2. BACKDROP
• With continuing caution generally in the funding
environment for scale-up stage tech companies, ex-AI,
there is heightened interest in tuning near-term strategy
and business models toward a higher mix of customer
funded growth
• In my experience, a very interesting reference class group
of businesses to consider for instructive cues from the
worlds of deep tech and advanced manufacturing is
Mittelstand companies
3. WHAT IS THE
MITTELSTAND?
• The Mittelstand refers to a segment of medium-sized
enterprises, in German speaking parts of Europe, characterized
by their distinctive business model, economic significance
(~60% of all employees in Germany), and cultural attributes
• The term "Mittelstand" translates to "middle class" or "middle-
sized enterprise" in English
• A few leading logos:
4. REMARKABLE TRAITS OF
MITTELSTAND COMPANIES
• Very high productivity, as evidenced by the ability to
profitably grow even with high labour costs
• Focus on niche markets, and being best of breed in
performance and quality, and then competing globally
from that position
• Management focused on for both short- and long-term, not
just one or the other
• Strong balance sheets to weather downturns
• Adaptive, innovative
• Skilled workforces, with a high commitment to employee
training and development
5. HOW DO THEY DO IT?
• There are several notable patterns about how Mittelstand
companies achieve exceptional performance when
examined beyond their definitional traits
6. AMBITIOUS GOALS
• Growth rate > growth of the market
• R&D intensity > most competitors, but, backed up with
market share, profit share, and growth thereof to more
than justify the R&D spending
• Balanced outlook between being market- and technology-
driven
• The challenge and excitement of ambitious goals and
sector mastery helps drive teamwork and esprit de corps
7. INNOVATION
• Typically multi-dimensional:
• Technology
• Products
• Services
• Business processes
• Supply chains
• Go-to-market approaches
• Lean value in product design and engineering
• Leave ample performance where it counts, but judiciously strip
unnecessary costs everywhere else
• Defend vigorously against lower cost competition through product
performance, quality and expert services plus ongoing
advancements that are hard to replicate
8. FOCUS
• Mittelstand firms prefer to limit their chosen range of skills
and applications, be ultra deep in those, and branch out
only selectively
• Sparingly use outsourcing in key differentiating areas,
while maintaining strong technical and business
involvement with critical suppliers
• Strong self-reliance and technical competence
• They own or control enough of their tech and operational
stack to be the go-to choice for customers, and perpetuate
long term customer relationships
• Attention to detail
9. GLOBAL REACH
• Typically go early to international markets
• This exposes Mittelstand companies to the most
demanding customers and capable competitors, as well as
the greatest range of relevant ideas, practices, and
applications, to drive competitive fitness
• Supply chains also tend to become worldwide over time
as well, for similar reasons and benefits
10. CUSTOMER CLOSENESS
AND CONFIDENTIALITY
• They get very close to their customers; think relationships
not transactions. Trust is very high, driving insight about
future needs and products
• Mittelstand firms get closer still to the most forward looking
customers, those which can drive targeted performance
and innovation in line with the future needs of the broader
market, and follow them wherever they go in the world
11. CUSTOMER CLOSENESS
AND CONFIDENTIALITY
• Reputation for being very reliable about
compartmentalizing customer information and protecting
IP
• This allows Mittelstand companies to often be able to
sustainably be a trusted supplier to many competitors in a
target industry, even for custom or semi-custom products
and services
• It also enables aggregation of a large portion of a target
industry’s demand in a single vendor, achieving economies
of scale to pay back major enabling investments
12. TRAINING &
DEVELOPMENT
• Strong commitment to vocational training
• Widespread use of formal and quasi apprenticeship models
• Thorough onboarding practices
• Investment in softer skills of employees related to product reliability,
quality, continuous improvement, problem solving and
communication
• Both theory and practical training provided on an ongoing, mutually
reinforcing basis
• Longer term employment relationships
• Emphasis on developing much of leadership from within
Together, these measures help deliver the productivity benefits to be
financially robust even with high labour costs, and to delegate
greater autonomy to individuals and groups within centralized
operating principles
14. STRONG BILATERAL
COMMUNITY RELATIONS
• Mittelstand companies are usually seen as being in a
codependent relationship with the smaller communities in
which they operate
• Community and company both tend to be mindful of
supporting each others’ well being and future prosperity
• Each will often go the extra mile for the other, helping
build resilience and shared responsibility for success, as
well as longer-term thinking
16. EXTENSIBILITY
• A few examples of where Mittelstand-like values and
practices have contributed to some of the ultimate global
technology champions, for highly specialized B2B
companies based outside of German speaking regions of
Europe:
• TSMC W. L. Gore
• ASML Cognex
17. SOME THOUGHT EXPERIMENTS
TO BRING MORE OF THIS TO YOUR
COMPANY
Customers:
• What would deepen relationships and increase trust with
your most strategic customers?
Productivity:
• What training, tools and techniques would boost
productivity 40%?
• Comment: Don’t just aim for 10% or 20%, as it is too easy
to fall into the trap that current initiatives in motion may
well get the company there, and little further consideration
is needed
18. SOME THOUGHT EXPERIMENTS
TO BRING MORE OF THIS TO YOUR
COMPANY
Leadership Development:
• What upcoming cross-functional change initiatives offer
leadership development opportunities for up and coming
members of your team?
19. SOME THOUGHT EXPERIMENTS
TO BRING MORE OF THIS TO YOUR
COMPANY
Focus and Collaboration:
• What should be outsourced?
• Where should technical and business communications
with suppliers and partners be improved?
• What are the technologies over which the company
should achieve greater mastery and oversight through
insourcing?
• Where should the product roadmap be pruned? Where
should it be expanded?
• Where should go-to-market efforts shift?