How can they compete with well capitalized start ups?
I think there is a growing Digital Mittelstand in Germany already. I myself work for such a company. We have some strong VC-backed competition. So far the company, self-financed, fares quite well.
I think the author misses a plethora of B2B markets when coming up with examples. There Mittelstand can be a very stable, (if desired) regional long time partner.
Super interesting niche products, that were crucial for people's day to day work, sustainable work pace, always shipping interesting features every other week. A lot of focus on quality (the QA:Dev ratio was 1:1 in one of those for example).
A lot different from the "we must rule the world or die" from regular startups outside Germany. Incidentally one of those companies I was in just died, after getting from 50-90 (when I was there) to 900 employees. I'm glad I left before the decline.
Small companies compete by making money. Even a modest amount of money can be sustainable. If you can get to about half a million per year in revenue (enough to employ a few people), a small group of people can get a lot of stuff done. That sounds easy but it's not. The first few hundred thousand revenue are really hard. You are dealing with customers that are demanding results, haggling over pricing, and facing the brutal realities of product market fit all while you are running out of money and time. That's what building a company means. Early success is very fragile.
My pro-tip to startups is to stop calling yourself a startup as soon as you can. Set yourself apart from the wannabes. People will take you more seriously. And the last thing a potential customer wants to hear is that you are this cute startup that is still figuring things out. That just sounds super flaky as a sales pitch. They don't need to invest in you; they need to buy your product and for that they need to believe in your product. And your product had better do it's job or they'll want their money back. If you make money, you should be wary of investors. And if you don't, even more so. There's no such thing as a free lunch.
You're a company that's making money, that has a plan, that knows what they are doing. The sooner you believe that's true, the sooner you'll make your company a success. Most startups have none of those qualities.
Dumping is illegal in a lot of commodities markets and physical goods industries but it's standard operating practice in software. It's hard to even imagine how different the software world would look if dumping were at least regulated.
But say I have an idea for a business, where the total number of customers worldwide is 100. The max number of employees ever sustainable by this business is, say, 50. But to reach that would take 20 or 30 years of organic growth , maybe a bit less with huge investment. It's what most businesses look like. It's not going to attract a ton of startup money. But it's also not going to be out-competed by a startup.
A simple EU regulation that requires offering real-time distribution of user data to third parties would massively level the playing field.
Some of the ideas the author is proposing are already happening in Germany. There are grants to develop games for instance which pay you a monthly salary for 1 year and a while back there was a similar one for open source projects.
I've done the math for a document segmentation pipeline that every RAG system needs and you'd be able to get one off the ground for around $2,000,000 USD and be rolling in cash instantly. Good speaker diarization is another family of models that will print money once solved, but again, there isn't the possibility for hyper scale.
Meanwhile at least a dozen companies I've spoken to have wasted on the order of $10,000,000 trying to solve these problems in house and failed.
And I agree, there's probably a market for reliable, local services for some services. In the same way there is desktop SW from companies you never heard about (and far smaller than Amazon) doing things you never imagined were a problem