A Trip to the South

Berlin’s start-up scene often felt like one big family. But competition is increasing, and the fight for market share is heating up. The next big thing might be born right before our eyes.

When I first floated the idea of launching the debate magazine The European four years ago with groups of entrepreneurs and investors in Berlin, we were all still wearing rose-colored glasses. The market appeared to know no limits, and new business models emerged almost on a daily basis. Company valuations were adequately high and nobody had yet mentioned the danger of a start-up bubble. The mood was collegial. Apps were all the rave, as well as portals that pushed e-commerce to another level. Had anyone ever ordered furniture over the internet before? Few people had, and thus a market opportunity emerged. Even a five percent market share would be sufficient to call the business a success. Amazon showed us how it’s done. But one must not look as far as the United States to see evidence of success: Zalando is quickly becoming one of Germany’s most recognizable brands.

New e-commerce platforms are essentially built on top of distribution processes from the old, pre-digital economy. The key questions are: How quickly an order can be assembled, packaged, and sent to customers? And how can secure payment options and economically viable return policies be implemented?

In early January, two companies collided that have grown into direct competitors over the last few years: Delivery Hero and pizza.de. Both make money from internet-based take-out and delivery services. Their clash sheds light on the changing e-commerce landscape and on the emergence of new and lucrative markets. Instead of selling furniture, these companies focus on everyday products, including food.

Regardless of one’s opinion on the recent spat, the episode makes it clear that the most profitable markets are more defined and more apportioned than they were four years ago. The fight has toughened. Competition isn’t between local and global businesses, and copycats that take American innovations and push them onto the German market aren’t a big problem. Instead, competing entrepreneurs rubbed shoulders not too long ago. The mood in the Berlin start-up scene has changed significantly over the last four years.

It’s a clear sign that the industry has outgrown its adolescence and has gained importance. Companies like Delivery Hero embrace business models that can theoretically generate profits worldwide. The global markets have to be explored step by step, as the company’s foreign acquisitions illustrate. Building the “next big thing” doesn’t necessarily involve a garage anymore and doesn’t usually end with a lucrative sale of the entire company. The task at hand is to build businesses that can successfully operate on a global scale. If some of those businesses originate in Berlin, even better. But it means that the air is getting thinner and that the fight toughens.

We’re living through a period of growth in which new businesses can learn a few lessons from the supposed “old economy.” The famed German “Mittelstand” still produces many global market leaders. Often, these family-owned companies are rooted outside the cities in rural areas. What makes them successful? Start-ups might have to leave Berlin and head to Germany’s rural South to find out.

Newconomy is the new weekly column for the start-up industry. It focuses on the intersection of classical and new economies and of politics and entrepreneurialism. Newconomy is sponsored by Factory, the new start-up hub in Berlin.

www.factoryberlin.com
@factoryberlin

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