I’ve talked to many people who’ve worked at a Rocket Internet venture, I’ve had several long discussions with management of Rocket Internet’s portfolio companies, and I’ve also had personal experience dealing with them in various capacity. These are my thoughts on Rocket Internet and how they work.
As most of you might know, Rocket Internet was founded by the notorious Samwer brothers. They primarily clone companies that have been proven to be successful in the States and introduce them in new markets (e.g. Amazon clone - Lazada in Southeast Asia, Uber clone - EasyTaxi in developing countries, Groupon clone - CityDeal, HomeJoy clone - Helpling). Here’s a list of all the companies under Rocket Internet’s portfolio.
I’ve come to find that Rocket Internet ventures are actually very predictable. Now, if we simplify a majority of their portfolio companies, we’ll be left with only several building blocks.
1) These ventures have to involve demand and supply, and they must have control over both of them. They’ll control demand through massive advertising expenditure, and supply through the hiring of a large, and typically young and hungry sales force.
Take Lazada for example. On the supply side (i.e. items available for sale on Lazada), they have a team of sales people under ridiculous targets to crawl the web, generate leads, call, pitch, and bring onboard vendors, from principals and distributors to resellers. The goal is to increase the assortments available. I’ll describe more on their targets further down below.
On the demand side (i.e. users and revenue), extremely large advertising expenditure is the common practice. Lazada is the third largest digital advertiser in Southeast Asia in terms of budget, right behind Jawbone and P&G. That’s right. Lazada’s advertising budget is larger than Unilever. They’re spending approximately USD$5 million / quarter. The same goes to FoodPanda, EasyTaxi, Zalora, Lamido, you name it. Of course, their advertising expenditure differs from one venture to another depending on market size.
These allow them to grow recklessly and push out other players if any.
2) These ventures don’t do projections based on what they can realistically achieve. They project based on numbers that’ll raise their next big round
Unlike most ventures, Rocket Internet do projections in a top down manner. They’ll decide what values will allow them to raise their desired round size, lay them out on a spreadsheet and begin hiring and setting targets accordingly.
What this results in is insane monthly compounded target increment. It is not uncommon to hear of sales targets, in the Rocket Internet venture sense, increment of 25% every month. As a result, the typical length at which an employee sticks around in a Rocket Internet venture is 4 to 6 months.
These all make sense if you examine the background of the top management at each venture. Almost always, they’ll be people with prior management consultancy experience (think McKinsey, BCG and to a lesser extent, Bain) and occasionally, private equity. Given the nature of their previous work, they are very handy with spreadsheets and know what is necessary to raise a certain level of desired funding, but not necessarily experienced with operations or running of a healthy organisation.
3) These ventures place different teams in different regions as a cost cutting measure
If the venture is a regional venture, this is almost assured. Lets take the Southeast Asian market as a reference point. Headquarters will usually be in Singapore for the legal structure, QA could be anywhere between Thailand, Vietnam and Philippines for the cost savings in salary and marketing and product development in Malaysia or Indonesia for the available expertise for low cost.
This allows them to optimise cost vs available talent throughout the region. That also means that there are very little communication between teams, create dissent, which from what I’ve observed, is their greatest weakness. This is probably also why they’re incapable of innovating beyond cloning.
4) These ventures share top management, resources
Now that Rocket Internet ventures have been around for some time, they’ve built up deep execution knowledge. That means, if a certain execution skill is needed by one of the ventures, for example, new market entry, they’ll transfer management from another venture that has done it before to lead the initiative. “Co-founder” title for any Rocket Internet ventures basically mean a transferred manager who is leading a new market entry for a Rocket Internet e-commerce clone. Every country has a “co-founder”. It’s the prime example for an organisation with inflated titles.
Despite being an “incubator”, Rocket Internet is essentially a very large organisation with shared resources. Which of course, explains their addiction to marketplace, e-commerce type of business.
What these all mean is that if you’re currently running, or is planning to run a marketplace or an e-commerce startup of any sort with demand and supply side problem, with any success, you will be the next target. They have a blueprint that they will not hesitate to copy and paste. Now, if you are running a product company, you’ll most likely be safe from a Rocket Internet style cloning.