From Mert Bulan, February 24:
While the German economy is stagnating, Digital-Mittelstand may offer a solution.
Label it a cargo cult or something else, but countless nations strive to replicate the magic of Silicon Valley. The typical approach involves politicians designating a city and branding it as the “Silicon Valley of [Country Name].” They establish technology parks, offer financial incentives, and hope for the emergence of trillion-dollar enterprises. Yet, no country has succeeded in creating its own Silicon Valley. Why? Either these leaders fail to grasp the nuances of what made Silicon Valley what it is, or they lack a deep understanding of their own nation’s cultural fabric.
From my perspective, after a decade of closely observing the tech industry and studying the success stories from the Valley, I can confidently state that Silicon Valley cannot be cloned elsewhere. The reason is simple: Silicon Valley isn’t merely a hub of companies, tax breaks, and venture capital—it’s a unique ecosystem driven by culture. It’s a magnet for individuals from diverse backgrounds united by one shared ambition: make a dent in the universe. These people, drawn by the dream of joining the elusive three-comma club, relocate there and pour everything they have into making it happen. While many fail, the presence of so many success stories inspires them to believe they can be next.
Why German Culture Clashes with Startup Culture
In Germany, the cultural landscape is strikingly different. Few people are driven by the ambition to “change the world”—perhaps because they feel they’ve already contributed their share as a nation. Wealth and its public display aren’t as celebrated here, which is why it’s difficult to name a prominent German billionaire off the top of your head without checking the internet.
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. 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.” The entire culture fundamentally opposes many hallmarks of the typical startup ethos.
This cultural divergence also explains why it’s difficult to name successful German startups on par with Airbnb, Uber, or Stripe—let alone tech giants like Google, Facebook, or Amazon. And there’s little indication that this will change anytime soon.
Understanding Germany’s Mittelstand
If you’re unfamiliar with Mittelstand, it refers to small and medium-sized enterprises (SMEs) in Germany. While there’s no formal definition, these companies typically have fewer than 500 employees and annual revenues under 50 million Euro. What sets Mittelstand apart from SMEs in other countries, however, is their laser-sharp focus on a single niche, in which they excel. A significant portion of their income comes from exporting high-quality goods. This specialization and export-driven model makes Mittelstand businesses exceptionally resilient and stable, even during economic turbulence. By catering to super-specific markets with few competitors worldwide, demand for their products remains steady, no matter the economic climate.
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. Yet customers are willing to wait because they know these businesses either produce the best quality or are the only ones making the product at all. This dedication to quality and niche expertise explains why Mittelstand accounts for around 30% of Germany’s exports.
The challenge, however, is that Mittelstand companies primarily focus on physical goods. Unlike major tech giants, they can’t enjoy the massive profit margins of producing digital products with zero marginal costs. This reliance on physical goods contributes to the widening GDP gap between Germany and the U.S. Yet German policymakers have done little to close the gap. Instead, they’re either trying to replicate Silicon Valley’s playbook or pivoting their attention to renewable energy. The former won’t work due to Germany’s cultural differences, and while renewable energy is a worthwhile pursuit, it won’t generate the high profits that come with digital innovation.
That’s why I believe a new approach is needed—a concept I call the “Digital-Mittelstand.”
How Digital-Mittelstand Fits Germany’s Culture....
....MUCH MORE
When I see the word Mittelstand I think of this depiction, seen in "The State of European Tech 2022" and in "China Now Pressuring German Manufacturers In the EU Market":
....A decade ago when it became apparent the Chinese were buying German technology they couldn't copy, e.g. "The Invisible Hand Touches Germany in No-no Place: China Grabs Putzmeister" there was a hue-and-cry that the Mittelstand, the mid-sized companies which supply the export giants and upon which the entire system depends, were at risk. Seven years later the German powers-that-be were still worried about the takeover angle and not addressing the competition aspect of the Chinese threat:
"Wary of China, Germany plans rapid state intervention to protect key industries"
The German concern for their small and medium sized enterprises goes back quite a ways. Here's an old-timey pic via Wikipedia:
role of the Mittelstand in Walter Wilhelms
„Mission des Mittelstandes“ (Mission of the Mittelstand, 1925)
Without the Mittelstand you are without Germany's export engine and without exports (and with Mutti's recent comments on free speech, yikes!) you are left with a Teutonic Belarus.
But without the charm.
If interested see also: "China’s strategic investments in Europe: The case of maritime ports"
