I often get asked what I think about Rocket Internet, particularly now that they are in the midst of pursuing an IPO. I’ve never met the Samwer brothers. So while others have very strong opinions about them as individuals, I don’t. In fact in some ways I applaud their entrepreneurial vigor and some of the successes they have had, and wish them success in their upcoming IPO.
But I do think that the “company-builder” model that they’ve popularized doesn’t make much sense in the technology industry.
For those of you who are unfamiliar with the “company builder” model that Rocket popularized, it works as follows: 1) spot a successful business model that is working in the US or China, 2) copy that model into another geography, 3) hire a bunch of smart young people to try and execute the model. Sounds pretty smart, right?
But there’s something missing with the above formula – a founder for the new business being launched. Sure, when Rocket starts a new ecommerce business in Indonesia, for example, they will hire a McKinsey alum or a recent business school grad, give him or her a “founder” title and 1-2% of the equity of the business, but that’s not what I’m talking about.
I’m talking about a real founder. The person or persons who have directly experienced the pain points of the problem they are trying to solve, who have a vision in their head of how to solve those problems, and who are willing to sweat, bleed, beg, and borrow in order to see their vision become reality.
This isn’t just a philosophical argument in favor of founders and against hired guns. It’s an economic argument.
Founders of technology companies matter because they dramatically impact the outcomes of the companies that they are involved with, usually in a positive way. They are the ones with vision, and vision is critical for technology companies – it is what can keep them ahead of the game when technological and market forces around them are changing every few months.
Let’s consider the two biggest technology companies in the world, Apple and Google.
What’s happened to Google since its founder, Larry Page, re-took the helm in April 2011? The company has become re-energized and more aggressive, becoming the #1 mobile operating system in the world, and has made bold bets in maps (Waze, Skybox Imaging), devices (Nest, Dropcam, Boston Dynamics, etc), and on other “moonshots”. Many people forget that back in 2011 people were saying that the Google era was over. Now, Google is hot again.
Now let’s look at what happened to Apple since its founder, Steve Jobs, left in August 2011. The company has lost its leadership position in mobile (to Google), iPad sales have not taken off as expected, and people are still wondering what Apple’s next big business is going to be (3 years after Steve Jobs stepped down). As amazing as the company’s core business is, there is a sense that there is a lack of clear vision or direction.
You see, even for the largest technology companies in the world – Apple and Google, which each have tens of thousands of employees – the vision, passion, and cultural influence of their founders matters – a lot. It changes things. It’s a competitive advantage. It helps them win. It turns battleships.
Now what if you’re talking about a much smaller technology company – a startup – a “rowboat” instead of a proverbial battleship? The founder’s influence is even greater. Who else would demand amazing customer service when an order isn’t properly fulfilled? Who else would make sure that each new product launch is “insanely great”? Who else would understand the vision of the company enough to make big changes to the strategy, operations, and team based on changes in the marketplace and in technology? These decisions are the stuff that conversion rates, net promoter score, retention rates – all of the things that differentiate a good young company from a bad young company – are made of.
As smart as the young McKinsey alum is who has been asked to be the “founding CEO” of a pre-fabricated company, it isn’t their business. It’s isn’t their idea. It’s isn’t their vision. It isn’t their blood, sweat, and tears that they’ve poured into it. It isn’t their team. They are going to do the best job that they can with the resources they have. And chances are they’ll do a good job.
And that usually won’t be good enough to win. As Ben Horowitz once said, “this is not checkers; this is mut******kin’ chess”. Ultimately the team of hired guns will lose to the competitor who was started and run by an actual founder. The founder-built company, led by one or more smart, local, passionate people who eat, sleep, and bleed for their company, will scrap and claw and come up with solutions to problems that the hired gun won’t.
The hired gun will leave when the going gets tough. We’ve seen it happen many, many times. Unfortunately, we’ve met dozens of former “founders” of Rocket companies, and they all tell the same story: things weren’t working, so they left to do something else. Real founders don’t do that.
That’s not to say that a founder-built company will win in every market every time. Sometimes there is no local founder-led competitor, so the Rocket company will do just fine. After all, it’s hard to lose a race if you’re the only horse in it. Sometimes enough money can be thrown at the problems so that things eventually turn out OK. That’s fine too.
But throwing money at problems doesn’t work in most industries, and it works even less in the technology industry, where founders, not funding, often mean the difference between winning and losing.
As a result, we prefer to bet on companies with actual founders.