Dr. Ulrich Schröder: Young entrepreneurs invigorating the economy

Germany’s economy, the largest in Europe, is characterised by a multitude of small and medium-sized enterprises: 99.96 per cent of all companies generate annual turnovers below 500 million euros. At the same time, nearly 70 per cent of jobs are offered by SMEs. A good mix of large and small companies is a special strength, which ensures the high performance of the German economy. This is certainly one of the reasons why Germany has weathered the most recent economic crisis relatively well.


For a dynamic economy, it is important that new enterprises continue to be founded. Young enterprises introduce new ideas and impulses in the economy and breathe new life into the compe­tition. Business formations drive the economic structural change forward and generate additional growth and employment, provided a young enterprise can establish itself successfully on the market. Promoting the formation and subsequent growth of companies is, thus, an essential component of economic policy in Germany. In an international comparison, the support options offered to founders and young enterprises are particularly good. The latest Global Entrepreneurship Monitor study (www.kfw-mittelstandspanel.de) of April 2010 has yet again confirmed the traditionally disproportionately good assessment of the public sup­port infrastructure. Intimately involved in the promotion is the KfW Bankengruppe, which, as a state development bank, helps out young entrepreneurs with targeted funding programmes.

The support activities of KfW are accompanied by intensive research work on all aspects of the business formation situation in Germany. Regular studies teach us a lot about the quantity and quality of business formations, the specific difficulties encountered by young entrepreneurs, and new trends. Those insights go directly into the configuration of our funding programmes, helping create an extensive offering of funding for business formations and companies, the likes of which the market would not be able to provide on its own.
Small money for big ideas. The provision of microcredits for business founders is a good example. Our studies show that most founders do not have particularly high financial requirements in order to venture into independence. Nearly one third of all entrepreneurs do not need any money to get into business.


Small money for big ideas. The provision of microcredits for business founders is a good example. Our studies show that most founders do not have particularly high financial requirements in order to venture into independence. Nearly one third of all entrepreneurs do not need any money to get into business.

Many business founders finance themselves with their own resources, and only one in five utilises external means. As a rule, namely in 97 per cent of cases, the finance requirements are below 100,000 euros. Based on experience, however, commercial banks are precisely rather cautious towards small-scale financings and small, young companies. The reasons are easy to comprehend: the risk is very high in the early stage of business, and the handling costs of small-sized credit transactions are disproportionately high – regardless of whether it is a young entrepreneur or an established company. KfW fills that gap by also supporting small business formation projects with a financing offer that was further expanded this year. For, even small companies can grow fast along with their financing requirements.

Moreover, KfW cherishes entrepreneurs who entertain larger and mostly innovative projects. Those often hold the potential for a sustainable employment effect. There is a fitting offer for such company formations as well, ranging from loan to Mezzanine to participation financing. In parallel, we provide all founders and companies, small or large, with an extensive offering of information and advice.


Business formation booms despite the economic crisis. Even during the economic crisis, when financing conditions were overall becoming tougher and the fear of a credit crunch was spreading, KfW did not give up on young entrepreneurs and deliberately chose to support business formations. Fortunately, the business forma­tion activity has been strongly invigorated in 2009 and 2010. After several years of backward development, the number of young entrepreneurs has risen by 18 per cent to 940,000 since 2009. What appears paradoxical at first sight is easy to explain: the worsened employment situation during the recession motivated more than one to venture into independence. Already the 2010 KfW Start-up Monitor observed that numerous new business foundation opportunities had been opened up, precisely because existing companies were driven out of the market, making room for new projects. For others again, the crisis became the trigger to realise previous business formation plans. Thus, Schumpeter’s “process of creative destruction” unfolded. In other words, the business formation dynamics were not solely based on hardship-driven foundations.

That trend continued during the economic recovery of 2010. The positive economic environment has given the business formation activity an additional boost.
It is now crucial for this positive development to stabilise, even if the eco­­nomic dynamics are to ease a little and the situation on the employment market is to further improve. We require not only a continuously high number of new enterprises but especially ones of suffi­­­­­­­­ciently high quality: young entre­­­­pre­­neurs launching market novelties and capable of making it successfully through the start-up phase.


Influencing the business formation climate. There is no magic formula for successful business formations. However, a large number of criteria exist that can exert a positive influence on the path to establish a company. Besides structural conditions – such as information and consulting possibilities, sensible funding programmes, sufficient financing possibilities as well as uncomplicated application and approval procedures – other factors are of importance as well, such as the personality of the entrepreneur and the social environment.
A successful entrepreneur must possess the will to pursue opportunities even in the face of adversity as well as the necessary professional and entrepreneurial knowledge and ability to do so. The chances of success are higher in a social environment that acknowledges and rewards creativity and the willingness to take risks.


In Deutschland ist es uns bislang sehr gut gelungen eine funktionierende Förder­­struktur aufzubauen. Deutlich schwieriger ist es jedoch, einen Mentalitätswandel herbeizuführen. Die KfW hat über die Bildungsfinanzierung einen Ansatz gefunden, einen allmählichen Wandel des Grün­­dungsklimas positiv zu beeinflussen.

So far, we have been very successful in setting up a functional support structure in Germany. What is more challenging is to bring about a change of attitude. Through educational financing, KfW has found an approach to positively influence a gradual change of the business formation climate.

By means of affordable loans for training or education, we support young people in their education and further education. Not only professional training but also entrepreneurial training must be promoted. In 1998, KfW endowed the first business formation chair in Östrich-Winkel, giving decisive impulses to business formation research and education. Since then, upwards of 70 additional business formation chairs have sprung up in Germany. As a result, the knowledge base in the field of business formation research has grown enormously, to the benefit of many young people in their academic education. Business formations play a practical role for an increasing number of people and are also steadily gaining in importance in the conscience of the society.


In order for that trend to continue its positive development, KfW makes continuous efforts to improve its offer­ings of support to young entrepre­neurs. In April 2011, the financing offers to young founders and entrepreneurs were expanded: we now offer founder
loans up to 100,000 euros (previously 50,000 euros) as well as liability exemptions in the new founder loan programme “KfW-Gründerkredit-Start Geld” – a benefit to both founders and Germany as a dynamic founder country.


Herr_Dr_Schroeder1_240dpi-KopieThe author (born in 1952) studied law. Following career stops at the state bank Westdeutsche Landesbank Giro­zentrale (WestLB), he was, amongst others, board member of WestLB France, board member of WestLB, and CEO of NRW.BANK. Since 2008, Dr. Schröder has been CEO of KfW and a member of the supervisory boards of Deutsche Post AG as well as Deutsche Telekom AG.