SMB companies and their Hidden Champions

In our current blog post , we are taking a stand for medium-sized businesses in Germany and their secret heroes – the Hidden Champions!
Reason for this: our colleague Iwe Kardum visited this year's Cloud Entrepreneurs' Day in Bonn and brought with him lots of new, fresh ideas and AHA moments.
One such highlight definitely came from Professor Hermann Simon, who opened his clever and entertaining lecture with the following question:

Is Germany an innovation failure?

Pretty provocative! But, as Professor Simon has so wonderfully shown, it depends on the perspective - innovation successes made in Germany definitely exist: and we find them primarily in German medium-sized companies. But one thing at a time.

What are Hidden Champions?

The term hidden champions (in German: heimliche Gewinner) goes back to Professor Hermann Simon and describes medium-sized companies that are at the top worldwide in special niche market segments: They are world market leaders in their field.

What are the characteristics of Hidden Champions?

Hidden Champions distinguish themselves primarily in these three elements:

• Ambition: Hidden Champions strive to be the best in their field – and they are. Usually, they have discovered a market niche for themselves in which they position themselves with products that are characterized by absolute excellence. Such products are unique and cannot easily be imitated because they require very specific knowledge that is rarely found at home as well as abroad.

• Focus: In order to be able to guarantee this excellence in the long run, Hidden Champions consistently concentrate on their products, invest in research and development and keep a close eye on the quality and needs of their customers.

• Globalization: Hidden Champions have recognized early on how important it is to have a global focus when it comes to market development, research and production. Anyone who is in a niche is usually dealing with a small market and would not get very far if, for example, they only offered their product in their home country. Exports and expansion abroad therefore play a special role. In fact, a significant proportion of sales are often generated there.

Hidden Champions and Deep Tech

Not a sprint, but a marathon – that’s how you could describe „Deep Tech“ Many Hidden Champions can be found in the deep tech sector, where they impress with their endurance and precision. The characteristics of Deep Tech are:

• Depth in time: you can't conjure up a unique, unrivaled, exceptional product out of a hat overnight. It takes many years of intensive research and patience to become the best in a particular field.

• Depth of knowledge: Deep Tech means achieving an exceptionally high level of quality, know-how and technical precision. This is the only way to stay at the top in the long term and prevent a product from being copied by the competition.

• Depth in the value creation process: Hidden Champions know and understand the needs of their customers exactly and tailor their offerings accordingly. The Winterhalter company, for example, produces dishwashers exclusively for the catering industry. In addition to the machines, customers can also purchase cleaners, rinse aids, etc. and of course order customer service if necessary.

We can summarize: Germany's opportunity lies in the industrial markets, where our medium-sized companies in particular can perfectly exploit and showcase their strengths.

High Tech vs. Deep Tech

Of course, if you compare Germany to other countries, especially the USA, things initially look pretty lame. We can't keep up with the shining high tech giants from Silicon Valley: Microsoft, Apple and Amazon have, without doubt, conquered the world.

The same applies to the glittering social media empires: Meta (Facebook, Instagram, WhatsApp, etc.) and X (Twitter) – could something like this ever have been realized here in this country?

And what do all these well-known companies and brands actually have in common?

Well, they are aimed primarily at end users, at consumers - they operate in the world of B2C and high tech.

It's important to be aware of this, because anyone who looks around will realize that B2C is obviously not our strength. And it's true: we hardly have anything comparable to counter the global players in the consumer market.

But that's just one side - and only the surface.

B2B and B2C

High tech and B2C are basically like a beautiful coral reef: brightly colored, it impresses not only with its useful functions, but also with its fancy design. B2C and high tech are characterized by well-known brands that practically everyone knows, they are visible.

Far down in the sea and far away from the hustle and bustle on the reef, the deep sea awaits you, or, to stick with our analogy, what Professor Hermann Simon calls Deep Tech - and this is where you find them, the silent heroes of B2B: mostly small family businesses , located in the SMB sector, that have developed quite unnoticed into global market leaders and digital pioneers - the Hidden Champions.

There are around 3,400 of these secret winners worldwide, almost half of them are based in Germany, and they have made it to the top internationally with Deep Tech - highly specialized technologies and products.

Apple, for example, has 767 suppliers in Germany alone - no one knows them, but with their know-how they contribute significantly to Apple's success. Siri's AI-powered speech recognition software was developed at the Technical University of Munich - it is implemented in billions of smartphones.

The future brings challenges for medium-sized businesses

However, Professor Simon also pointed out the problems that need to be overcome if we want to secure our position in B2B for the future - this applies not only to the established hidden champions, but also to new, emerging companies.

On the one hand, Germany has to make sure that it becomes more attractive for young companies: because we do have young founders with innovative ideas, but they often prefer to be poached by other countries or sell their start-ups to larger corporations abroad after a short time.

Instead of retaining, expanding and using all the potential and knowledge here, we lose it to the international competition - and they are wide awake and have their eyes firmly set on us.

Furthermore, it would be important to connect innovation and business more closely: many founders come from the technical or scientific field, but do not have the economic know-how to successfully bring their ideas to the market.

Another point: In Germany as well as in Europe we have a comparatively small capital market, in this respect we cannot keep up with the USA or China. On the one hand, it is usually difficult to obtain the necessary financial resources so that a company with, for example, 50 employees can grow into a company with 5,000 employees.

On the other hand, smaller companies consciously refuse such growth dimensions, because of course this always involves giving up control.

We should also pay particular attention to research and development: here, China in particular, which, according to Hermann Simon, is Germany's strongest competitor, is far ahead of us and invests many times more capital in research than we do.

In order to remain relevant in the future, there is a lot to be done: We must not rest on our laurels, but rather be vigilant, make smart decisions, act carefully and move forward courageously!