Starting a business in Berlin – a view from the inside

Eighteen months ago, armed with a vision to shake up book publishing and a hard earned pot of cash, I touched down in Berlin.

My novelist girlfriend and I took a large warehouse apartment in Mitte, big enough to host a five-a-side football game let alone a small startup team, and I hit the circuit of meet ups, networking events, breakfast meets, and hackathons that are the life-blood of the startup scene. Designers, developers, and marketers hawked their trade, paraphrasing The Lean Startup, all desperately searching for that rare breed of what I happened to be: a would-be entrepreneur with an idea, but far more importantly, some cash.

A missing business-building mindset

The Berlin startup scene is awash with good ideas and talented people. What it is short of is the pre-seed funding that the finance sectors in London, New York, and Tokyo provide for would-be founders. This also feeds into the second thing that is missing in Berlin: a business-building mindset. Berlin makes more beautiful products than most startup hubs, but what seems to be lacking is the ability to put a commercial framework around this. I will come back to this later.

I was fortunate to identify and recruit a hugely talented designer, who had cut her teeth in New York and then moved to Berlin in search of a better work/life balance. From there, together with our technical architect, we drew plans on scraps of paper, talked to would-be users, made wire-frames, and generally delved deep into the world of design and build. For this process, Berlin is the perfect place to be. There is the right balance of dynamism and peace (especially compared to London or New York) that lets the creative juices flow, and the total immersion the world offers means all you ever do is talk, think, and dream startup. As a novice entrepreneur, this was the perfect baptism, and an invaluable contrast to the more diffuse startup worlds of London and New York where entrepreneurs are a minority in a crowd of city-types.

The Pigeonhole rapidly began to take shape and the team began to grow, adding a marketing strategist and a London-based editorial team. We tapped into an invaluable pool of knowledgeable people, who were happy to offer their advice, usually for the cost of a couple of beers, or a cheap meal, and soon enough we had a Beta product and our first set of users. From there, we have just kept going: iterating, evolving, testing, and this October launched our first full product – a full season of serialized novels. The Pigeonhole is all about making launching books exciting again through combining three things: serialization (readers receive an instalment a week to their phone, tablet, kindle), fun behind the scenes content (i.e. a video interview with an author sitting at their desk), and a real community experience (everyone reading and experiencing at the same time). It is a genuinely new reading experience.

We now have our first 2,000 users from over 50 countries, and are looking forward to settling into a new office and continuing our quest to shake up the publishing world. Whether Berlin is the right center of operations for this new phase is an unknown to me. There is certainly more capital to be tapped in London and New York. I would like to think that Berlin will remain the heartbeat of The Pigeonhole, and we will always have a presence here, but the jury is still out on how this will play out. The enforced team relocation of Readmill to San Francisco, following their rescue/purchase by Dropbox, is instructive to me.

For all the joy of the Berlin startup scene, I suspect there are many startups that would simply not exist in other ecosystems. The low cost of living (and office space) plays a huge part in this, as does a controversial intern scheme. These allow startups to exist on a fraction of the funds required in London and New York. The internship scheme is especially problematic. Startups can employee anyone for 450 euros a month for up to six months, and virtually all of them exploit this to the full. This practice is hugely widespread, kids from across Germany, and the rest of Europe, running down their meager savings to keep in the game, with little real prospect of getting a properly paid job at the end of it. You can make 10,000 euros of pre-seed capital last a long time when you are paying your team 450 euros a month to live the dream. There are many reasons why this is unsustainable, most obviously that it skews a realistic interpretation of whether the start ups have a genuine chance of breaking even, or becoming a viable business.

„An economy built on quicksand“

This unhealthy mix is one reason why the government has moved to end the practice and starting in January next year, companies will have to pay interns a living wage (unless they are registered students), which equates to around 1,500 euros per month. This will have a monumental impact on the number of employees in the sector. One CEO of a well-established Berlin startup told me he thinks it will result in 20 percent of all start up employees losing their jobs. I can well believe it. This is an economy built on quicksand.

Now, before you think I’m a complete doomsayer, let me qualify my remarks. There are fantastic startups in Berlin doing amazing stuff. My personal three favorites are: Blinkist (short summaries of non-fiction books, led by the extremely sharp Niklas Jansen), my Norweigan friend Espen Systad’s Capsule FM (a fore-runner to the Artificial Intelligence imagined in the Spike Jonze film Her), and Research Gate (think Linkedin for the science community). Of course, there are also the more familiar Soundcloud, Eyem, and Delivery Hero too. These are great startups run by brilliant people, and will likely be very successful. But there aren’t enough revenue-generating would-be incubator startups, on the scale of Tinder or AirBnB, or indeed, enough successful city-workers who get to their thirties and want to do something different, bringing with them small pots of money and commercial experience.

If I had to do it all again, I wouldn’t change my decision to up sticks to Berlin. It has been pivotal in allowing The Pigeonhole to progress this far. Indeed, investors always note how far we have come on the funds we have raised, and how much more we would have needed in the design and build phase if we had done this in London. The question for me is, in the post seed phase, is Berlin the place to be? Can it be something more than a ‚good ideas club‘?

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