German Market Expansion: Insights for European Entrepreneurs
As global market dynamics shift, European entrepreneurs are considering Germany more seriously as a strategic option for expansion. The post-Brexit landscape has significantly altered European business dynamics, positioning Germany as a central player for those looking to grow beyond their home country.
In this article, I, a German doctor-turned-deeptech entrepreneur and a member of advisory boards like SpeedInvest and Capitalmind Investec, share some advice that has helped other entrepreneurs contemplating an expansion to Germany.
Why Germany makes sense for European companies
With the UK’s departure from the EU, Germany’s appeal has surged. It’s not only Europe’s largest economy but also a critical gateway to the DACH region. Moreover, its digital start-up scene has matured a lot over the past decade both on the side of funders and founders, particularly in tech-forward cities like Berlin and Munich that are attracting tech talent from around the world.
Germany is not just about its global industrial giants and thriving start-up scene; it’s the Mittelstand, the SMEs which are spread around the country, that form the economy’s backbone. This includes Germany’s “hidden champions” — the more traditional, mostly family-owned firms with global success, are increasingly looking at start-ups for strategic collaborations in a bid to embrace more digital innovation. This shift presents a fertile ground for European tech companies, offering partnership and growth opportunities. Also, one of Germany’s underappreciated assets is its high level of English proficiency, at least in the larger cities and among young professionals.
Real-world Challenges: The Kry Experience
Despite these opportunities, the German market can present significant challenges. The retreat of Kry, a well-funded Swedish health startup, from the German market is a cautionary tale. It reflects the complex regulatory environment and market nuances. As per the World Bank’s report, Germany ranks 22nd in ease of doing business, trailing many European neighbours — a statistic that should prompt careful planning. On top, the country grapples with demographic shifts, labour market regulations, increasing energy prices, and bureaucratic complexities. To be fair, Germany is better than many other countries on the enforcing contracts scale (ranked at 13 versus 39 by World Bank), but courts can be incredibly slow with some processes taking years, which often leads to conflict avoidance (that’s not always a bad thing).
Understanding the market differences is key to avoiding potential pitfalls. A common oversight we’ve noticed among expanding companies is underestimating the marketing budget required in Germany. Companies need to reevaluate customer acquisition costs and pricing strategies specific to the German market, rather than basing their experience in their home countries. It’s too tempting to take what you find on German government sites and in market reports at face value, they often show ideal scenarios and the ground truth is often more complex than what can be found even in official sources online.
For example, a new reimbursement scheme for digital health applications might sound fantastic as the government is trying to get everyone excited about the emerging opportunities to build momentum, but its success hinges on the execution and many of the relevant institutions might not be ready for it or some might even try to fight it.
Understanding the real dynamics of a market requires incoming entrepreneurs to engage deeply with the community on the ground — a step that’s skipped surprisingly often or delegated to advisory firms that might not always know better either.
Establishing a footprint in Germany
Berlin, Munich, and Hamburg are popular choices for new entrants. However, our experience suggests that the “right” location depends heavily on your industry and business needs. This might not always be obvious at first. For instance, Frankfurt is famous for its finance industry, but according to the FinTech Startup Monitor 2022, there are over 700 FinTech companies across Germany, over 300 of them in the German capital. For medical technology, Berlin or Munich can be great, but some cities in the vicinity of large players like Erlangen (e.g. Siemens Healthineers) or Mainz (e.g. BioNTech and Novo Nordisk) have begun to invest in strengthening their ecosystem around industries that these companies have spearheaded.
If possible, acquiring a local company, even if small, can be a strategic shortcut to the German market. This approach offers an established customer base, network, and local expertise, reducing the risks associated with setting up from scratch. It’s a strategy that, in our view, can significantly de-risk the initial stages of expansion.
Come with a learning mindset
A common dilemma in the early stages of a company is the need to balance selling with learning. In our experience, humility goes a long way. We’ve seen various situations where an international company (successful back home or in the UK) began conversations with German clients with a strong sense of self esteem. However, if the German counterparts get the impression that the incoming company has not understood its new market well, they will quickly lose interest. Small things like forgetting to remove a question like “how many packages of snus do you consume regularly?” (you guessed it: that was a Swedish company) will be seen as an indicator of ignorance towards the German reality, where snus is banned and often unknown.
Likewise, we’ve seen some international companies wanting to get lots of attention and signal influence by organising high profile gatherings in prestigious venues with a renowned speaker from abroad. This might be underwhelming since people are often overloaded with events and tired of spending yet another hour or two sitting, listening to someone, and behaving formally after an intense working day. Intimate, low-key community-focused events are usually much more effective, especially among young business leaders, who value personal interactions and relationship-building. It also provides a better opportunity to ask for insights and support rather than to ‘talk at’ and sell one’s business to others.
Most industries in Germany have super well connected communities across the country in spite of the country’s size. Words travel fast and good personal impressions make a huge difference. Building up interpersonal distance with too much formality does not win hearts and minds usually.
If you can’t hire a country manager right from the start and an acquisition of a local company is not possible right away, then establishing a freelance, part-time advisory board with well-connected industry insiders can be a low-risk approach to gaining the right insights fast and integrate into the relevant networks rapidly.
Conclusion
Germany presents a compelling mix of opportunity and challenge for European businesses. But entering it can sometimes seem like starting your business from scratch again. Expect that you will need to both learn and unlearn. That said, if you became so successful at home that you can now contemplate an expansion into Germany, you will likely be met with a lot of positivity and be able to reuse many of your assets for a successful expansion — if you play it right.
Dr. Sven Jungmann is physician-turned-entrepreneur from Berlin and a Strategic Advisor at Capitalmind Investec, an M&A consultancy
