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Will Berlin Out-Innovate Silicon Valley?

Feature Article | January 15, 2015 by Susan Galer

The latest high-tech buzz out of Europe has Berlin emerging as the next Silicon Valley.

Attracted by Berlin’s relatively cheap office space and affordable lifestyle, entrepreneurs from around the world are settling in and cranking out innovations including big data, cloud, e-commerce, and business-to-consumer solutions. Some experts say Berlin’s diverse startup community has a unique blend of creative talent well-aligned to the next generation of technology that focuses on people first.

“There are many different kinds of creative startups in Berlin, not just in technology, but in fashion, marketing agencies, biotech, media, consumer companies and other areas,” said Nicole Dufft, Vice President at PAC, an industry analyst firm based in Germany. “We see a lot of movement in Berlin bringing design and technology together to create new user-centric business models. This is an important focus globally for the future of technology.”

Dubbed by some as Silicon Allee, Berlin’s startup community is fueled by an increasingly international, hip population plus nearby universities and research institutions including the Hasso-Plattner Institute in Potsdam. “The design thinking school founded by Hasso Plattner of SAP reflects this trend, bringing different discussions together to build user-centric services for digital and non-digital services,” said Dufft.

It’s not just about the technology

With eight full-time and five student employees working in a loft-like office in the heart of Berlin, startup Sablono epitomizes the city’s innovative spirit. The company develops software that aims to simplify construction project management for cost-efficiency. A native Berliner, Co-founder and Co-CEO Lukas Olbrich didn’t originally see himself in technology. “I always wanted to be an architect and create things,” he said. “I didn’t see myself in technology but found an interest in programming. I suppose to some extent I wanted to be an entrepreneur. I just didn’t know that’s what it was called.”

Olbrich is especially jazzed by the business and technical support his company has received since launching its software powered by SAP HANA. This has included funding from Hasso Plattner Ventures, and hands-on workshops and advice from technology and business development experts at the SAP Innovation Center in Potsdam.

“We may be a small startup but SAP takes us very seriously,” said Olbrich. “Every department in our company has worked with the SAP Innovation Center. We were able to invite members of the construction industry to design thinking workshops to help us in ideation for the software. This year one of the most exciting things that’s happened was the marketing video describing our relationship with SAP.”

Intensive mentoring is a critical component of SAP’s strategy that revolves around the company’s partner ecosystem. “We bring startups close to SAP technology, and help them achieve breakthrough value in new segments,” said Markus Noga, Head of Research Partners and Startups at SAP. “Sablono is a great example of what happens when partners co-innovate with SAP to cover the full value chain for our customers.”

SAP is also sponsoring the recently opened Berlin office of TechStars, a technology accelerator that invests in startups worldwide.

Alternative culture is the Berlin ethos

Of course there are a slew of cultural and legal differences between Berlin and Silicon Valley that defy direct comparisons. United States-based industry analyst Josh Greenbaum, Principal of Enterprise Applications Consulting, said, “Silicon Valley has access to talent and capital, and a very free-wheeling business culture that makes it very easy to start a company with very little bureaucracy and capital investment, Creativity is Berlin’s birthright, and has always attracted that kind of person. The question is can it have those structural components as well?” he asked.

Local influencers agree Berlin’s community of innovation is distinguished by everything from Germany’s stricter labor laws to the values of the players themselves. “Startups here are striving to work in a more open, flexible way and to be creative by bringing good ideas to market,” said Dufft. “They want to make money, but there’s more of a focus on alternative culture. Conspicuous consumption is not well-respected even though being successful is.”

Despite the influx of entrepreneurs in Berlin, the cultural divide between Germany and the United States is also enormous in terms of career aspirations. “Recent studies show that young professionals and students [in Germany] are pretty conservative. Their major interest is to go to large companies and less to pursue entrepreneurship,” said Rϋediger Spies, Vice President at PAC.

Duffts thinks the German culture with its historical intolerance for risk-taking is also an impediment. “Openness to failure is necessary to entrepreneurship.”

Investments add to allure

Berlin’s startup community has significant growth potential, backed by Chancellor Angela Merkel’s pro-science government, along with state-funded institutions like Investment Bank Berlin (IBB), and private co-investors. A recently published report from McKinsey, entitled “Berlin Builds Businesses,” predicts the city could gain 100,000 jobs by 2020 by becoming Europe’s startup hub.

Spies also noted the city’s infrastructure build-out, plans for a new airport, and slightly eased working permit restrictions. “There’s too much momentum in Berlin because of missing alternatives in Germany. You need to be in Berlin if you’re a startup.”

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