How Low Employee Retention Leads to Rocket Internet Losing Its Supposed Main Adavantage

Rocket Internet

Speaking of Rocket Internet, Bloomberg recently published a very long in-depth look at Rocket Internet, complete with an interview with Oliver Samwer (obviously intended by Rocket to ease Rocket Internet’s complicated relationship with the public) and, more interestingly, quite a few statements from former employees:

An examination of Rocket’s history and current operations—including interviews with more than a dozen former and current employees—reveal a startup factory that is much better at launching companies than actually running them. […]

Oliver Samwer’s ability to sell is unprecedented, at least for Germany. His main success may very well have been to raise money at dimensions unseen before and after:

It’s a classic performance from a charming and shrewd salesman. Samwer constantly rehearses his pitches and sweats the details right down to the food served at investor meetings, according to venture capitalists and former Rocket employees. One former Rocket executive says the performances remind him of Steve Jobs’s famous reality distortion field—when inconvenient facts rarely get in the way of a good story. Several people who have worked with Samwer say he pushes startups to emphasize data that puts them in the best possible light—like using monthly user figures when the startup sells subscriptions by the week.

Two former Rocket executives express amazement that sophisticated investors fail to ask obvious questions following Samwer presentations. Some decided to invest on the spot, only to sheepishly return weeks later to ask mandatory due diligence questions. […]

On how Rocket Internet works:

A Rocket team is constantly on the lookout for business ideas, scouring the U.S. tech press and funding round announcements from prominent Valley venture firms. The target identified, a smaller group studies potential markets and devises a business plan. When a laundry delivery service called Washio was gaining traction in New York, Rocket assigned a team of young employees to consider cloning the business in London. They called 20 area laundry mats to gauge pricing, quizzed logistics firms about handling deliveries and investigated the cost of leasing a warehouse and filling it with washing machines. […]

At first, all the workers assigned to a project come from Rocket, but as a startup grows it’s expected to hire its own staff; returning Rocket employees are then assigned to new projects. Startups are also eventually expected to find their own office space. In the meantime, Rocket charges its portfolio companies management fees to cover the salaries of the staff and real estate costs, a practice common to private equity but unusual in venture capital.

​The most important insight might be how high how rather low talent retention leads directly to Rocket losing its supposed main adavantage:

Samwer says one of Rocket’s key strengths is its ability to leverage institutional knowledge across its portfolio—taking lessons from one startup and applying them to the rest. “If someone wants to do last-mile logistics in a certain country,“ he says, “we can find him the person who has done it before.” But a half-dozen former Rocket employees say young staffers were put in charge of functions with which they had no experience. At HelloFresh, two of these people say, managers with no background in food or logistics were asked to negotiate with food wholesalers, rent warehouse space and organize delivery procedures. Most of the former Rocket employees interviewed also said there were few formal mechanisms to transfer know-how between Rocket portfolio companies so startups made the same mistakes over and over. […]

For a company that sells investors on a pool of managerial talent that can be deployed at will, Rocket has a surprisingly hard time keeping people. Many recruits use the company as a CV booster for a year or two and then decamp for a non-Rocket startup.

Make sure to read the whole thing. It is very insightful.

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