The Sociopolitical Dimension of Entrepreneurship. Founding Motivation of Engineers in Germany


Bachelor Thesis, 2016

47 Pages, Grade: 1,3


Excerpt

Table of Contents

Affidavit

List of Figures

List of Abbreviations

1. Introduction

2. Defining the Boundaries
2.1 Clarification of Relevant Terms
2.2 Importance of Engineers for Startups and the Economy

3. Hypotheses on the General Founding Motivation
3.1 Personal Desire to Found a Startup
3.2 Cultural Framework Conditions
3.3 Individual Knowledge About Entrepreneurship
3.4 Startup-Friendliness of the Education System
3.5 Public Barriers for Founding
3.6 Governmental Support & Assistance
3.7 Interim Conclusion

4. Expert Opinions on the Founding Motivation of Engineers
4.1 Individual Mindest as a Top-Factor
4.2 Culture of Failing as an Ongoing Process
4.3 Making Founding Skills to Common Knowledge
4.4 Evolvement of the Education System
4.5 Reduction of Bureaucratic Structures
4.6 Consequent Continuation of Political Initiatives
4.7 Conclusion & Action Plan

5. Personal Reflection

Bibliography

Interview List

Appendix

List of Figures

Figure 1. Hypotheses on the Founding Motivation of Startups

Figure 2. Life Satisfaction of Startup Founders in Germany (2015)

Figure 3. Founding Interest in Germany

Figure 4. What are Good Mistakes, What are Bad Mistakes?

Figure 5. Density of Universities in the Boston Area

Figure 6. Broadband Accessibility of More Than 50 Mbit/s in Germany

Figure 7. Expectations of Startup Founders Regarding Political Support

Figure 8. Founding Interest in the Respective IHK Regions

Figure 9. Evaluation of the University- and School-Policy

Figure 10. Startup Comprehension in the Politics

List of Abbreviations

illustration not visible in this excerpt

1. Introduction

After various startups from the United States such as Uber, Tesla, Paypal, Twitter or Airbnb changed the way we live, communicate, do business and travel, the whole world seems to be in a startup hype for almost the last decade (Luedi, 2016). Nowadays, the startup scene is still dominated by the United States, but Asian countries are winning ground in this fast-growing industry. With Xiaomi Tech, Flipkart and Didi Kuaidi, Chinese and Indian companies are already in the Top 10 of the world’s largest startups. Europe, on the other hand, is still far away from being one of the global startup hotspots (Investor Magazin, 2015). Nevertheless, the startup scene is also booming in Germany. Cities such as Berlin, Hamburg and Munich have built hubs with a high startup density (Ripsas & Tröger, 2015). Furthermore, the German track record is not too bad. Startups as Zalando, Movinga or Number26 gained significant popularity and caused some stir in Silicon Valley within the last few years. However, Germany is still missing game changers and revolutionary innovations in the startup area. As mentioned in the 3. Deutschem Startup Monitor, 66.2% of all new German ventures are online business models or located in the software area and only 5.9% are part of the industrial technology and hardware sector, which usually bears the highest potential for radical ideas (Ripsas & Tröger, 2015).

It is remarkable that the current distribution of startup hotspots worldwide (focused on the United States and Asia) does not fit with the perceived German core competency of being highly innovative. “Made in Germany” is an internationally acknowledged symbol for superior engineering and technological expertise. Although, the emerging internet economy is expected to outperform the prestigious automobile industry in Germany within the next 12 years (Saal, 2016). As denoted, it seems to be rather unusual for a country as Germany, with a lot of innovative middle-sized companies, the so-called “Mittelstand” (which are often times ‘hidden champions’ in their respective segment) and strong conglomerates as Volkswagen or Bayer, to be unimportant in an industry that is entirely based on innovation (Kontio, 2012). But oftentimes, those companies are just focusing on evolutionary product development instead of creating disruptive breakthroughs. The United States show that revolutionary ideas with the chance of changing the world come more frequently from small groups or individuals with their startups and not from already well-established corporations (Maier, 2011). In Germany, the startup founders have mainly a business educational background and the scene is significantly lacking engineers (Ripsas & Tröger, 2015). Without more technical know-how, the German startup industry is strongly limited to primarily business model innovations and does not have the chance to create revolutionary technologies.

This Bachelor Thesis investigates the reasons why German engineers are apparently not engaged enough in startups. As the core research question, the thesis seeks to determine the universal founding motivators and evaluates these factors in regard to their impact on the job decision of engineers. The first section is devoted to clarify relevant terms and to prove the general importance of the research approach. After defining the boundaries, the second chapter prepares possible hypotheses on the founding motivation supported by professional literature. These motivators are further discussed in the third section with reference to personal expertise of engineering students, politicians, guiders and founders. This part is dedicated to analyze the actual importance of each motivator for engineers and to develop first recommendations. The conclusion summarizes the findings and outlines a short ‘action-plan’ for political decision- makers to enhance the founding motivation of German engineers. At last, a personal reflection reviews the thesis and sets the research question into a broader context. Apart from that, the thesis concentrates on sociopolitical motivators of founding and mainly excludes financial aspects, since they are not of major significance for the topic and have been sufficiently discussed in other literature.

2. Defining the Boundaries

2.1 Clarification of Relevant Terms

To further analyze the top motivators for founding a startup, it is necessary to understand what startups exactly are. Circa 560,000 companies were founded in Germany in the year 2014, but not all of them are really startups. (BMWi, 2016). According to the Gabler Wirtschaftslexikon, a startup is a “young, not yet established company, which is pursuing an innovative business idea with small starting capital” (n.d.). This means that newly founded ‘normal’ companies such as a carpentry or pubs are hardly considered to be any startups. Only businesses with innovative or revolutionary ideas can be described as startups, but the borders are blurred. Traditional handcrafted businesses with unique marketing channels or even ‘copycats’, which are just replicating the ideas of other ventures, can be considered as startups as well.

Other special types of startups are corporate ventures or spin-outs. As stated in the Business Dictionary, corporate venturing is a “practice where a large firm takes an equity stake in (or enters into a joint venture arrangement with) a small but innovative or specialist firm, to which it may also provide management and marketing expertise. The objective is to gain a specific competitive advantage” (n.d.). In this setting, large corporations mainly buy or invest in formerly independent startups and frequently make them to a part of the bigger conglomerate. Google is using this strategy extensively by buying new startups and integrating them or closing them after the acquisition to prohibit potential competition.

Corporate spin-outs, on the other hand, are ventures that are founded by a company itself. They can be used to test a new or very different idea without the risk of demolishing the core brand or to give a small team of developers more freedom without the barrier of tedious bureaucratic structures. Usually, spin-outs are founded as completely new companies and are mostly independent from the parent company, which is holding interest in the new venture. As explained, spin-outs can be startups, but not every spin-out is one. More often, companies are just spinning out a larger part of their business due to strategic or financial reasons.

2.2 Importance of Engineers for Startups and the Economy

After the general clarification of the terms, it is now possible to have closer look on the startup scene itself. In the current discussion about the German startup industry, the Manager Magazine is titling: “Germany is missing an Elon Musk”. The author criticizes the conformity of the startup founders in this country. It is striking that the most of the very successful individuals in the scene are having a similar background with a business degree from WHU, EBS or St. Gallen and a short career at McKinsey or Boston Consulting Group. Anyhow, the majority of their businesses are online business models, which are just utilizing given opportunities and are not revolutionizing the industry. This exemplifies the weakness of the booming German startup scene. Companies as Rocket Internet are growing rapidly, but the last international game changing startup in Germany was founded in the 1970s with SAP. Silicon Valley is different and populated with engineers, nerds and freaks, who are passionate about ideas and not only about their careers. Even the Ex-McKinsey consultant and Delivery Hero founder Nikita Fahrenholz is concerned about the homogeneity in the German startup landscape and said: “Forget the BCG-Guys! You need specialists” (Soares, 2015).

Alex Hofmann, who is deputy chief editor at the popular German startup-magazine Gründerszene, takes the same line and confirms those weaknesses in the German startup industry, which is reigned by business mindsets. In an interview with Gründerszene, the IndexInvestor Neil Rimer said that “what he misses is a team of excellent Ex-Audi engineers who come together and found a really innovative tech-startup” (2015).

The shortage of engineers limits the potential of the whole startup industry to develop game-changing innovations. Not only just because they are missing in startups. More importantly, big corporations stifle innovations and hinder employed engineers from realizing their own ideas through bureaucratic and hierarchic structures (Brühlmann, 2015). A better model would be cooperation’s of large companies with small and innovative startups. The corporations could benefit from the fast adaptability of the startups and the latter from their financial and managerial resources. A recent study of the consultancy Accenture with 1000 young founders and 1,000 executives highlights that both groups are interested in partnerships. 75% of the industry managers in Germany consider the cooperation with startups as pivotal to receive important impulses for the digital transformation and even 68% believe it is crucial for their own growth and development. The study expects that one fifth of the revenue of a corporation is attributable to the partnership with startups until 2020 (2015). Therefore, a larger variety of technical-driven startups would lead to higher innovation capacities in Germany. Other positive economic factors of an increase in startups with groundbreaking ideas are the job engine characteristics of such young companies. Already today, every fifth workplace is generated by a newly founded business. Especially startups in the production and knowledge- intensive industries are extremely successful (Schneck & May-Strobl, 2013). Another study of the OECD reveals that 4-6% of the newly founded startup companies are creating up to three- quarters of all new jobs (2013). These findings show that a successful startup scene in a country can have an extensive influence on the development of the national economy. It is not the case that only a few individuals are benefitting from game-changing innovations. The whole country and even the ‘normal’ or poor people are profiting due to more available jobs, less taxes or a better overall infrastructure.

Besides from macro-economic externalities, there are also a various positive effects of engineers on the startups themselves. Max Marmer described in the Startup Genome Report that ventures with a business and engineering background gain 30% more funding, grow three times faster and have a 20% smaller risk of hasty expansion (2011). Therefore, the combination of founders from diverse educational backgrounds seems to be of major importance for the overall success of a startup. Different persons bring in varying perspectives and additional expertise. It might be more difficult for business people to collaborate with engineers instead of other businessmen, but it is certainly worth it. Because it minimizes the risk of failing or crucial mistakes and maximizes the possible output. ‘Mixed’ startup teams have more and better ideas. In simplified terms, they are not as unilateral as homogenous teams and are able to look left and right. In our fast modern times, this capability is the decisive factor for success. As described, the reasons why the German startup scene needs more founders with an engineering background are various. It would help to be more innovative, more successful, to broaden the horizon of the founder teams and probably even to build a new Silicon Valley in Germany. The causes behind the question why Germany is lacking engineers in those fields, are rather difficult to identify.

3. Hypotheses on the General Founding Motivation

Recently, the public is widely discussing about how the German startup industry could catch up with Silicon Valley. As described in the preceding paragraph, the debate about how to get more innovative and successful startups is closely associated with the question about how to motivate more engineers to found a venture. Theories and speculations are circulating, but real answers and structured advices are almost nonexistent. Without a proof of significance and relevance, most of the current arguments are nothing more than simple buzzword that are sounding pleasant, but do not help to solve any issues. The subsequent chapter identifies and isolates every possible factor of the startup founding motivation, proves their significance with data and structures them in a logic manner in order to be able to find answers for the underlying issue. This is followed by a relevance assessment of the individual factors through personal experience of founders, politicians, advisers and engineers. The ambition of the investigation is to find key problem areas for the lacking founding motivation of engineers and to develop feasible recommendations for the politics to solve them.

Figure 1. Hypotheses on the Founding Motivation of Startups

illustration not visible in this excerpt

Political Barriers Assistance

Source: Own figure, based on assumptions

Figure 1 outlines the contemptable factors, organized into distinctive categories. The three individual factors observe the motivation of potential startup founders on the basis of personal desire, distinctive knowledge and the constraint of political barriers. The institutional factors look at cultural values, the educational system and bureaucratic structures in Germany. These main classifications distinguish between factors that are at a sociopolitical macro level and are probably changeable through political effort and those that are on a micro level and unique for each individual, which is probably harder to change with political instruments. The purpose of the second set of categories with social, educational and political determinants is to structure the procedure further and to cluster single factors into logical fields, which helps to set them into a broader context.

3.1 Personal Desire to Found a Startup

The desire to found a startup, as the first individual factor, is strongly related to the personal value catalogue and the associated aspiration in favor of or against undertaking specific actions. It is necessary to learn more about founders in Germany in order to be able to compare their value- and mindset with the one of the overall population. According to the 3. Deutsche Startup Monitor 2015, 87% of the startup founders are men and only 13% are women. On average, they are 34.9 years old and the most of them with 80.9% holds a university degree. The majority of 90% is pleased with their present situation and 80.9% plan to be self-employed even after the conclusion of their current project (Ripsas & Tröger, 2015).

Figure 2. Life Satisfaction of Startup Founders in Germany (2015)

illustration not visible in this excerpt

Source: Ripsas & Tröger (2015)

As Figure 2 reveals, founders in all areas of Germany seem to be highly satisfied with their life situation in comparison to ‘normal employees’. Especially the Rhein-Ruhr region stands out with a numerical satisfaction rate of 8.3 points for founders in contrast to 6.8 points for workers. These findings are in line with a study of the Konrad Adenauer Foundation, which found that 41% of the Germans prefer self-employment over being employed by a company (Maier, 2011). Although these facts indicate a good ground for the creation of new companies, the IHK Gründerreport 2015 highlights a declining interest in startup founding.

Figure 3. Founding Interest in Germany

illustration not visible in this excerpt

Source: Evers (2015)

Figure 3 illustrates the number of IHK counseling sessions with founders, which is decreasing rapidly and had a new negative record with a number of only 227.703 sessions in 2014. In addition, another observation in the associated study proves the impression of a generally lower startup interest. The IHK asked people in their respective region if they expect that the founding interest is going to increase, decrease or remains at the same level within the next months. The expectations in spring 2015 were worse than ever (Figure 8). These findings are extremely surprising because they are completely contradicting to the overall positive atmosphere in the startups scene (Evers, 2015). The already mentioned study of the Konrad Adenauer Foundation offers possible explanations. They see the reasons for a small interest in startup founding in the people’s value- and mindset. The Germans seem to be highly risk-averse as 42% would not found a startup if a risk of failing exists. Additionally, they are rather skeptical of sciences as only 43% believe that science can cause more good than it harms and even 28% think that global changes cannot be controlled through science (Maier, 2011). Another study of the multinational professional service network PwC confirms that the Germans are highly security-oriented. 56% name job-security as the main job-criterion in comparison to a score of only 44% for international participants. Moreover, work-life balance is more important for them than job success and two-thirds are not willing to work long hours (2014).

A third analysis of the French insurance company AXA unveils significant differences between the German and the US-American mentality. Security is once more labeled as top issue since 52% of the participating German students said that “missing security / backup” is an important constraint for founding a startup. Only 17% of the US students share this opinion. In terms of taking responsibility for the own venture, the Germans seem to be more risk averse again. 20% believe that founding could be too much responsibility for them in contrast to only 9% in the United States. The AXA study shows also that the already mentioned ‘fear of failing’ as a founding barrier is also more important for Germans with 54% in comparison to only 40% for the Americans (2015). This is exacerbated by the fact that potential founders have to face various opportunity costs when they make the decision to start a new venture. Particularly the factors time, money and job safety are crucial. Startups always bear a higher speculative risk than usual jobs. Furthermore, they are demanding more time than nine to five workstations (especially in the early stage). These two characteristics of startups are opposing to the above mentioned German values of safety and risk-minimization. The Shell Jugendstudie reveals that the current young generation still prefers a conservative lifestyle with two children, an own house and normal working hours, which makes a startup life even more unfavorably in their eyes (Albert et al., 2010). In addition, the job market situation is quite stable in Germany and especially for engineers it is comparably effortless to find a well payed employment, even though the skilled worker shortage of 2012 is coming to an end (Kramer, 2015). Overall, those opportunity costs are additional factors that can discourage even more people from founding a startup because it might be more attractive or easier for them to find a ‘normal’ job. On the other hand, the above described freedom and personal fulfilment of being a founder combined with the enormous income possibilities are also opportunity costs, but positive ones for startups. At the end, the personal preferences are important to counterbalance those factors and to come to a good decision for the individual.

In conclusion, the personal desire, in form of the individual value- and mindset, appears to be a highly significant factor for the overall founding motivation. Especially the willingness to take a risk seems to be comparably low in Germany and is probably discouraging a lot of people from founding a startup. This is a remarkable finding, since other factors such as job satisfaction are in favor of entrepreneurship. The next logical question whether this determinant affects engineers more than people from other educational backgrounds is discussed in chapter four. The subsequent paragraph lifts the discussion on a societal level. Instead of the individual founding motivation, the underlying climate in the German society will be investigated.

3.2 Cultural Framework Conditions

The missing ‘culture of failing’ and the associated stigmatization of failed founders is an often repeated mantra in the German startup landscape. Even the chancellor Angela Merkel recalled it and is of the opinion that failing once or twice is not a disaster. The society should give those people a second chance, she urged (Huesing, 2014). Considering the prominent politicians, founders and incubators, who are supporting this argument, it really seems to be a reasonable factor for the drive to found. However, such a cultural problem is difficult to quantify and perhaps it is just an overly popular buzzword. To proof the significance of this issue, suitable studies need to be adduced. Actually, research shows that the societal framework conditions for innovations and startups are comparably poor. The most recent edition of the Innovationsindikator reveals that particularly in the factor ‘societal innovation orientation’ Germany is lagging far behind the global competition by holding just the twelfth place. In comparison to the other factors, which are all in favor of Germany, this is extremely alarming (2015). The often quoted 3. Deutsche Startup Monitor affirms the occurring stigmatization of failed startup founders. Only very few of the current entrepreneurs are coming from a failed previous project. They seem to be too frustrated to found again or just do not get a second chance by the state and the society (Ripsas & Tröger, 2015). A representative study by the University of Hohenheim validates the finding that the German population is not tolerant enough with regard to failed ventures. 40% would not order products from someone who already went bankrupt with a business. It seems to be a special German characteristic to expect success on the very first attempt and not to allow any (crucial) mistakes (Wirminghaus, 2014).

Figure 4. What are Good Mistakes, What are Bad Mistakes?

illustration not visible in this excerpt

Source: Own figure, based on Wirminghaus (2014)

Other interesting insights of the study are the societally accepted reasons of failing, shown in Figure 4. It is striking that only reasons outside of the founders influence, such as serious illnesses or poor economic conditions, are really accepted. Personal failure, what can be a great learning for possible future ventures, is not tolerated at all (Allmendinger, Mandl & Kuckertz, 2015). An article by the IZA institute for economic research describes the underlying societal values. As already stated in the first passage, they also found that the Germans tend to be highly risk-averse. The study even examined the relationship between risk-aversion and lacking innovation as well as reform-orientation. In addition, they found a correlation between the educational background of the parents and the risk-attitude of their children (Falk 2015). The evidence shows that there is certainly a problem in the German society, which is affecting the willingness to found a startup or to start again after failure.

As reasonable as this observation may be, the quoted studies are lagging in one point. They all do not give any explanation on the real applicability of this factor or any satisfactory answers on how to solve the issue. Without an adequate opportunity to change this societal problem, it loses relevance for the debate, but could open a new discussion about how to utilize the given societal framework in the best way to increase the number of innovative startups. The interview part will further investigate adjustable factors and recommendations for a societal change or the use of given societal resources. For the subsequent paragraphs, the focus shifts from soft factors of the personal value- and mindsets to hard factors such as the knowledge about startup founding and to the educational system in Germany.

3.3 Individual Knowledge About Entrepreneurship

The individual knowledge about entrepreneurship, self-employment and startups can be a crucial factor in favor of or against the foundation of an own company. Certainly, existent expertise in this field can help to develop an idea further or to be more successful with a new venture. A study of the Konrad Adenauer Foundation in cooperation with the SRH Hochschule Berlin points out that students in Germany already have a comparably good knowledge about financial support for startups such as governmentally financed subsidies (80%) or bank funding support programs (78%). The knowledge about Founding Information Centers and guidance programs, on the other hand, is with only 49% improvable. Other results show that the lack of knowledge about founding and missing experience prevent 26% and 32% from starting a venture. The mentioned fear of failing would keep away 28%, making knowledge, experience and failing culture to equally important factors (2014). However, the meaningfulness of these findings for students from all subjects is questionable.

[...]

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Details

Title
The Sociopolitical Dimension of Entrepreneurship. Founding Motivation of Engineers in Germany
College
Otto Beisheim School of Management Vallendar  (Chair of Innovation and Organization)
Grade
1,3
Author
Year
2016
Pages
47
Catalog Number
V368366
ISBN (eBook)
9783668513426
ISBN (Book)
9783668513433
File size
1144 KB
Language
English
Tags
Entrepreneurship, Founding, Engineers, Motivation
Quote paper
Cedric Crecelius (Author), 2016, The Sociopolitical Dimension of Entrepreneurship. Founding Motivation of Engineers in Germany, Munich, GRIN Verlag, https://www.grin.com/document/368366

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