Berlin – from humble beginnings to the innovation hub of Europe?

If the number of startup’s can be used as a proxy, then one could contend that Berlin is the place to be. Walk down Linienstraβe or any of the ‘start-up’ pockets and you will find the streets and cafes bustling with young entrepreneurs, computer programmers and the likes. There is this air of youthful exuberance and unbridled optimism that each small start-up is on to something big. Same goes with their youthful sponsors – many of whom have successfully launched and sold their first startup for millions of Euros and are eager to make this newly found wealth work for them by investing into new and hopefully promising enterprises.

However, if I look towards the type of start-ups then one does see a discernible pattern, one which I would like to ponder on a bit. Most of these firms, I daresay a significant majority are geared towards e-commerce, and among these a good number are those that imitate successful firms abroad. Nothing intrinsically wrong in this as well – if you read entrepreneurial literature it is full of statistics indicating that being able to copy (with modifications) a proven model overcomes many of the barriers to succeed. So you have everything from a Taxi app, to an e-Tailor and the likes.

That brings me to the multi-million dollar question – what about the high tech startup, has Germany lost its mojo here? Now for those who are in the unawares, Germany has one of the best and most respected small to mid size industry, the venerable ‘mittelstand’ which continues to be a major contributor to its economic success, not to forget also a significant employment avenue. Most of these are privately owned, operate in niche high-tech segments and are undisputed masters in this space. No wonder they are referred to as the hidden champions. These do not seek mass market, but high margins within a niche that they have carved. Rather than being followers – they seek out new avenues to dominate. In addition, Germany has a large number of well funded research institutes – the Max Planck institute, Heinrich Hertz institute among others, who continue to do pioneering work, pushing the boundaries on the lines of the peers in the US and abroad.

What is sadly lacking is a concerted attempt to be able to develop a strong competence into this type of startup, one that would take the mittelstand model and develop global powerhouses. Why should Berlin only be considered as the lesser brother of its Silicon Valley cousin, treated contemptuously for the fact that many of its successes have their origins in businesses abroad? Couldn’t it leverage the knowledge that is being developed at its universities, the high-tech skills learned at its mittelstand to foster and grow new business – which one day could be the next Siemens? If you talk with those who try – you commonly get the sorry headshake – it is easier to raise money for the next app then for a high tech product offering.

This would also be beneficial to these small businesses themselves which are now at the cross-roads of globalization. Some have adapted, but others struggle to adapt their technologies to a changing world. From this would emerge the second generation of the mittelstand, one that is not averse to the VC (many today operate solely with banks, wary – perhaps rightfully so at Venture Capital), can gainfully utilize the business savvy in Berlin to move abroad, with a product and service with a clear differentiation – and lead to a strategic advantage. On the other hand, it does require a different kind of VC – one that isn’t in the ‘get rich quick’ business, but recognizes the inherent long term value and is ready to invest.

Is this possible, can Berlin emerge from the shadows to stand on its own. For both, I think the answer is yes – it needs will, it does need vision – and it definitely does need all parties to recognize and respect the capability of the other. Then, Berlin (and well – Germany itself), could truly become the Innovation 2.0 capital of Europe.

Groupon – a failed business model?

I have followed several cases of companies in the pre-IPO phase, but perhaps none have been so maligned as Groupon – the folks who bring us our daily deals. Their supposed market cap has fallen by half, it now appears that a large number of initial investors were interested in cashing out and the overall situation continues to get tougher each day with established players entering the market and bad reviews which make it even more challenging to keep growing. All this made me wonder, if I could remove all the ‘bad’ from Groupon, could I come up with a business model that made sense, that was sustaining – and perhaps have a positive societal benefit, especially in the developing world.

Consider the following possibilities:

Each and everyday in the US, apparently over 27% of the food goes waste; and if a percentage is difficult to understand it roughly translates to around a BILLION pounds of food every year. Due to health and safety regulations many restaurants are forced to dump their unsold food at the end of the day, all this when we have an increasing number of people needing food-stamps just to get by. Couldn’t a Groupon type service help here? at the very least the food & beverage industry could recover its costs instead of literally emptying it down the drain.

Or consider a poor developing country where there often are challenges connecting buyers and sellers, the result being that the middle-man pockets a significant portion of the profit. In terms of the Porter Framework, it would be the ‘go-between’ who has the competitive advantage. But perhaps, leveraging the power of mobile technology (with basic features such as SMS) sellers could reach out to a far larger number of consumers in a more transparent manner. Here the middle-man could be the mobile operator (or even a governmental agency) who would use this service to enhance his customer base; increased traffic would benefit both the seller as well as the operator leading to a win-win situation.

The list could go on… and on…  Such ventures would be sustainable and perhaps – more fruitful.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours