Berlin Start-up Scene Niche Markets Instead Of Mass Markets

The first Long Night of Start-Ups in 2013
The first Long Night of Start-Ups in 2013 | Photo (detail): © startupnight.de

Compared to the world’s largest start-up locations Berlin ranks a mere 15th. Nevertheless the German capital has triggered a huge hype. The question is, however, what is it that makes Berlin so attractive for these new, young companies?

At first glance the figures are breathtaking – with its 545 registered start-ups Berlin stands out from other big German cities. Lagging way behind is Munich with 163 and Hamburg with 149 new, young companies, according to the database published by online magazine Gründerszene. Editor Niklas Wirminghaus calls the Berlin start-up scene an ecosystem that does not just offer people hope, but also has a few success stories under its belt. “Furthermore Berlin has a lot to offer in the way of cultural activities and this enhances the quality of life there no end,” says Wirminghaus.

Nevertheless there is another factor that is decisive when choosing Berlin as a business location. “Berlin is still incredibly cheap. Setting up a start-up business costs money, many start-up founders have to go into the red at the beginning. So it is of course of great benefit if your rent does not make a huge dent in your budget,” says Wirminghaus.

Good, but not good enough

Without a doubt one of Berlin’s most successful start-ups is Zalando. In a mere five years the company has developed into Europe’s largest mail-order fashion business. In 2012 Zalando was way up there among Germany’s 100 strongest online shops in terms of turnover. In 2013 Zalando generated a revenue of 1.8 billion euros. Despite all that, the Frankfurter Allgemeine Zeitung newspaper still called the online mail-order company small fry - at least when compared to the Swedish fashion group H&M, that in 2012 had a turnover of 3.5 billion euros in Germany alone.

According to the Startup Ecosystem Report 2012 that was published in 2013 the main problem for most start-ups in Berlin is their lack of capital. In Berlin young companies have to make do with about 80 per cent less money than the companies in Silicon Valley. The report quoted Silicon Valley as the most exemplary start-up location compared with other large population centres. Niklas Wirminghaus also feels that it is above all a structural problem that causes so many start-ups to fail. “It is easy to get the money together for the first few months. If, however, they want to roll out the business model in other countries, for which they have to set up marketing and distribution structures, they have a hard time finding investors with adequate risk capital.”

Manageable marketplaces

As a result Berlin start-ups often settle for a niche market, rather than dare to tackle a mass market. Just how promising this strategy can be was clearly shown by Blinkist - a start-up founded in 2012. Holger Seim and his 14-strong team developed an app that can provide the essential low-down from a non-fiction book within 15 minutes. Their aim was to enable users to spend the time they have to spend waiting in line more purposefully. “By focussing only on non-fiction books, “ says Seim, “we have a fairly good chance of not going under on the huge market for book summaries.” Hubraum, the business incubator of the Deutsche Telekom, also seems to see it the same way – that is why they invested in the project.

Etagen-Erika is yet another start-up that has concentrated on manageable marketplaces. Working together with her partner, Susanne Feldbauer from Berlin assembles individual sets of balcony plants and delivers them to city dwellers. The women are two of the very small number of women who have started up a business in Berlin – only three per cent of Berlin’s start-up founders are female. A shame, as there is so much creative potential in Berlin, as Susanne Feldbauer finds. “The start-up scene here is really lively and has so many facets. Berlin inspires people to simply get out there and do it.”

Cooperation spawns success

When it comes to the field of international cooperation politics plays an active role start-up financing. According to the survey Deutscher Startup Monitor 2013 half of the start-ups in Berlin that used risk capital to finance their businesses, had their capital requirements covered by foreign investors.The scene has finally realised just how important networking is for start-ups and that is why it organised an event entitled “The Long Night of Berlin’s Start-Ups”. It took place for the first time in 2013, when 73 young entrepreneurs were provided with an opportunity to introduce themselves to a broader audience. One of these young entrepreneurs was Holger Seim and for him it really was a worthwhile undertaking. “By exchanging ideas with other start-up founders we were able to avoid quite a few mistakes.”