Are business founders the same throughout Germany?

• Start-up activity varies significantly from region to region
• Similarities between neighbouring states and city states
• Risk considerations and financing the greatest obstacles for start-ups throughout the country

Start-up activity in Germany varies significantly from region to region. The highest average founder rate for the period from 2009 to 2014 (Berlin, 2.55) is 2.4 times higher than the lowest (Brandenburg, 1.07). Regional differences can also be observed for other aspects of start-up activity such as sector structure, female representation and founders’ motivations. These are the findings of a current analysis by KfW Research. “The start-up landscape in Germany is highly varied, as our study clearly shows,” says Dr Jörg Zeuner, Chief Economist of KfW Group. “In urban centres, for example, the short distances are particularly beneficial to service providers and retailers. In regions with strong labour markets, job offers compete with the option of self-employment.”

The German federal states can be separated into about four different groups with similar founder and project characteristics.

1. The northern territorial states of Lower Saxony/Bremen, Mecklenburg-Western Pomerania and Schleswig-Holstein and Central Germany including Thuringia. Main characteristics:

• A low to moderate founder rate
• A moderate to high share of founders in industrial lines of business
• Opportunity is the predominant motivation

2. The south and west-German territorial states of Bavaria, Baden-Württemberg, Hessen, North Rhine-Westphalia, Rhineland-Palatinate and Saarland. Main characteristics:

• A moderate to high founder rate
• A high proportion of sideline activity
• A moderate share of founders in freelance occupations

3. The eastern territorial states of Brandenburg, Saxony and Saxony-Anhalt. Main characteristics:

• A low founder rate
• A very high share of founders in industrial lines of business
• A high proportion of full-time founders
• Necessity is the more predominant motivation

4. The city states of Berlin and Hamburg. Main characteristics:

• A very high founder rate
• A high share of founders in freelance occupations
• Equal balance between opportunity and necessity as motivation

Despite the significant regional differences, there are at least two factors that influence start-up activity equally in all of Germany’s federal states. Those planning to found a company most often reject the idea after weighing up the financial risk (nationwide: 42%). The second most common reason for abandoning such plans is the organisation of start-up finance, which often involves pitching the idea behind the start-up to external investors (nationwide: 35%). “Our study shows that risk and financing are the most commonly perceived obstacles everywhere,” Dr Zeuner explains. “Facilitating access to finance is therefore one of the most important ways to support start-up activity.”

Note:
The focus study “Are start-ups the same throughout Germany? Hardly! A comparison of German states” analysed data from the KfW Start-up Monitor from the years 2009 to 2014. You can find the study at www.kfw.de/fokus.