Entrepreneurs in Germany faster than in the U.S.

The coronavirus pandemic could end up accelerating startups in several sectors. At least where speed is concerned, Germany is one step ahead in several industries.

The process of setting up a company in the alternative energies and information technologies industries is quicker in Germany than in the U.S., according to a study carried out by the Institut für Mittelstandsforschung (IfM) Bonn and Utrecht University, who interviewed entrepreneurs in Germany, the U.S., Italy and the UK. In Germany, they will obviously only risk giving up secure employment if their startup idea has reached a certain level of maturity. In this case, implementing the idea later means encountering fewer obstacles, ultimately accelerating the startup process.

On the whole, in Germany it takes an average of around 29 months for an idea to result in a business that can generate substantial profits in the interviewed sectors. This comprises roughly twelve months in the pre-startup phase, six months in the implementation phase, and nearly eleven months in the maturation phase.

However, the total startup time can vary greatly. While some startups in the interviewed sectors achieve profitability after a few months, in other cases it takes several years.

In general, the more innovative the business model, the longer the process drags on. This means that startups based on radical innovations take nearly 16 months more than imitative startups. Radical innovations generally require more time to establish themselves on the market as the products or services are not yet known.

That said, only one in nine startups in the industries of alternative energies and information technologies are based on radical innovations. Around a third of startups optimize an existing product or service, while half are imitations. But as this business model can establish itself on the market much more quickly, they tend to receive more attention from economic policy.

The accelerating effect of crises

We can’t yet tell the extent to which the coronavirus crisis will affect startup trends. However during the global financial crisis of 2008/2009 the startup process for businesses became much faster on average, dropping to ten months. It could be that entrepreneurs are more willing to go for broke in times of crisis due to the threat of unemployment.