Dienstag, 12. Juli 2011

Startups vs. Mittelstand

End of 2001, five years before Steve Jobs made the word 'app' popular, we at Shape started our first mobile app, IM+.
Shape was not a startup. It was, at least from a psychological point of view, a mix of startup and Mittelstand.
Mittelstand is a German word that stands for solid, innovation focused, mostly family-run businesses.
A typical life cycle of startup: raise money, scale as fast as possible, sale.
Most startup founders would consider a quick profitable sale as a big success.
This is not typical for a Mittelstand company. Most Mittelstand founders would compare a company sale to a death. Even if they would get out of business with some million dollars in the pockets. This was a business that they built for long-term, for generations.

A Mittelstand company has to be profitable from the very beginning. At the end of the day, the company doesn't have venture capital and must pay all mistakes on their own.
This was the way that we choosed with Shape. Instead of venture capital: family savings, friend and bank loans. Keeping private control is critical for a Mittelstand company. At the same time we cultivated in Shape the best of startup culture: young spirit, welcome to new ideas and innovations, horizontal management structure, quick decision making. And we were profitable from day one.
Mittelstand is a bit family like. Our key people often received very lucrative offers from competing companies. No one of the core team changed. Who would give up family.

2002-2004 IM+ won various international contests. First IM+ copycats opened the doors.
It was always amazing for us to see how VC funds pumped tens of millions dollars into projects similar to what we launched with some $25 thousands.
Then, 2005, Meebo started, with $70 million venture capital to date. We took a closer look at ups and downs of our competitors, experimented with new apps and technologies like mobile audio, video, OCR and, recently, check-in. And we kept profitable.

Sales like OZ Communications to Nokia or recently Qik to Skype amused us from dual point of view. First, the valuations, second, this was a death of competing products and companies.
We were always happy to see high startup valuations.
However, we thought that crazy investors that pump dozens of million dollars in apps like Color, are contra-productive and destruct the smart image of tech companies.

Perhaps the most controversial and famous valuation story is Facebook. No doubt, Facebook is one of the greatest companies. But how many users has Facebook? I'm not a Facebook user, actually I prefer LinkedIn and Google+.
Anyway, I have at least three test Facebook accounts. A lot of people I know have two Facebook accounts. So, I suppose, the real number of Facebook users is significantly less than 750 million. Perhaps 500 million? This is a big number. But does it really valuate Facebook ten times bigger then business networking oriented LinkedIn? Especially in times of Google+ rise. I wish, Facebook would have at least a bit of Mittelstand in their startup culture. I'm writing this from a friendly point of view, a few weeks before launch of free mobile Facebook video calls in IM+ Video.

Both of startup and Mittelstand cultures have advantages. To combine the best of two cultures could be a magic formula of success.
And please don't be surprised if Deutsche Börse is going to acquire NYSE, this is a Mittelstand - Startup battle, where a long-term strategy can win.

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