Mittelstand Mentality: Resiliency Lessons from a Surprising Source

Chat GPT, tell me a story about business resiliency.*

"Once upon a time, in a small town in Germany, there was a Mittelstand company called Klein Electronics that specialized in manufacturing high-quality headphones. The company had been founded by a group of friends who shared a passion for music and a commitment to exceptional customer service. 

Despite being a relatively small company, Klein Electronics quickly developed a reputation for producing some of the best headphones on the market. They remained committed to their values of quality, innovation, and customer service, and this allowed it to compete with much larger companies.

Today, Klein Electronics is still going strong, pushing the boundaries of what is possible in the world of audio technology. They are a shining example of what can be achieved through hard work, dedication, and a commitment to excellence."

A middle what?   

Mittelstand mentality: Resiliency lessons from a surprising source

Straight up the middle

Per Wikipedia, Mittelstand is "a German word describing privately held, mostly small- or medium-sized businesses that provide one or a small portfolio of high-quality products.” 

As a German word, it is difficult to fully capture its meaning in translation. But according to German economic minister Ludwig Erhard, who crafted post-war West Germany’s economic miracle in the 1960’s, being a Mittelstand company is “...much more of an ethos and a fundamental disposition of how one acts and behaves in society."

Mittelstand companies are known for their resiliency, agility, and ability to compete globally despite their relatively small size. Socially, they are highly involved in their communities and invest heavily in their workforce. Most are not household names; rather, they produce things like coffee filters, scientific lenses, and machine tools. Simply put, they’re not companies whose products are sold with a Champions League sponsorship or a Super Bowl commercial.

It is also useful to know that while the word “Mittelstand” is German, there are companies with similar business models and ethics found across the globe. Japan has numerous businesses with similar principles. Even some of Japan’s largest corporations are “Mittelstand writ large.” For example, Honda’s proficiency in small, efficient engines has fueled (pun!) tremendous growth for the brand. 

So why study this set of companies? Mainly because of their unique combinations of endurance and innovation. It is not just that Mittelstand companies themselves have endured, it is that there are many of them, operating in different industries, and for a long time. It is a natural experiment for understanding what principles create great organizations.

3 Mittelstand principles you can use right now (plus a bonus boxing analogy)

1. Be focused and flexible 

This might as well say “what is the sound of one hand clapping,” right? So let me give you an example. When COVID-19 hit Germany, a 115-year-old coffee filter manufacturer pivoted to making filter masks. It designed and launched a whole new product line in mere weeks. This company could do that because it kept its focus on one core product, but it got flexible about how it could be used.

2. Employee skills really matter

One reason the aforementioned coffee filter company could pivot so quickly is that its workforce was tenured and highly skilled. Germany, as a country, is a leader in training workers. While making national changes to workforce management is one long-term solution, there are actions individuals and organizations can take right now to increase the skill level of their workforce.

3. Stability is a surprising ingredient to innovation 

Learning to box? The first thing they make you do in a professional boxing gym is build a stance. In fact, you barely throw a punch for weeks. You do endless footwork drills, jump rope, and then there’s the occasional break to run several miles at a time. Why? Because without a stable platform, the flashy stuff doesn’t work. 

Organizations are similar. A safe supportive culture is the base that lets people (figuratively, I hope) swing for the fences. Mittelstand companies understand this, even when from the outside, it seems tremendously boring.

So as a package, Mittelstand companies are a combination of “old fashioned” business values, modern innovation and resiliency born from the combination of the two.

Mittelstand America?

One reason to be optimistic about the future of work in America is the growing "Mittelstand Mentality" movement. Here are a few examples.

Finance 
Larry Fink and Blackrock are driving stakeholder capitalism to not only do good for society, but also create businesses that are more robust in times of great uncertainty.

Technology 
Companies like 37Signals (Basecamp), who advocate sustained growth and staying small while, at the same time, competing on the world stage. 

Manufacturing 
McKinsey calls it The Titanium Economy. It’s a collection of relatively unknown U.S. companies that are producing world- class products, investing in their communities, and creating good jobs for workers.

Particularly exciting is that most of these groups are unaware of each other, but all have independently arrived at similar conclusions for how to build resilient businesses. When radically different people in different industries come to similar conclusions, it is a sign that something big is happening.

In good times and lean ones, look to the middle(stand)

There are thousands of shiny resources that teach companies how to be agile, resilient, and antifragile. There are case studies galore that showcase big companies doing big, innovative things. But very few of us – in fact, less than 5% of U.S. workers -- work in big tech, or at a prestigious bank, or at the next hot startup. 

So, hopefully, this blog helps spread awareness of incredible organizations that are more like where most people work. They are companies quietly going about their business with excellence, delighting their customers, creating exciting new products and services, and taking care of their employees. 

UKG helps our partners thrive in both good and lean times. Download The UKG Resiliency Playbook for concrete examples and specific guidance for ways to increase organizational resiliency.

Learn how to create a resiliency action plan that focuses on your people. Watch the webinar replay, The Resilient Mindset: A Tactical Approach to Business Success.

*In this instance, the example of Klein Electronics from Chat GPT is an equal part reality and “creative storytelling.” Middelstand business analogies can be found in business literature starting in 2014.