Again we from the TextileFuture team have chosen for this Newsletter edition four different subjects of actuality. Don’t shy away, yes, these are substantial, but an easy and compact reading.
The first feature tells you what you might expect by reading, it is entitled “The USD 70 Billion Prize in Personalised Offers” and is written by guest authors from the Boston Consulting Group.
The second item will show you “What’s next for video shopping”. It is written by Maghan McDowel from Vogue Business and is presenting also technical details involved.
The third feature will present to the planned “3-D Printed Houses are sprouting near Austin as Demand for Homes Grows” and represents an exellent example on how far 3-D Printing has advanced. It stems from the Wall Street Journal.
The fourth item “Entrepreneurship zeitgeist 2030” is focussing on Germany and its necessity to to reimagine the fundamentals of its economy. The widespread conclusion is that a robust start-up ecosystem—enabled by these technology trends and comprised of founders, their businesses, corporates and SMEs, educational institutions, investors, and government agencies—needs to become a pillar of the economy if Germany is to remain prosperous at home and competitive abroad. This is the highest degree of actuality we can offer to you, because it is also a negociable item in the ongoing dialogue to form a new government with the three parties involved: Social Democrats, Green Party and the FDP (Free Democratic Party).
Our team feels sure that we made the right choices for your delight.
The USD 70 Billion Prize in Personalised Offers
By guest authors Mark Abraham, Javier Anta Callersten, Sebastian Bak, and Roelant Kalthof from the Boston Consulting Group
There’s gold at the end of the personalisation rainbow. To get it, retailers need to focus on the customer experience, technology, and operating models.
Remember two years ago, when it seemed as though everything in an entire store was 40 % off? As the COVID-19 crisis hit and some categories faced massive supply shortages, retailers pulled back on promotions. Today, many retail businesses are reimagining how to offer value in the post-pandemic world. At the same time, inflationary pressures are forcing them to increase everyday prices. Successful players will use a nuanced approach that differentiates price increases by customer segment, purchase context, and product category.
In this new reality, we believe that expanded use of personalised offers is an imperative. Thanks to vendors’ openness to changing inefficient promotional schemes and the availability of the right data, technology, and processes, the next three years will see leading retailers shift from mass promotion to personalised offers at scale. Our analysis finds that redirecting 25 % of mass promotion spending to personalised offers would increase return on investment (ROI) by 200 %, leading to a top-line growth opportunity of more than USD 70 billion annually. With supplier negotiations for 2022 underway at most retailers, now is the time to act.
However, high returns are not assured. Success requires integrating personalised offers seamlessly into the customer experience. Fortunately, off-the-shelf technology is now available to automate much of the effort. Retailers also need an operating model that allows them to centrally orchestrate the optimal mix of customer investments across categories and channels.
Personalised Offers Drive Value in the New Reality
The pandemic has massively disrupted consumers’ purchasing habits, leading them to try new sellers and brands and significantly altering how they shop and think about the value they receive. These sea changes give retail businesses a once-in-a-lifetime opportunity to reset their approach to promotions and align investments (both type and level) with a more effective customer strategy.
The reset is happening in the context of rising inflation. As some prices soar across the value chain, retailers have been compelled to pass along higher costs to consumers to preserve their margins. US consumer prices, for example, rose more than 5 % between the summer of 2020 and the summer of 2021, the biggest increase since the height of the global financial crisis in September 2008. Inflation in the UK has increased for four months in a row and is now at its highest level in three years. Because customer segments have different price sensitivity, a one-size-fits-all price increase will not work; retailers need to de-average their promotional approach more than ever.
Against this backdrop of disruption and inflation, retail businesses need to think holistically about the types of investments they make to gain customers and generate value. The main types—pricing, mass promotions, loyalty programs, and personalised offers—comprise an interconnected “value investment portfolio” from which they select and blend investments to optimize ROI. (See Exhibit 1) The allocation of funds among these investments affects customer perception of value as well as the economics of an offering.
Brick-and-mortar retailers typically concentrate a large share of their spending on promotions, with a poor average return. But leading companies have seen tremendous impact by using an analytical engine, powered by artificial intelligence, to optimise spending across an array of customer investments. By creating common metrics for effectiveness, they can compare the incremental return from various approaches in equal terms. They then apply the insights to effectively reallocate spending. In our experience, retailers achieve a massive step-up in efficiency when they reassign funds from areas that are less relevant to customers or do not deliver strong ROI into those that drive a higher perception of value and/or greater returns. The optimal mix can be different for different product categories. For example, everyday low pricing might work best for some categories, while promotions work better for others.
As retailers reallocate funds, they should prioritise shifting from mass promotions to personalised offers. Vendors and US retailers currently spend USD 140 billion to USD 200 billion in trade and shopper marketing (excluding advertising), yet they spend only about 5% of that amount on personalised offers. (See Exhibit 2). We believe the share of spending on personalised offers should be at least 25 % overall and at least 50 % in some categories.
By now, most retailers have piloted personalised offers. Some have scaled them up significantly, proving their effectiveness. In most categories, based on our experience with close to 100 BCG clients across industries, the effectiveness of personalised offers is at least twice that of average mass promotions. As noted, shifting to personalised offers at scale would generate top-line growth of more than USD 70 billion in increased revenue annually for first-mover retailers.
Leading retailers show advantages
Leading retailers that have redirected their investments to personalised offers are seeing the benefits across categories and moving from piloting to scaling. Starbucks, for example, has long been public about the benefits it realizes from personalised offers. It has discontinued mass promotions (such as Happy Hour and Treat Receipt); instead, it emphasizes gamified specials tailored to each Starbucks Rewards member. The scaling up of such offers has resulted in sustained 8% year-on-year growth in member spending and fueled comparable store sales growth for many years.
Top players in the grocery, drug, mass, and convenience sectors are also realising this opportunity. Recently, a large convenience and drug chain in North America scaled a branded-offer capability that allowed vendors to fund personalised offers at scale. During the pandemic, this enabled a significant shift away from mass promotional funding, as well as helping the retailer to secure incremental funding from several key suppliers. Importantly, the capability generated USD 100 million in net incremental revenue and increased the number of customers interacting with personalised offers by 50 %. Other food and mass retailers, such as a leading US grocer and a big box retailer, are scaling similar programs with their vendors after successful pilots.
The trend is also playing out in Europe. A European grocer, for example, has seen tremendous gains. Historically, it generated approximately 30% of its sales through mass market promotions. The company sought to achieve a significantly higher ROI and turned to personalization. It built a state-of-the-art analytics system to evaluate the true incremental performance of all mass and personalised promotions. It also established common metrics to compare the effectiveness of different types of customer investments in equal terms. By smartly shifting from mass to personalised offers, it boosted margins by more than 200 basis points.
Fashion and apparel is another sector seeing the benefits of this seismic shift. Long addicted to using mass sales events to clear inventory, the industry is now rolling out revamped loyalty programs and using off-the-shelf technology to enable personalised challenge-based rewards (“spend USD X, get USD Y”). These rewards, often in the form of gift cards, drive incremental purchases for individual customers. Shortly before the pandemic, a USD 1 billion brand generated USD 25 million in incremental annual EBITDA using these tactics. Today, personalised offers at scale are allowing other players to win share as the recovery unfolds.
Three Imperatives to Unlock the Value
To maximise value from the shift to personalised offers, retailers should follow three imperatives:
Integrate offers seamlessly into the experience. As a first step, ensure that offers are integrated seamlessly into the customer experience. For example, Starbucks presents gamified, personalised offers when consumers open its app or click on a mobile offer push notification. In contrast, at many grocery and mass retailers, customers must tap through multiple screens to find offers and then “clip” coupons, similarly to how shoppers dealt with coupons in printed mailings decades ago—a clumsy process that discourages customer engagement and limits offer incrementality because only low-margin “coupon enthusiasts” will bother to find the offers.
Use off-the-shelf technology to automate offers. Off-the-shelf technology can now automate certain steps of the offer optimization process that have traditionally been fully manual:
Customer data platforms (such as Amperity, mParticle, and Interaction Studio) support offer activation and targeting by enabling better identity resolution (collecting and matching identifiers across devices and touchpoints) and segmentation.
Offer optimisation engines (such as Formation, Eagle Eye, and SessionM) automate the development and targeted deployment of offers.
Marketing automation platforms (such as Salesforce and Adobe) enable retailers to deliver offers to customers across channels.
Dynamic templates connected to content management systems generate personalised offer variants at scale.
Retailers’ in-house advanced analytics teams need to build the intelligence layer to enable these solutions. This powers the right technology stack with the necessary customer data and integrates the various solutions into a seamless experience.
Implement the right operating model. To optimize spending across the entire value investment portfolio, a company needs an operating model that integrates distinct organizational units and processes. This allows it to orchestrate the different investments and decide on the trade-offs among them. There are four stages of organizational maturity with respect to the operating model. (See Exhibit 3)
The right approach to working within the operating model is also essential. Retailers at the forefront of the trend toward personalised offers have embraced new efforts that feature the use of agile teams and a culture of controlled risk-taking. This allows them to rapidly design, test, and launch personalised campaigns. Leading companies can design and launch new offers in less than a week, run multiple (possibly 100 or more) experiments per month, and make real-time changes to ongoing campaigns.
The shift from mass promotions to personalised offers has been underway for years but is now approaching an inflection point. Disrupted consumer behavior and inflationary pressures will force retailers to reimagine their value strategy. Those that make the required changes to customer experience, technology, and operating models can expect significant financial returns and position themselves to win in this time of uncertainty.
What’s next for video shopping?
As pandemic restrictions ease, people are no longer staying at home. But investors still think they want to shop by video.
By Maghan McDowel from Vorgue Business
A year ago, livestream video shopping was hailed as a panacea. By combining personal endorsements with e-commerce conveniences, the format’s success in China has inspired considerable investor excitement in the West. However, in this new phase of the Covid-19 pandemic, brands are still waiting for prospective viewers to have the same enthusiasm, and momentum has slowed.
“I remember having a lot of conversations about livestream commerce 12 months ago, and in terms of the number of interactions I’ve had about the topic recently, they’ve definitely declined,” says Matt Moorut, an analyst for Gartner for Marketers who specialises in luxury retail. Anecdotally, he adds, “I don’t know anyone who regularly signs up for livestream shopping events”.
Viewership hasn’t accelerated as quickly as predicted. Moorut estimates that livestream will be, at most, 2 per cent of digital commerce globally this year, including China.
“Livestreaming is one of those long-term trends that was greatly accelerated by the pandemic. As the pandemic subsides and consumers return to live events and in-store shopping, it’s reasonable to assume that the hype will taper off,” adds Blake Droesch, an e-commerce analyst for market research firm Insider Intelligence.
For tech, this is a common trajectory: early excitement then disappointment as people underestimate how long it takes to reach critical mass. Both analysts and investors seem to have an overall positive outlook for the long-term; Moorut compares it to the long-winded adoption of technologies such as Facebook advertising or QR codes. Amid the pandemic, retailers such as Moda Operandi, Neiman Marcus, Nordstrom and Farfetch partnered with video commerce platforms that enabled one-to-many broadcasts.
Some of the year’s biggest e-commerce investments went to video shopping. In September, Whatnot raised USD 150 million at a USD 1.5 billion valuation; and Ntwrk received USD 50 million from Kering and Goldman Sachs. In July, Klarna bought Hero for an estimated USD 160 million; while Popshop Live raised USD 20 million. Meanwhile, big tech players including Instagram, Tiktok, Snapchat, Facebook, Pinterest, Youtube and Amazon are all investing in video commerce.
By working with Ntrwk, Kering will be able to inform how the format is executed for luxury brands, says Kering chief client and digital officer Grégory Boutté. While Boutté doesn’t feel that a successful luxury approach currently exists in the West, he sees promise; already, young consumers find product inspiration on platforms like Youtube and Tiktok, and the relatively high penetration of e-commerce for luxury in the US and Europe, compared to China, means that it could catch up, he says. “It is early days, but video shopping is a potentially powerful way to engage and create emotion around our brands, and done in the right way, it could be meaningful.”
Mathias Schilling, co-founder and partner at VC firm Headline (investments include The Realreal and Farfetch), estimates that it will be at least 18 months. Grant Lafontaine, co-founder of Whatnot, the US’s largest video shopping app based on downloads and gross merchandise volume, says it could be five to 10 years until it reaches levels comparable to China, which was estimated to be USD 171 billion in 2020. A 2020 survey found that two-thirds of Chinese consumers bought products via livestream in the past year. To get there, it will need long-term, consistent brand strategies; tech providers with appropriate infrastructure; and widespread, mainstream adoption from consumers.
Many brands have managed to find success in one-to-one virtual shopping appointments with remote customers, and in the US, live shopping is expected to reach USD 11 billion this year, up from USD 6 billion in 2020, according to management consulting firm Activate’s Technology Media Outlook 2022. “Live shopping sales are growing, but from a very small base,” says Droesch. He compares that to US social commerce sales of USD 36.6 billion this year, and total US e-commerce sales of USD 919.06 billion.
The stage has been set for consumer adoption to take off, and the fashion industry probably has more potential for success than any other category, Droesch says. “But the question remains if and when consumers will come around to it en masse.”
The current landscape
In July 2020, retailers such as Neiman Marcus and Moda Operandi described their video commerce technology as successful, and something that the companies planned to continue. But since then, retailers have gone relatively quiet on what’s next for these initiatives. Moda Operandi did share that it is continuing to integrate livestream shopping and shoppable video capabilities; one pre-recorded video with Paco Rabanne creative director Julien Dossena resulted in a 66 % increase in sales, according to the company.
Moorut has heard from retailers that conversion rates can be about 40 % on livestream events, but specific numbers around viewership or time spent are not really discussed publicly, he says. “People are being quite cagey; it still feels like the early stage.” While conversions are encouraging, a big challenge is driving enough people into the livestream. A year ago, the driver was that stores were closed. “Now they’re thinking, ‘How do we do a better job of explaining the benefit and carry on the momentum after the event?’ versus 12 months ago, which was, ‘How do we set this up, which platforms do we put in place and how to get staff to engage?”
Some retailers, he says, are still evaluating various platforms in anticipation of eventual adoption. “It still feels like brands are probably pushing [livestreams] more than consumers actually want them. But it’s a case of making sure that they’re in a good position so that if the demand does rise, they can maximize that opportunity.”
This can include finessing regular, in-house broadcasts and partnering with external video-specific apps. The most successful brands often work with influencers and treat the technology as an “e-commerce amplifier” more than an event tool, says Bambuser chief commercial officer Sophie Abrahamsson, whose clients include LVMH, Farfetch and Ted Baker. Betabrand CEO Chris Lindland recommends regularly scheduled broadcasts, rather than one-off events.
Video-specific companies including Ntwrk and Whatnot have found success appealing to niche communities who are drawn to limited-edition drops and collectors’ items. The focus for Ntwrk, a mobile-first platform known for streetwear and sneakers, is a “fandom-driven audience”, for which livestream drops help magnify hype, says CEO Aaron Levant. “People are less likely to buy things that feel commoditised or not new or special. It is a little more appointment-based.”
This is a key difference from China-based livestreams, which tend to be more mainstream. Levant compares it to “Amazon plus livestream”. That might be why Amazon’s own attempts at livestream shopping have not taken off to the extent that the tech giant might hope. “The culture is different here,” Levant says. “If you make a hammer in Philadelphia, it might be a great product, but what about it is urgent or entertaining? It has to lead with urgency or perceived scarcity for people to tune in.”
Ntwrk primarily prioritises revenue growth and repeat purchase growth, rather than other numbers. Levant says that while he didn’t know what to expect coming into this year and following Covid-19’s e-commerce boost, he had hoped for triple growth. Instead, it has been double growth, and he’s still very happy with it. Growth slowed a bit over the summer, he says, as places began to open up. About 10 to 15 % of the audience is coming from overseas, he says, even though the company hasn’t yet marketed to or optimised shipping for international regions.
“Ntwrk is getting inspiration from what is happening in China and making it relevant and authentic for its target audience in the US, and it’s resonating in a meaningful way,” Boutté says.
What comes next
The next phase will be aided by this year’s wave of investments. Ntwrk, for example, will be able to expand advertising and its geographic reach. Klarna is making Hero available to all its retailers, and plans to add influencer-led livestreams to its app. “Liveshopping is interesting — everyone is talking about it and no one has cracked it,” says Klarna CMO David Sandstrom. “The question is, who will crack it and how will it look in the Western world? In China, most sales go through a live event but it hasn’t been cracked here, especially not for the mainstream and luxury.”
While it’s not a “winner take all” landscape, Schilling, of VC firm Headline, says he has yet to find a favourite platform for fashion in the US, in terms of interesting content that is produced well.
Bambuser, based in Sweden, has been a clear favorite among fashion brands. It has raised more than USD 100 million and won last year’s LVMH Innovation Award. “What started out as proof of concepts in many cases in 2020 have now become long-term agreements, and many retailers are starting to integrate live video shopping as an integral part of their e-commerce strategies, Abrahamsson says. “Most recently, Clarins Group expanded its implementation after a successful pilot in the APAC region, and it was accepted to The Disney Accelerator.
“The promise of live commerce platforms is that they can create personal experiences between a consumer and a product or brand, while inviting fans to be a part of the story, which can foster a sense of community,” says Kelly White, VP of consumer experiences and product strategy at Disney Media & Entertainment Distribution. Over time, White predicts, it will be a pervasive and natural way for people to connect with brands and discover products. “We are very excited about the potential and direction.”
As video viewing increases overall — thanks in part to Tiktok and Tiktok-inspired tools — this broader trend is likely to translate into shopping, Morut says. “You can see that luxury brand engagement rates on Instagram have dropped off, but views on IGTV videos have increased, which fits into the broader trend of people engaging with video in ways that they weren’t doing before… It will be really exciting in five years’ time — but for now? It still feels really nascent.”
To expand to the ubiquitous status that investors are banking on, “live shopping still needs to grow from a destination for limited-edition drops to a more common discovery platform for general merchandise,” Droesch says. The industry’s on the right track, Whatnot’s Lafontaine notes, although he admits it’s still a “ways away” from a brand such as Gucci selling on Whatnot. “With a lot of tech trends, people get over-excited pretty quickly. We are still in a phase of tuning the system,” he says, pointing to details such as supply, consumer behaviour, the right product mix and the overall experience.
Boutté, of Kering, says it’s too early to establish a set conviction on the successful luxury formula. “We don’t have a set conviction, because it is such early days, and just like anything innovative, it requires a lot of iterations before the model that really resonates with our target audience kicks in. My bet is that it will develop fast as soon as they make the connection between discovery and purchase; the minute this happens, it will take off quickly.”
3-D Printed Houses are sprouting near Austin as Demand for Homes Grows
Project would be biggest 3-D printed housing development in U.S.
By guest author Nicole Friedman from the Wall Street Journal.
A major home builder is teaming with a Texas start-up to create a community of 100 3-D printed homes near Austin, gearing up for what would be by far the biggest development of this type of housing in the U.S.
Lennar Corp. and construction-technology firm Icon are poised to start building next year at a site in the Austin metro area, the companies said. While Icon and others have built 3-D printed housing before, this effort will test the technology’s ability to churn out homes and generate buyer demand on a much larger scale.
“We’re sort of graduating from singles and dozens of homes to hundreds of homes,” said Jason Ballard, Icon’s chief executive.
If 3-D printing succeeds at this more ambitious level, it could offer a response to America’s chronic shortage of homes for sale, especially in the affordable price range. Mortgage-finance company Freddie Mac estimated that the national deficit of single-family homes stood at 3.8 million units at the end of 2020.
Supply-chain backlogs during the pandemic have pinched home construction, while labor shortages have hampered production for years.
“Skilled tradesmen are a dying breed,” said Eric Feder, president of LenX, Lennar’s venture-capital and innovation unit. “So there have to be alternative building solutions to help with this labor deficit.”
The vast majority of newly built single-family homes in the U.S. are constructed on-site and framed in wood using traditional construction methods.
Icon’s 3-D printed houses use concrete framing instead. Its 15.5-foot-tall printers can build the exterior and interior wall system for a 2,000-square-foot, one-story house in a week, Mr. Ballard said. The printer squeezes out concrete in layers, like toothpaste out of a tube. The machines can print curved walls, allowing for more creative house designs, he added.
Lennar will complete the houses using traditional construction methods. The week it takes Icon to print a wall system is about the same amount of time it takes to frame and drywall a home using traditional construction methods, but Lennar said it hopes it can speed up that process in the future. 3-D printed homes can also be built more cheaply and with less waste compared with typical newly built houses, Icon says.
Icon requires only three workers on-site when printing a wall system, replacing as many as 6 to 12 framers and drywall installers needed for conventional construction, Lennar said.
Buyers shouldn’t necessarily count on a discount to the market’s going rate. Lennar hasn’t determined how the homes in the new community will be priced but they will be similar to other Lennar homes in the area, Mr. Feder said. The median home-sale price in the Austin metro area in September was USD 450,000, according to the Austin Board of Realtors.
Icon has already built 10 two-bedroom homes in Tabasco, Mexico, and seven one-bedroom tiny homes in Austin. Earlier this year, Icon built four single-family homes in Austin with developer 3Strands. Icon has raised USD 266 million in funding since its 2017 founding. Lennar and home builder D.R. Horton Inc. are both investors.
Trying to scale up 3-D printing technology brings new challenges. Icon’s projects have been permitted by local jurisdictions, but obtaining municipal approvals could be a challenge in new markets, since the technology is unfamiliar. Consumers might also be skeptical of the concept and some might be put off by the look of 3-D printed homes. Icon’s homes, for example, have horizontal ridges in the exterior and some interior walls from the layered printing technique.
On the other hand, buyers are likely to be attracted to homes that are built with less waste, which should translate to cost savings, said Margaret Whelan, chief executive of Whelan Advisory, a boutique investment bank for the housing industry.
In the past, Icon’s houses have been priced at a modest discount to the market rate. Its four-home project in Austin with 3Strands was its first attempt to build two-story houses, using 3-D printing for the first-floor walls while the second floors were conventionally built.
A two-bedroom house in the development was priced at USD 450,000 and sold for USD 530,000, said Gary O’Dell, chief executive of 3Strands. A four-bedroom 3-D printed home, meanwhile, sold for nearly USD 800,000. The homes were priced slightly below comparable houses in the area, Mr. O’Dell said.
Other firms are also rushing to print out homes. Mighty Buildings, a construction-technology company in Oakland, Calif., said it plans to start construction on 3-D printed homes for a 15-lot community in California’s Coachella Valley next year. Preliminary demand for the community has been so strong that Palari Inc., the developer, is planning to add more lots, said Palari CEO Basil Starr.
Patchogue, N.Y.-based SQ4D Inc. is currently building a 3-D printed home in Long Island that it sold to a local family for USD 360,000, above the USD 299,999 list price, said Kristen Henry, the company’s chief technology officer.
Home-buying demand has surged during the pandemic, as buyers took advantage of low mortgage-interest rates to find more space to work from home. Home-building activity has climbed in response, with single-family housing starts up 20.5% year to date, according to Commerce Department data.
“I think 2022 is going to be a year where we are going to see a renewed emphasis on innovation,” said Robert Dietz, chief economist at the National Association of Home Builders. “Any productivity gain, any innovation, will help add that additional supply.”
Entrepreneurship zeitgeist 2030
By Markus Berger-de Leon, Karel Dörner, Max Flötotto, and Tobias Henz from McKinsey. Karel Döner and Max Flötotto are senior partners in McKinsey’s Munich office, where Tobias Henz is an associate partner. Markus Berger de León is a partner in the Berlin office.
The authors wish to thank Philipp Hühne, Benedikt Kolbinger, Ivo Langhans, Charlotte Niemeyer, Carolin Widenka, and Juliane Winkler for their contributions to this article.
The economic success of large corporations from German core sectors such as automotive, mechanical engineering, and chemicals, and a large number of well-established medium-sized businesses—known as the Mittelstand—have fuelled Germany’s steady GDP growth over the last several decades. More recently, however, technology advancements, particularly in the areas of digitalisation and connectivity, are compelling Germany to reimagine the fundamentals of its economy. The widespread conclusion is that a robust start-up ecosystem—enabled by these technology trends and comprised of founders, their businesses, corporates and SMEs, educational institutions, investors, and government agencies—needs to become a pillar of the economy if Germany is to remain prosperous at home and competitive abroad.
What entrepreneurship could deliver by 2030
To be clear, entrepreneurship has been and continues to be a part of the modern German economy. Today, approximately 2,900 start-ups are launched in Germany annually. For the start-up ecosystem to deliver next-level change, however, the already high dynamic of the start-up ecosystem will almost certainly have to be accelerated.
On its current trajectory, start-ups could create just over €1 trillion in value until 2030. With a 50 % increase in founding activity, start-ups could create another €500 million (Exhibit 1), but just adding more start-ups is only part of the strategy. Start-ups could become more successful. According to a major new McKinsey research effort, supporting the launch of more start-ups and investing in the success of start-ups could generate a total of EUR 2.3 trillion in value and create 1.44 million jobs by 2030—almost twice as many as would exist at the current pace of creation and success.
More start-ups, please
For many potential founders, the entrepreneurial journey stops before it even begins. Currently, half of those surveyed see entrepreneurship as a viable professional path for themselves, and 11 % have definite plans to start a company. However, too few people decide to found companies in the end; currently, only half of the people with definite plans, or 5 %. 1 There are two reasons for this: the lack of a clear entrepreneurial mindset and obstacles in the founding process, like the fear of financial insecurity or the lack of entrepreneurial knowledge. Launching a business is still too difficult and time-consuming in Germany. Local and national governments could explore ways to halve the number of tasks related to founding a company. 2 A simplified, digitalized bureaucracy and taxation process for companies up to a certain size could also significantly reduce the time, effort, and costs associated with registration, including contracting a notary or tax adviser. Streamlining this process could enable founders to focus on what really matters.
Digging deeper, there are five specific sources for additional start-ups that could collectively double the number of start-ups being founded in the year 2030, to a total of 5800 (Exhibit 2). Taking ramp-up effects into account, this translates to a 50 % increase in the total number of start-ups founded in the timeframe between now and 2030, or 41000 start-ups in that timeframe.
More spin-offs coming out of universities and research institutions. Universities are already home to the research and innovation that leads to innovative new businesses. Only a few universities, however, graduate students who go on to become founders. With curricula that expose students to and prepare students for entrepreneurship along with the resources that support innovation, start-up labs and universities could contribute to the launch of an additional 1350 start-ups annually in 2030.
Double the share of female founders. Women in Germany today are about as willing as men to build a company (48 %). 3 But when it comes to actually starting a company, there is a significant gender gap, with women only accounting for 16 of today’s founders. Only 5.2 % of women-led start-up teams have received EUR 1 million in funding compared with 27.8 % of those led by men. 4 Initiatives to bring greater gender parity to entrepreneurship, including increased access to both mentoring and financing for women, could add another 630 start-ups to Germany’s start-up ecosystem founded annually.
Double the share of founders without a university education. While there is potential for universities to be bigger launching pads for founders, investing in the potential of entrepreneurial-minded people without a university education is also a wise endeavor. Almost half of Germans with only a high school diploma express an interest in founding a company, 5 but of actual founders, less than 20 percent do not hold university degrees. Campaigns to highlight the successes of founders without university degrees and support those who might follow in their footsteps could lead to an 520 additional annual start-ups being founded in 2030 .
More founders in their thirties. Looking at famous tech pioneers could easily give the impression that founders need to be barely out of university to become successful. But research has shown that the average age of a successful start-up founder is 45 years. 6 A collaboration between private employers and the public sector could enable employees to “try out” their own business via a paid leave of absence. Prospective founders could reduce the risk associated with quitting their jobs, and the start-up ecosystem could gain the benefit of innovators who bring real-world experience and higher chances of success. Programs such as this could help launch 220 additional start-ups founded annually in 2030.
Support migrant community talent pool. Today the migrant community or their descendants report higher interest in starting a company than their non-migrant peers (59 % and 49 %, respectively) but they make up only 20 % of current founders. 7 Systematic support of a growing talent pool could lead to 180 additional start-ups in Germany founded annually in 2030.
Fuelling start-ups’ success
Of course, increasing the number of start-ups over the coming decade would be only half the solution; making start-ups even more successful could be the other half. The metrics of success vary and are strongly dependent on founders’ aspirations for their companies. But with the right set of structures and mechanisms put in place, two general start-up categories—hypergrowth companies and the New German Mittelstand—could help drive such increased success.
Hypergrowth companies commit to raising money round after round, preparing for exits valued in the billions. Hypergrowth companies could represent 85 percent of the value of Germany’s start-up ecosystem by 2030. To get there, however, these companies need to secure late-stage funding, which has been challenging for German start-ups. From Series A to Series D, German start-ups become increasingly less likely than their US counterparts to raise money (Exhibit 3); overall, a US start-up is 1.5 times more likely to become a unicorn than its German peers. By increasing access to later-stage funding, nearly 75 additional German start-ups could become unicorns or successfully undertake an IPO between today and 2030. Additionally, governments could explore steps to make it easier for start-ups to attract and retain top talent access to international markets that facilitate growth.
The New German Mittelstand would be the set of start-ups that focus on a sustainable path toward profitability or an early exit that leads to significant job creation. This group could represent only 15 % of the overall value, but it could account for 30 % of the jobs created in start-ups founded between today and 2030—jobs that tend to be a) more stable than those created by their hypergrowth peers and b) geographically dispersed and less concentrated in urban areas. To support the development of these smaller yet critically important companies, both established enterprises and governments could consider partnering with them and even becoming early customers. Substantial entrepreneurial knowledge is mission-critical: Since start-ups comprising the new German Mittelstand frequently have less funding than their hypergrowth peers, they have to focus much earlier on profitability. Being prepared to take on that responsibility means that the next generation of entrepreneurs could benefit from having their first experience with the challenges of building a business as early as possible, even in school.
A distinctly German approach
Other countries have gained notoriety for their start-up landscapes—reputations driven in large part by the decacorns, USD 10+ billion start-ups, that have taken flight there. While Germany seeks a thriving start-up ecosystem, its success may depend on building on its own unique strengths instead of trying to imitate other countries’ approaches. The “German Way” of entrepreneurship could be evidenced by a clear set of principles and practices:
Credible delivery. In 2030, German start-ups could be built on the industries and values that Germany has been well known for. German start-ups will likely innovate in the areas of industrial automation, sustainability, and environmental impact. Their founding teams could demonstrate more commitment to job security, employee protections, fair wages, and other values central to the German social market economy (soziale Marktwirtschaft). In addition, founders as well as investors could aim to reinvest within Germany and Europe to further boost the momentum of entrepreneurship and help economic growth further continue to flourish.
Responsible entrepreneurship. This idea of reinvestment applies to human capital too. Serial founders are one indicator of a healthy start-up ecosystem and are nearly twice as likely to succeed with their second venture as first-time entrepreneurs. 8 Encouraging experienced founders to launch subsequent start-ups and employees of start-ups to become founders would build on success and could further solidify the start-up ecosystem as part of the backbone of the Germany economy.
Cluster organisation. One virtue of the German economy could be its organisation in regional or thematic clusters—with a strong Mittelstand and research organizations at its centre. Start-ups could enrich these agile clusters that each have their own unique combination of resources, technology specialties, and industry focus. One step further, these clusters—which are significantly different and complementary throughout the country—could interact with each other. This would be mutually beneficial and could lay the groundwork for a unique “ecosystem of ecosystems.”
It could take the wide range of start-up stakeholders—from educators and legislators to those in government agencies and corporate C-suites—to establish a thriving start-up landscape and firmly embed entrepreneurship in both the institutions and culture of Germany. Together, these stakeholders and others could have the power to help society at large see entrepreneurship as a viable and even commendable career path, while replacing barriers to start-up success with incentives and tools that facilitate success. As a result, they could help ensure that starting a business is a possibility for many and not just the exclusive realm of a few. This is when the power of entrepreneurship could be fully unleashed and when the start-up ecosystem could be a fundamental driver of Germany’s economic success.
Newsletter of last week
Is China in Big Trouble? – DO I KNOW YOU? – “We should find again our respect for nature and the fact that we are part of everything surrounding us,” says Eicca Toppinen – Victoria Beckham on Her ’90s Style: “If I Dressed Like That Now, I’d Be Locked Away By the Fashion Police” https://textile-future.com/archives/79968
The highlights of last week’s NEWS, for your convenience, just click on the feature to read.
Swiss Bossard Group: Expanding market presence in the Benelux countries https://textile-future.com/archives/79018
50 years of BASF’s gas treatment in industrial scale https://textile-future.com/archives/79248
Swiss Autoneum adjusts outlook for the current financial year https://textile-future.com/archives/79256
Taking On Tesla Comes at a Cost for GM https://textile-future.com/archives/79282
Swiss internationally active UBS 3Q21 netSw profit of USD 2.3 billion, 20.8 % return on CET1 capital https://textile-future.com/archives/79176
Is Bangladesh’s apparel sector ready for industry 4.0? https://textile-future.com/archives/79193
Hertz links Up with Uber to Offer 50000 Tesla Rentals https://textile-future.com/archives/79293
Swiss President Parmelin, Federal Councillor Sommaruga and Federal Councillor Maurer at the UN Climate Change Conference COP26 https://textile-future.com/archives/79110
Statement by the OECD Secretary-General on future levels of climate finance https://textile-future.com/archives/79113
OECD Development Assistance Committee commits to align development co-operation with the goals of the Paris Agreement https://textile-future.com/archives/79205
G20 economies are pricing more carbon emissions but stronger globally more coherent policy action is needed to meet climate goals, says OECD https://textile-future.com/archives/79229
Behind That Hertz Tesla Purchase https://textile-future.com/archives/79240
BASF with continued strong performance in Q3 2021 https://textile-future.com/archives/79232
Swiss Clariant significantly increased profitability in the third quarter of 2021 on the back of double-digit sales growth https://textile-future.com/archives/79276
Third Quarter report of the Swiss EMS Group https://textile-future.com/archives/79279
66 % of women in the EU aged 50-69 got a mammogram https://textile-future.com/archives/79044
Labour market slack in Q2 2021 https://textile-future.com/archives/79213
U.S. Economy Likely Slowed in Third Quarter on Delta Surge, Supply Crunch https://textile-future.com/archives/79264
COVID hit to migration levels https://textile-future.com/archives/79289
EU exports boosted thanks to stronger implementation and enforcement of trade deals and global rules https://textile-future.com/archives/79324
1 in 4 children in the EU at risk of poverty or social exclusion https://textile-future.com/archives/79338
EU tax and social contribution revenue decreased in 2020 https://textile-future.com/archives/79348
The McKinsey week in Charts https://textile-future.com/archives/79379
How digitalised are EU’s enterprises? https://textile-future.com/archives/79315
BASF and Entegris sign agreement on the sale of Precision Microchemicals business https://textile-future.com/archives/79220
UBS organises Lewis Hamilton to surprise and inspire Primary School children https://textile-future.com/archives/79201
Intertextile Shanghai Home Textiles provided vital business platform for autumn season from October 9 – 11, 2021 https://textile-future.com/archives/79041
JEC Korea 2021 co-located with Carbon Korea and hybrid event with JEC Korea Connect https://textile-future.com/archives/79237
Facebook Changes Company Name to Meta in Focus on Metaverse https://textile-future.com/archives/79331
OECD data show global FDI rebounded in H1 2021 to exceed pre-pandemic levels https://textile-future.com/archives/79357
Well-being weakened in Latin America as pandemic hits, data show https://textile-future.com/archives/79327
Helen Keller and the Problem of ‘Inspiration Porn’
Comfortable and sustainable: home and hobbywear made from warp knitted terry fabrics https://textile-future.com/archives/79010
The Metazoic Era https://textile-future.com/archives/79024
Pharmaceutical Packaging Market worth USD 196.8 Billion by 2026 https://textile-future.com/archives/79136
Saks E-Commerce Business pairs Robots with Workers https://textile-future.com/archives/79223
BASF and SVOLT form partnership to advance battery materials development and battery recycling solutions globally https://textile-future.com/archives/79002
BASF and Sport Group start global cooperation in the field of sports and outdoor flooring systems https://textile-future.com/archives/79107
Fit for the terry cloth market https://textile-future.com/archives/79098
As blue as the sky: new Neopolen colour grade for transport boxes, toys and leisure products https://textile-future.com/archives/79299
Ransomware Gang Masquerades as Real Company to Recruit Tech Talent https://textile-future.com/archives/79031
Swiss Empa – Clothes recycling – “Consumers should ask critical questions” https://textile-future.com/archives/79304
RadiciGroup reorients its know-how to a new production line for sustainable personal protective equipment https://textile-future.com/archives/79363
Switzerland to attend G20 Joint Finance and Health Ministers’ Meeting in Rome https://textile-future.com/archives/79260
Robust U.S. Real Estate https://textile-future.com/archives/79208
Please Don’t Feed the Whale Sharks? Fishing Town Says It Must, to Prosper https://textile-future.com/archives/79050
Webinar: Launch of the WIPO IP Diagnostics (November 9, 2021) https://textile-future.com/archives/79124
Winners of the EU Sustainable Energy Awards announced https://textile-future.com/archives/79166