Leistungen // Laterales Management

are start-ups
a myth?

It has now become fashionable for major companies to get involved in the start-up scene. Commerzbank, DATEV, Deutsche Telekom, Lufthansa, Siemens – they all want to use venture capital to move into the future. Even Deutsche Bahn is looking for innovative ideas.

Siemens encourages companies to spin off and aims to invest a billion euros as risk capital in the next five years. That sounds like significant sums. The board member responsible, Siegfried Russwurm, is focusing on start-ups outside the company, in which 32,000 people are employed in research & development in any case. The project has the snappy name next47 and bundles support for the company's own start-ups as spin-offs, cooperation with companies from the new start-up scene and the purchase of companies. Siemens is exerting real pressure to produce digital innovations. General Electric, Siemens’ competitor and the world’s seventh largest company, has also recognised the way the wind is blowing and is investing substantial sums.

General Electric is investing in Lübeck

The conglomerate General Electric (GE) is acquiring two European providers in the fashionable 3D printing sector simultaneously. SLM Solutions is likely to be well-known in Germany. The shares of the Lübeck-based company, which are listed in the TecDAX, are literally going through the roof at the moment. More specifically, the GE subsidiary GE Aviation, a leading manufacturer of aircraft engines, wishes to pay 38 euros per SLM Solutions share. This equates to a takeover price of EUR 683 million. GE has already received commitments from existing shareholders for approximately 31.5 per cent of the shares.

The sites as well as the workforce are to be taken over and even expanded. The founder of SLM Solutions, Hans-Joachim Ihde, is delighted: "General Electric has supported us as a user and customer since the very beginning. They have taken a pioneering role in aerospace technology and recognised the advantages of selective laser melting, in reducing the weight of components for instance, at an early stage. They are very familiar with SLM Solutions’ multi-laser technology and its advantages in competition." Money is being invested in substantial amounts here that make Siemens’ one billion euros look rather small, all things considered. We therefore need to demystify three common assumptions about start-ups.

Three start-up myths should no longer be peddled

1. Start-ups are “garage companies”:
The start-up scene is now far more professional. They tend to be set up by people aged between 25 and 40, who have frequently acquired management experience in start-up companies. Whenever GE purchases a TecDAX company, this will be a very carefully planned acquisition. The start-up market has now become a sector for digital ideas.

2. Technical innovation is more important than social innovation:
Today, successful start-ups attach fundamental importance to autonomous structures. In our book Lateral Management, we describe some 30 companies, which are adopting this course. Rapid, incremental innovations cannot be generated from a mature corporate culture. Start-ups rely on independent teams that are highly motivated. These companies have to work with new mindsets focusing on rapidly transforming creative ideas into innovations. In traditional companies’ management and decision-making structures, this takes too long. Technical innovation cannot work without social innovation. Start-ups are spun off because of social and not technical innovation. At the “Denkwerkstatt für Manager”, we have presented an empirically validated model showing how social innovations make start-ups successful: “Fast Cultural Change. The Role and Influence of Middle Management” by Dr Martina Nieswandt (Palgrave MacMillan Publishers, 2015).

3. Start-ups need business models:
Experience shows that many business models dating from the early stages of start-ups became obsolete after a few weeks. German providers of risk capital are still working with old financing models. American providers of risk capital examine ideas, not figures. The founders of many successful start-ups make fun of their first business models now.