We don't need startups, we need Digital-Mittelstand

https://mertbulan.com/2025/02/24/we-dont-need-startups-we-need-digital-mittelstand/

by mertbio • 1 year ago

137 236 1 year ago

I didn’t find this article credible. It is arguing for small and medium businesses instead of startups, and offers steps to see the vision it paints. But startups are where some of the biggest game changing ideas come from. Large enterprises can sometimes do that too. I feel like the mid sized companies are often stagnant. The product areas it suggests for businesses are very hard to survive in.

These other lines sort of felt like an idealistic version of Germany:

However, if you’ve ever used a product marked “Made in Germany,” you’ll understand what German culture truly values: mastery of a craft and uncompromising quality.
They’re not the kind to release half-baked products and patch issues later

Anyone who has owned a German car knows the idea of German quality is a myth.

keiferski3• 1 year ago

German car companies aren’t really the type of company they’re talking about, though, because they are usually larger. They are more referring to smaller (comparatively) companies that tend to sell tools, parts, and that sort of thing.

morkro• 1 year ago

But that's the point of the article, no? In German culture we don't have this drive of "biggest game changing ideas". I do agree with the "Made in Germany" remark being more of glorification.

randomNumber72• 1 year ago

I own a Mercedes w124 Diesel from 1990. It is not a myth, but it died in the early 1990s.

FirmwareBurner14• 1 year ago

> However, if you’ve ever used a product marked “Made in Germany,” you’ll understand what German culture truly values: mastery of a craft and uncompromising quality.

What is OP smoking? I have a Bosch oven, Gigaset DECT phone set and a Fujitsu Siemens laptop, all made in Germany and their quality is complete bottom of the barrel crap, totally the opposite of "craftsmanship and uncompromising quality".

Chinese companies blow them out water to the moon and back in UX and build quality. The quality of recent German cars is also nothing to write home about. Full of cheap and hollow sounding plastics including premium brands like Audi.

The "Made in Germany" sticker is a myth for consumer goods and electronics.

pbmonster2• 1 year ago

All of those are the opposite of Mittelstand. Those are old German megacorps, trying to do everything.

nottorp3• 1 year ago

Are those actually still made in Germany? Siemens got sold looong ago, or at least their consumer facing parts, as far as i know.

Except maybe the Bosch oven is made in germany. But tbh I wouldn't buy a Bosch oven, in my corner of the world outside Germany they're known for good tools not kitchen appliances. My Bosch electric screwdriver is great :)

croes• 1 year ago

Most people don't want a mass of game changers.

They want durabilty and reliabilty.

FirmwareBurner14• 1 year ago

Durability and reliability on consumer products doesn't make you a lot of money. See consumer Sennheiser headphones. Hence why they divested the business because they weren't making much money compared to the ewaste Bluetooth earbud manufacturers.

Turns out if you make products that last forever, you end up with less sales in the long run putting you out of business when your customer base values the c convenience of cheap modern ewaste versus pricey things that last forever.

InsideOutSanta• 1 year ago

"startups are where some of the biggest game changing ideas come from"

I think the original author's point is precisely that it's not necessary to have big, game-changing ideas to have a working, stable economy. It may, in fact, be better to have many small companies doing small, sustainable things, than to have a few startups doing things that have a huge upside if they work out, but also a huge risk of failure.

In Western democracies, small and mid-sized companies usually make up around 99% of companies, and around 70% of jobs, but in software, there's a huge focus on FAANG-type companies and unicorn startups. It might be better for Germany to focus on building a healthy economy of small companies, rather than trying to compete with Silicon Valley.

fire_lake• 1 year ago

How can they compete with well capitalized start ups?

crimsoneer• 1 year ago

One question here is what does "competing" mean... Can they compete on user growth? Probably not, because that's the core VC model. Can they compete on product quality... Maybe?

drekipus• 1 year ago

The goal isn't to compete, only exist.

chromanoid• 1 year ago

Stability, sustainability, EU legislation compliance and taking care of your individual problems. If it goes well, the companies will grow with you and don't outgrow you.

I think there is a growing Digital Mittelstand in Germany already. I myself work for such a company. We have some strong VC-backed competition. So far the company, self-financed, fares quite well.

I think the author misses a plethora of B2B markets when coming up with examples. There Mittelstand can be a very stable, (if desired) regional long time partner.

whstl• 1 year ago

I have worked for a couple of those as well.

Super interesting niche products, that were crucial for people's day to day work, sustainable work pace, always shipping interesting features every other week. A lot of focus on quality (the QA:Dev ratio was 1:1 in one of those for example).

A lot different from the "we must rule the world or die" from regular startups outside Germany. Incidentally one of those companies I was in just died, after getting from 50-90 (when I was there) to 900 employees. I'm glad I left before the decline.

MHard• 1 year ago

I think the idea would be to compete in different segments. Startups often focus on problems where hypergrowth is at least possible with massive investments. But the examples listed in the article advocate for ideas that might generate millions but not billions in revenue.

Some of the ideas the author is proposing are already happening in Germany. There are grants to develop games for instance which pay you a monthly salary for 1 year and a while back there was a similar one for open source projects.

llm_trw5• 1 year ago

There is a huge gap in the market, I'd say between capital investment of $50,000 and $5,000,000, where a ton of ideas which can make 20%+ ROI per year once mature live. But because they will never hyper scale they can't be financed by startups, and banks are too scared and stupid to invest.

I've done the math for a document segmentation pipeline that every RAG system needs and you'd be able to get one off the ground for around $2,000,000 USD and be rolling in cash instantly. Good speaker diarization is another family of models that will print money once solved, but again, there isn't the possibility for hyper scale.

Meanwhile at least a dozen companies I've spoken to have wasted on the order of $10,000,000 trying to solve these problems in house and failed.

raverbashing• 1 year ago

By not going away like Pongo, Brzl does in 10 months

And I agree, there's probably a market for reliable, local services for some services. In the same way there is desktop SW from companies you never heard about (and far smaller than Amazon) doing things you never imagined were a problem

api• 1 year ago

The hardest thing is competing with free. Well funded startups can "dump" free products and services into the market to kill competition and capture the market. Large corporations also dump open source into the market to commoditize their compliments or kill competition.

Dumping is illegal in a lot of commodities markets and physical goods industries but it's standard operating practice in software. It's hard to even imagine how different the software world would look if dumping were at least regulated.

alkonaut• 1 year ago

Most businesses aren't going to be well-capitalized startups. Because that kind of capital usually goes to businesses that can scale very quickly and to a large size.

But say I have an idea for a business, where the total number of customers worldwide is 100. The max number of employees ever sustainable by this business is, say, 50. But to reach that would take 20 or 30 years of organic growth , maybe a bit less with huge investment. It's what most businesses look like. It's not going to attract a ton of startup money. But it's also not going to be out-competed by a startup.

jillesvangurp• 1 year ago

Startups are like fruit flies. Most startups never get to sustainable revenue. Being well funded just means they burn brightly. You blink and they are gone. The vast majority of startup founders I've talked to over the last 15 years have gone through several startups. Well over 90% of those startups are long gone and forgotten. VC money evaporated. Staff disbanded, acquihired, poached, etc.

Small companies compete by making money. Even a modest amount of money can be sustainable. If you can get to about half a million per year in revenue (enough to employ a few people), a small group of people can get a lot of stuff done. That sounds easy but it's not. The first few hundred thousand revenue are really hard. You are dealing with customers that are demanding results, haggling over pricing, and facing the brutal realities of product market fit all while you are running out of money and time. That's what building a company means. Early success is very fragile.

My pro-tip to startups is to stop calling yourself a startup as soon as you can. Set yourself apart from the wannabes. People will take you more seriously. And the last thing a potential customer wants to hear is that you are this cute startup that is still figuring things out. That just sounds super flaky as a sales pitch. They don't need to invest in you; they need to buy your product and for that they need to believe in your product. And your product had better do it's job or they'll want their money back. If you make money, you should be wary of investors. And if you don't, even more so. There's no such thing as a free lunch.

You're a company that's making money, that has a plan, that knows what they are doing. The sooner you believe that's true, the sooner you'll make your company a success. Most startups have none of those qualities.

mtrimpe• 1 year ago

Most tech startups create a monopoly by hiding real-time access to user data behind closed down apps which can force-include ads in your feeds.

A simple EU regulation that requires offering real-time distribution of user data to third parties would massively level the playing field.

camillomiller3• 1 year ago

Ulysses (the Mac/iOS writing app) is made by a German company that's a good example of this.

FirmwareBurner14• 1 year ago

Was curious until I saw it's subscription based! Seriously? For a writing app? They can politely gtfo with that, I already got burned before by subscription-ware before. I want to own my purchases thank you very much.

tonyedgecombe5• 1 year ago

I doubt those sort of apps would be viable as a one off purchase.

randomNumber72• 1 year ago

This is absolute nonsense. Using buzzwords can not replace reasoning. There are structural problems why germany failed to build a digital economy.

llm_trw5• 1 year ago

Try opening a business in Germany to find out why.

7bit4• 1 year ago

I did, it was super easy.

jansan3• 1 year ago

I realized a few weeks ago how broken IT in Germany is when I talked to a guy who turned out the CIO of a known German retail company. We did not talk about technology, exciting projects, ideas or similar, but about the complexity of the privacy act and "Scheinselbständigkeit" (false self-employment, which is a huge issue for start-ups and self-employed people in Germany). Out brains are so busy thinking about stuff that should just not have that much brains share, that we have not enough time to think about innovation and technology. I really wish they would drastically cut bureaucracy, but I just don't see it.

FirmwareBurner14• 1 year ago

Scheinselbständigkeit" (false self-employment, which is a huge issue for start-ups and self-employed people in Germany)

Can you provide more details about this? How is this a problem and why does it affect startups?

dotdi2• 1 year ago

I think you got this wrong. Laws against Scheinselbständigkeit are protecting individuals from being exploited, and it's one of the things that characterizes the EU.

Don't forget that outside of Europe, most big economies were built on the ongoing exploitation of the working class. I am not saying this didn't happen in Europe, but at least there are efforts to curb this.

So a CIO complaining that he can't exploit people for cheap labour is not an argument for broken IT laws. It's an argument for seeing that it works as intended.

theiebrjfb3• 1 year ago

For start Germany needs better internet connectivity. Getting 1gbps symmetric fiber or 5G coverage is a scifi!

Even Romania has better infrastructure!

FirmwareBurner14• 1 year ago

Yeah but Germany's copper infrastructure is "Made in Germany". That label is gotta be worth something. /s

Traubenfuchs• 1 year ago

…which currently impossible capabilities, businesses, applications does the allegedly missing fast internet allow?

theiebrjfb3• 1 year ago

Working with docker images...

dotdi2• 1 year ago

It's worse than that. Romania is #43 by GDP in the global ranking. There's faster internet compared to Germany in: Trinidad and Tobago, Colombia, Jordan, Panama, Ecuador, Moldova, etc.

Source: https://worldpopulationreview.com/country-rankings/internet-...

aqueueaqueue2• 1 year ago

Tell me about it. Australia has no 1gb symmetric. Might get 800/100 if lucky.

fransje263• 1 year ago

Still better than the 4/0.5 Mbps DSL provided in my area in Germany.

ThePhysicist• 1 year ago

Fiber has been laid out in many areas already, it won't be long until most households are upgraded. But to be honest it's not as much of an issue as people make it out, in most areas you can get 250 Mbit downstream and 50 Mbit upstream through DSL, that is plenty for most home use cases, there's just not enough demand for higher speeds. Don't tell me people are regularly maxing out their 1 Gbps lines. In most rural places the fiber linkup stalls not because there's no will to do it but because not enough households vote to get it, providers typically need a quorum of 10-20 % and they don't get it because most people just don't need or want faster Internet (or let's say they are not willing to pay 50-100 € per month for it). Telekom and other companies have fiber running in most of the smaller cities already (otherwise they couldn't offer 250 Mbit DSL) it was just the last mile that was missing and that is mostly being fixed now, but again most households don't even see the need to upgrade. That might change once services requiring super high bandwidth become popular (but what might those be), even 4k streaming is possible on 25 Mbit already and with 100 Mbit you can stream 8k content...

And yeah, Romania might have better Internet in some places with high population density but certainly not in the more rural areas, there was a big EU project (RO-NET) to help them get that up and running in more places in the last 5 years. In Germany you can get fiber connection in most cities as well.

Don't get me wrong I love faster Internet myself but don't pretend like that is a chief reason why Germany can't have IT startups, we have some of the best connectivity and peering in Europe with DE-CIX and the hub in Frankfurt.

theiebrjfb3• 1 year ago

For some people internet is like electricity (or even more important, I can go 10 hours without electricity with UPS). It is a baseline for consideration to even start.

How long it takes to upload 500GB video, dataset or docker images on 250/50mbps DSL line? 24 hours in theory! Like two days in reality!

On 1gbps it is 1.3 hours in theory, about 2 hours in practice!

I understand that most people do not need such connectivity, but for many people it is question of staying productive and profitable. I work in remote team, and we do share such data quite often.

DSL line is good as a backup, but it is useless. Perhaps I could deal with limited speed. But latency and throughput goes to hell when under load. I would have to pause all other traffic while making calls!

In Romania I have 4 plans in single flat. Fiber, ADSL, and two unlimited (like no speed throttle) 5G SIMs. About 90 euro monthly.

fransje263• 1 year ago

But to be honest it's not as much of an issue as people make it out, in most areas you can get 250 Mbit downstream and 50 Mbit upstream through DSL, that is plenty for most home use cases, there's just not enough demand for higher speeds.

Ha ha ha! No.

The option we have in my neck of the woods is 4.5 Mbps/s, via DSL. Take it or leave it. And were are talking about BW, in a place where the average 100 m2 house is being sold for 500'000 €.

(or let's say they are not willing to pay 50-100 € per month for it)

Good that the criminal prices of telecom providers are being mentioned. "We are cheap!" Vodafone was advertising lately on the radio. Yeah, for 50 € per month for a DSL connection with a 2 year contract. No, that's not cheap, that's extortion. And your advert is called gaslighting.

Fun story. In the previous village were I was working, the only way to get semi-fast internet was via Vodafone LTE (for a nominal fee, of course..). Then the region awarded a grant/bonus for the first company to bring glass fiber to the area. All at once, 3 different companies were scrambling and pulling glass fiber to try to be the first ones to provide coverage. They now have 3 different glass fiber providers there.

hagbard_c2• 1 year ago

Yes, that. I regularly travel from Sweden to the Netherlands by train and have gotten into the habit of sending a message from Padborg (Danish-German border) that I'm about to enter Germany so I might not be able to react or have data access for the next 7-8 hours. Coverage is spotty at best, totally absent at worst. This seems to be more pronounced in northern Germany, the west is a bit better but still bad compared to my origin (the Nordic countries) and destination (the Netherlands).

Quo Vadis, wirtschaftswunder? Werden wir es wirklich schaffen?

dewey• 1 year ago

I'm always happy to criticize the internet connections and the price for them in Germany...but it's most likely not the main reason that is holding back businesses.

flanked-evergl9• 1 year ago

[deleted]

peterfirefly2• 1 year ago

How so? Romania has gypsies, Germany has Muslims.

cupofjoakim• 1 year ago

I enjoy the idea of Mittelstands. The "forever growth" that is a common target otherwise feels misguided and overbearing at times, but I also understand that this clashes a lot with the american super-capitalist mindset. We should all be billionaires right? /s

On the topic of mittelstands vs startups - I think it's a non issue. You can have both. However, startups are starting to get a certain smell to them. Probably swearing in church here (hello ycombinator) but too many startups feel unreliable and the amount of founders just looking for an early exit is really not helping.

thomassmith653• 1 year ago

I kept waiting for the post to mention the German company who make Things.app (culturedcode.com). It seems like a good example of the ethos.

keiferski3• 1 year ago

Dollar for dollar, Things is probably the single best app I’ve ever used. I can’t recommend it enough.

thomassmith653• 1 year ago

It's a company that seems to care more about craftsmanship than becoming the next big thing.

fnands• 1 year ago

It's a one time cost and not a subscription service? If so, amazing.

postepowanieadm• 1 year ago

We must stop associating the European economy with the German economy.

hagbard_c2• 1 year ago

Better still, stop thinking about it as "the European economy" and start thinking in terms of regional and national economies. There is not that much overlap between e.g. the Finnish or Swedish economy and the Portuguese or Greek economy and it does not make much sense to try to push these disparate countries into the same box even if bureaucrats in Brussels would like you to believe so.

asplake• 1 year ago

Or recognise that the European economy is a diverse one, and that there is strength in that.

manmal2• 1 year ago

It’s a major driver in the EU, so for sure they are associated.

thiago_fm4• 1 year ago

What we need in Europe, is protectionism both against US companies and Chinese companies. They have been funded by both country's heavily deficitary budgets and incentives.

Just fining Meta and Google a few billions every year isn't enough. Need to either tax all that digital pollution they bring over here.

And now they clearly aren't our partners anymore. With China not sharing democratic values and wanting to invade Taiwan, and the US setting up a trade war against us and at the same time siding with our enemy Russia that has just invaded Ukraine...

We need to have our own tech, for everything.

Similar to what US is doing against China, we should have a strong position against both of them. And one that strikes close at heart in the US are the Big Techs.

It's hilarious that we don't let even Fanta be sold with the terrible chemical formula it has here in the EU, like they have in the US.

But when it's about manipulating people's opinions with the US's social networks and communication apps. We are ok with that.

I'm sure anybody nowadays can build similar software than Meta or Google did. Even now more with AI search being so good.

65103• 1 year ago

They are doing us a favor by not being our partners and not sharing what is left of our values. The discussion would be a lot harder if they stop being our partners 20 years from now.

Rather than protectionism there should be the ambition to build something better or more suitable for the audience. This isn't hard at all. The US corps are trying to build something suitable for everyone which is much harder than a specific demography.

albertzeyer2• 1 year ago

There are a lot of such companies already in Germany. Basically most small/medium sized IT companies in Germany fit that classification. So I don't really see how this is now a new approach. And I'm also not sure what is proposed here to be done now. Invest more into IT infrastructure? That's a goal that many parties claim to do since many years. Many people fully agree with this. However, currently, the main topic in Germany is again immigration. Second topic is economy, but the opinions on how to improve economy widely varies. Many of the more traditional parties want to invest more into car companies.

fhennig2• 1 year ago

And I'm also not sure what is proposed here to be done now.

The article lists 4 things under "What Should Be Done Next?" - Given your don't I think I can also be a bit snarky and ask: Have you read the article?

albertzeyer2• 1 year ago

Yes I read it. I don't think these suggestions really help much, or are really new. E.g. simplify bureaucracy and regulations, that is what most parties already claim to do since many many years. I think many people really want that, but it seems to be difficult to really do this. VAT exemptions is probably also in the program of a couple of parties. English language is already pretty standard in many IT companies in Germany.

tonyedgecombe5• 1 year ago

Have you read the article?

From the site guidelines:

"Please don't comment on whether someone read an article."

raxxorraxor• 1 year ago

Nothing digitally can currently really prosper in Germany if it isn't an already completely finished consumer product (preferably as dumb as possible). There is capitalism, but there is no venture here. Although investors probably still see it differently, the average user has some form of primordial fear while engaging with any digital technology.

Exception is R&D for the most part, but here these tendencies seem to be growing as well. Insane amounts of money are wasted to evade tech as much as possible.

This has changed from only a decade ago where there was much more enthusiasm for tech. Now people are annoyed by it.

kdbbfjx• 1 year ago

The startup model works where there is capital specifically large upfront capital available.

Large upfront capital automatically means you chase profit or growth.

Just like McDonalds. Which is really what the SV model is if you scrape away all the whizbang tech bullshit.

There is a reason McDonald inspite of "scale" and "low price" cant feed the world.

Because of the cost of opening a new store and initial capital involved. US had that capital available (thanks to dollar hegemony) esp post Ww2. No one else did.

There is no German/Chinese/Indian version of McDonalds.

Why? Because people are used to running sustainable restraunts without high upfront investment cause there was no capital for it.

McDonalds runs profitably and grows usually at the cost of something else (easy to see what those costs are in mature markets where growth has stalled) just like Google provides free shit at cost of all kinds other things.

But watch carefully what happens to these high capital models if they cant produce profits or growth.

Many have been coasting over the last 2 decades and have captured entire market. But that period is over just like the period where the British Empire expands till it cant any further. A high capital process btw cause you have to pay your army upfront to go shoot the native feudal lord and take his shit. Once expansion is over and all the land is captured how long did it take for British East India company to unravel?

logicchains• 1 year ago

There is no German/Chinese/Indian version of McDonalds.

This is not true, there are lot of internationally successful fast-food chains, even the Philippines has one: Jollibee. They may not be as big as McDonalds but that's just because McDonalds had a few decades' head start.

pjc508• 1 year ago

There is no German/Chinese/Indian version of McDonalds.

Local businesses tend to get consolidated. There used to be lots of local sodas, now there's Coke/Pepsi. There used to be a variety of food companies, now there's Unilever vs Mondelez.

nwellnhof• 1 year ago

The mythical German "Mittelstand" again. This word is absolutely meaningless. It has been used to describe small businesses, but also companies like Robert Bosch GmbH which has 400,000 employees. "Mittelstand" is nothing but a vague idea Germans cling to, so they feel special.

manmal2• 1 year ago

I personally have never seen Bosch listed as Mittelstand. By definition, SMEs have less than 500 employees. Are you mistaking the concept with something else?

fweimer2• 1 year ago

Bosch is a bit of an outlier due to its structure and age. But there are definitions that would include Meta as Mittelstand, like this one: https://www.ifm-bonn.org/en/definitions/mittelstand-definiti...

fxtentacle2• 1 year ago

"Mittelstand" is pretty well defined: A privately owned company that values long-term durability higher than short-term profits.

"mitte" is the middle. Those are companies that are contempt with an average size, they don't strive to grow. (Or to "go big or go home", like US VCs would advise.) Also, "Mittelstand" companies are usually family-owned, which means that the CEO cares much more about being able to pass the business on to his kids on 20 years, than about raising today's stock price with buy-backs and dividends. And especially so if you have a niche provider that keeps offering the same services for 10s of years, is run by a tight-knit group of relatives, and cares more about quality than profits, those will proudly advertise themselves as "Mittelstand".

mytailorisrich8• 1 year ago

I am sure that there are a large number of small business in the field, anayway. It's not a "either or" proposition, either.

The article comes across as naive and idealistic. This was especially odd: "The average German—apart from those who’ve left the country and morphed into “tech bros”—isn’t particularly moved by shareholder value, especially when the Basic Law of Germany begins with “Human dignity shall be inviolable."

I agree with the proposoal to simplify and regulations but this is easier said that done because these are cultural aspects.

The idea that you should be able to start a business without risks or hard work is also perhaps more part of the problem than of the solution:

"A government program could provide salary grants based on experience, allowing these individuals to dedicate time to developing a digital product without compromising their quality of life or financial stability.*"

I would also think that someone who lives and work in Germany ought to be speaking German and would not require the German state to provide paperwork to start a company in English.

Lastly, regarding VAT exemption thresholds we perhaps need to look at the root cause of those exemptions and calls for higher thresholds: VAT rates in Europe are ridiculously high and that is in turn caused by the size of the state.

nottorp3• 1 year ago

you should be able to start a business without risks or hard work

Not everyone thinks they should ruin their health and have no personal life for a 0.01% chance that those stock options are worth something.

I would also think that someone who lives and work in Germany ought to be speaking German

Newsflash: there's an European Union with the right to work and live anywhere inside its borders. They speak a couple different languages in there already. What's one more?

nixass2• 1 year ago

I would also think that someone who lives and work in Germany ought to be speaking German and would not require the German state to provide paperwork to start a company in English.

Wow what a great way to invite even more talent to your country

h05sz487b2• 1 year ago

Not too big, not too small, very cozy. I need it.

fhennig2• 1 year ago

I really like the idea, but I'm not sure how the traditional "Made in Germany" success stories would translate into a digital world.

For example Würth is the world leading producer of screws. I think it's a good example of how a lot of these companies make parts. But what are the parts in the digital world? It's libraries and frameworks, and nobody is paying for those.

Also the values you mentioned: excellence and stability. That's exactly what we see in libraries. Everybody wants stable APIs and the library to get out of the way.

Maybe another angle to look at this can be "parts" for a knowledge-based company. Like a software to model and simulate financial products or insurance risks, or - as the article mentions - complex 3D models. I have also already seen companies working on digitazing factories, digital twins etc.

fhd2• 1 year ago

Screws are probably primarily not a B2C product , and screw producers probably integrate with their customers' systems and processes in non-trivial ways. I don't know enough about screws to make this concrete.

If there's no market for libraries and frameworks (like there used to be), the next best equivalent appears to be SaaS and software you can buy and run/host yourself. Germany seems to be doing pretty good there, considering SAP.

The problem I see is primarily that most software businesses aim to get out of their niche. I suppose a screw maker is perfectly content just being the number one in screws. A software business is rarely that focused: Better to do a lot of things OK than one thing great. Marketing and sales are the big levers, not quality. Probably because software is largely being sold to people who can't even judge their quality and mostly buy based on vibe. Software is, after all, a pop culture.

So if every piece of software gravitates towards being everything for everyone, and if marketing (money) is the big lever, it's a lot more of a winner takes all environment. That's an excellent environment for strong hustlers. It's a terrible environment for quiet people that care about quality.

berkes• 1 year ago

But what are the parts in the digital world?

In essence, all software is a service; often legally even. But for this we'd need to look at software that's "shipped" to all customers in more or less the same form. But is also not a full blown end-user product. Taking that, we can look at "parts" or even "partial products" as:

* B2B SAAS services. From microservices to large services. From API-only to full blown UI based. That reservation system for nail-studios or the extract-PDF-to-our-bookeeping-API.

* B2B Mobile apps. E.g. a scanner-app to help with packaging or finding in a warehouse. Or a PoS for restaurants or shops.

* Hosted versions of FLOSS software. e.g. nexcloud, mastodon, matomo, a ci-pipeline, SIP, LMS, CMS, etc.

* Managed common PAAS parts. Managed Postgres, managed LDAP, managed CI, managed firewall etc. Not on-prem (that would be services) but more like AWS, but then from local "Vendors".

* Plugins and micro-saas. Just look at the amount of paid-for plugins in shopify, salesforce, google docs, github-marketplace etc. etc.

Almost all of these could be startups. But have a very restricted TAM. So they'll remain small. They also don't deliver a full-blown end-user-product, but something that's built on top of other common IT components. They often have very localized focus (a common restaurant reservation in France is very different from a reservation in the Netherlands, for example), often have a benefit from being trusted on a human level (I'd either backup my companies data to some FAANG, or to that one guy that I know and has been servicing my company for the last decades very well already).

But most of all, they are too small to become scale-ups in the "silicon valley" sense. Because in doing so, they'd loose all that makes them valuable today.

(Source: I've worked at or on many such "startups" that would forever remain small but big enough for the founders to get a solid income from)

yobbo• 1 year ago

The difference isn't mainly in ethos or culture; those startups make services with zero marginal cost, and where growth and eventual near-monopoly is the only successful outcome. Europe lacks investors for those types of startups.

"Mittelstand conditions" are replicated for digital products/services that are 1) expensive to build, 2) are very useful/profitable for customers, and 3) have small/fixed addressable markets.

More sustainable examples would be engineering consultancies building embedded systems for infrastructure, machines, robots, etc.

pembrook10• 1 year ago

The authors examples of “Digital Mittelstand” companies are not businesses at all but tiny “creator economy” side projects.

These do not scale to 30% of GDP in the same way high value B2B industrial equipment does (in manufacturing you happily pay $100,000 for a piece of machinery because it can turn inputs into more valuable outputs at scale).

Instead of coming up with incorrect ideas about what the government should “encourage” from the top down, what if European elites focused on cooperating more with their neighbors to open more opportunities and meanwhile let the peasants (the market) figure out the most productive and profitable uses of their time.

If Europeans can’t figure out new valuable areas where they can contribute to the world, than their system isn’t as clever or morally righteous or fantastic as they think it is. I believe if allowed the opportunity, the people would find this positive-sum value to be created. Who do you think founded all the Mittelstand in the first place?

abc123abc123• 1 year ago

Europe is dying. It is an old socialist relic, with a completely outdated model of reality. The successes of the extreme left and right shows that the political nobility are done.

Sadly europe never realized that low taxes, capitalism and liberty is what drives wealth.

I wonder if, in a generation, when the best brains moved to the US, asia and argentina, the continent will finally awake from its socialist slumber?

Hong Kong managed to go from a peasant village to a global financial center in a generation or two. In theory, it should be possible for europe to do the same. But in order for that to happen, there needs to be insight into the sickness, and awareness of the cure.

I'm happy I left. After I left high tax western europe I basically doubled my salary after tax! =)

peterfirefly2• 1 year ago

Things are a lot easier if you are basically controlling a river delta (of a river with an absolutely huge hinterland).

Same for the Dutch, btw.

pjc508• 1 year ago

HK was a special case of being an intermediary port city. Same with Singapore. The European equivalents are Luxembourg and Monaco.

amunozo• 1 year ago

Spain is flooded with Argentinians fleeing. Spain, which isn't even that good. Europe is still a much better place to live to the common people than anywhere else in the world.

lyu072822• 1 year ago

Sadly europe never realized that low taxes, capitalism and liberty is what drives wealth.

Honestly we have moved Europe so far past the post-political that I find it difficult to comprehend peoples politics nowadays. I wonder what people think "socialism" or "left" politics is now that everything has been so thoroughly depoliticized, I genuinely don't know. Is the EU "left"? I guess so? Is the IMF?

hkt3• 1 year ago

If Europeans can’t figure out new valuable things to contribute to the world, than their system isn’t as clever or morally righteous or fantastic as they think it is.

Most Europeans have access to some kind of comprehensive public health offering, food that isn't killing us quite as quickly as American food does, etc. It is a system which requires thought and design that markets can't offer, since they're innately uncoordinated (the exception being oligarchies).

The idea that the market can be described as regular people deciding things is, by the way, fairly funny. We don't get to choose what gets made, and have to select from a buffet of often pretty poor options served up to us by people who are by and large not interested in anyone's wellbeing but their own.

Most of Europe recognises on some level that not everything that counts can be counted. That's the real difference. Regulation of new, high risk industries makes perfect sense from that perspective.

pembrook10• 1 year ago

The idea that the market can be described as regular people deciding things is, by the way, fairly funny. We don't get to choose what gets made, and have to select from a buffet of often pretty poor options served up to us by people who are by and large not interested in anyone's wellbeing but their own.

Is Europe more communist than I thought? You do realize if you aren't happy with the options on offer in the market, that's an opportunity for you to provide a valuable service to your fellow humans...and yes improve your own wellbeing at the same time...which is the point of a market?

Who do you think started all of the German Mittelstand companies in the first place?

emsy• 1 year ago

It makes as much sense as regulating nuclear weapons when you have none.

impossiblefork4• 1 year ago

Yes, but what if the big-software type economy isn't actually that useful?

Maybe you can grow it to 30% of GDP if you start doing a bunch of bad stuff, but if it can be replaced by open source local stuff-- if it's possible to simply kill facebook, Microsoft etc. and replace them with Linux together with a couple of not incredibly expensive software packages developed to provide a substitute, then why should we have a big-software economy?

I think this is more the idea. The interesting thing isn't to build a European Facebook or an EU SaaS economy, it's to kill the whole concept, globally.

milesrout4• 1 year ago

Firstly, Linux isn't made for free by hobbyists. The biggest contributors are profitable, largely American tech companies. Intel, AMD, even Microsoft is now a contributor.

Secondly, the idea that you can just replace the entire software industry with Linux is... Are there even words to describe this? Linux is just an operating system. You can't replace a whole industry with "a couple of cheap packages."

pembrook10• 1 year ago

You might be right.

The US might always dominate software (which could turn out to have no moat) and China might always dominate manufacturing.

But neither industrialized manufacturing or software even existed 200 years ago. I'm pretty sure we haven't hit the final destination in human history where there's no problems left to solve.

There's this one weird "AI" thing people are talking about. Could be something people find useful you could work on?

flanked-evergl9• 1 year ago

Germany has a big-nothing economy right now. Compared to that, even a small-software economy is useful. Germany can't live on everyone else's money indefinitely, at some point everyone else is going to get fed up that they have to be paying more tax and higher energy prices because Germany can't sustain itself.

pjc508• 1 year ago

Maybe you can grow it to 30% of GDP if you start doing a bunch of bad stuff, but if it can be replaced by open source local stuff-- if it's possible to simply kill facebook, Microsoft etc. and replace them with Linux together with a couple of not incredibly expensive software packages developed to provide a substitute, then why should we have a big-software economy?

People have been saying this for twenty or thirty years, and in the meantime the economy has coalesced further into fewer American megacorps. It's a mirage. Things do not work that way.

(AI is going to be exactly the same: the huge corporate valuations are predicated on there being exactly one big AI company which takes a significant chunk of value from all word-based work being done today)

thiago_fm4• 1 year ago

I 100% agree.

A European FB or alternatives for literally every US Big Tech product already exist, all of them OSS.

Even search (Google) now became much easier to replace with LLMs.

What it misses is solving the chicken and egg problem, basically getting people to use it.

Without its people, social networks are useless. The same is search.

ForHackernews• 1 year ago

If Europeans can’t figure out new valuable areas where they can contribute to the world, than their system isn’t as clever or morally righteous or fantastic as they think it is.

I don't think it follows that unprofitable things are by definition not clever, righteous, or fantastic. This seems like a blinkered, American-capitalist viewpoint.

milesrout4• 1 year ago

Profitable and valuable are synonymous. If something is more valuable than the inputs used to make it, then it is profitable to make it.

Things being clever, or righteous, or "fantastic" (whatever that means) doesn't mean that people actually value them. That isn't what value means. Something is more valuable if you would give up more to have it. It is less valuable if you would give up less to have it.

Basically, no, it is in fact definitionally true, not blinkered, and has nothing to do with America. All of Europe is just as capitalist as America, Britain, Australia, New Zealand, etc.

jsiepkes• 1 year ago

It's probably more of cultural difference. It's common in the US to build companies like a lot of houses are build in the US.

In the US houses are often build from wood and plaster and have a high chance of being knocked down by a storm. Companies in the US are often build on a ton of dept (and never making a profit is not considered "weird") and have a high chance of being knocked down by a storm.

In Europe people like to build houses from brick and concrete. Companies in Europe are often expected to be profitable at some point and be able to wither a storm.

pjc508• 1 year ago

US vs. EU building materials is actually locally determined - there's a lot more forest in the vast empty spaces of the US and Canada, hence all the cheap wood.

Same for oil. Same for e.g. the UK steel industry. I think people underestimate the extent to which the EU either doesn't have the same level of natural resources, or has used them up. There's a reason the last time that Germany got serious about resource independence it tried to invade Azerbaijan despite the USSR being in the way.

anonzzzies• 1 year ago

Yes, but this already happens, just not in the hn/reddit echo chamber. Most people are not looking/shooting/wanting to fight for billions$ or market leader or whatever; most are happy with a nice life making stuff for local companies. There are tons of regional companies making software/saas/services just in their part of the country (whatever country) and making a nice living for decades.

fxtentacle2• 1 year ago

I'd say the biggest issue with this article is that it only suggests solutions which are already underway.

1. Salary Grants => SEED / EXIST stipends

2. Simplify Bureaucracy and Regulations => Who doesn't want that?

3. Expand VAT Exemptions => Council Directive (EU) 2020/285 will bring this law: "For SMEs conducting cross-border transactions, a cumulative turnover cap of €100,000 across all 27 EU member states applies"

4. English Language Support => I'd say most of the EU is already pretty good at this.

luckylion• 1 year ago

I'd say most of the EU is already pretty good at this

Not Germany though. I don't think that's as easy to change as VAT changes. And since a bunch of their examples are primarily B2B, they wouldn't care about VAT changes either.

roenxi2• 1 year ago

2. Simplify Bureaucracy and Regulations => Who doesn't want that?

European leadership and a fair chunk of the population. They're the ones who bought it in, if they didn't think it was worth the trade off they wouldn't have instituted it.

It seems like just yesterday we had people lining up to praise their bureaucratic takeover of iPhone charger design, for example. If the EU bureaucracy has time for that, what matter is too small for them to be involved in?

hkt3• 1 year ago

The EU is a market optimising machine in many ways, and the bigger the market, the more interested they are. It made perfect sense for them to intervene there because it affected a huge number of people.

Similarly, I expect user serviceable batteries to come to an iPhone near you at some point, in the name (quite reasonably) of environmental regulations.

pjc508• 1 year ago

The charger situation is much better than GDPR or CE marking, in that it clearly mandates what should be done. The other two get bogged down because it's so unclear what has to be done to be compliant while actually shipping a service or product.

yorwba• 1 year ago

The recommendations here don't seem very Mittelstand-specific. Salary grants, less bureaucracy, VAT exemption and English support would help a grow-or-die startup just as well.

I think the more interesting aspect is funding: if you tell a VC that you're aiming to become market leader in a small niche, they hear "no outsized returns" and go looking for riskier ventures.

But there is an existing funding ecosystem for small businesses that don't expect to get big, I guess mostly bank loans or bigger companies financing new suppliers. I wonder how open those are to software companies.

tonyedgecombe5• 1 year ago

But there is an existing funding ecosystem for small businesses that don't expect to get big

I would guess it's mostly relatives and/or savings. Banks aren't interested unless you have some kind of guarantee you can borrow against.

hoseja• 1 year ago

And yet the non-western world is full of German engineers hoping to accomplish some insane feat for a brutal dictator, away from the scolding eye of all-regulating bureaucracy.

autonomousErwin• 1 year ago

This is a great read and exactly where I think the global economy is going - instead of large companies you'll have millions of medium sized businesses run by small teams still making a bit of a dent in their own niche universe.

I do disagree with the work-life balance part, I struggle to see how you can build something (and maintain it at such a high level) without intense focus and commitment.

hkt3• 1 year ago

I suspect the winner takes all nature of the economy might lead to a lot of those smaller companies getting borged, if they're even a little bit interesting and profitable.

lnsru3• 1 year ago

The global economy is going towards winners and dinosaurs. Just watch the semiconductor industry. Eat or be eaten. There were much more smaller companies providing different parts 2 decades ago. NEC, Hitachi, Altium were eaten by Renesas. Intel history of acquisitions is very long. Every current major corporation has a massive list of acquisitions.

Basically the same story with food corporations. Dozen companies provide food for whole western world. Cars? Toyota, Stellantis and Volkswagen with their sub-brands provide cars.

Economy of scale is the thing. And it will kill Mittelstand. It’s already happening. Large purchasing power gives another price during negotiations. Same sales people will sell dozens of products instead of mittelstand’s speciality. You only need accounting once. As well as HR. The Mittelstand must be very highly specialized to be untouched by global mega corporations. There is also no life-work balance in the process when working with mega corporation. It will squeeze the resources out of Mittelstand just by the size difference. The Mittelstand I work for is already lost with all the EU paperwork providing reach, rohs, sustainability and battery Verordnung documents to the customers.

tonyedgecombe5• 1 year ago

This is a great read and exactly where I think the global economy is going - instead of large companies you'll have millions of medium sized businesses run by small teams still making a bit of a dent in their own niche universe.

I'd love to see that but the trend is in the opposite direction. It's not just technology either, there has been consolidation across most industries.

hresvelgr2• 1 year ago

I think Mittelstand is perhaps misdirecting away from a more interesting conversation. Reading between the lines, this highlights an inherent bias in the majority of American companies to provide service to extract value as opposed to providing service for public benefit. Simply put, it's "move fast and break things" versus "WE DO NOT BREAK USERSPACE."

If you want to dig deeper, this is a consequence of America beginning in recent history as a frontier settlement, primarily attracting aggressive, adventurous go-getters to make their fortune. Extracting for personal gain was baked into the culture from the beginning and is an artifact that has persisted to this day.

pjc508• 1 year ago

"move fast and break things" versus "WE DO NOT BREAK USERSPACE."

I think this is a great analogy to explain the issues to this crowd, although I think there's also a lot of people here who would happily break userspace. And it's successful in a financial sense.

milesrout4• 1 year ago

Reading between the lines, this highlights an inherent bias in the majority of American companies to provide service to extract value as opposed to providing service for public benefit.

American businesses do the same thing businesses do anywhere: try to generate more valuable products and services than they consume. It really is as simple as that. No value is "extracted" when you sell bread for more than it cost to buy flour, yeast, water, labour, and space to work. The idea that it is "extractive" screams to me of the lump of labour/labour theory of value idea, which is not just wrong but incoherent. Maybe that is not what you meant, but it is common for communists to claim that "all profit is extracted from workers' labour" and similar silly rubbish.

wavemode• 1 year ago

You're glossing over the nuance. Selling bread for a profit is of course what any bread business will try to do. But only some bread businesses would be willing to increase profits by switching to cheaper ingredients, flimsier packaging, rushing production and lowering the quality of the bread.

This isn't about communism vs. capitalism. It's about Airbus culture vs. Boeing culture.

hresvelgr2• 1 year ago

I'm taking about extracting value from consumers. Capitalism/communism is a straw man here. It's the attitudes that motivate product development.

gizmo4• 1 year ago

"move fast and break things" versus "WE DO NOT BREAK USERSPACE."

An alternative analogy is "binary search" versus "linear search".

With linear search you don't risk overshooting your target, and it's less chaotic, but you also don't progress nearly as quickly.

lesostep• 1 year ago

I wouldn't say that it is a good analogy, since both types of searches in no way change the array they are searching in. While tech products do change lives of their users. Maybe lossless|lossy would be a better analogy?

andai• 1 year ago

It seems to me that all the America type Europeans already moved to America, and their departure only increased the cultural differences and made remaining more unbearable for the ones who were on the fence.

gizmo4• 1 year ago

However, if you’ve ever used a product marked “Made in Germany,” you’ll understand what German culture truly values: mastery of a craft and uncompromising quality. You won’t find many Germans willing to sacrifice their health or personal milestones—like the birth of a child—for work, or to forgo their well-earned vacation in Mallorca. They’re not the kind to release half-baked products and patch issues later, nor are they likely to push for higher prices just to fatten shareholders’ returns.

Self-serving prattle if you ask me.

German cars have notoriously bad and buggy infotainment centers. Germans do of course release half-baked products (like literally every other country). German cars don't even get patched. The built-in navigation system is useless and broken the day you buy your shiny new BMW and it will still be broken and useless by the time car goes to the scrap heap a decade or two later.

When BMW decides to a subscription model for heated seats is that not shameless profit seeking? Or is BMW somehow not German?

Basic Law of Germany begins with “Human dignity shall be inviolable.” The entire culture fundamentally opposes many hallmarks of the typical startup ethos.

Germany is unable to build first rate tech businesses because -- wait for it -- Germany has superior culture. Give me a break.

If you’ve ever worked with Mittelstand companies, you’ll know that many have a long queue of customers waiting for their products. It’s not uncommon to wait months—or even years—for an order.

This attitude is why the German economy has been shrinking for two years straight. Chinese businesses also do high precision machining and they do not make their customers wait for years. The belief that you can coast because competitors will never catch up is pure German arrogance.

The reality is Germany will loose badly if attitudes don't change.

lnsru3• 1 year ago

The attitude isn’t changing, I can assure you. Few people see what’s happening for real in the country. The other ones are living in the delusional small nice Germany preparing for 1972 Olympics. If you ask about limiting uncontrolled immigration you’re already Hitler’s son. If you ask about basic product improvement, that makes production cheaper you shouldn’t rock the boat, because it was always done that way. Example from last week: we have here a trainee in the field of electronics. Electrical check of the office equipment is due for many years. My proposition: buy the trainee a device, that does these tests automatically, send the trainee through the office to conduct tests and save 15000€ not hiring external company with the same 1500€ tester. No, can’t be done. The trainee is bored to death toying with some cables and circuit breakers. The lack of flexibility will kill the country.

The thing is that now many countries can process metal precise enough to satisfy customers. Maybe it’s only 75% of German quality, but at 40% of the price it’s unbeatable. Looks like, that German companies are sabotaging themselves. Volkswagen and defeat device. Bayer and Monsanto acquisitions. I have no explanation for this. Maybe as you say German arrogance.

h05sz487b2• 1 year ago

Sounds like an insurance driven decision.

gizmo4• 1 year ago

Bizarre how you shoehorned a complaint about immigration into this. How are migrants responsible for choices made by blinkered and conservative Mittelstand owners?

It's easy to blame outsiders -- migrants, Chinese, Americans, Russians -- for problems that Germans brought onto themselves. It's exactly this belief in German cultural supremacy that makes serious introspection impossible.

flanked-evergl9• 1 year ago

Europe is the world's sick man. Merz is talking as if he is going to spite the US by having Germany fund their own defence, but in reality, whether Germany will be able to fund anything at all is very much in question as its economy is in full collapse and there is no way Merz will pull it together, he will just put pedal to the metal in a car that has already gone over the cliff.

Germany needs to stop reinventing the wheel, clearly they don't understand how it works. They should instead just try doing what the US has done. In Norway our politicians are now talking about increasing our tax burden even more, and raising the cost of living even more so more money from middle-class and poor people in Norway can be used to shore up the failing German economy because they can't be bothered to pull themselves together. It's an embarrassment. All while Europe is still playing graduated escalation games with Ukrainian lives.

internet_points2• 1 year ago

I'd love for the Mittelstand way to work, but having read https://www.slatestarcodexabridged.com/Meditations-On-Moloch it seems they only survive by luck and the fact that there is still some friction in the world.

noelwelsh• 1 year ago

A lot of older dot-coms (e.g. Meetup, Foursquare, Quora) could have gone this route instead of the VC model. Meetup was recently bought by an Italian company (Bending Spoons) which basically has the Mittelstand model.

meerita• 1 year ago

Can someone give me a reason why paying an engineer a yearly salary would ensure that they contribute a truly valuable piece of software that the market will use? Why should money be given based on years of experience? Is experience really a good indicator of ability? I know many engineers with 10+ years of experience who are mediocre.

What happens if that well-paid engineer decides they no longer enjoy software development? What if they need more than a year to deliver results? What if they produce something useless for the market?

This Keynesian approach is full of unknowns—it looks great on paper, but we've already run these experiments in the past, and they simply didn’t work.

anothereng• 1 year ago

the article sounds nice but burecreats dont care about making it easier to start companies. They care about making sure they have jobs tomorrow. This is a better pitch for entrepreneurs in 3rd world countries than european governments. Offering a digital product in a 3rd world country allows you to not have to deal with local corruption while accessing a global market.

pyb• 1 year ago

Meanwhile, in the UK: let's obliterate our Digital-Mittelstand. https://news.ycombinator.com/item?id=43152154

We don't need startups, we need Digital-Mittelstand

Related Stories