Business failure is Personal Failure

The Handelsblatt Global Edition from April 23, 2015 reported: Philipp Gloeckler’s business idea was a failure, and he doesn’t mind admitting it. He had what he thought was the perfect concept, an impeccable business plan and great press coverage. Yet, his app, Whyownit, was a disaster.

This is how he found himself at the F***UpNight event in Berlin, a get-together where failed start-up entrepreneurs pick through the bones of their mistakes in the hope that they can do better next time.

“Business failure is often equated to personal failure in this country,” said Rolf Sternberg, a researcher at Leibniz University in Hanover, who recently co-authored a study on young entrepreneurs. “We would win a lot if we would accept failure as a new chance,” he added.

Other than SAP, the software giant founded in 1972, no German tech company has made it onto the global stage. Instead German entrepreneurs are better known for their pursuit of perfection, and finding success within established structures, such as the car industry.

“I am convinced we need to talk about mistakes,” said Béa Beste, whose toy app, which allowed users to subscribe to a toy delivery service for kids, collapsed with the loss of all her investor’s capital as well as her own €300,000 ($322,000). “The worst mistake is being afraid of mistakes,” Ms. Beste said.

Venture capital is scarce in Germany’s risk-averse, conservative economy, so entrepreneurs usually turn to bank loans for funding. But if their business fails and debts are called in, they must go through a lengthy insolvency process which can demand up to six years of “good conduct” before the slate is wiped clean.

All the way or not at all

The appreciation that Germans have for individual competence and their aversion towards incalculable risks sometimes set the condition of a certain degree of caution used when working with innovations. 

Therefore, it fits the bill that German companies always approach the execution of updates and improvements in a cautious and well thought-out manner. All of the pros and cons must be carefully weighed, and all influential factors taken into consideration before a critical decision is made.

In this case, a qualified expert will often be called in to assist. “Professional quality management is often the condition for the commissioning of tasks. This is often bound together with unnecessary effort, especially in the case of small businesses; often the incorporation of external consultants is better”, explained an expert from the Chamber of Crafts in an article. 

And so there exist a plethora of external experts, consultants, institutions, and established norms for German business owners to turn to in case they should lose perspective in the tangle of modern innovation. 

These exist to help to make well-founded and analytically grounded decisions. It has even developed into its own field of study at many technical and business colleges: studies to the systematic approach of solving problems and to the development of complete solutions have begun to fill textbooks and lesson plans. 

These approaches help to calculate multiple types of risk in advance, thereby countering the deeply rooted nervousness that comes together with risks and unforeseen situations.

Every fifth DAX share

German investors have a safety first mentality when it comes to money. Their aversion to risk is often attributed to the economic turmoil of the 20th century. The hyperinflation of the 1920s and the devastation of two world wars have burned themselves into the nation’s psyche. 

Since early 2009, the share prices of DAX-listed companies have tripled on average — an increase of €800 billion, or $860 billion. Germans park their money in safe investments like savings deposits or life insurance policies.

54.3 percent of shares in the DAX are held by foreign investors — more than ever before. U.S. investors are the biggest single group of foreign investors. Every fifth DAX share is owned by North American investors.

“There you have it!”

In February 2015 Christian Lindner, the head of the Free Democatic Party (FDP), gave a speech in Dusseldorf, the capital of the German state Northrhine Westphalia.

“Entrepreneurship is a signal of confidence in a culture’s future. When people start new companies, they are not only creating a better future for themselves, they’re creating jobs for others.”

Hardly into his speech a state representative from the ruling Social Democrats (SPD) called out smugly that Lindner, indeed, had had personal experience with startups.

Lindner pounced on the opportunity. “Aha, look here. You say that I have experience. It is true, dear colleague. During the highpoint of the new economy I founded a company. It was not successful. But the leader of your party, the premier of this great state, in her speech today stated clearly that Germans should not stigmatize those whose startups fail.”

Lindner continued: “There you have it, in your own caucaus, Madame Premier, a colleague who doesn’t listen to you. This is exactly one of the reasons why so many people prefer to work as civil servants, instead of starting a company. For if they are successful then you Social Democrats want to tax and reallocate their profits. And if they are not successful, then they are derided.”

Auf YouTube wurde die Rede bereits millionenfach angeklickt. In DIE ZEIT vom 19. Februar 2015 schreibt Feliks Eyser, ein Gründer, der im zweiten Anlauf erfolgreich war, in einem Artikel mit dem Titel „Wer wagt, verliert“:

Within hours the speech was uploaded to YouTube and clicked on over a million times. A week later DIE ZEIT, a respected political weekly, published an article by Feliks Eyser, whose first startup failed but whose second succeeded.

The article’s title was „Wer wagt, verliert“ – those who risk, fail. This is the opposite of the well-known German figure of speech “Wer wagt, gewinnt” – those who risk, win.

“Failure is a part of entrepreneurship just like sore muscles are a part of sports. Those who start a company run the risk of failure. Courage is essential. Perhaps more people in this country would have that courage if a busines failure were not seen as human failure.”

Interestingly, Eyser wrote scheitern not seen as versagen. Both terms translate into failure. Could this mean that Germans see in failure human or personal failure?

Insurance protection

Germans love insurance policies. According to the magazine Stern, the average German household paid an average of 2,771 EUR annually for private insurances in 2002, 106 EUR more than in the previous year. They are clearly willing to spend on their security.

However, the avoidance of risks in this way is often not rational. According to Stern, every other German is insured for legal representation, yet only one in ten have disability insurance. Statistically, however, one out of four people will be unable to work for an extended period of time during their lifetime due to illness or an accident.

The investment counseling agency KSK-Südholstein makes a similar attest: “Germans love to be rooted and secure. That is why they are so keen on insurances. For this reason, there is an incredible variety of insurances available on the German insurance market.

Amongst these policies you will find some which are sensible, and others which really are not, because not every value must be insured. Much to the dismay of experts, there is a tendency in Germany to insure small amounts of damage with high initial ventures.”

Founderland

A willingness to take risks and a desire to make decisions are the basic requirements for starting a business. Germany is not a land of entrepreneurs.

According to Global Entrepreneurship Monitor (GEM), an annual joint publication of the University of Hannover and the Institute for Jobmarket and Career Research of the German Federal Agency for Employment, only 2.5% of adults in Germany started a business which they could live from. This placed Germany in spot 10 of the 22 compared.

Rolf Sternberg, an economist, considers one reason for the weak culture of entrepreneurship to be the widespread desire toward security:

“The tendency to strive towards security is much more prevalent in Germany than in Anglo-American countries”. This is the flipside of having a well-developed social security system.

Yvonne Stolpmann of Chamber of Commerce in Nürnberg summarizes the situation as such: “Those who give up a permanent position here stand to lose a lot of security. It’s different in the USA”.

Frederick August the Procrastinator

Frederick August, the King of Saxony, was one of history’s great procrastinators. While he began as one of Napoleon’s greatest foes, he soon became his greatest ally. In return, Napoleon elevated him from prince elector to king.

But by 1813, his alliance with Napoleon would cause him to lose the Battle of Leipzig. Though Frederick August was careful in attempting to side himself with the great forces who opposed him, a treaty that he had made with Austria eventually dissolved. Taken into captivity by the Prussians, Frederick August was forced to turn more than half of his territory over to his archrivals.

But why was Frederick August on the losing side of the Battle of Leipzig? Historians consider him to have been incapable of making decisions. He is credited with coining the phrase “no decision is better than a bad decision.”

During the revolt he spent his time sitting almost apathetically in the basement in the city hall of Leipzig. To add to the confusion, Frederick August was an exceptionally unpredictable monarch; very few rulers changed their mind so often.

Not only was he incapable of making decisions, but as soon as a decision was made it essentially would have lost all meaning in the moment of its creation, having already been undermined in significance and seriousness by the probability that Frederick August would again change direction.

Decision-timid

Enscheidungsscheu – literally decision timid. In simple English: afraid to make a decision.

„Mit dem Kopf durch die Wand” – trying to go through the wall with their head. Impatience. „Die Hausaufgaben nicht gemacht” – haven’t done their homework. Aktionismus. Actionism. Cowboy mentality. 

Germans see these as American tendancies, and believe that they are based on a lack of training, technical competence and methodology. “They simply have not learned these things,” is their explanation.

On the other hand, Americans view the German approach as time-consuming and academich-philosophical. German decision making can come across as decoupled from the goal which is to take. Germans, from the American perspective, take subjective factors too little into consideration. Their analysis is too complex, going well beyond the needs for making a decision.

Americans see their German colleagues as overly careful, far too scientific and schematic-tool oriented. They are reluctant to consider input based on experience and common sense.

Germans give the impression of striving to complete the perfect analysis, which in turn should be some kind of guaranty for the perfect, and therefore risk-free, decision. All of these are signs to Americans that their German colleagues in the end are simply afraid to make the tough decisions.

Citizens exposed

Towards the end of 2014, the German Postbank conducted a study with the goal of identifying the good policies which Germans enforce with regard to their financial matters. The results were summarized in article titled When it comes to money, Germans are bureaucrats who are afraid to take risks:

“Like a pillar of economic wisdom, the desire to have a higher income looms above all other factors. The remaining results are actually more reflective of the ‘financial illiteracy’, which the Germans are already often credited with.

In this way, the study exposed the citizens as being fearful bureaucrats, who above all just want to increase their personal wealth through taxation, saving, and maintaining better control of their finances, rather than earn money through smart investing, or saving for retirement.”

Risikoscheu – A fear of risks: The attribute of a decision-maker to prefer the path of lesser risk – and thereby most minimal loss – when confronted with several alternatives which have an equal anticipated gain. This may mean waiting longer for the same reward, or even settling for a lesser gain, if the chances are greater that it will be received.

Nuclear energy? No thanks!

The German anti-nuclear-energy movement began as a social movement back in the 1970’s. It was directed against civilian consumption of nuclear energy. In comparison to other European countries, the movement has also received both the strongest and most continuous support in Germany. The anti-nuclear-energy movement is strongly connected to the environmentalist movement: Greenpeace, BUND and Robin Hood, for example, categorically reject the use of nuclear energy.

The accident on Three-Mile-Island in 1979 and the catastrophe at Chernobyl in 1986 provided the movement with new fuel. In 2000, the Schroeder-Fischer government began the process of phasing out the use of nuclear energy throughout the country.

While in 2010 the Kohl-government was gearing up for an extension of the run-time of the remaining nuclear plants, the German reaction to the nuclear incident in Fukushima in 2011 forced Chancellor Merkel, an advocate of nuclear energy, to reconsider this decision. Germany now plans to phase out nuclear energy completely by May 30th, 2022.

Fukushima ultimately resulted in an acceleration of the phasing-out of nuclear facilities in Germany. One year after Fukushima Chancellor Merkel defended her decision: “As we have witnessed, risks emerged in a highly developed industrial country, which we never would have considered to be possible. That is what convinced me that we should accelerate the phase-out”.

Meanwhile, Japan continues to invest in the nuclear industry. Great Britain is planning the construction of a new atomic plant. Even in France Fukushima could not slow the success of the nuclear industry. And in the USA, Fukushima also had no significant impact on opinions on nuclear energy held by the President and other politicians.

The German anti-nuclear energy movement and the nation’s response to Fukushima demonstrate the unique understanding that Germans have of risk.