Economic sectors are like people: If they want to survive for many generations, they need to have children. In business jargon these children are called startups. In Germany the most famous examples of them are in the digital sector and the service sector.
A new project now aims to encourage startups in the industrial sector. “Big ships” – that’s what the media have been calling large corporations. Compared to them, startups are quick, agile tenders. Some of them could even prove to be lifeboats for those lumbering tankers that are navigating difficult situations in international waters.
Germany is home to a relatively small number of startups. We rank 27th in the world in terms of our number of startups. Our total early-stage entrepreneurial activity (TEA), meaning the portion of the working age population in startups, is 5.3 percent. But if Europe’s largest economy hopes to survive in the global marketplace, we need fresh ideas and new businesses that turn ideas into revenue.
The BDI recognises how important startups are, and it works hard to support them. German industry needs the openness to technology, innovative strength and adaptability that startups have.
A new project [of ours] aims to pave the way for technology transfer and information sharing between established enterprises and new companies. The project will facilitate exchange of practical recommendations and context-specific knowledge. Policymakers can use this to provide more targeted support for startups, create frameworks that help them grow and set up partnerships between the old and new economy.
Fortunately, Germany has an agile community of founders that encourages new digital business models as well as innovations rooted in the social and natural sciences. Carsten Wehmeyer, Startups project leader at the BDI, emphasises the value of partnerships between startups, medium-sized and large enterprises – including between companies from very different industries – and between companies and academics. He says this is the only way to work together to develop technologies and successfully position them in the market. “This has been working well in a lot of cases. For cases where it is not, we need internationally competitive frameworks to strengthen Germany as a startup location,” says Wehmeyer, who holds a doctorate in economic geography. He believes that industrial and industry-related startups need a strong lobby and specific support. “Founding and scaling an industrial startup is often more complicated and more expensive than a startup with a digital business model. We need suitable financial instruments and of course the expertise to turn prototypes into deliverable products,” Wehmeyer says. Support from policymakers plays an important role here, he adds. They help create an environment for risk and venture capital and research funding, not to mention legal and tax policy. Industrial startups hold Germany together as a business location, says Wehmeyer.
Keeping established companies with a long history up to date
Everyone knows that businesses are getting older. But how should they rejuvenate themselves? Are tools like corporate venturing (industrial startups) or incubators the right way to go? Businesses need context-specific knowledge to choose the right tools and strategies. Our cross-departmental project can help. It develops context-specific knowledge in single-sector and cross-sector working groups and then condenses that knowledge into joint recommendations for action. These working groups are thematically orientated towards those future technologies that are relevant for the future of German industry and that the startups are active in: materials technologies, pharma, biotechnology and genetic technology, medical technology, energy technologies, digital business models/smart services and Industry 4.0 as well as integrated mobility (with more to come). Topics for recommendations are also designed to be cross-departmental. They include financing, legal frameworks and taxes, partnerships and medium-sized enterprises of tomorrow, etc.
Evaluating the Environment
According to the Ernst & Young Startup Monitor, only 30 percent of founders consider the current environment to be good for startups in Germany, while 44 percent consider it satisfactory. One out of four founders rates it adequate or poor. Interestingly, those in Berlin consider Germany to be a better startup location than those in other parts of the country. The Startup Monitor also says that four out of five startups have already worked with large enterprises. The majority of these rate their collaboration as thoroughly positive – this deserves special recognition, the BDI believes. Almost no companies rated their collaboration as negative. Patience is particularly beneficial when working with corporates. Three out of four startups said this was important. Other major advantages cited by founders are familiarity with the structure and organisation of corporates and having experienced sales staff of their own. Although three out of ten founders in Germany said they have “entrepreneurial blood” in their veins, the majority of those surveyed said they are in new professional territory.
Industry 4.0
The BDI commissioned strategy consultants at Roland Berger to investigate The Digital Transformation of Industry. The digital transformation has become far more relevant in the public discourse in recent months. In Germany, this debate has focused on Industry 4.0, which refers to the use of digital technologies to improve efficiency and optimise costs. In the United States, on the other hand, the Internet of Things is clearly in the centre of public perception. The consultants say this concept is far broader and stands not only for more efficient (and cost efficient) production but also for things like different access to customers. This broader understanding ultimately also reflects the far more comprehensive need for change on the part of businesses.
How the old and new economy can profit more from one another
The pharma and biotechnology sector is just one example of how well the old and new economy complement each other, says an article in Berlin-based founder magazine The Hundert. Insights generated by startups in this sector have long been an essential component in the innovation pipeline of established players, it argues. The piece is by Dr Florian Heinemann, Co-Founder and Managing Director of Project A Ventures. He writes that this pipeline thinking can be achieved through acquisitions, direct and indirect shareholdings, or pure customer-supplier relationships. Startups improve the digital competence profile of an established enterprise in a relevant way, the article says. This increase in competence has much more critical impacts on the organisation as a whole than providing additional revenue, free cash flow or profit, writes Heinemann. Yet only a few old-economy companies have recognised this and incorporated it into their own decisions, he adds. That needs to change soon so that those large ships remain on course – with help from small, agile, quick tenders.
