My Favourite Failure: Estonia’s first CIO who needed open heart surgery after institutional failures pushed him to the brink - Taavi Kotka

0:00Let me tell you a story. Four German friends met at university. One of their mates was a CTO at a small company who was stunned by the serious lack of process for recruitment or payroll and absolutely no software. in sight. It was so inefficient. This inspired the friends to found Personio. Since then, they've built it into an$8.5 billion company, Europe's biggest in the space. Not bad for a bunch of students, huh? The reason they've got so big is they solve a big problem for business leaders. They make tedious, time-consuming HR processes easy, so you can focus on more important things. Their software handles stuff like booking time off, of course, but also includes joined-up experiences for hiring, onboarding, offboarding, reporting, you name it, they do it.

0:43So if you're leading a small or medium-sized business and want to spend less time and effort on HR admin, then book a demo at personio.com forward slash secret leaders. That's personio.com forward slash secret leaders. There's a link in the show notes. People who actually have chosen a government officer as a career, they don't want to do anything because there's no upside. There's no downside. You do something, if it's bad, you lose your job. If it's good, nobody appreciates that. That's Tavi Kotka, the founder and CEO of Kuz.io. He's shot to fame as the CEO of one of the largest software development companies in the Baltics.

1:22After he sold the company in a big money deal in 2012, he had a non-compete, which left him with time when he couldn't work in the private sector. He was appointed the first chief innovation officer of Estonia, whose role is basically to drive technological progress in the country. It gave him the opportunity to make a massive impact, a national one. He and his team delivered in many areas, but it came at great personal cost, which made him, a patriot, conclude that doing a role like that just isn't worth it.

1:59When he took the position, Tavi was surprised by how much scope he had. I always had an imagination that politicians have a big say about what happens in society because they basically accept the laws and they have their own agenda, etc. But to be honest, if you look at the average politician, do they really have opinion about telecommunication or what kind of fiber we are putting on the ground or what kind of way should we have a central system or point-to-point system? like how we build up our cybersecurity. I mean, they don't have a clue. So I instantly understood, whoa, like at least 95 % of the agenda I can basically create by myself together with my team.

2:47And that was like, I mean, that was a very interesting point because Estonia also has European funds to use for IT development. So I really thank German taxpayer here. I mean, we use that money in a very good way. Tavi says different countries have different identities. Germany is known for its quality manufacturing, of course. Estonia is known for innovation. They've really punched above their weight in tech. They've created more unicorns per capita than anywhere else in Europe, starting famously with Skype. So the chief innovation officer role in the country is a big deal. But Tavi struggled with how success is measured in government.

3:29You are touching very important point here. There are no targets in government because politicians don't want to set certain numbers or set certain goals because if they fail, they lose in next elections. like so they do anything to avoid concrete numbers kpis anything like so uh they're more let's say okay we don't touch taxes i mean that can be the maximum kpi you can get from them like so uh so and that's hard because like if you don't have a goal it's very hard to unite uh different resources to achieve that goal so from that perspective uh we were able to set our own goals But that's already, I'd say, we are touching the failure part.

4:17The failure Tavi is talking about is institutional. How do you succeed when there aren't clear shared goals you're working towards? It's confusing if you've come from the private sector. Nonsensical even. But still, Tavi and his team had a bunch of measurable successes because they came up with ideas and attacked them. Visible success is globally visible. It's the e-residency program. So Estonia, we have 11 ,000 newborns every year, but we get even more digital citizens connected with Estonia every year. So the country is growing, but not only physically, but also virtually. And this generates more than 100 million euros revenue for the country and gives an image.

5:03So that's the, I think, most visible thing. The most rewarding was the VAT fraud control methods. In that area, the country said billions. There's always some gray economy. And if companies are willing to be transparent and they want to get more equal markets, they are willing to give data. And we use that data and we build controls where, I mean, if you look at the OECD reports, Estonia is the best tax collector, like the most efficient tax collector in the world. And it also gives you that if taxes are easy to pay and they are fair, people actually don't want to cheat. By the way, e-residency doesn't mean citizens can travel to the Schengen area, but it does mean they can access all the public and private sector services remotely, like running your business or dealing with tax.

5:53Some of the innovations from Tavi and his team have been really successful. But one of the main problems he noticed is that even if your public sector initiatives are winners, they take more time to bear fruit than politicians have or journalists will give you. Again, more failings in the system. And what happens in government is that the changes in society, they take time. So for example, Estonia introduced National ID in 2002. It took 10 years to actually really, we could see the meaningful results. So for 10 years, you have journalists, smart journalists, writing and blaming you that, oh, you spent so much money, and where is the outcome?

6:37And it's so frustrating because you know, you had a dream, and you know that it will pay back. It will bring back, and it will bring back huge times. So, for example, 15 years later, we had the security flaw in our ID card system. There was a moment where people understood that, oh, this might fail now. And it was like so strategically important moment that the prime minister returned from the official trip because the country cannot operate anymore without that. But there was like a bunch of people who figured that out 15 years before and pushed the government to do it and people to believe it.

7:23and they and then in return they're just say they first of all they're screwed and then they have forgotten so i don't have a problem being forgotten but the failure you get is that you actually give so much from yourself and and also your team gives gives a lot but your children are also reading the newspapers i mean in startup you are willing to take the blame like in startup it's easy i mean you always have a vision and even if you have wasted the first bunch of money that investors gave you like if you still can pull it off like everybody will salute you and tell you how great guy you are but in government like i think i built this one unicorn inside the government you don't get even a bonus so there is no let's say compensation that like for this short nights and and then a huge effort you did like there is no payback you have to be a very strong person like to survive this and i had people in my team like who burned and then there was like people before me like who fully burned and that's why it's very important to talk about these kind of things because i think it needs to be changed if people do something great to the government and to the people and to the country like why not to basically uh not only compensate it with words, but also with real cash.

8:44So much to unpack there. The unicorn in government he's talking about is the VAT system they rolled out, which has saved Estonia billions. This is why Tavi thinks the incentive structure in the public sector is wrong, as well as the timeframes. He had five ministers he reported to in four years. To help solve this, he thinks politicians should be in power for 10-year terms. You can't judge them properly otherwise. And it means they're too short-termist and focused on re-election rather than just doing what's right for the country long-term. So, on one side, you're not incentivized properly if you work in the public sector, and on the other, the personal cost is so high.

9:25I have built up several startups, and I have never worked as much as I did as a government officer. I know it sounds silly I mean come on like nobody measures your time like there is no deadlines there is no even like a budget problems because like we were in charge of our own budgets if you want to play golf go and play golf nobody cares but the fact that we did always together with other ministry departments like and they were dependent on your input and investment like it was a it was a struggle as a whole, as a journey. Not worth it. He had 120 flying days in one year. He kept going until his body gave in.

10:11You get a lot of good feedback from the people around you and people who are knowledgeable about your topics. But the criticism and stress from the journalists, that broke me and I ended up at the hospital three months with a diagnosis of inflammation of the heart muscles and you lie there in the hospital and you think back and basically beat yourself that why should I do it like yeah I mean you are the patriot and you do good stuff and you see that the government and country needs that. But personally, what's the use of the father who has a chronic heart disease in the end of the day? So I think that for me was definitely a breakpoint and understood that I need to stop this, that this is definitely not something for me.

11:10And that's actually one of the things, one of the reasons why I never suggest government job also to my friends. Yes, you can do a lot of good stuff, huge projects that you may never even see in private sector. But the personal outcome is devastating. If you're listening to this, you're probably working in the private sector. And Tavi thinks the structural failings of government could be solved by learning from the private sector, especially startups. I mean, in startup sector, we have this culture that we learn from failures and we get better after that. success never comes instantly and success takes time and we all know that in startup world it's totally normal but try try to say those words in government like so uh but yes you can't attract talent to work for the government without giving them the same kind of tools they're used to have in a private sector so you have one goal you have funds to do it like uh work towards that goal and you also have funds to in like motivate your people and you have to understand it's not just one team.

12:16It's like all over the place. So it's in this department, in that ministry, in the third ministry. So you have to understand that there has to be a model for this. Tavi is at pains to say he's not moaning about this. He's trying to draw attention to structural failings, which prevents so many talented people from working in the public sector. So what would he say to someone, anyone who's just experienced a big failure? Stand up and continue. why to waste time on feeling sorry? Nobody's doing great stuff all their life. I mean, there are a gazillion examples where successful startups totally fail with their next startup.

13:00In Estonia, we have good examples from Skype people, for example. Yes, they were our first unicorn, but what happened after that wasn't as successful as the first one. I think it'd never be. like so there are very rare like very rare people who actually can be successful with two startups in a row becoming a unicorn like so uh stand up and continue

13:28Tavi Kotka trying to draw attention to the institutional failures in government which led to the complete failure of his health thanks for listening to this episode I've been your host Dan Murray-Surter. If you liked the episode, please hit follow or subscribe. See you next time.