Challenges and opportunities for start-ups maturing in Berlin

Every 20 minutes, a new start-up is born in Berlin. By 2020, the tech industry in the German capital is predicted to produce 100,000 new jobs as cutting-edge companies spring up to capitalise on opportunities created from new capabilities and shifting market demands. Today, Berlin has become a hot spot for young entrepreneurs and is firmly positioned as one of the ‘big three’ tech hubs in Europe.

However, while businesses are born from great ideas, they grow from a well-crafted strategy. As the Berlin tech landscape changes and matures, entrepreneurs must ensure their product or service, structure and strategy all allow for sustainability. Of course, every business’ journey is different; what works for one company may not be the best approach for another. In any case, one thing is for sure: it takes more than money to scale up a start-up.

People and profit

Take Rocket Internet for example. Ten years ago, the Berlin-based incubator was the talk of the town, churning out more copycat tech start-ups than you could shake a stick at. When the German company went public on the Frankfurt stock exchange in 2014, it was the biggest IPO in Germany in seven years and provided public investors with the opportunity to own a stake in some of the fastest-growing businesses in Europe.

Riding high and hopeful for the future, founder Oliver Samwer was determined to turn his enterprise into one of the biggest “Made in Germany” success stories of all time – but things soon took a turn for the worst. On its first day as a listed company, Rocket Internet’s stock price fell significantly. Since its debut on the Frankfurt stock exchange, the incubator has lost 60 per cent of their initial value.

It wasn’t long before investors noticed a pattern: Rocket Internet may have been good at starting tech companies, but not so good at running them. Instead of well-constructed growth strategies lead by passionate entrepreneurs, Rocket would start a new venture, hire by the boatload and push in all directions.

With tremendous amounts of capital at their disposal, Rocket’s way of running a business was not to focus on people but profit; their strategy seemed to centre solely around throwing as much money at a business as possible rather than sourcing and sustaining the right talent to take it forward.

Of course, the role that Rocket Internet played in igniting the spark of the German tech scene can’t be denied, and Samwer’s ability to raise funds is not up for debate – however, there are certainly more than a few lessons that can be learned from this approach. For one, you can’t expect to retain talent just because you managed to attract it with a promise of innovation.

In a high-growth organisation, office management and human resources play a critical role in maintaining a steep trajectory. Focusing on the employee experience, these functions are non-negotiable in an expanding business. With a strong team of skilled personnel in these areas, a company can scale less chaotically and create an environment in which employees can thrive. This is particularly important for companies that are experiencing hypergrowth.

We’ve seen first hand how a vast number of these companies in the German capital are now investing heavily in HR and people management, recognising the value that these professionals can add to a growing business. In an increasingly competitive landscape, however, securing talent capable of running HR for a company with an employee-count in the hundreds can prove a struggle.

Berlin’s bid for tech talent

Fortunately, the affordable cost of living coupled with the vibrant cultural offering that the city boasts makes for the perfect magnet for international talent. Eager to poach the best and brightest from overseas, many employers in the Berlin start-up scene take it upon themselves to help people new to the city with paperwork, finance, accommodation and language classes if necessary to encourage others to make the move.

What’s more, with Brexit looming ever closer, Berlin-based start-ups are actively working to attract UK tech talent – and who could blame them? According to figures from a recent study, Brexit could bring about an exodus of almost half of its highly skilled EU workers. If that’s the case, a thriving tech hub like Berlin would benefit greatly from an influx of talent absorbed from the UK.

However, while Berlin may have evolved into a trendy tech hub, luring in candidates from London requires a sizeable budget – after all, high-performers in the UK’s capital city know they are in demand, whether they be a well-seasoned HR professional or a hotshot software developer.

With international talent comes complexity with salaries – while €120,000 may seem like an attractive offer from a Berlin-based company, the same candidate is likely to receive in excess of £200,000 in London. With this in mind, an enticing proposition must take into account the relocation itself and aim to compensate for the significant lifestyle change that a candidate would make if they were to accept.

Of course, talent attraction isn’t the only challenge that lies ahead. Nearly 30 years after the fall of the Wall, Berlin has matured into a European hub for innovation and entrepreneurship that sees some 40,000 people moving to the German capital each year. With an abundance of new businesses born every day and a raft of multi-national firms strategically taking root in the city, affordable office space is not easy to come by.

 

Could Berlin be the next big start-up space?

At present, average office rents in Berlin are now the highest in Germany, and vacancy rates are under 2 per cent, down from nearly 7.8 per cent in 2010. This shortage of office space throws a spanner into the works of scaling businesses seeking to expand; it asks leaders to be open-minded about their options to keep the costs down.

While some start-ups have moved out of Berlin’s central districts, others have taken to co-working spaces like WeWork to meet growing demand for desks in the short-term and facilitates networking with fellow entrepreneurs in the start-up community. Solutions such as these can certainly act as a stop-gap, but if Berlin is to keep up with its reputation of rapid growth, the issue of rising costs must be addressed and the right infrastructure put in place sooner rather than later.

Having re-established itself as a hotbed for innovation, Berlin has the potential to become a leader in the global tech industry. Now, it’s up to starry-eyed start-ups to scale effectively;  invest in the right places and look beyond immediate needs to the long-term plans that will promote sustainable growth.

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