André Rocha

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On December 14, 2015, André Rocha commented on Finding the Next Uber :

Great post on the operating model of Uber, Steven! Uber is definitely a company that is set to disrupt the transportation industry at very different levels. I believe that most of Uber’s success has been due to its incredible ability to be first to market in many places and scale really fast. I wonder, however, how they are going to deal with the current regulatory backlash (in Europe, U.S. and India), and the new partnership among its main local competitors – Lyft (U.S.), Didi Kuaidi (China), Ola (India) and GrabTaxi (South East Asia). I was also wondering if you found any key differentiators between the Uber operating model and the one of any of its competitors, since I believe that being differentiated at that level is the only way they’ll be able to grow faster than any local competitor. It will be also interesting to see how all these companies will expand to complementary business models in a narrow (i.e. delivery of goods) or broader sense (i.e. car manufacturing), and which capabilities they can leverage and which ones they need to acquire to enter these markets.

On December 14, 2015, André Rocha commented on Rocket Internet: it’s all about risk mitigation :

Rocket Internet is indeed an interesting case study, JM!
On the business model, I find it interesting that you see Rocket as being in the “risk mitigating business”. I agree that it tries to copy proven business models and be a first mover at scale with those models in developing countries. I also believe that Rocket also has a pretty fast decision making process on where to launch, how to execute and when to exit businesses. I disagree however that Rocket is good at mitigating risks. My perspective is based especially on what I experienced in 2012 and may be somewhat outdated, but I will share my few concerns on this.
First, it’s a problem of culture. The Samwer brothers were successful in the 2000s by copying two proven business models (eBay and Groupon) in Europe really fast and selling it back to their respective SF companies. That focus on high growth at all costs paid up then, which made them double down on this (and have somewhat of a bias against planning), but it also brought a few issues down the line – they were responsible for scaling up Groupon China which did not go well and the value of their companies started to be somewhat questioned by SF companies. When they started Rocket, this focus continued. This allowed them to scale their operations incredibly, but also brought some problems especially when they started their SEA expansion – the companies that they were copying stopped buying back their companies, hard to recruit good top management at that pace, big employee churn rates due to the collateral effects of their management style. While some of these are normal pains of a growing company, and some of them are mitigated by what you identified (and I agree!) as their top advantage (i.e. funding), I think that this culture somewhat prevents them from creating sustainable businesses.
Second, there is an issue of talent. While taking the risk out of starting a company is enticing for people who want to become entrepreneurs, the lack of upside increases the probability of them leaving, especially if you have the above mentioned culture. Besides that, while Rocket is great at attracting talent from consulting and investment banking backgrounds, it is highly debatable whether those are the best people for the job.
Third, it’s a financial problem. Today, no Rocket Internet company is profitable (while Zalando was started by Rocket, it is a separate company), and they have an average EBITDA margin around -30%. One may say that that is normal in startups of the like, but most of this startups are 4+ years old and not all of them have been consistently improving margins (while most have). Besides that, it also puts into question how good the execution skills are if after this time and with very little competition in some markets (i.e. South East Asia and Africa) why it is taking them so long to get a sustainable business model.
Fourth, there is a “future” problem. As mentioned above, so far Rocket has no competition in most of its markets. So one may wonder how Rocket is going to perform if Amazon or other well funded local startups decide to enter those markets (especially if we look at India and where today perhaps the biggest market players are Flipkart, Amazon, Snapdeal … and then Jabong). While Rocket is great at reducing cycle times and being first to market, one may wonder if it is worth to focus on that at the expense of operations and building a solid company foundation in markets with little competition.
To sum up, I believe Rocket is very good at getting funding, picking proven business models and bringing them fast to markets in which it has no competition. Whether that is enough to create sustainable businesses, we will figure out in the next few years.

On December 14, 2015, André Rocha commented on Yelp: a 5-star review :

Very interesting post on how the business and operating models of Yelp work, David. I had no idea about the Elite Squad or that you could make reservations on OpenTable and it’s great to know that the company keeps growing. On the operating model, I was curious to know more about how they use tech to support their business model (e.g. how do they pick which recommendations to show, how they decide which features to roll out for businesses, do they suggest restaurants based on previous history of preferred type of food, etc.).

Besides that, I wonder what are your thoughts on a couple of challenges that Yelp seems to face. On the one hand, you have Google that has great mapping skills and information about the location of different businesses and that has started to try to get more reviews on each of them. On the other hand, there are the competitors on both the “business recommendation” domain (e.g. Foursquare for day to day, or Tripadvisor and the like for when you travel) and for delivery (e.g. Seamless, GrubHub, Sprig) which also have embedded recommendations for their partner restaurants.