Berlin's Business Plan

It's Saturday night in Berlin. The narrow streets of the ultrahip Mitte district are packed with partyers flocking from bar to bar, past the trendy galleries, clubwear boutiques and all-night Turkish eateries. In a tenement apartment above a noisy cafe, Stephan Schmitt and a handful of musicians and computer hackers crowd around a keyboard and a couple of PCs, creating a strange cocktail of electronic bleeps, twangs and swooshes.

A techno jam session? Not exactly. These young people are making something Berlin needs even more than new dance tracks for its nightclubs: jobs. Schmitt is founder and technical director of Native Instruments, a 14-person software start-up that's developed a software-based sound synthesizer. He and his team are racing to finish the code for their newest release, to go on sale in 20 countries in a month. Music magazines have showered the company's products with awards, and Schmitt says he's been approached by both Microsoft and Apple for possible licensing deals. "Our goal is to become the worldwide standard," he says with a grin.

Berlin is rooting for him. The local economy shrank by .4 percent last year, after several years of zero growth--the worst economic performance of any German region. After Bonn cut off the subsidies that propped up both sides of the city before reunification, much of the old-line manufacturing that was the mainstay of the local economy collapsed. Facilities like Siemens' machine-tools factory simply shut down; several local textile makers shifted production to low-cost Poland. All in all, the city has lost some 300,000 manufacturing jobs in a decade. The 50,000 new government jobs now coming to Berlin are no consolation as the city slashes its own bloated public sector.

Hopes of drawing a new corporate elite to the city that was once Germany's economic powerhouse proved unrealistic. After moving away in the 1950s--its plants were in ruins, and the Soviet Army controlled all transport routes through East Germany--electronics giant Siemens remains firmly entrenched in Munich. Ditto for Deutsche Bank, now in Frankfurt. Sony will open a gleaming new, $800 million European headquarters complex on Berlin's Potsdamer Platz next year, but it's a rare example of a global player setting up shop in Berlin. Klaus Krge, head of Jones Lang Wooton's Berlin office, says that prices for commercial real estate have fallen to half their early-1990s peak. Instead of becoming the grand hub of East-West commerce many envisioned, Berlin often feels cut off from the rest of the world. Today the only scheduled inter-continental flights to the city are from Havana and Ulan Bator.

Luckily, Native Instruments isn't the only new company trying to turn things around. "Whether it's in information technology or biomedicine, there's been a boom in new high-tech companies since the wall came down," says Birgit Schultz, analyst for the Prognos consulting group. Over the last 10 years, some 100 biotech firms alone have set up shop, clustered around the city's universities and research clinics. One is Mologen AG, currently operating out of a lab at Berlin Free University's molecular-biology department. There, Prof. Burghardt Wittig and about three dozen recent graduates are working 16-hour days, developing genetic vaccination techniques. To raise money for research--and for the new lab building going up next door--Mologen last year became Germany's first university biotech spin-off to go public, listing on Berlin's over-the-counter stock market. "We all own stock and work like idiots," Wittig says. Once the new building is finished, he expects to raise more capital--and add new staff.

The authorities like that so much that they're trying to help the city's entrepreneurs. Wittig says he was shocked when it took him only two months to get a building permit for the new lab. The city has built 21 "start-up centers" all over town that offer cheap quarters and basic office infrastructure for hundreds of fledgling companies. New, private venture-capital firms now scour the city for deals, their investments often leveraged by generous public-sector matching funds.

Of course, it takes more than money and real estate to create new companies. It takes ambitious, creative people--just the kind who want to move to a place like Berlin. "Look outside," says Native Instruments' Schmitt, pointing at the crowded sidewalk cafe below. "This is a place where it's fun to work and live and go out." And--if Berlin is lucky--maybe even get rich, too.