KfW Research: KfW Entrepreneurship Monitor: Number of start-ups in Germany has increased slightly to 568,000

• Full-time start-ups are down by 8% while part-time start-ups are up by 11%
• Share of female business founders has grown to 44%
• Preference for self-employment is highest in Hamburg and lowest in Saxony-Anhalt

After dropping sharply in the previous year (-9%), the number of newly founded businesses in Germany increased again slightly in 2023, but only by a moderate 3%. Last year, 568,000 people ventured into self-employment, according to the current KfW Entrepreneurship Monitor published by KfW Research. Full-time and part-time start-up activity exhibited diverging trends. While the number of full-time start-ups fell again to 205,000 (-8%), part-time start-ups increased to 363,000 (+11%).

The percentage of planners, that is, the share of the population aged 18–64 years actively planning to start a business, slumped from 4.5% in 2022 to 3.6%. The overall process of founding a business from the idea to implementation usually takes several months, and only a fraction of start-up plans is realised. The ratio of start-up plans likely to be realised within the next 12 months is now only 2.2% (previous year: 2.5%).

“In 2023 there was hardly any impetus to entrepreneurial activity from the economy. Both the business cycle and the labour market stagnated, which was neither particularly favourable nor detrimental to entrepreneurial activity. On balance, the number of newly founded businesses increased slightly”,

said Dr Fritzi Köhler-Geib, Chief Economist of KfW.

“The macroeconomic environment is unlikely to provide much tailwind for the current year either. Combined with a sharp drop in start-up plans last year, unfortunately this will probably cause a renewed drop in entrepreneurial activity in 2024. Every year, roughly 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. One key to this is financial literacy, which would remove many barriers to entrepreneurship.”

In 2023 the percentage of female entrepreneurs was 44%, just above the previous high of 43% recorded in the years 2013–2015. Broken down into full-time and part-time businesses, however, the new shares of 40% and 46% remain below their previous highs of 41% (2014) and 50% (2008). On a long-term average, women account for 39% of entrepreneurial activity. So, the last year was quite clearly above the average but remained within the long-term range of fluctuation of ±5 percentage points.

“In order to encourage women more broadly to become entrepreneurs, however, gender cliches in school and education must be cast aside and successful role models made more visible. That requires patience and stamina. 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 among women”,

commented Köhler-Geib.

Overall, entrepreneurial spirit remains rather weak in Germany. Only 24% of employable persons aged 18 to 67 would choose self-employment as a means of earning an income irrespective of their current situation (previous year: 23%). At the start of the millennium, preference for self-employment in Germany was still twice as high. This development is influenced by macroeconomic trends such as the longest labour market boom since unification, which began 2006, and demographic ageing, which has accelerated. Among the under 30s, preference for running a business sits at 36%, but only one in five people aged 30 or older would opt for self-employment.

The population structure in Germany, which differs substantially from one region to another, also influences people’s preference for self-employment. In 2023, it was highest in Hamburg (29%), followed by North Rhine-Westphalia, Bavaria, Rhineland-Palatinate, Saarland and Hessen (25% each). People in Saxony-Anhalt are least likely to prefer self-employment to salaried employment (18%).

Irrespective of their views in favour or against self-employment, many people cannot imagine being an entrepreneur at all. This is mainly due to the triple lock of need for security, red tape and lack of capital. Thus, the top five arguments against self-employment are: concerns over unacceptable financial risks (73%), insurmountable bureaucratic hurdles (69%), insufficient income security (64%), inadequate social protection (62%) and funding problems (60%). These concerns need to be addressed if self-employment is to be a real income alternative for more people.

Other key findings of the KfW Entrepreneurship Monitor:

• As before, most new businesses were founded in the services sector, at just under 70%, followed by trade (22%) and the producing sector (9%).
• Digital and Internet-based start-ups continue to play a major role in entrepreneurial activity, accounting for roughly one fifth (22%) of all start-ups.
• Seven in ten newly founded businesses were established using only the entrepreneur’s own financial resources. External capital from third parties was used by 21% of them. The use of capital continued to rise, with 38% of entrepreneurs using more than EUR 10,000 (previous year: 31%). Businesses founded only with materials and equipment were less common than ever, accounting for just 10%.
• The survival rate of start-ups is derived from the data of the KfW Entrepreneurship Monitor, with the rule of thumb being that around one third of business founders have closed their business again within three financial years. Around 60% of start-ups are still in business 60 months after launching. The reasons for aborting are diverse. By far the largest proportion of business founders discontinue their venture in the first five years for personal reasons, not because of immediate financial stress. Examples of such reasons include family pressures, illness, dissatisfaction with income achieved, or the emergence of a more attractive job alternative.

The KfW Entrepreneurship Monitor can be downloaded from www.kfw.de/gruendungsmonitor.

The dataset:

The KfW Entrepreneurship Monitor is a representative telephone survey on entrepreneurial activity in Germany which has been conducted among the population annually from August to December since the year 2000. It is based on information provided by 50,000 randomly selected persons domiciled in Germany. It covers a broad range of entrepreneurship categories from full-time and part-time male and female entrepreneurs to self-employed professionals and business owners, new businesses and takeovers. The KfW Entrepreneurship Monitor thus provides a comprehensive picture of entrepreneurial activity in Germany.