Rocket Internet: Starting Businesses in the Fast Lane

Rocket Internet takes proven business models and launches them in new markets with a proven process for success

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Business Model: Founded in 2007, Rocket Internet’s goal is to become the number one Internet platform outside of the US and China.  Rocket Internet ignores the world’s two biggest markets because their business model is to taken proven ideas from those two markets, such as Uber in the US and start well, funded businesses in other markets, like Easy Taxi in Indonesia.  In those markets they aim for number one market share positions and because of the support their companies receive often achieve this postion.  As Group Managing Director, Alexander Kudlich says, “we don’t build companies in a garage, they build them in a factory”.[1]

Operating Model

To facilitate mass creation of business, Rocket internet has created a recipe and platform on which to build a business.  This platform consists of four pillars: Infrastructure, Process, Technology, and a Network of Companies.[2]download (1)

Infrastructure – operating effectively as a large venture capital firm, businesses Rocket starts are extremely well funded.  This allows them to own all of their own infrastructure, allowing for enhanced flexibility and higher margins. For example, Lamoda, a Russian fashion site, owned its entire distribution network.  This allowed them to deliver a higher quality of service and led to more frequent repeat purchases from customers[3].  For any other startup bootstrapping their way by this would have been impossible but because Lamoda was backed by Rocket it set them ahead.

Process – many start-ups struggle to clearly define their business model, they grapple with limited resources, and the uncertainty of expansion.  Averaging 10 new companies/year, Rocket perfected the process for starting a company.  They have functional experts who can help with any area of business from SEO to financial planning and can help define important KPIs to measure progress in those areas.  This consistency and experience allows them to start a businesses in under 100 days.  This means they could identify a promising model in the US and quickly start the same business before the US firm can expand or before a local competitor can gain traction.  For example Groupon was started in late 2008 and just over a year later Rocket Internet started CityDeal which quickly became the number one deals site in Europe and was eventually sold to Groupon[4].

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Technology – another competitive advantage for Rocket Internet companies is their ability to leverage existing server infrastructure and app templates.  In the consumer online space, a first mover advantage is key to gaining market share.  By have pre-existing tools that new companies just need to make small contextual changes to, these new companies save time and that translates to speed of launch and market share.

Network of Companies – the final key to the Rocket Internet Model is the large network its companies are a part of.  When expanding to a new country, firms can rely on the experience and insight of another company in the portfolio that is already in that country.  This saves them the growing pains that would typically come from such an expansion.  Firms also pool together to create a larger entity when negotiating purchasing agreements and partnerships.

Rocket Internet’s tight alignment between their operating model and business model gives them a tremendous competitive advantage.  Furthermore, the model feeds upon itself and becomes more sustainable as the firm grows.  Each time Rocket Internet launches a new business, they get better economies of scale, increase their network of experts, and get better utilization out of share fixed assets.  It will be exciting to see their expansion and further success in the years to come.

 

[1] https://www.rocket-internet.com/about

[2] https://www.rocket-internet.com/about

[3] http://blogs.wsj.com/tech-europe/2013/06/10/russias-lamoda-lands-130-million-funding-round/

[4] http://www.businessweek.com/printer/articles/10778-how-three-germans-are-cloning-the-web

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7 thoughts on “Rocket Internet: Starting Businesses in the Fast Lane

  1. A common message from VCs is that great ideas are a dime a dozen but great teams are hard to come by. How does Rocket Internet deal with this issue? It seems like they are just transplanting good ideas but do their teams really have the conviction to execute? (Especially since Rocket Internet owns the equity…?)

    1. They certainly have trouble with teams. A friend worked for one of their companies and had to hire so fast he hardly could read candidates resumes. I think what helps them overcome this challenge is that they give so many resources to their companies besides money, such as functional business help which could help get a novice team better prepared.

  2. Thanks for the post on the parent company of my FIELD 2 project (ZALORA) :). To address mhan128’s (Meili’s?) question: Rocket Internet companies are doing great overall (see Forbes article here: http://www.forbes.com/sites/susancunningham/2015/05/12/rockets-lazada-and-zalora-lost-235-3-million-in-2014-but-are-moving-toward-profitability/). More specifically, ZALORA is getting ready to IPO with very strong results to share with global investors.

  3. How do you think Rocket Internet’s model contrasts with design thinking / IDEO, and why don’t you think HBS teaches about Rocket as a part of FIELD? To me, Rocket’s model seems far superior to what IDEO does in that it actually allows for rapid deployment of business models where many of the bugs have been worked out, therefore lowering the likelihood of failure, while IDEO’s “rapid prototyping” still leaves it well short of implementable business solutions. In addition, HBS teams are arguably ill-equipped for design thinking due to the relative lack of diversity of skillsets, whereas the ability to identify success business models, quickly change the few key aspects which may not translate to a developing economy, and watch the $$$ roll in seems core to the MBA toolkit.

    1. I’m with you Frank. I think this model is top notch. Regardless of the product or service you come up with, the right model to fit it into is the most challenging part. Taking a proven idea and launching it somewhere else removes a ton of risk and enables you to move fast which we know is key these days.

  4. Brian, I’m very curious how long it takes their average business to have positive cash flow. I understand that part of their strength lies in how well funded the start ups are, but how long does Rocket Internet typically keep pouring money in? Many start ups today don’t become cash positive for a very long time. How much of a cash reserve does Rocket Internet have? Are they able to fund their companies for many years if necessary? Additionally, does Rocket Internet typically sell their start ups or are they interested in holding them for the long term?

  5. Brian. Great post! I know a lot of people have called them “cheats” in the past. Do you think there is an ethical dilemma here since they “steal” existing business models?

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