Rocket Internet is one of the most hated yet successful tech companies in the world. Part startup factory, part venture capital firm, the business strategy is to fund clones of Silicon Valley startups then grow them at lightning speed in European, South American, and Asian markets. Once Rocket Internet dominates a market, they sell the startup to the company they cloned it from.
Founded by in 2007 by three German brothers – Marc, Oliver and Alexander Samwer – their portfolio companies employ more than 30,000 people. They have a market cap north of $3 billion, which at times has risen above $6 billion.
Lead by Oliver (the middle brother), Rocket Internet is famous for its aggressive growth tactics, taking businesses from idea to billions of dollars in revenue in under three years. This is due, in part, to their cutthroat hiring practices, a team of ex-bankers, and massive amounts of funding they pour into each venture.
Because the Samwer brothers rarely give interviews, Rocket Internet has, for the most part, remained a mysterious figure in the business world.
The Hustle arranged an exclusive interview with one of their former employees, the ex-CEO of one of Rocket Internet’s most successfully cloned startups. He spent seven years at Rocket Internet and gave us the lowdown on the real reasons behind the company’s extreme growth, and what it’s like to work with the most ruthless CEO in the business. All names have been changed.
How Rocket Internet was born
From day one, Ollie (Oliver, Rocket Internet’s CEO) knew he wanted to copy other companies. He didn’t care about being original. He only cared about execution. Alando, the eBay clone, even used the same logo as eBay… in German.
Until CityDeals, though, it was unclear if Ollie’s plan of copying startups would work. But after seeing CityDeal’s incredible success, the Rocket Internet strategy was formalized.
The Samwer brothers started CityDeals in 2010 and sold it to Groupon for $170 million just five months after starting the company. This was the second time the brothers used this tactic. The first time was when they started an eBay clone and sold it back to eBay for £35 million ($38,158,750 American dollars) within 100 days of launching the site. Since they didn’t take funding for the eBay clone, people were shocked.
“I was hired right after Rocket Internet got going. I was the CEO of one of their companies. By that time they had already cloned Zappos and launched it in Europe. They grew that business to $1 billion in revenue in only 30 months. It was so successful that they wanted to expand the strategy to every other continent.
I wanted to manage thousands of people and knew I could do that with Rocket. I was only in my 20s, so it was exciting.”
Hiring ex-bankers to be the CEOs of Rocket Internet’s companies
“Everyone was coming from a banking or consulting background. Ollie asked himself where he could find the most insecure and biggest overachievers. He knew that type came from Goldman and other consultant firms, and that they had the pedigree that made it easier for him to raise money – every investor respected these employees because they had the same background.
We were all in our mid-20s with banking or consultant backgrounds. We knew about numbers and we were entrepreneurial but we didn’t know how to run a company. When Oliver found potential CEOs he’d bring them to Berlin and put them through a boot camp. He’d find hungry people and be extremely hands-on, teaching them what worked and what didn’t.
I could always call Ollie. Anytime of the day. And he’d pick up and tell me the right move. I was too afraid to call him, but I knew I could. Eventually Rocket had over 300 CEOs working for them.”
Eventually we realized the best companies to clone were e-commerce businesses.”
“Once we picked which idea we wanted to do, the next step was all about growth. It was growth at all costs.
There are three levers we used to successfully clone a business and make it grow faster than the original: expand geography where the service or product is located, create a larger product offering, or lower the pricing to undercut the competitor. Most of the time is was by having more products and undercutting the competitor.
After picking the levers it was time to grow. The first six months is 100% week-over-week growth. Then, after $1 million in revenue, it’s 20% growth every month. We built billion-dollar companies in 36 months.
We’d say to ourselves, “We’re going to dominate this market then prove that we’re growing revenue 20% month over month. Profit doesn’t matter.” We just needed to stay under a certain monthly burn rate. Then we’d sell the company and let the buyer figure out how to make it profitable.”
“Everyone was given one KPI (Key Performance Indicator) to hit. Ollie would hold weekly group meetings on the phone where he’d ask all the CEOs to say their weekly numbers and growth. If you didn’t hit your numbers or didn’t know your numbers he’d bash you so you were embarrassed.
Ollie burned through people like crazy. The churn was ridiculous. Top management was coming and going. It takes a very certain performance-driven character to stay.
A lot of people didn’t like it, but I did. I loved that underperformers got fired. I was working so much that I didn’t see my girlfriend for weeks. My hours were from 8 a.m. to 3 a.m., and my girlfriend would hang with me on the weekend at the warehouse. It worse than banking. $150k in a dirt-poor country with no taxes is a lot of money. We had a jacuzzi and lived like kings.”
“We’d spend $5 or $6 million in two or three months to get it started, and then $20 million a month for four or five months. Most of the money went to hiring people and for Google and Facebook ads to quickly get customers.
A project would keep going until we couldn’t raise any more money. The only point of our companies was to make lots of revenue, raise lots of money, and sell it or go public. More revenue growth meant we could raise more money and eventually sell the company. It’s all about raising more money. Profit didn’t matter.”
“In the beginning we’d fly to a new country and start the business from a small apartment-sized warehouse. It’s like being deployed like a paratrooper. The only goal in the beginning is to hire. The Berlin headquarters helped us spend money on Facebook for the first month and set up the website.
Within a year we’d grow from an apartment to a warehouse the size of ten football fields. To do that we needed workers for the relatively low-skilled jobs like customer service and putting pictures of the products online.”
“We’d start by recruiting local leaders in each section for customer service, supply chain, and logistics. We’d pay them 1.6x their local salary and give them jobs on the spot. To sell them on the idea we’d tell them how much Amazon or Alibaba makes and how we’ll all get rich together.
The leaders were responsible for hiring more local people. The leaders would sell them on the idea of how big the original company is and how a clone can be even bigger since we’d learn from their mistakes. We told these leaders to hire their friends for 1.3x the local rate. After six months we’d cut the lowest performers and hire more.
After a few months we’d teach the local leaders to do the more technical stuff that Rocket’s Berlin headquarters were doing, like running Facebook and Google ads. We’d send some local hires to Berlin to learn about paid marketing. They’d stay there for two weeks to learn. They wouldn’t sleep the entire time.
The early days are hectic. It felt like being in war. The warehouses were disorganized. People from the office would also work in the warehouse if that meant getting products shipped faster.
We’d grow so fast that the local shipping companies couldn’t keep up. Once, we bought hundreds of scooters and hired drivers to deliver packages. The fleet is now it’s own company. Sometimes they wouldn’t even have payment processors. Our own delivery guys would collect cash. At this point, 35% of Rocket Internet’s revenue is cash on delivery – because emerging markets don’t have credit card penetration.”
“The Samwer brothers started Rocket with their own money, but now the money to start companies comes from the Kinnevik family, a rich family from Sweden. The Kinneviks invested in Zalora. After it sold, all the profits went back to Rocket. That’s how they have so much money. Kinnevik owns 25% of Rocket. Rocket also raises lots of money from investors for each company.”
“Rocket sends three people to a different country to start a business: a CEO, a CFO, and a COO.
The CEO builds the team, does the marketing, and drives sales. The CFO manages the revenue growth and cash burn. The COO makes sure we have a big enough warehouse and that the packages get delivered.
All three people have the same background. They come from the companies like McKinsey, Goldman or another top company. They all have the same numerical skills (above average), and are always around 30-years-old or less. Occasionally they’re in their early 30s, but never older.”
(Originally Published at thehustle.co)