Doing business in Germany from a perspective of an ant (Me)
Complete guide on the startup capital of the world
In the previous period I spend some time in the most vibrant city in Europe by far- Berlin and had the opportunity to collaborate and talk with some of the most innovative people out there, people that drive the Germany startup and innovation scene, startup scouts for huge German multinationals as well as have many beers on various conferences/events/summits/. I managed to blend in the Berlin relaxed lifestyle and keep my beer tummy slim with swimming at least 2 km per day almost every day — it turns out swimming is the original sport for Berliners. There are 30 swimming pools around the city and most of them cost as little as 3.5 euro per entry.
The following text is inspired by are my personal experiences and thoughts about Berlin and Germany and is NOT in any way connected with what other people think or write. I base this document on the old school way — talking to people over beer and listening what they had to say
Overview of Berlany economy
First and foremost Berlin is not Germany!!! but in order to succeed here you need to follow German rules. I coined the term “Made in Berlany” that stands for the best things of the German stability and economy in the most free and open-minded capital of the world . If you talk with some of the German authorities such as Berlin Partner and/or German trade and invest responsible for attracting investments, Germany is the greatest country to make business in the world. This video generally sums perfectly what they are “selling” /promoting — Germany Works — great video but beside telling us that Germany is a perfect working machine, tells us that this machine never changes . However this is far from the truth. We might say that the system is in place and is oiled from time to time but nothing really changes / no disruptive innovation in reality happens over time. Germany is ranked as 20th in ease of doing Business in the world, and 113th (yes 113th ) in starting a business and 66th in protecting minority investors. Good luck investors;)
Backbone of German economy are SMEs and family owned companies (80% of the companies are middle range companies ) and they are owned by either a family or the local government (through the golden share option). And these companies are really difficult to open to innovation or to any change. As a senior B2B sales executive told me (and this guy knows his shit he making sales for his startup from 0 to 10 mil $) German people in general are slow decision takes. The more bureaucratic the organisation is the more time it needs to make a decision. In a way it makes sense that Germany just joined the caravan of digitalisation 4.0.
On top of it Germans are risk averse by nature. — if we follow technology adoption lifecycle chart such as in the picture bellow, innovators are mostly concentrated around Berlin, Hamburg and Muncher and they are no-wear near 1% of the population. Early adopters are almost half as in normal countries in Germany while early majority , late majority , laggards — are distorted and can be placed into one big group of people — German customers. The bridge between innovators, early adopter and this group of German customers is huge and difficult to surpass. If in other countries you need VC money to narrow the gap in germany you need MORE luck, MORE respect, MORE passion, MORE hard work, MORE money.
On the other hand, sometimes the laws are holding Germany down, (GDPR laws blink blink) thats why they use freelancers and agencies that helps them keep the pace with innovation and still dont know what to do when they want to fire an employee.
Moreover, the employment protection in Germany is unbelievable. Basically if you get employed in Germany you stay there till you retire even if you try to kill your boss — just joking but pretty much safe. A really funny but true story is about the german servant that didn’t do anything for 14 years banking 700k Euros over the years of nothingness. Read more about IT here.
Over my brief period here in Berlin I got an honest inside about the employment situation in Germany from a executive in R&D/innovation department of a huge multinational “Look Igor, In ****people never get fired, they get employed and become part of more than 120 000 people workforce where all of them know their place now and in 30 years and in such an environment you cannot have innovation” I guess this sentence sums it nicely.— — and the thing that most Germans say to this situation is …..France is worse !!!!;)
In their defence, the Germans are a nation are know for their loyalty and are one of the most loyal workers that never change work position. Wanting to admit it or not but mobility is bad for innovation but is good for the longevity and happiness of a nation.( I will write about this some day but there is direct correlation between stress/longlivity and position security ). I generally consider German people to be happy people and honestly if I was not a migrating bird by heart I would move here forever and ever in a blink of an eye.
German people are loyal to their certificates. As one startup notices, when we got turf logo on our web site, the traffic in the day was up for 18%. Maybe there is no correlations but German people believe in the system and will do everything to protect the system by all means necessary. If you want to sell to a German, be a German or have the German system(certificates) behind you.
Cash is key; If you don’t have cash in Berlin and in Germany you are fucked. for example the credit acceptance in Berlin is bellow 50%, and most of the ATMs located in prime touristic locations are privately owned and will ask you for 3/4e for the service on top of the bank fee’s — unbelievable but true.
Pro tip how to enter and sell in German market. Go to https://buzzsumo.com find articles and blogs on specific buzzwrods/keywords that your startups is working on, find the name of the journalist that wrote the most relative and shared articles on that subject and try to contact IT so he can write something good about your product. German people are all about references and who says what for a specific product/startup etc. good website for cross-reference is https://www.similarweb.com/ where you can see the ranking on that newspaper or journalist. reporters.io is the place to find all journalists in Germany. Now you just need to survive 3- 6 months after the published article for the results to kick in.(estimates from a pro-PR person)
Lastly, In Germany you should prepare yourself to find hyper conservative people who don’t want to be innovative, meaning having the early adopters and innovators in your pocket in your pocket is easy but trying to replicate that on the wast majority is really really difficult.
Startup activity
The startup activity in Berlin has started in the previous 8–10 years. I had the opportunity to hang around for long time in one of the first “co-working” places and focal point of entrepreneurs in Berlin — betahaus — — . If you talk with the founders (2 lawyers and 1 Germanologiest) they will all say they didn’t know what co-working meant in those days, they just wanted to work together with their friends. Moreover, back in 2009 the three of them decided to rent a place and 20 of their closes friends chipped in money to work with them in an office on the 3rd floor on Princezinnstrasse 16–19 at U-bahn Moritzplatz (btw Moritzplatz till lately was know as the place where you can buy cheap and good drugs and enjoy them while you wait the Ubahn)
An interesting fact about betahaus is that if you talk with random startup enthusiast, (there is a new trend in Berlin not to put he/she on people like arzt for male doctor or arztIN for female doctor — so i will follow the trend and put IT for he/she) IT will say that IT either started and registered It’s first company in betahaus or that it has worked its first business concept years and years ago and had very fond memories about the place although it had not visited it in years.
From that 2009 the landscape has changed drastically. Many co-wrokgin/hubs/accelerators opened and major milestones are the IPOs of two of the premium Berlin unicorns Zalando and Rocket Internet. I will not write more on them because they deserve a book and not a paragraph in a post.
If betahaus was the first true pioneer in the startup ecosystem, nowadays the numbers say (and this are rough estimates as new places pop up every day and new startup people show up every hour) in Berlin there are between 1800 and 3000 startups at every given moment working in more than 50 accelerators, both private run and corporate run, and more than 50 co-working places and hubs. The number of investors both institutional and private is no less than 400 at any given moment. The guys at EY amounted the total investment activity in the first half of 2018 at 2.1B euro ( I am not putting a hyperlink coz you can google this fact;)
Similar to discos in Berlin you will find co-working places/hubs/accelerators that will not let you in even if you are prepared to pay or have the best idea in the world. In a sense in Berlin everything is connected with waiting. It is normal here to go to a disco and wait for 2–3hours to enter even if it’s raining or snowing outside. The same goes with the startup meetups where belieive it or not you wait 20–30minutes while the check your credentials or lately while you sign GDPR realise forms stating they can post pictures with you in them on social media … zee Germans
For disclaimer I don’t hate the disco culture in Berlin or the discos that never let me in I just feel sorry for the grandchildren of mine that will have a grandpa that didn’t do any orgy in Berhaim, Sysiphys or KitKat ( highly recommended to read more about these clubs).
Important factors that influence the startup activity in the city
Weather in Berlin is GREAT for 6 months March till October and horrible the other 6 months. Most Berliners leave for warmer and nicer places such as Bali or wherever is sunny and not rainy. I once met I guy who migrates to Canada(?) in the winter!!
Affordability and quality of life. This was true some years ago but with all the investors money flying in, Berlin is rapidly changing and in my opinion in no time will be on the price level of other European capitals. You can always find cheap Turkish food or Italian pizza made by Albanians for 10e (2 beers included in that price) but the more hypster places are already on a price surge. I don’t drink coffee but I had been regularly paying tee in good coffee bars 2–5 euros, and I am poor Macedonian so those money mean alot.
The situation with accommodation in the city is just horrible as getting an apartment is as winning the lotto with 100 people ( and i am not exaggerating) waiting for a single room or studio. The process of getting a home in Berlin includes, recommendation letter from previous place where you stayed, schwufa ( your track record what kind of citizen have you been over the years — China in your face), interview, salary, recommendation form employer etc. (you can read more if interested in the millions of forums and discussion sites about this phenomenon). As most of the people in Berlin are renting , it should not come to a surprise if you will be sub-renting the room/apt/home from a sub-renter. I met a person who got kicked out from the apartment because the original owner of the contract (who IT never met ) felt in love, run away to Arica and stopped paying the rent so IT was kicked out by the police while IT was taking its shit in the morning, while the the sub-renter, who It thought was the owner of the apartment lost the right to the apartment because he was sub-renting without telling anybody. (long sentence but totally true story ;) This compared to the old days ( 2005–2010) as some “startup” guys still living in Berlin use to call them is unattainable. I even met a guy who has stayed from 2005–2007 in Berlin without paying the rent because the landlord didn’t even care to check his bank account if the agreed 150 euros for the 62 m2 apartment have been transferred. I really don’t know if he paid at the end or not but interesting story I might tell you.
Networking is truly easy in Berlin Every day there are at least 2/3 different meetups happening in different parts of town. Most of the meetups are free of charge with a lot of free food and drinks but some may ask for simple “donation” of 10 -15 euros which you can later drink and eat inside — fair deal in my opinion. However, with all the events and the free food around I really don’t know how people in Berlin keep their shape up. The is an old finance saying when that when the food is floating on the table a new recession is coming. I totally agree with this statement and i will not be surprised if the next recession is caused by the whole startup era…
Opportunities
Most of the people in Berlin are wanna be startups guys. If we follow my favourite theory which says every team should have a hipster — graphic designer, marketing, brand etc, Hustler — sales, BizDev, to go where nobody has gone before, dreamer and Hacker — the back end , the developer, Berlin is full with Hipters, hustlers and wanna be Djs. Bad thing for them is their timing. Berlin is way passed the time when you can come to the city start something and make it big time — the city is crowded with such guys. Similar with the problem with accommodation is the problem with finding technical personal or the hacker that can code your wildest ideas. Recently I went to a co-foundit meet up in Berlin, a meet up where you are either looking for a co-founder for your startup or you are offering to become a cofounder of a startups. Guess what people were looking for and what people were offering for. There we were on top of a skyscraper on Potsdamer platz (Berlin’s Wall street/Manhattan) all 200 of us BizDev/Sales/Hustler looking for co-founder preferably CTO… sad story really but for the entrance of 10e I could drink as much as a wanted crafted beer to easy the pain…
P.s. the host of the meetup was some lawyer firm and to be honest if I was a lawyer, I would love to work for a firm that has a private garden on the 9th floor.
Nevertheless, opportunities exist in this unbalanced scenario. If God or your sweat and tears made a good developer out of you, then Berlin is the place to be. The recent trend of outsourcing the core technical part of the startups into Easter Europe is coming to an end. As an Israeli startup working in Germany told me “we outsource till we recruit a person for a full time CTO or technical lead position”. Well, and its totaly understandable, if you can oversee an employee for 50k euro per year 9–5 or have some “hippi” developer somewhere in South East Asia working from time to time not as part of the team, I think I know what will I choose. Maybe there is an interesting debate here out- sourcing vs out-staffing but not the point of the story.
Instead of an conclusion
All in all, Berlin and Germany are not startup/innovation friendly and if you are moving here to make startup FOR German people just forget about it and move on but if you are startup wanting to take over the world — this is the place to be.
Wanna know more check izotovconsulting.co