Almost every company in Germany, about 99% of them, belongs to the Mittelstand, the country’s tier of small and mid-sized firms. In 2020 they employed 57.6% of the German workforce and produced 34.4% of national revenue, according to Morad Elhafed, a Battery Ventures partner who writes for Forbes. Officially the label needs fewer than 500 employees, but Winfried Weber, a professor of management at Mannheim University of Applied Sciences, says it has grown into something closer to a mindset than a headcount. There are about 3.3 million of them.
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Weber calls the leaders among them hidden champions. Germany holds only 28 of the world’s 500 biggest companies, he says, yet close to half of the world’s small market leaders are German. His explanation is specialisation paired with an early appetite for exporting: these firms pick a narrow niche, aim to lead it worldwide, and start selling abroad almost from the day they open.
What one hidden champion looks like
Koenig & Meyer makes music and microphone stands, the kind most musicians have probably used. Gabriella Koenig, the third generation to run the family firm, keeps nearly every stage of production in-house so she can control quality at each step. The company employs 280 people across three factories and turns over €38 million a year, and about 60% of its sales go to 80 countries. Customers pay 15 to 20% more than they would for a cheaper rival’s version, Koenig says, and they accept it. The firm was chasing partners outside Germany at trade fairs in Frankfurt as early as the 1950s.
Patient capitalism
Weber says the Mittelstand takes a long-term outlook, and he calls the result patient capitalism. He expects the largest companies of the future to borrow from that model directly, with flatter hierarchies and more responsibility and flexibility for the workforce.
That patience carries a cost. Elhafed argues that many Mittelstand firms are too wary of outside money, and that the caution has kept them from hiring seasoned executives and adopting the technology a genuine global push would need. Outside capital is arriving anyway: more than 1,000 German companies took in over €12.5 billion from institutional investors in 2020, in the middle of the pandemic.
The successor who might not want the job
Succession is the strain both accounts return to. Elhafed’s estimate puts it starkly: by 2022, roughly one Mittelstand firm in five could change hands or close, as founders’ children look elsewhere.
Koenig has no children of her own. She says the company will stay in the family regardless.
Finding the next generation of workers is proving just as hard as finding the next generation of owners. Koenig & Meyer trains its own staff through apprenticeships, but Koenig says it keeps getting harder to find young people who will join.
