Rocket Internet (Rocket), the German startup factory, was launched in 2007 and nowadays operates in 100+ countries with over 30,000 employees across its network of companies. In October 2014, the company went public on the Frankfurt Stock Exchange, with valuation over $8.2 billion. Rocket specializes in taking successful internet companies that operate in one part of the world and replicating them in new geographies. Because of the implementation-focused approach, Samwer brothers – Rocket’s founders – call themselves “execution entrepreneurs”. Their success lies in the implementation of the go-to-market strategies rather than in the development of new product or service ideas.
Rocket is in the business of identifying proven business models and replicating them in the form of new ventures using highly standardized and optimized processes. The goal is to scale these companies to a leading position in their markets and eventually exit via IPO or sale. At the core, Rocket’s business model focuses on:
- Scalability – identifying proven business models that can be quickly replicable
- Capital efficiency – limited up-front capital requirements to test the viability of the business models
- Low risk – use of successful existing business models and launching them in the geographies with limited direct competition
Arguably, Rocket has molded the process of identifying, rolling out and scaling businesses into an assembly line. It has done this using a unique operating model – a platform that enables scalability at relatively low risk and in a capital-efficient way. Rocket’s platform rests on four pillars that allow the company to create and sustain competitive advantage:
Source: GS Global Investment Research, November 2014
Rocket’s 30,000 workforce in more than 100 countries across six continents allows the company to build ventures at unimaginable speed and low marginal costs.
- Functional experts – help with the set-up and development of new ventures, and provide ongoing support and training to the growing and established companies within the Rocket portfolio. Moreover, they share best-practices and encourage knowledge flow within the network.
- Regional leadership – focuses on supporting ventures in specific geographies, providing local perspective and business know-how.
- Entrepreneurs – general managers of Rocket’s stand-alone ventures. These are highly educated and motivated people, often poached from top Investment Banks, Consultancies and PE shops.
- Partners – 3rd party sector and geography specialists, investors and entrepreneurs that act as advisors to Rocket’s functional experts, leadership and entrepreneurs.
Using its infrastructure and expertise, Rocket developed a set of processes and procedures that allow the company to launch scalable new ventures in under 100 days, thus minimizing costs and risk.
- Finding business models – Rocket is in the business of identifying proven business models and replicating them in the form of new ventures.
- Fast and efficient business model roll-out – Rocket aims to build and launch new ventures in under 100 days.
- KPI focus – For ventures surviving the incubation period, Rocket provides heavy infrastructure and network support. It puts strong emphasis on tracking day-to-day performance of the ventures using a set of industry-specific KPIs.
Rocket has developed proprietary technology that give its ventures ready-made solutions to launch and scale online businesses.
- Technical infrastructure – Rocket has developed a core platform for each of three core sectors (ecommerce, market place and e-finance) that enables fast roll-out and scale of the business.
- Analytical excellence – Rocket has developed standardized reporting and analytical tools to measure performance of the ventures and help them benchmark against each other.
- Partnerships – Rocket is leveraging its size and reputation to secure competitive contracts with technology / marketing solutions providers such as Google, Facebook, Salesforce, Qlikview, etc.
- Network effects & Portfolio pipeline
- Knowledge sharing – there is ongoing knowledge transfer among the ventures in Rocket portfolio. Best practice sharing minimizes the start-up time, costs and improves efficiency.
- Synergies – Rocket leverages synergies across the network by negotiating contracts on behalf of numerous ventures to gain advantages of scale, sharing best practices and know-how.
- Portfolio pipeline – Launching several new ventures per year, Rocket secures consistent pipeline of opportunities and diversifies risks of an individual venture’s failure to succeed.
While Rocket has been very successful in replicating the Amazons and Ubers of the world, the learning-by-doing model often leads to costly mistakes and failed attempts to penetrate the market. This poses a question of whether it is better for Rocket’s competitors to wait and see what obstacles and mistakes the company has faced and enter the new markets with fresh energy. So far, being first has allowed Rocket to capture market share and offer superior customer solutions. Whether such a strategy will work in the future remains to be seen.
- GS Global Investment Research, November 2014