Why the Volkswagen-scandal is Germany’s Best Chance for a Startup-Boom

Surf Seeker

The current unfolding of the Volkswagen cheat-scandal doesn’t miss out in drama. Millions of VW/Porsche/Audi-cars seem to be affected, recalls, multiple solutions, fines and damage payments, a sales decline, investigations all over the world, troves of people leaving, and now also Opel (a GM brand). We are just waiting for how more car-makers are involved in that as well.

I have written about some reasons why this happened, what it would cost, and why technical arrogance may have been a reason. In the short term Volkswagen’s behavior has certainly a negative impact on Germany’s economy and reputation, but at the same time this could be the chance for finally creating the booming startup-scene that Europe is craving so much.

The Scandal

Let me explain that with an example of the past: the Austria’s wine-scandal from 1985. In that year it was discovered that several Austrian wineries had illegally added a chemical to improve the quality of their wines. The chemical (diethylene glycol) was normally used as an ingredient for anti-freeze that you would use for cars. The wineries had used the compound to improve the tastes of their wines, thus creating huge amounts of seemingly superior wine for which they charged more. This was not the only deceptive practice. Adding sugar to the wine was considered a normal practice. Once these illegal practices were discovered, wine sales rock-bottomed within days. The Austrian wine industry was shattered into pieces, the culprits went to jail.

Fast forward to today and Austrian wines are at the top of wine lists – and this without the help of illegal means. The scandal had forced lawmakers to impose stricter regulations and enforce them, while winemakers had to take a step back and reconsider their purpose and what it really means to make wine. They took the slow and painful path of creating a culture of making high quality wine.

The Chance

Volkswagen in 2015 employed nearly 600,000 people worldwide with an annual revenue of over €200bn. Under its hood it has over a dozen brands including Volkswagen, Bugatti, Audi, Porsche, MAN, or Bentley. Volkswagen also has the largest R&D budget of all publicly traded companies with $15.3bn, but which did not translate into being the most innovative company (at least in the positive sense).

Given the tendency of large corporations to choke innovation by their sheer size and processes that are optimized for scale and execution, but not for discovery, the scandal may now give Germany the opportunity to unleash an unprecedented innovative potential. With the costs of the scandal going into billions, VW will have to cut costs in all areas of the company, including masses of layoffs. Thousands of engineers and creatives will be forced to leave, also paid handy severance packages (as imposed by German laws). Although the German labor market is currently doing really good with a well running economy and low unemployment rates, many former automotive employees will likely take the chance to start their own companies.

Considering German ingenuity and with employees now being forced to change their lives, many (future) former VW-engineers could take the chance to turn their own ideas into reality and launch a company with new solutions. Imagine the creative potential that those people have with their skills. Areas of robotics, drones, electronics, wearable technologies, machines, and the move towards industrial digitization will create hundreds and thousands of new companies that will be an economic engine for Europe.

The question is: is the German ecosystem ready for that? Is there enough venture capital available? How can the government support those new founders with tax breaks and a founder-friendly climate? All this and much more will be necessary for the next phase of a German “Wirtschaftswunder”.

The Conclusion

The VW-scandal is *the* chance for Germany to move their economy into the modern digital era. With a combination of highly skilled former automotive employees (many of which are engineers), severance packages and venture capital, and founder-friendly policies, Germany will lead Europe and create jobs and industries throughout the continent.

To quote the US economist Paul Romer: “A crisis is a terrible thing to waste.” Germany has all the opportunities not to waste it. And the Volkswagen-scandal in the long run could be the best thing that happened to Germany.

1 Comment

  1. For me right now Germany feels like a place where innovation is not welcome. It felt differently approx. 10…15years ago. Right now innovation is welcome if it is tiny and can be hidden because its so tiny. Everything beyond scares everyone else. It’s hard to find people who say great, lets try it. Even in businesses where you are not forced to have dense safety nets. We cannot set sail as we have to rudder right now. Most persons around me have concerns in first row and this is even supported by corporate culture in making a lot of analysis upfront, all the virtual things, no experiments. Beside that, yes, the VW scandal (and actually all european car companies are affected) is a big chance. Is Germany ready to turn into a startup country or at least to incubate some of them? I tend to deny this question.

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