Ever heard of these internet retail giants with awkward names: Zalando, Zalora, Jabong, Linio, Lamoda or Lazada? All of these businesses were built by the German “clone factory” Rocket Internet. Founded barely 8 years ago, Rocket Internet has built 25% of the European unicorns and many fast-growing businesses in over 110 countries – some in less than 100 days. How did Rocket Internet build many successful businesses so quickly?
Rocket’s business: removing business model risks
Rocket Internet globalizes proven business models. Typically, Rocket identifies US startups attracting significant funding in the e-commerce, marketplaces, financial technologies or travel sectors, and replicates them in emerging markets or Europe with the goal of becoming market leaders. Unlike a VC or incubator, Rocket builds the companies itself and retains equity ownership. This business model provides Rocket with two competitive advantages. First, Rocket enjoys a “first-mover” advantage in the markets where it launches a new venture. Second, Rocket mitigates the business model risk by copying startups which have proven successful in the US.
Rocket’s operating model: mitigating market and execution risks
Rocket Internet designed an operating model which supports its ambition to clone businesses rapidly on a massive scale. The operating model creates a competitive advantage by providing as much control as possible over the two other risks of entrepreneurship: market and execution.
- Rocket tries to mitigate market risks by sharing information across ventures, and quickly opening and closing businesses. Rocket leverages its central team in Berlin to gather insights from ventures in various markets about customer behaviors and preferences, in order to anticipate what kind of business model might work in a given market. In addition, Rocket typically gives 100-days to entrepreneurs to achieve traction in a given market, before they make the decision to shut the business down or grow it. This pressure not only ensures that businesses are built fast, but also allows for rapid testing of the business model’s reception in a given market.
- Rocket has mastered the risks of execution. Several unique features of its operating model allow Rocket Internet to be operationally more successful than its competitors.
- The first of these is funding. Thanks to the previous success of Rocket Internet’s founders, most ventures can tap into very deep pockets when starting operations. Massive marketing budgets, large teams, the absence of concerns about cash, all contribute to help the ventures gain market share faster than new entrants.
- Additionally, Rocket Internet provides standardized processes to support its ventures around the world: website templates, marketing activities, reporting models, IT, and logistics are all supported by expert teams in Berlin. The central team leverages the global network of companies to share knowledge of best practices across many markets – an invaluable source of learnings for the founders. In a way, Rocket Internet ensures that its new ventures start already “deep-down” the learning curve, without making the costly mistakes that would normally take them there. In that spirit, Rocket Internet even has developed a dedicated team of managers (“GVDs”) who go across ventures to solve particular issues (e.g., last-mile delivery), based on their learning at other ventures. F
- Finally, Rocket’s operating model allows for top talent recruiting. While non-funded early-stage startups struggle to attract top talent, Rocket Internet offers competitive compensation, a strong brand name on a resume, and the opportunity to learn how to build a best-in-class business … with one catch: founders have almost no equity. This leaves both sides winning: top talents join as founders to learn the ropes of entrepreneurship in a “non-risky” environment before striking it out on their own, and Rocket reaps the financial upside of their hard work.
In conclusion, Rocket Internet is in the business of mitigating risks. Both its business and operating models focus on mitigating risks, complementing each other in such a way that business model, market and execution risks are very limited in a new venture. This complementarity has allowed Rocket Internet to produce market leading ventures at an unprecedented speed and scale. Rocket might have mitigated many risks, but one still looms: since the copied business models do not always generate profits in the US, will Rocket’s leading ventures turn a profit? Can the copy outperform the original?