“Valley of the future”, home of the “gifted, innovators and prophets” or “hothouse of innovation”. These characterizations of Silicon Valley certainly do not lack superlatives. But for good reason, because Silicon Valley on the US West Coast is considered the global mecca of the tech scene. Technology giants stand for American dominance in terms of start-ups and IT companies.
But what about Germany? Has Germany missed the boat internationally in terms of start-ups and high-tech? Konrad Peters, founder and CEO of Actiworks Application Solutions GmbH, feels this is not the case: “In Germany, people underestimate the significance of how ‘Made in Germany’ is valued abroad, whether it be cars or an Industrie 4.0 application.” Peters should know: the company he founded in 2011 while he was still a student is now an international player.
Actiworks Application Solutions develops apps that help companies track and optimize their processes from anywhere in the world. The company also deals with cloud solutions and is thus right at home in the world of Industrie 4.0. At the age of 30, Peters is one of those young entrepreneurs that one would expect to find in Silicon Valley rather than Germany.
Digitization is not waiting for Germany
So all is fine then? Not quite. “Digitization is not waiting for Germany,” Bitkom president Achim Berg warns. According to a study by the IT association, 60 percent of surveyed companies consider themselves latecomers with regard to IT. In 2016, only 20 percent of those companies invested in new digital business models. In terms of using state-of-the-art technology, German companies are only in twelfth place according to a current study by the World Economic Forum.
Dr. Eric Maiser, Head of the Future Business Competence Center at the German Engineering Association (VDMA), also takes a critical view of the reluctant approach to digitization. “Our industry needs to be proactive and flexible in order to develop some resilience to disruptive change. It is thus imperative to be open to new ideas. In Silicon Valley, disruption is viewed as an opportunity rather than a threat. We should learn to think like this.”
Highly qualified employees are crucial
The lack of capital is another problem that affects entrepreneurs and start-ups in particular. While around 69 billion dollars in venture capital was invested in start-ups in the US in 2016 according to a study by KPMG, in Germany that figure was a mere 1.9 billion. “Funding of start-up companies is inadequate in Germany, and it is also based on the principle of indiscriminate all-round distribution. This creates the wrong incentives, which especially hurts small businesses,” says Dr. Stefan Schulz, CEO of Vincent Systems GmbH.
Founded in 2009, the company develops and produces innovative high-tech prostheses that are in great global demand. In 2017, Schulz and his colleagues were nominated for the German Future Award, the Federal President’s award for technology and innovation. It was not an easy feat to excel to that point. “The workload and the lack of financial security are brutal. Not many companies are cut out for this,” says Schulz.
The lack of capital can, however, also have a positive effect: “Silicon Valley is flooded with capital. This makes companies lazy. In addition to that, German start-ups are not viewed as speculative investment opportunities which are funded only to be sold for gain later on. We are creating sustainable value here.”
Of particular advantage are the well-educated employees. It is quite common for future colleagues to start at Vincent Systems GmbH as student trainees, write their thesis there and then start their professional lives. “We invest heavily in selecting and training our employees. They are our capital if we aim to remain technologically competitive. You can’t buy innovation, after all – it is produced by highly qualified colleagues.”
David Rhotert, founder and CEO of the crowd-investing platform Companisto, strikes a similar tone. “It’s a struggle here in terms of venture capital. But compared to the US, less money is being wasted in Germany. We optimize.” And this is exactly where Rhotert and his team come in with a view to promoting start-ups. “At Companisto, we focus on the seed to early stages, concentrating on technology. One of the main conditions we have for start-ups is that they are trailblazers in their field, and they must win us over with real innovations.”
One such example is myEnso, the online supermarket. The e-commerce start-up from Bremen radically puts the consumer at the center of its platform and aspires to reinvent retailing. “The fact that people in Germany have a critical disposition and offer a certain resistance can be a source of innovation given the right perspective. I think there are also a lot of cultural changes underway in Germany at the moment. If this is accompanied by courage to think outside the box and it is systematically implemented, then I look forward to the next big developments,” says founder and CEO Norbert Hegmann, thus flipping the preconception that Germany is afraid of anything new into an advantage. “Our company wouldn’t stand a chance in Silicon Valley. But in Germany, we can develop new business forms. Germany is the perfect seeding ground for that.”
Hidden champion even in the age of digitization
Compared to the big guys in the industry, myEnso is still small. As a matter of fact, the digital giants seem to have an unassailable lead. Politicians in Europe and Germany have recognized the challenges and are beginning to take countermeasures. For example, a regulatory framework is currently being developed to facilitate fair competition and to make it easier for smaller companies to enter the pan-European market.
According to Ilse Aigner, Bavaria’s Minister of Economics and Technology: “Bavaria is at the forefront in terms of Industrie 4.0. The mix of large corporations, a vibrant SME sector and the dynamic start-up scene provides the groundwork. But I do think that small and medium-sized companies need to catch up in terms of digitization.” Bavaria has adopted the “Bayern Digital” master plan and launched the “Zentrum Digitalisierung Bayern” (Bavarian Digitization Center).
The digitization potential of collaboration between agile start-ups and medium-sized enterprises is also pointed out by Dr. Maiser from the VDMA: “Nowhere else in the world will you find so many hidden champions that turn product ideas into tangible, affordable products. This is particularly the case for production engineering. At the same time, start-ups are very important: not only for new technologies, such as machine learning or artificial intelligence, but also for new ways of working and the joy of experimenting.”
Entrepreneur Konrad Peters explains what this may look like in practice: “We cannot keep up with the financial strength of Silicon Valley. And that is why, just like traditional industrial companies, start-ups look for niches where they can fully exploit their technological expertise.” Hidden Champions 2.0, so to speak.
Robot Valley in Swabia
In the summer of 2017, KUKA announced extensive investments in its Augsburg headquarters. Around 100 million euro will be spent on expanding and modernizing the traditional location over the coming years. By 2025, a KUKA Campus is to be built step by step, an open and modern environment that promotes innovative ideas and provides a start-up atmosphere. “Innovation has made regions like California’s Silicon Valley world-famous. I think we can do the same,” says KUKA CEO Till Reuter. “Our vision is to create a “Robot Valley” or an “Automation Valley” here, because I think the economic region of Bavaria has what it takes.” The KUKA Campus combines production, research&development, training and innovation at a single location. The idea is to entice young entrepreneurs to the campus and to foster the start-up spirit in the region.