A Microsoft or Amazon would not have been possible in Germany.
Why is there no german Amazon?
Todays guest is Michael Ladendorf from M. Ladendorf Beteiligung GmbH. Our topic today is why there is no german Amazon, Google or Tesla. Is Germany not ready for such tech- giants? Do Germans lack the start-up gene? Is Germany even missing the boat on the digital future? Exciting questions.
Have fun listening!
Thomas Sinnwell: Today we have Michael Ladendorf, Managing Director of M. Ladendorf Beteiligung GmbH as our guest. Today, I would like to explore the question of why there are no companies like Amazon, Google or Tesla in Germany and Europe. Before we get started, I would like to ask you to briefly introduce yourself and your investment company, so that the viewers and listeners can get a better understanding of who you are.
Michael Ladendorf: Yes, I'd love to, but first thank you very much for the invitation. I'm looking forward to the discussion to see if we can come to a conclusion as to why Amazon doesn't exist in Germany or why there is no German Amazon. Yes, Michael Ladendorf, you and I have known each other since 2014, I'm glad that our paths have crossed and that we have worked together and ...
Thomas Sinnwell: I can only return that compliment
Michael Ladendorf: ... have found a way to develop business and come up with new ideas and take them to market. And what did I study? Something schizophrenic, one of my lecturers once said. Something very schizophrenic: controlling and marketing. You have to be a bit Dr. Jekyll and Mr. Hyde to study that. And after that I was at Fresenius, where I worked on many exciting projects within this medical technology group. I was able to experience and help shape this whole transformation arc from a small medium-sized companyThat's where I learned to appreciate and get to know medium-sized companies and owner-managed structures. Then I was headhunted by Telekom, because of their IPO, for which I was partly responsible in the first few years. Then I worked in various positions, leading positions, in the business customer segment. At some point I parted ways with that company and that‘s what happens sometimes in larger companies. You find a new boss or he finds you, you don't get along and you part ways. The paths diverged and I built up my investment model, which means that I bring my experience, my contacts, my network, my sales experience, my product experience, my technical experience into medium-sized companies or SMEs. At the beginning, I only went into companies that were not able to realise very strong growth phases, i.e. were at least five years old and wanted to develop further. That was also the case with us. And then I help them to develop further, not only from a sales, market and strategic perspective, but also from the product side of things and taking into consideration what the market actually needs. I have made a total of 14 investments in the last 14 years, of which I currently still have eight. One went wrong, that was a B2C model, I'll never do that again in my life, but the other models went very well and our company is doing very well, I'm really happy about that.
Thomas Sinnwell: Yes, fine. Maybe one more question. How is your portfolio structured? I think that's also a very exciting story for the audience.
Michael Ladendorf: Yes, I take a very opportunistic approach. I am approached by my network, and I receive between 50 and 150 qualified enquiries per year. I look at all of them, give feedback on each one, and that's how the current portfolio of investments came together. Three things are very important to me at the end of the day. The team, because if I have the impression that it doesn't work on a personal level, the business model doesn't matter. The second thing is, do I think that I can really add value in some way? If I don't think so, then I can’t work with them. And the third thing is, and this is the most important thing, is it really scalable in any way? Can you make it a unique selling proposition, a platform technology, can you also pursue a very aggressive competitive strategy, tackle the market, pursue a strategy to really scale it. And that is my approach. If I don't manage to bring the company forward within two years, then I usually leave. I've only had to do that once so far. Then I leave, but otherwise I am very satisfied, all 14 companies have worked very well.
Thomas Sinnwell: Yes, that's fine. And before we get into the actual topic, I have another question. I just read an article in "brand eins" about a seed investor. It was very much about the question: What is the better starting point for the founding team of technology companies? If they are technicians or business people? What is your view on this?
Michael Ladendorf: Yes, I agreed with Radio Eriwan back then. In conclusion, it doesn't really matter. At the end of the day there has to be an entrepreneurial spirit, there has to be a will, so that you can endure a lot of frustration and so that even in the most stressful situations you think in terms of solutions and not: "I should have done something diffrent back then.“ I thought that Steinbrück's saying "hätte, hätte, Fahrradkette" (translates to: would have, should have.“), was very good. It is very important. To really have that entrepreneurial gene to really get up again and go forward. Because of course there are gigantic wave movements. I don't even want to imagine what is going on in the German economy or in th global economy at the moment because of the corona crisis. Healthy companies or companies which were previously healthy, go out of business within a week or two. If you can't manage that, then you're the wrong person for the job. It is important, and I value it very much, especially in my investment portfolio, to have very broad set of competences in the teams, in the shareholder structures or in the management structures, strong to very strong competence teams that complement each other in some form, such as technology, such as sales, such as commercial, such as software or such as appearance. At the end of the day, it is very important for me to have an entrepreneurial gene, to be able to deal with frustration or with success and not to take off when you are very successful. That is also important. But unfortunately I have seen many examples of people who were very successful and then didn’t find their way back and took off and a few years later they were suddenly no longer successful and then they’re done. Because at the end of the day it's about credibility.
Thomas Sinnwell: Yes. That's a wonderful segue, it doen’t have to do with the actual topic, but….
Michael Ladendorf: I'd also like to point out that we didn't agree on anything beforehand.
Thomas Sinnwell: No, that would be boring.
Michael Ladendorf: Yes, exactly.
Thomas Sinnwell: If you look at the global megatrends such as industrial disruption, customer- and data-driven business models, but also global growth shifts and ultimately the social changes that are taking place here due to the ever-increasing degree of automatisation, then the question arises, how is this working out for Germany? How do you think our key technologies are positioned?
Michael Ladendorf: The question is: What are key technologies? We have a strong SME sector, we have a strong automotive industry, we have a strong mechanical engineering industry, we have a strong service sector.
Thomas Sinnwell: And I would also include the pharmaceutical industry.
Michael Ladendorf: The pharmaceutical industry is a very important pillar for Germany as well. However, we have to be careful, there are a lot of them, we must not stop evolving. I once had a somewhat lengthy discussion with a large laser manufacturer - a laser machine manufacturer - who told me in "confidence", that the Chinese are not much worse with their products than we are, we just build them in better quality, with better service, but at some point they will be able to do the same. That means we can‘t rest when it comes to these key industries that we have today. Today, as a result of the Corona crisis, I was shocked to see that the pharmaceutical industry, for example, no longer produces essential medicines here in Europe. So that's the issue of being dependant. They are produced somewhere in Asia. I think that's a disaster. But what shocks me is that fundamentally new issues are being tackled in a very rudimentary or very weak way. You see, for example, that cloud manufacturers exclusively come from the Anglo-Saxon and Asian regions and Europe does not occupy this area. Now there is a new initiative by Mr Altmaier, but perhaps it is too late. Or how weakly and hesitantly Germany or Europe are dealing with the issue of hydrogen, which is a major topic for the future. Or a third topic, AI, for example. We have one of the leading institutes in Europe, the German Research Centre for Artificial Intelligence, here in Saarbrücken. Mr Wahlster is very much heard and the current director, Mr Kröger, has political ties and so on. However, I regret that there is not enough courage to push the right topics and to set the right parameters for the future. And that is what I would like to see.
Thomas Sinnwell: I would add to that the aspect of visibility in these areas in Germany. Because when it comes to the topic of autonomous driving, people automatically associate it with the USA. And Europe is now making significant contributions to making this possible. There is a lot of AI-based technology, but no one is talking about it. I find that very, very regrettable.
Michael Ladendorf: Exactly, you are absolutely right. We are hiding our light. There are a lot of great topics here and they are marketed in a completely different way. The Americans are stronger in this respect, they are put in the spotlight in a completely different way. And we should have more self-confidence and place our topics better. But at the end of the day, the issues have to be addressed and we cannot rely on an American continent or a North American continent or an Asian continent. As Europeans, we must, in my opinion, set much more accents here and show unity. Money is there, we learned that from the Corona crisis. We need to push for money for new technologies in order to manage climate change in some form or other, to prevent these temperature rises from becoming more pronounced. And that is a technological issue and at the end of the day it is also an export issue for Germany.
Thomas Sinnwell: I'm thinking about the Corona crisis again. It really showed that you can move quite large sums of money, that it's possible. You also mentioned the issue of climate change and climate protection. How do you see the funding instruments and support that have now been made available? Does it serve these issues of the future or is it too much of a scattered approach?
Michael Ladendorf: I can't judge that very well. First of all, I am impressed by what the government has done in a very short time. I really have to say that I would‘nt have expected that. If you look at how hushhush the discussions were and how quickly everyone, except the AfD, really pulled it together here. So hats off. What I find great is that they acted first and asked it if was right later. And that they did not wait in any way. The fact that there are still some weak points and so on, that's the system, I don't think you can blame the politicians at the federal or provincial level, at least you shouldn't. What I see critically is that before the Corona crisis there was already a large number of companies that were not viable, that were only kept alive by the zero interest rate policy or negative interest rates. And even if it sounds dramatic, I would never want anyone to be in that position. So this clean-up process makes a lot of sense now. To really support the companies massively, also financially and in terms of content, which really have prospects for the future. Again, I am really impressed that the instruments, that worked very well back in 2008, such as short-time allowance and so on, have kept the social tension and have not led to mass unemployment. So from that point of view, I really do think that this is an extremely important instrument that politicians have put in place and I think it's the right way to go. In retrospect one is always wiser, in retrospect one can always say: "would have, should have", but I am sure that this was the right path. I'm more concerned about the fact that there are discussions about a second wave or that there are discussion about what is happening in Spain. I don't even want to imagine what is happening to the families, because they are facing a hard lockdown again. in some. The entire tourism has collapsed, because the Germans or other countries do no longer go there. So that's more worrying: what will the second wave look like? How can it be managed? I think it‘s positive that the politicians are saying that there can't be a hard shutdown in Germany, because the economy wouldn't be able to cope with that. We have to find ways to deal with this and I sincerely hope that some kind of medicine will be found as soon as possible to solve this problem.
Thomas Sinnwell: Yes, that would be desirable. How do you look at the start-up scene? At the beginning, it didn't look great, as far as support for start-ups was concerned.
Michael Ladendorf: That is difficult, it is a difficult environment. So the priorities in politics have been set on the fast topics, on micro-enterprises, on existing enterprises, no question. The start-up issue will become even more acute, in my opinion. There are new means of support now. I very much welcome the fact that all the research activities have been massively increased by the Federal Government, not only by Europe, but also with regard to future topics, that many future topics such as climate change are being discussed and addressed, such as medical technology and pharmaceutical topics. But many financiers of start-ups will now fall away in some form or another, because they are corporate financiers who have completely different problems, that's what I perceive. They say, I need the money for my own core business now and can't give it to new issues. There will also be the big part of private investors or big business angels, they will also be very careful to steer themes in. Private equities will be very cautious, because they have to push their existing portfolio. And I think it's good that the state now wants to intervene to create more instruments via KfW. However at the end of the day, it will be an issue that technology has to be promoted, that technology has to be pushed in some way. And we both know that it takes time, just from our own companies. They are not successful as quickly as a B2C shop in any form, a clothes shop or HelloFresh or whatever they are all called. And that needs more endurance. And I don't see a solution yet, maybe I haven't noticed it yet, that's a possibility. Or maybe it hasn't yet become transparent to me personally. But at the end of the day, this will really be an issue: how are technologies promoted?
Thomas Sinnwell: I tried to find out what the ratio of tech giants is in Germany and the US, and in the end I only found figures from 2017. And there were 20 times more tech giants in the US than Germany. That is the central point that I had considered today as the topic. Why is there ultimately no Amazon or Tesla in our country? What do you perceive as the main obstacles?
Michael Ladendorf: For me there is one main obstacle at the end of the day and that is Americans. They are American companies. The Americans, they have shareholder structures that meet with a very broad audience. In America, pension provision is essentially pushed through pension funds, that invest in equities or direct investments by people. The equity ratio is many times higher than in Germany or in Europe in general. That‘s the main reason. The second reason is that the mentality in America is different. People are oriented towards growth. Amazon, I don't know, has it ever made a profit since it was founded? I don't know. The last figure I saw was five or six years ago, but they still didn't make a profit. Because Bezos has produced his own narrative. He saying that: I'm a technology company, I want to invest everything I earn very broadly now and so of course I cause a loss in some form. But the free cash flow was positive, that was the advantage. And a Microsoft or an Amazon would not have been possible in Germany, or a Facebook, because here in Germany comes this “German fear“. I don't like Anglicisms, many call it "German Angst". This “German fear“ of why am I not making a profit? How do I keep up with all these financing issues and so on? And that's a big one, the courage to give something to people. Elon Musk, if you see him, he's a brilliant man, no doubt. There is a lack of courage to give money to such people. In addition, our start-up scene in Germany is very strong, Berlin is always said to have a start-up hype or that the start-up focus of Germany is there. Most of the money is flowing in, but if you subtract Rocket Internet, for example, there's not as much, still a lot, but not as much. They are all trimmed to B2C. Not driven by growth either. But with technological issues, people still expect profits to be made very quickly. And that is unrealistic. A Tesla has small profits to date, no question, but they have invested a lot of money. Others say the burn rate has burned that in some form, but they have generated growth and technology with it. It's frustrating for the Germans that someone can build a huge plant in Brandenburg within a year, where German car manufacturers need ten years just for the planning. And that's the reason why such constructions are very, very big, especially in America. And when you have occupied a market like Amazon, no one can get past you. I was totally shocked by that. You'll have to interrupt me if I’m talking too much.
Thomas Sinnwell: No, that's fine. That’s what you are here for.
Michael Ladendorf: Well, I was totally shocked that the state police or police forces host their body cams via Amazon Cloud applications. That makes me think: Hello? Where are we? Something so very, very confidential is hosted on American servers. At the end of the day, it's a mentality issue. So in conclusion: A. the exchange structure is different, they have a broader base. The second thing is, they are trimmed on growth and the third thing is, and this is the most important thing, they are willing to give technology time. It took Amazon 20 years to get to where it is today. And it's getting bigger and bigger.
Thomas Sinnwell: That means you see the problems now less with the founders themselves or this start-up culture, but rather with the framework conditions?
Michael Ladendorf: Yes, you're right a large part is the founders. The framework conditions are one point, but so are the founders. Let’s take a student who has finished his Master's degree in something, for example in computer science and gets an offer from SAP with a starting salary of 70,000 and has to make the decision to either come up with a new idea in the AI field or to take the job, what does he do? I can understand why he would first go SAP and do something there. So from that point of view, we don't have a start-up mentality in Germany because failure is not accepted. People are afraid of failure and the frustration of ...
Thomas Sinnwell: The failed entrepreneur.
Michael Ladendorf: Exactly, the failed entrepreneur. What do you mean, he's insolvent? For God's sake. But if they are successful, then exactly the opposite will happen. Yes, he is an entrepreneur, he has the money, he can afford it. But you don't see that they have taken risks. And that is a big issue.
Thomas Sinnwell: I think you don't see that people really put in a lot of hours over the years, and if you were to compare an hourly wage with that of a skilled worker, you would really look bad.
Michael Ladendorf: Exactly, absolutely right.
Thomas Sinnwell: And there are certainly prejudices.
Michael Ladendorf: Very true.
Thomas Sinnwell: Or a slightly distorted picture.
Michael Ladendorf: Yes, definitely.
Thomas Sinnwell: "German Angst", you had already mentioned it and that you don't like Anglicisms so much. From your point of view, does this fear come from the founders themselves? „Oh, maybe it won't work and then I'll look stupid and others can still talk negatively about me?“ Or do you draw a wider circle as far as fear is concerned?
Michael Ladendorf: Yes, we can still open that door: Obstacles in founding new enterprises. When I look at it, I was a founder myself in 2008. I worked really hard to found such a simple limited liability company, I'll just say that. The Chamber of Industry and Commerce in the place where I live advised me against it. In my opinion, a chamber of commerce has a different task, rather to motivate and to do something. So the bureaucracy is a big obstacle. The second thing is that, in my opinion, many founders are forced into business plans of 30, 40, 80 pages of all kinds: They have to prove the market with all competitors over the next ten years in detail, using Excel sheets, and then there has to be a profit and loss statement before any people make any investments. So that is a big obstacle. I think Mr Thelen, for example, is very good, you can say positive or negative about him but he says the team is important to him. He follows a similar path as I do, on a much broader and larger basis of course, but the team is important to me, the idea is important to me and not the due diligence in any form and this business plan...
Thomas Sinnwell: Which is also incredibly difficult to draw up when it really is about a new technology that doesn't exist yet.
Michael Ladendorf: Exactly. Because if you are an engineer, how are you going to do a market assessment? How are you going to do a competitive analysis? How are you going to find a procedure model? In any way to tackle the issue of distribution, to find pilot customers and so on? And these are skills that are not really taught at universities. To take away this fear and find the procedures to become an entrepreneur.
Thomas Sinnwell: I think a very, very important factor to find your first customers. And my perception is that established companies tend to find it difficult to work with a start-ups. That has never been our situation, because we reinvented ourselves in the middle of our previous entrepreneurial life, so we could at least refer to a history and it wasn't quite as dramatic. But in general, that is a huge issue.
Michael Ladendorf: Yes, I'm with you there. I mean, if you go to a DAX company as a five-man business: here, I have an idea, it's great! Of course it will be difficult until you even get to a buyer, let alone convince a specialist department that this is the right way to go. And once you've convinced them, it's the purchasing department that says: for God's sake, no history, no balance sheet, a supplier check, that doesn't hold up in any form. That's why I find it really impressive that in Germany in particular, and I hope that this will be the case again in many sectors next year after the Corona crisis, that companies are becoming open to such discussions. You see, and this is a big advantage compared to ten years or 14 years ago when I started my own business, I see that corporations are much more willing to work with young companies. For two reasons: First, faster time to market, an idea is implemented much faster alongside a corporate organisation. In the case of a participation in a large medical group, for example, the main argument, apart from the technology, which is uniquely leading, is that I am much faster on the market with my invention. And they take over the distribution and so on. I'm absolutely convinced of, that there are many more chances in the future to find an entry via large corporations. And the second is the whole issue of having one's own research and development department and their willingness to start. That is the big point that I see as very positive. Corporate ventures are the levers for the future and they should be addressed as a young company or start-up. To go in via corporate ventures and via this broad network of funding institutions that also offer other structures. For example, I'm amazed at the doors that Deutsche Bank opens with its venture branch and Commerzbank with its venture branch and its incubator branches. I would never have expected that.
Thomas Sinnwell: Yes. I think that is a very important point, that as a start-up you ultimately find an investor or investors, who have a corresponding network. The issue of capital is necessary, it's imperative, without it you can't do anything, but the decisive step is then to move from the prototypes into a product. Of course, it is an enormous advantage if I can win large companies as pilot customers. Of course, that's often difficult to do on your own and I think a good network, which is also brought in by investors, can of course open doors.
Michael Ladendorf: I can only agree with what you say. This pilot customer connection is the most important thing. I see a lot of business models where people from research institutes, the Max Planck or the Fraunhofer Institute, have developed great things. But in response to my question or the question from other interstors: "Yes, but who needs that? Does it already exist in some form or another? What do you do with it?", there is no answer. That's why I would like to see the business angel networks and the venture networks looking less at the financials at the beginning, what does a ten-year plan or a five-year business case look like, and more at what the market approach looks like. How do I get the product, which is now there as a proof of concept, sharpened via a pilot customer in order to then bring it to the market and scale it. A lot of time is wasted developing something quietly, which then has to be adapted later. We also have a good example of a pilot client in which we brought a product to the market very quickly in our joint participation. This makes it much easier to adress for other customers in this sector, than if you had developed it first and then looked for customers. So for me, finding a pilot customer quickly is also the key lever in my investments. One of the first activities I always start is to get results very quickly and to verify whether we are on the right track.
Thomas Sinnwell: So far we have talked relatively little about the capital and venture capital infrastructure in Germany, or perhaps in contrast to other countries. How do you see it? What do you think is still missing? What would you like to see? What do you really need in order to achieve such a breakthrough from a seed investment to the growth phase to internationalisation as a technology start-up?
Michael Ladendorf: I have to say that everything I am saying now is my pre-Corona experience. I don't think anyone can estimate what will happen now. My experience is that there is enough money for initial ideas in the technological field. Be it through research projects to do this proof of concept in some form. I'm also sure that if you were to bundle public funds much more, each federal state has its own funding instruments, then the KfW comes in, the Hightech Gründerfond comes in, other institutes come in. So if you add it all up, what the public sector does in any form, whether regionally, nationally or at the state level, there is more than enough money. It's just, in my opinion, bundled wrongly. But that's another topic, we can do that in another podcast sometime. So at this stage there is enough money. The main problem is finding growth money. That is, you have a product, you've managed to land the pilot customer and then escalate that product. That has also been my experience in the investments I have made over the last 14 years. That this is the most difficult phase. Finding enough capital that you can then scale up and expand the structures and the market side of the company. And that's why it pays off again. When you have large corporations as pilot customers, because they then have a vested interest in pushing it forward. And that is the big advantage. So from there, there is enough money in the start-up phase, in the proof of concept, in the seed phase, in the venture phase, in the founding phase, but in the growth phase we have weak points. Banks, for example, only ever finance according to banking guidelines, which means security, security, security, and not according to risk in any form. And more needs to be done here. KfW and other institutions have already done a lot, but we need to do much more.
Thomas Sinnwell: If I could draw a conclusion now, I would say that we need an ecosystem here in Germany that is, well, how should I put it, perhaps self-reinforcing. And that would have to have these key factors: top-class tech founders. We've found that it doesn't matter whether it's a technologist or a businessman. At the end of the day, it needs both, it needs competence teams that can handle it. Then there is the issue of capital, which is actually a given right now in the initial phase. In the meantime, there are very good opportunities in Germany to raise capital. But the difficult phase is the growth phase, the internationalisation. And that's when you certainly need more favourable market conditions, i.e. it's easier to come into contact with large corporations, to win them over as customers or partners, and in this context you also need more bundled financing structures. Is there anything else missing, or have I summarised our conversation accurately from your point of view?
Michael Ladendorf: It's 99.9 percent accurate. It is still important to take away people's fear. And to be proud of what has been achieved. That's the important thing.
That's it for today's topic. We hope that we were able to give you some ideas and to entertain you. By the way, you can find further links to today's episode in the show notes. And if you don't want to miss anything, just subscribe. The next episode is already in the starting blocks and will be released on the fifth of November, as always on the first Thursday of the month. And then we'll talk to entrepreneur Michael Krammel about the state of cyber security in German industrial companies. An exciting topic. Make a note. 5 November. It's worth it.