KfW Entrepreneurship Monitor 2019: Downhill slide in entrepreneurial activity in Germany ends, but trend reversal is doubtful

• 547,000 persons started a business in 2018, new entrepreneur rate is steady at 1.06%
• New start-ups predominate, takeovers are up
• Start-ups’ contribution to employment grows to 219,000 full-time jobs
• Berlin remains strongest state, Brandenburg moves into the top three

Bolstered by a healthy domestic economy, entrepreneurial activity in Germany stabilised in 2018 after many years of decline. With a total of 547,000 new businesses, the number of people venturing into self-employment was hardly lower than in the previous year (-10,000 or -2%). According to the current KfW Entrepreneurship Monitor, the new entrepreneur rate (business founders per 100 employable persons) has hardly changed, hovering just above the one per cent mark at 1.06%.

“The robust economy gave positive impetus to entrepreneurial activity in the past year and mitigated the negative effects of what continues to be an excellent labour market. That allowed the number of entrepreneurs to stabilise”, said Dr Georg Metzger, entrepreneurship expert at KfW Research. “In the short term, however, it is doubtful whether the trend will reverse and entrepreneur numbers rise again. The KfW Entrepreneurship Monitor does show more persons who are seriously planning to start a business, which is a good omen. But the forecasts for the economy as a whole are sending out a negative signal. What direction entrepreneurial activity will take in 2019 is therefore uncertain.”

Entrepreneurial activity has always been dominated by new business creation. The year 2018 saw more of it than ever before. Eight in ten entrepreneurs started off by setting up new business structures. But start-up activity in the form of takeovers of existing firms has also evolved positively for some time now. Its share has increased gradually and reached 13% in 2018 (previous year: 10%). “That is good news given the high number of SMEs awaiting succession in the foreseeable future because it makes the search for a successor easier”, said Metzger.

In the state ranking of entrepreneurial activity, Berlin still clearly tops the list. On average for the years 2016 to 2018, 193 out of 10,000 employable persons started working for themselves there each year. Hamburg is in second place, with 146 business founders. A newcomer to the top group in 2018 was Brandenburg, which continued its positive trend and climbed to third place with 134 business founders per 10,000 employable persons. Brandenburg probably benefits from the above-average entrepreneurial activity in Berlin which radiates into the capital’s periphery. Fourth and fifth places continue to be occupied by Bavaria and North Rhine-Westphalia, with 126 and 118 founders per 10,000 employable persons.

Other key findings of the KfW Entrepreneurship Monitor 2019:

- The share of entrepreneurs with employees increased from 21% in 2017 to 26% in 2018. It rose from 36% to 42% among full-timers and from 9% to 13% among part-timers. Entrepreneurs who start a business in the form of a takeover or active participation are most likely to have employees because existing firms often employ workers already. In 2018 that share was an unusually high 63%. The share of new entrepreneurs with employees was 19%, which means that they created 219,000 full-time equivalent jobs in 2018. The employment effect last year amounted to 481,000 full-time equivalent jobs, including new entrepreneurs’ own positions.

- After the share of women in all new businesses founded declined unexpectedly for two consecutive years, it rebounded to 40% in 2018 (2017: 37%). The number of female business start-ups grew to 216,000. Entrepreneurial activity among males, on the other hand, continued to slip. In 2018, 331,000 men founded a business, 5% fewer than in the previous year. A look at the motives shows that independence plays a major role for women. It is the main motive for around half of all women and for nearly two thirds of full-time female entrepreneurs. With regard to their drive for independence, women obviously tend to see self-employment as the better alternative – especially as a full-time occupation or when they have underage children to look after (‘mompreneurs’).

- Most business founders employ financial resources to found their business (2018: 67%). The percentage of founders using own funds exclusively in 2018 rose to 44% from the previous year’s 39%. Just under one fourth of founders (23%) mobilised external funds from third-party providers. Of these, 14% were microfinance (up to EUR 25,000 in borrowed funds) and 9% macrofinance (more than EUR 25,000). Microfinance is usually provided by family and friends while macrofinance tends to come from credit institutions.

- The share of founders with financing difficulties grew to 17% in 2018 (2017: 14%). Of the prospective entrepreneurs who abandoned their project, a notable 57% had financing difficulties (2017: 52%). This shows that the barrier effect of financing difficulties also increased slightly. Financing problems are the most common barriers to entrepreneurship that prevent planners from even starting a venture.

The KfW Entrepreneurship Monitor with all findings on entrepreneurial activity in Germany is available at: www.kfw.de/gruendungsmonitor