New blood in the Mittelstand sector: revitalising, if chosen wisely

The German Mittelstand (1) has a long, deeply culturally-rooted tradition.

Its origins lie in innovation, usually technical, and an endeavour to continuously optimise products and customer value. Intensive technological development often goes hand in hand with significant value creation and high capital investment.

Very often, a certain type of business has developed from this:

At the centre the company, the entrepreneur and the entrepreneur’s family are closely intertwined with the workforce and the region. The entrepreneur passionately focusses on technology, continuation of the company within the family, growth, and responsibility for the workforce and the region. Large withdrawals or dividends are not on the agenda. This also distinguishes the classic entrepreneur from the pure investor.

Today’s early-stage companies tend to focus on other goals. This is because the development of capital markets, and the increased activity of strategic buyers and private equity funds in recent decades, are permanently changing the genesis of new companies.

Today's company founders, with innovative products or services, if they are successful, no longer have the goal or the time to form a small or medium-sized enterprise. In the highly-networked global economy, they are forced to grow rapidly. This in turn requires more capital than most of them can generate themselves. Consequently, finance and rapid positioning in the market, for example, have a strategic significance that is several times greater than their nominal value.

As advisors to the Mittelstand and financial sectors, we understand these cultural and structural differences. Both have their strengths and weaknesses. Our consulting to clients in this space does not only involve executive search: critically, it requires an in-depth examination of the culture on the one hand and the future challenges on the other. Deploying this approach, we witness the success when managers from mainstream industries bring their implementation experience or entrepreneurs from the classic Mittelstand sector advise young entrepreneurs as advisory board members. For example, the German Viessmann company has initiated a highly interesting lighthouse project with www.maschinenraum.io. The “machine room” is a shared innovation ecosystem that brings together 40 German medium-sized and family-owned companies. It is about learning and developing future strategies and technologies together.

Conversely, we witness the invigorating effect of supplementing the first or second management level in traditional companies with young, quantitatively-oriented managers from finance or sales in mastering the challenges of the future. Here in particular, it is crucial that the personality of the players - on both sides – ensures that the "new blood" is successfully assimilated into the company culture.

We stand by the reliability of this assessment within the framework of our advisory mandates. Our ongoing demonstrated success in applying our approach has helped our Mittelstand clients to recognise the value we bring to their companies.

1.  ‘Mittelstand’ here does not equate to ‘SME’ (Small and Medium-Size Business) rather, it denotes the substantial identity of private (often-family) ownership and management in a larger company.