In the startup space, the controversial venture builder Rocket Internet is an incredibly effective company and is on a mission to create the largest Internet platform outside the United States and China. It employs 25,000 people and operates in over 100 countries with a laser-focus on three areas: eCommerce, marketplaces and financial technologies. Even though Rocket Internet is excluding the competitive American and Chinese markets, it still reaches 4.5 billion (65%) of all Internet users.
Rocket Internet’s model is simple. The company looks at successful American Internet companies in the aforementioned focus-areas and copies them outside the United States. Rocket is often criticized as an uninspired copycat, but critics continuously overlook the substantial innovation in its business and operating model.
Rocket Internet creates value by repetition. In the United States, entrepreneurs and academics alike spend time and money to develop and establish new business models that capture value. Entrepreneurs employ methods like design thinking to increase their chances, but most often still fail along the way.
However, unlike a chemical compound, business models cannot be patented. Once a successful business model is developed, it depends on execution if the original business model inventor can extract value quickly or somebody else will capture value in the long run. Rocket Internet’s business-model is to copy proven American business-models and role these out more effectively around the world.
Rocket Internet championed how to transform a startup’s assets into valuable actions. Founder, Oliver Samwer, estimates that Rocket Internet has solved 95% of the problems that startups encounter during its growth phase. This makes a Rocket-backed startup-clone considerably more efficient than any “original” startup.
Centralization: Rocket Internet gets significant economies of scale by centralizing certain tasks for all of its startups in its headquarters in Berlin. This means that product development, user experience design, marketing campaigns and legal work are conducted by seasoned developers, designers and lawyers. For instance, Rocket Internet employs over 5000 IT specialists in Berlin, alone, that develop the underlying platforms for its three major focus areas. When a new venture is started, those developers customize the prebuilt platform and thereby mitigate considerable technical risk especially in the areas of stability, security, scalability and speed. Once developed, all code, contracts and other intellectual property can be reused for future startups.
On the other hand, operations, sales and customer care are local and built by the startup employees that are on-site. Rocket Internet is great at localizing its products, because it leaves out these core functions from its centralization.
Team & Human Resources: Rocket Internet streamlined the startup HR-process. With years of experience, it found a successful formula on the management side by hiring away managers from a handful of prestige firms such as McKinsey, BCG and Goldman Sachs. Rocket can attract them by offering a comparable salary, yet only a low, single digit in equity. Thus, corporate types can feel like entrepreneurs, without the massive downside. Furthermore, hiring people from only a handful of firms makes founders interchangeable and mitigates the personnel risk of Rocket Internet.
Financing: Rocket Internet collected over $2 billion from investors that can help companies in local markets and bureaucracies, especially sector-specialists, high-net-worth-individuals and strategic investors. Founders, who are usually preoccupied with raising round after round of financing in the beginning, can focus on growing the company and leaving the fundraising to the expert, Oliver Samwer.
Benchmarking & Failure-Elimination: Rocket Internet measures everything. Comparing any venture’s key performance indicators (KPI’s) against its existing portfolio, Rocket can not only identify a problem early but also solve the problem through established best practices.
Rocket is diversified across markets and business models and quick to eliminate underperforming startups.
The operating and business models align perfectly. The business model is model is copying existing business models in narrow focus areas abroad, and out-executing the original founders with an hyper-effective operating model. Moreover, outside the U.S, Rocket startups are first-movers, which creates a high barrier-to-entry in growing markets.
The business model of “stealing” business model is an ingenious business model itself that is worth almost $8 billion and created startups worth tens of billions. Rocket Internet thrives on its sheer scale, which sustains its competitive advantage.
Of course, anybody could copy what Rocket Internet copies. Yet, creating an organization that has a pre-existing setup, which creates legal entities in 100 countries, sets-up a scalable IT infrastructure within 80 days, provides millions in finance on a whim and hires top-management and IT talent across the world is unprecedented.