The leadership secrets of the Mittelstand

Germany's "hidden champions" display the best of the entrepreneurial spirit, says historian Rainer Zitelmann.

by Rainer Zitelmann
Last Updated: 07 Aug 2019

There are about 2,700 extremely successful companies around the world that most people have never heard of, but which are known, admired or even feared in their industries – and roughly half of them are German.

These are the "hidden champions", a term coined by Professor Hermann Simon almost 30 years ago. To qualify as one of these elite midsize firms, which in Germany form part of the famous Mittelstand, a company needs to be number one on its continent or among the top three in its global market share.

The secrets of Germany’s most successful exporters

"Many extremely successful companies escape the attention of those whose business it is to know everything (media), understand everything (scientists) or improve everything (consultants)," Simon said. 

"This is the sphere of the world’s best mid-sized companies, the world of the ‘hidden champions.’ Deeply hidden under the headlines of sensational business successes lies a completely unnoticed source of leadership wisdom."

Professor Simon is Germany’s top management expert and one of the two dozen leading management thinkers in the world. He was attempting to explain Germany’s success as one of the world’s leading export nations and stumbled across these hidden champions. 

Looking at a chart of ten-year per capita exports (2009–2018), Germany ranks first ($163,519), ahead of South Korea ($108,702); by comparison, the United States ranks eighth ($40,483). Germany also has more hidden champion companies than any other country in the world, with 16 per million inhabitants, followed by Japan’s 1.6. The United States is in fourth place with 1.2 per million.

The mindset of the hidden champion leaders 

Whenever Professor Simon is asked about the secrets of these companies’ success, he answers with one word: leadership. On the basis of his research, he has defined five characteristics that distinguish the leaders of successful hidden champions:

  1. Unity of person and purpose

  2. Single mindedness

  3. Fearlessness

  4. Stamina and perseverance

  5. Inspiration of others

 Of course, it’s also possible to single out the leaders of large companies who combine all these qualities, but overwhelmingly, these are still founders and owners, exceptional individuals such as Steve Jobs, Bill Gates, Jeff Bezos and Mark Zuckerberg. 

But when it comes to the salaried CEOs of major corporations, these five characteristics are, on average, rarer and less pronounced than in the case of the hidden champion or Mittelstand leaders.

Monomania

The CEOs of large corporations are rarely so deeply and personally intertwined with their companies as the leaders of the hidden champions described by Professor Simon. 

While the CEOs of large corporations remain loyal to their companies for an average of just six years, the leadership continuity of hidden champions is much stronger, with leaders staying at the helm for 20 years or more. 

As a result, their plans and goals are often shaped by extremely long-term strategic thinking. Since most hidden champions are not listed on the stock exchange, they do not chase the kind of short-term results that stock market analysts tend to be so fixated on, and spend on average twice as much on research and development as other companies. 

This is also why "single mindedness" is far more pronounced among the leaders of hidden champions. They are absolutely committed to their mission, vision and companies. In this respect, they are "monomaniacs," leaders who would probably not be able to "burn" so intensely for any other company. 

And because the leaders of these hidden champions have wedded themselves to their companies so as to be almost inseparable, they have more in common with missionaries than they do with dispassionate, objective and rational CEOs. 

Inspiration 

With their 100 per cent enthusiasm, they inspire their followers - just like Steve Jobs did.

"Unless you’ve got a lot of passion for this, you’re not going to survive. You’re going to give it up. So you’ve got to have an idea, or a problem, or a wrong that you want to right that you’re passionate about otherwise you’re not going to have the perseverance to stick it through," said Apple’s co-founder, who stubbornly clung to a product for years, although there was no indication that it would ever make him any money. 

If he’d been motivated by money, he would have given up much sooner. But he was driven by passion, and so he carried on in the face of countless setbacks and obstacles. Success is frequently seen as a result of great stamina. But stamina itself is primarily a consequence of sustained passion. And the leaders of hidden champions have this characteristic in spades.

The courage to take risks

As entrepreneurs, the leaders of hidden champions stand to lose everything if their companies fail. Clearly, they possess the courage or fearlessness to take risks. Research has shown that a pronounced willingness to take risks is one of the most important characteristics of successful entrepreneurs. 

Salaried managers do not take the same personal risks and—despite all the public criticism that comes their way—that is perfectly fine. After all, they are not liable to the same extent as independent entrepreneurs. It is therefore not surprising that fearlessness is more pronounced among hidden champion leaders.

Swimming against the current

Entrepreneurs also demonstrate their fearlessness by swimming against the current and doing things in a completely different way to their peers. 

The Austrian economist Schumpeter described it thus: "The fact that something has not yet been done is irrelevant to him as a counterargument. He does not feel the inhibitions which otherwise constrain the behaviour of economic agents." 

This type "draws other conclusions from the data of the world around him than those drawn by the mass of static economic agents" and is "quite indifferent... to what his peers and superiors would have to say about his business." 

The characteristics highlighted by Schumpeter — just like all of the other characteristics above — can of course be exhibited by the CEOs of large corporations but they are far more frequently found in the leaders of hidden champions. 

And it is clear why. "Many of the most successful leaders of hidden champions could never have made careers for themselves in large corporations. They simply wouldn’t have been able to toe the corporate line. To climb to the top and become the CEO of a large corporation, you need to be far more adaptable than the leaders of most hidden champions," explains Professor Simon.

Dr. Rainer Zitelmann is a historian and sociologist. His most recent book, The Power of Capitalism, was released in 2019. 


Image credit: Eoneren via Getty Images

 

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