Steven Hill: Excellent Hybrid – Start-ups and Mittelstand

In Silicon Valley 7 out of 10 of the start-up companies fail. And 9 out of 10 never make any profit. It's essentially a big casino in which there's a whole bunch of money, throwing that money at some really terrible ideas and terrible entrepreneurs who have no idea what they are doing.

A lot of the companies from Silicon Valley, when you start looking at them, they really aren't big job creators. So for example in Germany the big auto companies or Siemens, lots of these German companies, they create hundreds of thousands of jobs. But companies like Google and Apple they only have about 60,000 or 70,000 people working for them. Companies like Facebook or Uber and AirBnB, they have fewer than 10,000 people working for them. In fact, their goal is to use technology and algorithms and computerization and automation to replace as many people as they can. And they're successful at doing it. So in just so many ways Germany should not be thinking about how do we copy Silicon Valley. Germany needs to of course have a start-up culture and promote innovation and put money behind that. But Germany needs to find a new way. And what I propose in my book the new way, the better way for Germany is to create a hybrid between the start-up culture and the Mittelstand here in Germany because when I sit back and I look at the German economy what is really amazing to me is this miraculous Mittelstand, this sector of small and medium enterprise companies. There are over, there are millions of them here in Germany. And they create about 60 percent of the jobs. They produce about 56 percent of economic output. Many of these companies are huge exporters. They are a big part of the German success story. And so there seems to be this kind of ignoring of the Mittelstand in favour of all this intentional start-up culture, the start-up businesses. How do we create the Facebooks, Googles and Apples? What I'm suggesting is that Germany needs to figure out how you create a hybrid between start-ups and the Mittelstand. The Mittelstand has resources, has money to invest in companies which the start-ups don't often have. But they don't have, you know, not too many of the young coffeehouse hipsters of the start-up world are going out to the middle of Germany and touring auto plants and touring these Mittelstand companies to find out: How can I take the know-how I have about digital technology and bring it to these Mittelstand companies? And the Mittelstand companies aren't attracting that type of talent out to where they live, they live out in the rural areas, not in the cities, in the hip urban centres. So the government here could play a key role in bringing together these two sectors and creating this hybrid between start-ups and Mittelstand. I call it Rocket Mittelstand because there's a famous start-up company here in Germany called Rocket Internet which has been criticized a lot because they don't create really anything new. In fact, they do copycats of things like Amazon and other successful American start-ups. And then they sell it, they ramp it up in Europe or Southeast Asia, and then they sell it back to the American company. And people say: That's not innovation, that's just copycat! That's true, but what Rocket Internet is really good at is execution, at taking a plan and scaling it up and making it big. And that's what most start-up companies are not very good at in Germany. And the Mittelstand companies are actually good at innovation, creating the products. But they don't know much about the digital world.

There's definitely a clash of cultures between the Mittelstand and the start-up world. But I don't think it's an instramentable. You know, there's nothing like exposure to each other. And so I think there just needs to be more interaction between the two. And, you know, more of the people in Berlin and Hamburg and Munich that are, you know, engaged in the start-up world, they need to go out to the other parts of Germany and meet them and vice versa and just create those bridges and build those kinds of alliances that would allow a cross-hybridisation of ideas and thinking. You know, this kind of thing is not really happening in the United States either. You have a big seperation between Silicon Valley and manufacturing. And manufacturing in the United States is really not doing very well. It's one of the things that helped to elect Donald Trump as he said: I'm gonna bring back manufacturing. But he has no ideas about how to do that. So I think if Germany figures this out about how to create this bridge building it's ging to be really be a leader in the world in doing this. I mean the world still needs to produce things. It still needs to manufacture things. You can leave that to China and India and Brazil with their lower labour costs. But Germany is always specialized in high-end products, in better products, in quality. That shouldn't change in my view. It just should use the start-up world and digitalisation to make it even better and expand its markets.