Strategy Building

We interviewed Dutch entrepreneur Joris van Winsen about insights in the German / Berlin startup market. Joris has years of experience in Germany as managing director of the Tech company Labfolder. Currently he works as International Strategy coach for both DutchBasecamp and the Investment Bank Berlin (IBB), besides setting up his next venture in Berlin.

“To win over a German customer as a foreigner, you need two things: the perfect product and lots of patience.”

Joris van Winsen

Germany is a prime destination for entrepreneurs globally. The fourth economy in the world today, Germany accounts for more than 20% of total European GDP according to Eurostat. Businesses globally are eager to sell their products to the 81 million customers in the heart of the European continent.

However popular Germany may be, many entrepreneurs encounter difficulties when trying to conquer the German market. What is important to understand about the business culture in Germany? What are the cultural differences with the Anglo-Saxon world? How do Germans perceive the Dutch?

 

What to take into account when working with German partners

‘To win over a German customer, you basically need two things Joris explains. ‘the perfect product, and lots of patience. Unlike early adopters in the US and UK, Germans are less likely to invest in innovative new products or buy them in the shop.’’  

Germany’s ranking on the Deloitte Technology Fast 500™ list of 2017 supports this claim. Deloitte measures the 500 fastest growing Tech companies in Europe, the Middle East and Africa every year. Although Germany has a large economy, it only has 24 companies on the Fast 500 list. It follows the lead of European neighbours like France (97), the UK (92), Sweden (48) and the Netherlands (50). This trend can also be seen at Technology Shows like CES, where countries like France, the UK and the Netherlands are better represented than Germany.

To better understand the rationale of German business partners and customers, it’s important to understand the socio-political context. Germany has a federal system, that divides the legislative power in the country between the Federal Government and the so-called ‘Länder’ or regional states. These Länder have relative strong autonomy in fields like civil law, public health and business law, sometimes leading to complex legislative environments for businesses. As a consequence, Germans tend to pay special attention to rules, structures and procedures.

German Customers

You can expect German customers to be interested if the quality of your product meets the German standards, and they’d like to know whether your product takes local legislation into account. All to prevent taking unnecessary risks.

Specifically when new and unprecedented technology is involved, Germans tend to be more risk averse and choose guaranteed value for their money compared to Dutch, Danish or British. Instead of the newest and experimental inventions, they prefer products and services with proven quality and life value. They do not mind if a (technical) asset has long been written off and looks like it is from stone age. The most important is that it works reliably.

Why then do so many companies still want to go to Germany, even though it can be a risk-averse and sometimes difficult market to enter? First of all because the size of the economy. According to IMF data for 2017, the German market was 41% larger than Europe’s second largest market, France in terms of nominal GDP. Secondly, Germans are aware that their economy, their products and their services need to innovate to stay competitive. With the right approach they can be turned into paying customers. And thirdly, once they are customers they do not churn so quickly.

German Partners / Investment

It’s clear that the large German market has opportunities for entrepreneurs, and that German customers have their preferences. Would the latter also count for the German business community? Joris replies: ‘Compared to the Anglo-Saxon world, Germans value due diligence highly. Before engaging in business or investing in your company, the German partners might want to know about your assets, liabilities and commercial potential. They want to get to know you and your business. So make sure you have detailed answers ready when you’re meeting an investor.’

One of the main concerns is that you are still alive in 2 years after entering the German market, especially if you haven’t got enough resources. This has to do with the fact that in the B2B market, Germans like to engage with a supplier for a longer term. As a result, they ask many questions, take their time to scan your company’s books and dig for your motivations to be in Germany. This process takes time, and having the stamina (read: cash) to survive is key when scaling to Germany. Working on deals can take forever.

Important Cultural Differences to the Anglo-Saxon world

Let’s start with language. Is it possible to do business as a non-German speaker? Joris: ‘If you speak English you can work in Germany. Specifically amongst younger generations the language is widely spoken. Yet, where English is completely embraced in the Netherlands, with movies and commercials broadcasted in English, this is not the case in Germany. First of all because German has 100 million native speakers alone (including Switzerland, Austria and parts of Belgium). This means German speakers don’t need to learn foreign languages to get around. Besides, commercials and movies are translated into German so there is less exposure to English. A second point to keep in mind is that Germany only got reunited in 1990, and the differences between East and West Germany are still evident. Particularly in Eastern Germany, people hardly speak English and still have knowledge of Russian.’’

Therefore, it is highly beneficial to speak German when you want to do business in Germany. Everyone appreciates to be addressed in their mother tongue, so when you speak German this will open doors. Having a website in German can also be a great business opportunity! You will have relatively less competitors in German than you have in English within Google’s search engine. This increases the odds you will show up higher in German organic search results.

 

‘’When your KPI is customer lifetime value, Germany is the market for you.’’

 

The German marriage versus the American one night stand

The German focus on long term planning is different from other parts of the Anglo-Saxon world, according to Joris ‘the German mentality is completely opposite to for example the US, where contracts are signed very quickly and people are more oriented on the short term’. Joris illustrates: ‘Imagine you are a young software startup. In the US you can quickly get a three month contract, but after that your partner can drop you easily. This allows fast growth, but the growth can disappear just as quickly. In Germany it’s the opposite. Instead of a 3 month contract Germans will look for 5-6 year contracts. Where Americans are looking for a one night stand, Germans are looking for a marriage. When your KPI is customer lifetime value, Germany is the market for you.’

Use of hardware and software: Privacy!

Seeing an old school Nokia in the U-bahn or on the streets of Berlin is not uncommon. In fact the smartphone penetration is estimated at 67% in Germany (Statista), compared to 71% in The Netherlands (Statista), and 85% in UK (UK Consultancy). Why throw away your old phone if it still works? To use facebook while you are in the U-bahn? Not in Germany. Facebook penetration in Germany is estimated at 46% (Statista), one of the lowest percentages Europe. Both the low acceptance of smart phones as well as social media has to do with privacy. Germans love their privacy and have strict privacy regulation. This could have an impact on the marketing channels you want to use in Germany.

 

German Perceptions of the Dutch

According to Joris, ‘overall, the Dutch have a relatively good reputation in Germany. We’re being considered resourceful entrepreneurs, good salesmen, and to the point. Almost as to the point as Germans, where little to no chit chat takes place prior to a meeting. The Dutch are sometimes seen as less formal and more lighthearted than Germans. Take advantage of this!

 

Joris’ 5 practical takeaways for entering the German Market

Speaking German is highly beneficial, sometimes even necessary

Be prepared to deal with structure, rules and regulations

Having enough cash to survive long sale cycles is important when scaling to Germany

Getting a German reference customer is essential to scale in Germany

Generally speaking, there are more similarities than differences between Dutch and Germans. Find commonalities and highlight these, while bridging the differences.

 

How YOU can get support from experts like Joris

DutchBasecamp has an International Mentoring Network that help startups realise their international ambitions. Joris is a mentor in our Network for Germany.

 

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