McKinsey Berlin
Berlin builds businesses:
Five initiatives for Europe’s start-up hub
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Summary
Global competition among cities to attract entrepreneurs
and new businesses is constantly growing. For this reason,
Berlin needs to act now. As the “Berlin builds businesses” study demonstrates, the German capital has the
chance to become Europe’s start-up hub – assuming
it makes a concerted effort to do so. Five initiatives can
strengthen the local start-up scene for the long term in
several innovative focus clusters: digital tech, biotech/med
tech, and urban tech. Berlin could gain an additional
100,000 jobs by 2020 as a result. To make this happen,
the number of new businesses in these clusters must
increase, the average dissolution rate for new businesses
must fall, and start-up growth must accelerate. The strategy
to accomplish this can be summarized as “focus, bundle,
grow” – concentrating on a coordinated city agenda
makes it possible to bundle resources and effectively
foster growth.
In 2010, McKinsey’s “Berlin 2020” project investigated the city’s growth potential. One of the key insights to emerge
was that Berlin needs more start-ups. In “Berlin builds businesses,” McKinsey explores this topic more closely.
The project’s goal is to develop concrete recommendations for intensifying start-up momentum, especially in
innovative industries. McKinsey completed this pro bono effort on its own initiative, working closely with the
Berlin Senate. The study summarizes the views that members of Berlin’s start-up scene shared in more than
100 interviews. We structured the interview findings and enhanced them with quantitative analyses to provide a
basis for deriving our recommendations.
On the road to the top, Berlin can learn from the experiences of other globally significant hot spots for new businesses. The study shows that five factors – talent, infrastructure, capital, networks, and public image – largely
determine a city’s success as a start-up hub. In recent
years, cities such as New York, London, and Tel Aviv have
instituted broad programs to strengthen their start-up scenes
by focusing on these five factors. Berlin needs to take similar steps to provide long-term support for its own innovative
clusters: digital tech, biotech/med tech, and urban tech.
The city already has strengths in each factor; for example, its
positive image and low costs for businesses both fall on the
plus side. At the same time, work is needed on four of the
factors:
Talent. The city’s attractiveness is an important advantage
and many top talents move to Berlin. However, the interest of
more students and graduates in starting businesses – especially in tech-nical fields – needs to be in creased. Furthermore, Berlin attracts fewer foreign entrepreneurs and skilled
workers than other start-up hubs.
Infrastructure. Berlin benefits from being a low-cost business location. Despite this advantage, start-ups in their growth
phase face a lack of large, centrally located space available
for rent on flexible terms. The city’s many universities and
research institutions could also do more to encourage the
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start-up scene. In addition, better coordination among
individual start-up programs is possible.
Capital. The availability of capital is crucial for strengthening the start-up ecosystem in Berlin. But structural shortages are a problem, particularly in terms of follow-on financing (i.e., rounds A/B). While interest among international
investors is growing, it has not yet translated into sufficient
action.
Networks. The success of a start-up hub also depends on
networking among the scene’s stakeholders. In Berlin,
start-ups within individual clusters form strong networks,
but they often lack connections to established companies
and some aspects of the government.
The five initiatives recommended in “Berlin builds businesses” focus on digital tech, biotech/med tech, and urban
tech. Shared goals of these initiatives are to develop existing
strengths, overcome present weaknesses, and concentrate and bundle the activities that are already in place.
To create the necessary momentum, all five should be
pursued together in a united effort.
A new business boom for Berlin – getting professors and
students excited about new businesses. Improved incentive systems for employees of research institutes and univer-
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sities as well as stable long-term financing for start-up
centers should improve conditions for start-ups. A “Berlin
start-up curriculum” would ensure that universities’ startup-related activities are better bundled and new events
could streng-then the start-up mindset.
One-stop start-up agency – creating a welcoming culture. A multilingual start-up service agency should provide
“one-stop shopping” for foreign entrepreneurs, helping
them cut a path through the German bureaucratic jungle
as quickly as possible. In the meantime, a comprehensive
portal would provide a clearer view of all relevant services
available from government offices and institutions.
Berlin start-up campus – building shared infrastructure. A
campus for digital tech start-ups should be created in the
center of Berlin and established companies should also
take up house there. Using the same infrastructure encourages exchange and cooperation. The former Tempelhof airport could be an attractive location. The campus could also
house a coaching center tailored for companies in their growth
phase, as well as a coordination office to provide better links
to Berlin’s start-up centers.
ideally establish a delivery unit of about 10 employees to
align interest groups on the program’s goals and strategy,
push implementation forward, and continuously measure
Berlin’s success in encouraging start-ups.
Berlin is in an excellent position to become Europe’s startup hub. With this study, McKinsey hopes to lay the path for
achieving this goal. We look forward to further discussing
these ideas with all those who have a stake in the startup scene and to working together to find and implement
solutions.
Berlin, October 2013
Berlin start-up fund – more capital for growing businesses.
A new EUR 100 million start-up fund would support young
companies needing capital infusions of EUR 3 million or more.
Investors would be primarily sought among corporations
and SMEs. To attract more international capital to Berlin, a
dedicated taskforce could approach and support foreign
venture capital funds.
The Berlin start-up network – forging links between established companies and the start-up scene. A new taskforce,
“Berlin business dialog,” would approach established
companies to convince them to support start-up activities.
Their involvement can take a number of forms: from locating a start-up campus in order to foster intensive exchange
with new businesses to developing a cross-company
accelerator.
Making the five initiatives happen will not be easy: putting
the “focus, bundle, grow” strategy into action will require
fundamental changes. Some existing activities will no longer be necessary, established structures will be shaken
up, and relevant interest groups will need steady communication to convince them of the benefits for everyone. For
these reasons, Berlin needs an effective, agile, and generally
accepted approach to implementing these initiatives. Following the model of London and New York, the city should
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McKinsey Berlin
October 2013
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