Hidden Champions: What Small Firms Can Learn From Unknown Market Leaders

Why unknown world market leaders are interesting for small businesses

When people think of successful companies, they think of famous brands. But a large part of Germany’s export strength rests on firms whose names hardly anyone outside their industry knows. They make labeling machines, special valves, measuring instruments, or materials and lead their narrow market worldwide. In the 1990s, the management consultant Hermann Simon coined the term Hidden Champions for them.

For a small business, the topic is interesting for one reason: Hidden Champions usually grew out of small businesses themselves, often family businesses in rural regions. This analysis therefore asks: What can small businesses learn from unknown world market leaders, and where does transferability end? To answer it, I first clarify the definition and the strategic mental model, then review what research proves about their success, and weigh two readings.

The niche makes a business strong; the world makes the niche large enough.

What is a Hidden Champion? Simon’s definition

Simon defines Hidden Champions by three criteria, which Johann, Block, and Benz (2022) summarize in their study:

1. Market leadership: The company ranks among the top three in its market worldwide or is number one on its continent.
2. Size: Revenue is below five billion euros. The limit has been raised several times, most recently in 2012 from three to five billion euros.
3. Low visibility: The company is little known to the general public. This criterion is hard to measure and is therefore missing in many studies.

In his 2021 book, Simon lists 3,406 such companies worldwide, about half of them from German-speaking countries. The figures are based on Simon’s own selection and are not official statistics, but they show an order of magnitude.

It is important to distinguish this from a niche in general. A business that is the only provider of a particular service in its region is specialized, but not a Hidden Champion. When such specialization pays off is discussed in specialization instead of a general store.

The mental model: focus plus internationalization

Strategically, the pattern of Hidden Champions can be described with a well-known model. In 1980, Michael Porter distinguished three generic competitive strategies: cost leadership (producing most cheaply), differentiation (standing out through special performance), and focus (concentrating on a narrow market segment and winning there on cost or performance). According to Johann, Block, and Benz (2022), Hidden Champions essentially follow the focus strategy with differentiation: high-quality products at higher prices for a narrowly defined customer group.

What is special is the second half. A narrow niche is often too small in a single country to sustain a company. Hidden Champions solve this by serving the same niche in many countries. A small market thus becomes a large one without the company giving up its focus.

1. Define narrowly

   Draw the market so narrowly that you can become number one in it, for example not “mechanical engineering” but “packaging machines for pharmaceutical ampoules.”

2. Go deep

   Push technology, quality, and service in this field so far that demanding customers notice the difference and pay for it.

3. Sell broadly

   Offer the same service in further regions and countries, often through your own subsidiaries rather than distributors.

4. Stay close

   Maintain close relationships with demanding customers, who become the most important source of improvement.

Johann, Block, and Benz (2022) name further features from research: higher export ratios than other firms, foreign market entry often through wholly owned subsidiaries because the products need a lot of explanation and service, continuous improvement in small steps, and a well-trained workforce that the company continuously educates. How to gain a foothold in new markets is covered in export and sales.

Why the niche only becomes large enough through the world

A worked example with freely chosen numbers shows how strongly internationalization changes the market of a niche. A manufacturer of special fixtures for the food industry estimates the annual market volume of its niche by territory:

With a 20 percent market share in its own federal state, the business would reach 600,000 euros in revenue. With 20 percent in Europe, it would be 18 million euros. The same specialization that is a growth limit regionally becomes a foundation internationally. This explains why many Hidden Champions went abroad early. But it also shows that the strategy only works for services that can be sold across borders. A painting business or a tax firm can deepen its niche but can hardly carry it into 30 countries. For location-bound services, the counterpart is the step into the neighboring region, as described in the guide expanding into a new region.

What research proves about their success

For a long time, the image of Hidden Champions rested mainly on examples and on Simon’s own surveys. Johann, Block, and Benz (2022) were the first to test on a large scale whether they are actually more profitable. They analyzed financial data of 4,677 German manufacturing companies with 50 to 2,999 employees from 2011 to 2020. They identified 617 of them as Hidden Champions using company information, press reports, and public lists, a share of just over 13 percent.

The result: Hidden Champions achieved a 1.7 percentage point higher return on assets, meaning pre-tax profit relative to total assets. For return on equity, the difference was considerably weaker. The relationship with size is remarkable. The advantage was greatest among smaller companies and disappeared among companies with more than about 900 employees. The authors conclude that the strategy of niche market leadership is particularly suitable for small and mid-sized companies.

Two further studies complete the picture. Lehmann, Schenkenhofer, and Vismara (2026) examined 1,372 German niche market leaders and found that companies in regional clusters of similar firms filed 1.49 times as many patents, especially when the cluster spanned different industries. Rietmann (2023) describes, based on 57 interviews, how Hidden Champions in rural regions take responsibility for digital infrastructure and skilled workers themselves when public bodies are too slow.

The limits are clear: the profitability study looks only at manufacturing companies, and the classification as a Hidden Champion is based on public information that companies provide themselves. A higher return shows an association but does not prove that the niche strategy is the cause. Successful companies might also simply be more likely to present themselves as world market leaders.

Two readings: role model or exception?

The second reading points to a well-known fallacy, survivorship bias: those who look only at successful specialists overlook those who failed with the same strategy because their niche disappeared. The study by Johann, Block, and Benz (2022) weakens this objection because it measures Hidden Champions against a large comparison group, but it does not eliminate it, because failed companies no longer appear in a sample of active firms.

I therefore consider a split answer right. As an overall model, meaning world market leadership with its own foreign subsidiaries, the Hidden Champion is not an achievable goal for most small businesses. As a way of thinking, however, it is a good role model: a narrowly defined task that you solve better than anyone else, demanding customers you accompany closely, and the courage to expand your field geographically once it can carry you.

What small businesses can adopt in practice

Five questions can be derived from the findings that even a business with ten employees can answer.

• We can say in one sentence in which narrowly defined field we want to be the best address.
• We know the three to five most demanding customers in this field and talk with them regularly about their problems.
• Our prices are above average, and we can justify why.
• We know how large our field is in the region, the country, and beyond.
• We continuously invest in training the employees who carry the specialist knowledge.

How to define what a business wants to be known for is described in the guide sharpening your positioning. Focus is related to Blue Ocean thinking but starts differently: Hidden Champions rarely create new markets; they become leaders in existing narrow markets. The difference is discussed in the essay new markets instead of price wars. An example of a company that grew through the way it sells is shown in the case study Würth.

Conclusion: what can be learned from Hidden Champions

To the guiding question: small businesses can learn from Hidden Champions above all the combination of focus and expansion. Those who master a narrowly defined field better than anyone else and then expand it geographically combine the strength of specialization with a sufficiently large market. Research supports this for manufacturing companies: the return advantage is greatest among smaller firms. The limit of transfer lies where a service is location-bound or the niche becomes so narrow that its disappearance would endanger the business.

1. State in one sentence in which field your business wants to be the best address.
2. Estimate the size of this field in your region, country, and Europe.
3. Talk to your three most demanding customers about their biggest unsolved problems.
4. Decide whether the next growth step should go in depth or in breadth.

Most Hidden Champions did not arise from a grand plan, but from decades of persistence in a small field. That is perhaps the most important and most easily transferable lesson.