great attribute for fintech startups and others, who have a willing audience to test their products with.

Tax laws also recently changed in Sweden to address some of the concerns that startup founders and venture capitalists had with the previous system. While in the past it was difficult to vest stock options due to high taxes, the government recently approved a measure that would reduce income tax on these options for younger startups. The law should reduce Sweden’s “brain drain” problem, which sees important figures in tech moving their headquarters and personnel across borders to practice frugality and realize profits.

Sweden’s System

Through a combination of foresight, favorable economic policies and advantages both demographic and geographic, Sweden has emerged as a leader in technology rivaling Silicon Valley, Beijing and Singapore. A unique double-edged system, Sweden’s closed ecosystem for startups with outward-facing products is a powerful recipe that should see the country propel itself into the heart and minds of technology entrepreneurs the world over.