3 things startup founders can learn from the Mittelstand, not Silicon Valley
In Germany, traditional small and medium-sized enterprises (SMEs) are referred to as the Mittelstand — companies in the middle. For a couple of years, there has been a focus on what the Mittelstand can, and should, learn from startups: digitization, new work, agile frameworks etc. While this is undoubtedly true for many companies, I’ve found that the reverse is also true: startups can, and should, learn from the Mittelstand.
Why do I write that? Well…
The first seven years of my career focused on building tech startups (including Autoloader, Celonis, NavVis, Babbel, and Saiga). They were all fast-growing companies, backed by venture capital (VC), with cultures strongly inspired by the Silicon Valley tech scene.
Last year, I joined our 100% family-owned business called ReiCat which my Dad has run for the past 20+ years. It’s a climate tech company (although Dad would never call it that) developing purification units and recycling systems for technical gases and exhaust air.
While I’m aiming to use my experience from the startup world to drive forward digitization and new work topics at the company, I’ve noticed ReiCat doing a ton of things where I thought: “that way of working is much better than anything I saw in the startup space.”
It’s been eye-opening getting out of the startup bubble and seeing processes I’ve always taken for granted being done quite differently by a Mittelstand company. In fact, the different processes I’ve seen are often closer to my understanding of what actual entrepreneurship is.
To me, the major contrast between a startup and a Mittelstand company is the former’s equity funding and accompanying hyper-growth focus. This focus may work and lead to rapidly scaling companies, but it also endangers creative and product-driven entrepreneurship in the early stages of a company. Startup founders often underestimate this, or don’t adequately counter-correct it, which puts the ultimate goal of finding product market fit (PMF) and building a successful business at risk.
It’s why I believe more startup founders — even those aiming for hyper-growth — should take inspiration from bootstrapped and sustainable-growth-focussed SMEs, not just the Silicon Valley hype train.
With that in mind, here are three Mittelstand ways of working (often disregarded by the startup world) that early-stage founders should adopt if they want to build a successful business.
1. Build the product before building the company
Too many early-stage startups are more concerned with building a company than building a successful product and finding PMF.
They worry more about the shiny outside image of their company: startup awards, founder self-branding on LinkedIn, extravagant company events, and fancy company perks. And about building scalable structures: elaborate OKR processes, employee referral programs etc.
The truth is that
- most customers don’t care about these things
- the time/cost of employer branding exercises often far exceeds their benefits (at least in a startup’s early days when you only need to hire a few key people)
- building up scalable company structures is important for growing the company later on, but slows you down in the early, experimental PMF phase
A winning product should be the foundation of a growing company: you market it to achieve growth and win talent, not the other way around.
This is where more traditional SMEs are doing better. In the early days, they are more focused on building products and services, and their respective business models, than on marketing their company to the outside world and prematurely preparing their company for scaling.
They are not doing this by choice. They know that if their product doesn’t fly they won’t have the money to hire more people and grow. It’s that simple.
This early focus on developing (revenue-generating) products or services helps those Mittelstand companies get to PMF faster and, from what I’ve experienced at ReiCat, leaves a lasting impression. The cornerstones of a company’s culture are set in the early days, and if product is your core focus right from the start then this attitude is baked into your culture. It sticks and becomes a key success factor.
It is probably one of the reasons why we have so many hidden SME champions in Germany. Companies that are leading in their market segment because of outstanding products, but who are still relatively unknown to the outside world. They don’t continuously talk about themselves to impress their network but instead focus on their customers.
Of course, not all startups fall into the trap of hyping themselves up and preparing to scale before having a working product on the market. That said, I’ve seen (and also experienced) this behavior in a world dominated by young, inexperienced startup founders and VCs who have the power but not the entrepreneurial or product-building experience their portfolio companies really need.
2. Prioritize fewer meetings for a stronger maker spirit and leadership
Startups looking to scale prematurely are copying the working models of Silicon Valley corporates too early. Corporates like Google, Netflix, and Amazon.
It feels professional to work like the big tech giants and act like the scaleup you want to become. But this results in a premature management-dominated culture rather than a maker culture. You get a culture that places too much value on regularly scheduled meetings that aren’t actually required for a small team.
Scaleups and corporates like Google and co require meetings to get buy-in from two levels up, to align a big product initiative with a big marketing initiative, or to monitor progress. Their need for alignment, planning, measuring, and monitoring is high due to the sheer size of the company.
In a startup with a manageable number of people, you have the enormous privilege of not needing all those regular, formal meetings to align everyone, share information, or check on progress. And yet, meeting overload is common in early-stage startups.
I was guilty of this.
In my early-stage startup days, I would organize all kinds of meetings to make sure people were aware of what was happening around them, and that they felt involved in every decision.
ReiCat has far fewer official and regular meetings than I’ve been used to. This gives people more time to get things done and often creates faster decision-making. Collaboration happens much more organically, with people only gathering colleagues to discuss and decide things when needed rather than waiting for the next regular meeting.
Example: despite being CEO my father has a fairly empty calendar compared to startup CEOs of similar company sizes. However, he still spends most of his time talking to the team. People come to his office or catch him when they need something. Or, the other way around: he approaches people spontaneously to get updates or the information required to make a decision.
To me, this culture where things are less fixed and institutionalized feels like a more productive way of working for companies of smaller sizes. Of course, more extended meeting structures can still be implemented when the company is growing and actually requires such a setup.
A word of warning: this ‘no-meeting’ culture (for want of a better phrase) isn’t created by simply not scheduling any meetings. It’s the task of the leadership team to provide the right setup for this more focused and clearly guided way of working.
This more ad-hoc, freestyle way of working and collaboration requires more leadership than a meeting-dominated culture. For it to work, founders must take decisions and give clear direction without having first consulted everyone in a meeting. And be comfortable doing so.
This does not mean that a top-down culture is established. It simply means that founders take a clearer stance on their vision. It also means that people are more focused on their own responsibilities and projects and, in general, conduct fewer projects in parallel.
Less: we’re all holding the pen together. More: divide and conquer.
3. Avoid monocultures by hiring youth AND experience
Last but not least…
Startups often have a much lower age diversity than SMEs. I assume this is a consequence of equity funding — and software development that’s not as capital-intensive — which makes it easier to start a company without capital or having to provide collateral to a bank. The result? Many startup founders are straight out of university or only have a few years of working experience. According to DSM 2022, the average startup founder in Germany is just 36.4 years old.
Furthermore — and purely anecdotally (I couldn’t source data on this) — startup employees are predominantly younger with team members over the age of 50 a rarity. A higher age diversity is often only achieved when the company moves from startup to scaleup.
Startup founders often justify this focus on youth in three ways:
- In the early pre-PMF days there is a requirement for a young person’s inventiveness and naivety.
- Older colleagues lack the speed and ability to progress and learn fast due to pre-programmed ways of working.
- We can’t afford the higher salaries of more experienced employees.
Personally, none of those ‘comments’ are reasons not to build an age-diverse team from day one.
- Inventiveness: in my experience, it’s a myth that youth equals invention. Innovation is often achieved by combining existing concepts in new and different ways, and this calls for detailed knowledge of customer and industry problems (and the technologies that could help fix them). This knowledge requires years of industry experience. You can’t just read about it in a book.
- Speed: while younger people might be able to adapt and ‘fail’ quickly, older people bring experience that helps to prevent stupid mistakes which, in turn, saves the startup time.
- Salaries: the experience and business network that an older person brings come at a higher price. But, given the effectiveness of that experience and network (assuming you hire well!), the potential return on investment is far greater.
The actual reason for a low age diversity in many startups could be related to a founder’s ego.
Firstly, and I’ve been there myself, a young founder might be frightened to hire someone who is older and more experienced. This shouldn’t stop them though as fear and insecurity are concepts all founders need to get comfortable with on a daily basis.
Secondly, a founder might feel it’s easier to build a company culture when everyone in the team is in the same life stage. Again, this shouldn’t stop an older hire. Building a strong culture should not be based on ease. Monocultures with conformist viewpoints risk being professionally blinkered.
For me, the only valid reason not to hire more age-diversely from day one is the type of role you’re filling. Roles like digital marketing or UX design are fairly young professions and it can be harder to find older people. Apart from that, most startup roles are nothing new (e.g. sales or finance) and in these functions, I see no reason to focus solely on youth.
At ReiCat, our team ranges in age from 25 to 63 and two of our advisory board members are retirees. This mix of youth (and the fearless experimental zest and ideas that come with it) and experience (and the industry know-how and serenity that come with that) is one of the reasons the company has been successful.
Ultimately, pick and choose what works for you
There are pitfalls to taking equity funding and aiming for hyper-growth (the typical Silicon Valley startup way of working), but please don’t think I’m vehemently against doing either.
All I want to highlight with the above is that one should be aware of those pitfalls and counter-correct them accordingly. One way of counter-correcting is by looking for inspiration outside the startup bubble, e.g. the Mittelstand. Having now worked on both sides, startups and the Mittelstand, I firmly believe that BOTH can learn from each other.
What do you think? What else can either side learn from each other? Let me know in the comments below…
