Rocket Internet: A good starting place for entrepreneurs?

By Samer Kallas

Rocket Internet, the German online start-up incubator, invests mainly in Internet ideas in International markets. Rocket’s business model is to clone successful business models in the US and replicate them in international markets, such as Europe, Middle East, Africa, Latin America and Asia. Founded in 2007 in Germany, Rocket has already achieved huge success with 100+ companies established in 40+ countries worldwide.

Is Copying Business Models ok?

While many believe that it’s not “ethical” to copy successful business models, one can argue the opposite. In fact, if we believe in free markets and anti-monopoly, copycats are essential for market efficiency. Why would the cars or furniture industries be different than the Internet one? Didn’t the Internet become a commodity? In addition, many copycat models outperformed the original version and provided better value proposition for their customers (Google Vs. Yahoo). There are many natural advantages for first-to-market that cannot be gained by copycat models, and if execution is similar there is no reason for copycat to outperform. Isn’t launching successful enterprise all about execution?

What’s in it for the entrepreneur?

Rocket supports its startups by providing concepts, teams, technologies and capital. It recruits entrepreneurs from top MBA schools and consulting firms. Entrepreneurs can start and lead a new venture with less risk compared to launching their own startups, especially in terms of financials. In fact entrepreneurs are offered a competitive post-MBA salary without having to invest any capital. Entrepreneurs can also gain a lot of experience and learn about launching a startup. However if you really want to be an entrepreneur, isn’t taking risk your main drive? Why would you give away your autonomy? Why would you give up all the upside?

With low risk comes low returns; Founders are given very small (insignificant) equity share in the established company. In addition many decisions are out of the entrepreneur’s hand and strategic direction of the company is set by Rocket. On top of that, entrepreneurs are disposables and a lot of them quit the company at early stage.

Is Rocket’s Growth Healthy?

Some of Rocket’s ventures were not successful although the original business model has proven to be very successful.  Again, this highlights the importance of execution and having the right team when compared to idea and business model. For example, why would the copycat of Zapos in the Middle East (Namchi) be successful but not the one of Amazon (Mizado)?

One reason might be the aggressive growth; Rocket invested a lot of money to grow as fast as possible and capture high market share early on. The fast growth might have led to sub-optimal investments and recruitments, which led to the failure of some ventures.