Risking failure

So you want to work hard for two years and make millions? In recent years, many young IT companies have managed to turn this dream into reality: Think of Facebook, eBay or Amazon, whose founders made a fortune. But times have changed and the global economic crisis has hit the international start-up scene.

The equation is simple: no investors equals no huge start-ups. For most young entrepreneurs in the German IT sector the future is not about becoming a millionaire, it's about surviving. According to a survey by financial magazine Wirtschaftswoche, every fifth German start-up was close to bankruptcy in 2009.

"Things have become a little harder," Kai Thierhoff, an IT consultant from Cologne, told Deutsche Welle. "People have stopped investing in young companies."

Investors want to see results before paying

Ingrid Wandel is one of the entrepreneurs who had to face this new reality firsthand. She developed a new way to find out how people think about fragrances - ideal for beauty product companies. Until now, Wandel says, market research on fragrances was difficult and costly. Her small business Fragloom tries to solve this problem by showing respondents online pictures meant to express how they might feel about a certain fragrance.

While this may seem like a great idea, investors did not think so in 2009. Wandel lost existing client contacts and banks refused to give her a loan. "It was really hard, I had put all my effort into my ideas," she said.

Wandel did what most desperate business people do in these difficult times: She launched her company with what little money she had. Now she believes she will make it, having signed contracts for new projects in 2010.

"It's a misperception that someone gives you the money to create what you want to create. That's not the case," said consultant Kai Thierhoff, before explaining that the trick is to get the company running first and look for investors later.

"You need to show what you have to get an investor," said Thierhoff. "People nowadays invest later and they look a lot more into the business model than they used to."

A lot of German copycats

It also seems that German start-ups need to be more creative to create a hit than in years past. The German Web community StudiVZ is an example of halcyon days long passed. The enthusiasm surrounding its launch and initial success gave way to accusations that it was just a copy of its American counterpart Facebook, but not before it was sold for an alleged 100 million euros ($136 million) to the publisher Holtzbrinck.

"There were a lot of copycats out there," said Thierhoff. While the alleged copy appears to have worked for the founders of StudiVZ, analysts say that Holtzbrinck's massive investment is unlikely to pay off.

"It's not about Web traffic anymore, it's about sales," Thierhoff said, adding that the days when Web communities seemed to be launched daily are long gone.

Twenty-five-year-old Hans-Guenther Herrmann is one young entrepreneurs who has adapted to the new business environment. He is not financed by an investor, but through a German government grant. And he wants to "start things small," rather than landing that infamous million-euro sale as soon as possible.

Herrmann has created a Web platform where university students can exchange notes taken at lectures - helpful for those students who missed a class due to illness or simply don't want to go. It's an online community, but every set of notes has a small price that provides Hermann's company Unidog with a couple of cents.

Both Wandel and Herrmann are hoping that their start-ups will become a hit in 2010, and both have chosen projects that are not affected by the economic crisis. Herrmann targets students who might still have a spare euro or two for university lecture notes, while Wandel tries to convince her customers that her new method of fragrance research can save them a lot of money.

It's not clear whether either of them will succeed. But for the chance to make it big, they're willing to risk failure.

Author: Benjamin Hammer
Editor: Ben Knight