The term "Mittelstand" is a peculiarity of German-speaking countries and cannot be translated easily into other languages. In general, it characterises those enterprises that are both owned and managed by individual persons (and their family members). The key feature of Mittelstand enterprises is thus the so-called unity of ownership and management. Due to this specific organisational structure, the owners' objectives and values often determine how Mittelstand enterprises do business and interact with their stakeholders. This way, Mittelstand companies can avoid "principal-agent" problems which arise when ownership and management are separated, e.g. in listed corporations (owned by a large number of shareholders and directed by paid managers).
Due to the importance of the unity of ownership and management, the IfM Bonn applies a purely qualitative definition of the Mittelstand. Thus, quantitative (size-related) criteria such as annual turnover or number of employees are not relevant here.
For the unity of ownership and management it is characteristic that
- the entrepreneur exercises significant personal influence,
- bears the entrepreneurial risk and
- the company secures his/her personal income and livelihood.
The term "Mittelstand enterprise" is mostly synonymous with "family business", "owner-managed firm" or "family-run business". In German, the entirety of all Mittelstand enterprises in the business population is simply called "the Mittelstand". Nevertheless, in itself, the Mittelstand is a multi-facetted and heterogeneous phenomenon, and increasingly so.
Official statistical data sources do not include sufficient information on the defining qualitative features of Mittelstand enterprises (concerning ownership, management and economic independence). Therefore, the statistical and economic importance of the Mittelstand is usually approximated by referring to SME data.
Although there is a considerable overlap of "Mittelstand enterprises" and SMEs, the two terms are not synonymous. While the majority of SMEs also meet the qualitative criteria of the Mittelstand definition, some do not (e.g., local dependent branches of listed corporations). At the same time, a considerable part of large enterprises with 500 or more employees or an annual turnover of more than €50 million also classifies as Mittelstand, if they fulfil the respective criteria.