germany-thrift
Business Management

"Silicon Allee": Is German Thriftiness Good or Bad?

If you ask anyone in the UK right now about German stereotypes, I guarantee they’ll be quick off the mark to mention Lidl or Aldi. The country’s budget supermarkets are leading the way in helping Germany become known as the thriftiest country in Europe. No wonder the Germans are single-handedly pulling the rest of the EU out of a recession; after all this is a country full of people who are extremely wary about credit cards and overdrafts, to the point that cash rules supreme in towns and cities. Even now in the 21st century it is very rare to be able to pay using cards.

Does this penny pinching attitude create a good atmosphere in which to start a business? Many people seem to think so, just ask the 500 startups that have been created in the city since 2008. For the past few years Berlin’s tech startup scene has literally been booming. Right now, a new business is created every 20 minutes and by 2020 this thriving scene is estimated to bring 100,000 jobs to the city. It only takes only a short glance into all the trendy coffee shops which are now filled with hipsters on their Mac Books to realise just how big the tech industry is over here.

One way in which the German startup scene shows off its thriftiness is in the average wage that employees earn. A huge proportion of the jobs on offer are internships, most of which are unpaid or pay out a meagre 400€ [$537] per month. And with no minimum wage, employers are like children in sweet shops when it comes to picking workers and deciding how much they are paid. There are a lot of people who move to Berlin and are willing to work at such a low price.

The lifestyle that the city provides is a major attraction, and ask most people working in a tech startup and they’ll say that the pros of being part of this scene and environment far outweigh the peanuts that they are paid. As well as the lifestyle benefits, there are also professional advantages that outweigh being paid such a lowly pay packet. Flat hierarchies, international teams and easy access into the entrepreneurial tech-savvy world all coax young professionals to Berlin, regardless of the prospective salary.

The low-priced city, notorious for its bargain rent is the ideal place to house a frugal entrepreneur. Even though people have cottoned on, and the pilgrimage to the German capital is slowly pushing up rents (at twice the national rate!), a recent report found that London is still 79% more expensive than Berlin.  No wonder people are flocking for under-paid jobs when they can live in a capital city so cheaply; and it is this abundance of cheap labour that is helping the startup scene rocket.

But is this thriftiness when it comes to labour and rent really worth it? Just because the Berliners don’t need to be rich, what about their customers who might live further afield where money can be more of an issue? It’s no secret that people across Europe are being more careful with their cash than a decade ago. I spoke to James Mernagh who started an anonymous online music and PR label in Berlin just over a year ago. Even though he is based in Germany, his main sales come from customers in the UK.

His take on how Germany’s thrifty attitude is affecting his online startup is a negative one that not many entrepreneurs in the city would so openly admit to. “No one in Europe has any money at the minute, and if you believe the papers then no one is ever going to have any money ever again. So no one is buying anything.”

This seems to be the case across the tech startup scene. Nine out of every ten of the fresh emerging companies fail. It’s hard to tell whether this is down to a badly planned out idea, or whether it is simply because, as Mernagh believes, customers aren’t willing to spend anymore and risk their money on a new product. That can be said certainly for the Germans who are known for their practicality – why invest in something that isn’t guaranteed to succeed? It seems that everyone within the Berlin tech bubble (who, let’s face it, are mainly expats) is happy to download the latest app that is being developed just down the road, but those farther afield seem to be reluctant to spend on such frivolities.

The lack of enforced minimum wage has been a god-send to startups who are therefore able to pay what they want, if indeed anything at all. However, as reported in the Sillicon Allee blog not so long ago, many ministers in parliament are pushing to have a bill passed that would enforce this. This wage of 8.50€ [$11.42] an hour would include interns and far surpass their current average fee. Yet as many startups do not have enough capital behind them to offer fresh new talent; a talent which  aren’t necessarily after the big bucks, there are many whispers going around that this new legislation would be the demise of the tech startup scene.

Less money means employing fewer staff which would in turn mean the current driving momentum behind the startups of Berlin would be lost. A loss of drive could mean the end of the city’s privileged title of “Silicon Allee.” Forcing an increase in wages is in stark contrast to the German government’s reputation of thriftiness, and is being viewed as a surprising tactic by most people in the Berlin bubble.

In theory, German thriftiness should be a good thing for startups as Berlin provides the perfect environment to be keep a close eye on the bank balance while growing a business. But the powers that be could put an end to all that. Would this really be such a bad thing for the capital’s startup scene? After all, only 4.5% of new companies founded in Berlin were IT related. Maybe the tech crowd are waking up to the realisation that it could be beneficial to spend more money in an area where technology can truly thrive?

 

Laura Mary Harker is based in Berlin where she runs online food company, pieoneers.de, she blogs at lauramaryharker.com

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Laura May Harker

Laura Mary Harker is based in Berlin where she runs online food company, pieoneers.de, she blogs at lauramaryharker.com

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