The start-up scene in Germany is rather lethargic. Although more people took the plunge into self-employment last year, the results of the latest KfW Entrepreneurship Monitor suggest that start-up activity is declining.

According to the analysis by KfW Research, the number of business start-ups rose by 3% to 568,000 in 2023. But this followed a decline of 9% in 2022.

„In 2023 there was hardly any impetus to entrepreneurial activity from the economy,“ comments KfW Chief Economist Fritzi Köhler-Geib, explaining the slight increase in the number of start-ups. „Both the business cycle and the labour market stagnated, which was neither particularly favourable nor detrimental to entrepreneurial activity.“

With the macroeconomic environment unlikely to provide much tailwind for the current year, and a sharp drop in start-up plans last year, she expects a renewed drop in start-up activity during 2024. Every year, around twice as many start-up plans are discontinued as start-ups are realised. „If we succeed in reducing this discontinuation rate, that would do a lot for entrepreneurial activity,“ Köhler-Geib emphasises. „One key to this is financial literacy, which would remove many barriers to entrepreneurship.“

In 2023, 3.6% of the population aged 18 to 64 were actively planning to start a business. In the previous year, however, it was still 4.5%. As the process from the idea to the realisation of a start-up takes several months on average, the change in the planning rate is usually a good indicator for the development of the start-up rate in the following year. According to KfW, however, only 2.2% of the planned start-ups will probably be realised in the next 12 months. This is also less than the 2.5% in the previous year. In addition to bureaucracy, concerns about financial risk and insufficient income security are considered to be the biggest obstacles to start-ups. The KfW Chief Economist, therefore, recommends reducing the administrative requirements for start-ups.

Köhler-Geib still sees room for improvement among women. At 44%, the proportion of female founders in 2023 was higher than ever before – the long-term average is 39%. Nonetheless, the proportion is still at the upper end of the long-term fluctuation range, warned the KfW Chief Economist. She attributes the fact that women only account for 40% of full-time start-ups but 46% of part-time start-ups to the prevailing understanding of women's roles. Women still do more care work at home than men. And in an international comparison, more women work in Germany – but mainly part-time. In order to break down gender stereotypes in schools and education, a lot of patience is required. „But a quick win can be achieved by making successful female business founders more visible, since the positive effect of entrepreneurial role models is particularly strong for women,“ says Köhler-Geib.

In 2023, just under 70% of start-ups were in the service sector, followed by trade (22%) and manufacturing (9%). Once again, the number of full-time start-ups fell by 8%. In contrast, there were 11% more start-ups in the part time segment. At 22%, digital and internet-based start-ups continued to play a major role, even if their importance stagnated.

Within Germany, it was primarily in Hamburg (29%) that people swapped employment for self-employment, followed by North Rhine-Westphalia, Bavaria, Rhineland-Palatinate, Saarland and Hesse (25% each). People in Saxony-Anhalt were the least inclined to take this step (18%). While 70% of start-ups relied on their own financial resources, 21% resorted to external capital. The share of founders who invested more than 10,000 euros climbed from 31% to 38%. According to KfW, start-ups that are founded only with materials and equipment are „rarer than ever before, with a share of only 10%“.