German Start-Up Eco System

Facts, figures, insights and recommendations

We have collected most important facts and figures issued recently explaining the start-up eco system in Germany. We also add relevant arguments why we question the common sense in start-up valuation models and we highlighted a number of challenges founders and young managers have such as internationalisation strategies and distribution with recommendations on how to turn it into advantage.

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Some readings from the book:

...How to value a company is traditionally a finance topic; however, most financial valuation methods were developed for well-established companies and especially for companies in the more efficient public capital market. As demonstrated by Waldron and Hubbard (1991), the traditional financial methods yield valuations with large variability. Against such a backdrop, this article helps to leverage established theories in strategic management to develop an integrated framework and use those input variables important to firm performance to directly predict the valuation of an early-stage new venture. Presumably, when it is difficult to value a young firm based on output (e.g., future cash-flows), pricing it based on inputs (e.g., entrepreneur, industry attractiveness, etc.) may be a better alternative than ‘pure guess’.?

The two crucial pain points for start-ups:

1-?How to sell my product to a large number of customers/users

• Poor understanding of direct market related influences such as storytelling, branding, reputation, diversity distribution channels, know your customer (KYC), focus on lead generating tools and funnel strategies without deeper understanding of what influence customers behavior, customer service (after sell)
• Poor understanding of indirect market related influences such as network leverage, community building, employee branding, influencer and stakeholder, tailored customer acquisition strategy, use KPI as an indicator but not as a basic instrument for decision making, reshape business model according to learnings?...

Why is ARR one of most dangerous indicators for enterprise culture?

It is great if you have developed a software product that finds lively interest in the market. It is best if the product has a long-term customer loyalty in the form of annual subscriptions, and even better if customers renew their contracts shortly before expiration.

This allows the company to book long-term planning and "money not yet earned" as a fixed income. Therefore, software companies are predominantly, sometimes exclusively evaluated according to their ARR. Thus, the primary goal of the company is to conclude new contracts with new customers and in new markets. It becomes dangerous when the corporate strategy inevitably focuses too much on new business and sets up its structures in such a way that mainly new markets are tapped.

Most software companies that scale heavily dedicate resources and capacities to cope with this scaling. As a result, existing customers can be neglected....