Venture capital is a business of diversification and risk management
This is the story of how Rocket Internet entered a developing market and succeeded because of its diversified portfolio of startups and investments
In 2015, Rocket Internet reached out to me with a clear mandate — they wanted to launch their Lamudi business in a developing market, but they also wanted to fail and pivot as quickly as possible to reduce the pain if there was no market fit to be found.
What exactly is Rocket Internet?
Rocket, the e-commerce investor which has raised nearly $2bn in the past year, is perhaps the most famous internet…
Rocket Internet's Real-Estate Classifieds Platform, Lamudi, Bags $7M To Grow In Asia
Rocket Internet's real-estate classifieds platform, Lamudi, which operates in 21 markets in Asia, Africa, the Middle…
Business model challenges
Lamudi.com is a specialized online classified and a two-sided marketplace that helps remove information asymmetries from the Real Estate market. Launching and growing a two-sided marketplace of such has three strategic value creation challenges:
- The cold start challenge — the chicken and egg problem: it’s challenging to build and scale the supply side, which in this case were the property listings and information, that would incentivize the demand side, in this case, renters and homebuyers. Listings are fragmented, dispersed, and depending on market structures, some are not willing to advertise them publicly. Furthermore, building brand equity for agents and agencies to automatically think of your brand to list their rent/sales files on your website is key to sustained business growth and profitability
- Customer retention challenge: considering an increasingly commoditized supply with posting ads on many platforms becoming a free service, it would growingly become difficult to acquire and retain users with a commoditized supply side. An online real estate classifieds marketplace needs to continuously differentiate and create moats as it scales, otherwise, it would become a cash burn
- Monetization challenge: with real estate transactions happening offline, it’s difficult to monetize an online marketplace that is just an ads placeholder for agents and agencies
There were two main competitive challenges in the market of entry:
- Fighting an incumbent of scale: an incumbent horizontal classifieds marketplace, Divar, had launched 3 years prior and was slowly shutting down paper-based classifieds and magazines including the country’s largest publication, Hamshahri. While this was a positive sign that consumption habits were changing and there were opportunities for new players, they needed to unbundle the incumbent’s horizontal scale (i.e. Divar). To make matters more difficult, the incumbent owned the country’s largest Android application marketplace, CafeBazaar, which was helping it push its Divar application onto millions of smartphones at extremely low costs and provided consumer insights that helped it develop a product that better suited the market. Fighting Divar’s reach was a massive challenge, and that’s why we approached its founder for acquisition purposes, but our calls were always turned down.
Here's what it's like to launch a start-up in Iran
Placeholder while article actions load About 15 years ago, he was the first kid in his Tehran high school to get the…
- New entrants: There were several new entrants with French, Dutch, and domestic backgrounds including the ‘Realtor Association Agency’ that aimed to take advantage of the new opportunity. This meant that to win, as a new entrant, we needed to differentiate by finding a niche segment and deliver upon their needs, and scale from there. We also approached some, if not all of the new entrants to find areas for collaboration, to fight the incumbent if need be, however it never came to fruition.
Timing — it appeared we were a little late to the game
Digital migration and internet consumption in the country had surpassed the initial early adopter phase by 2012 — 3 years before our entry. The incumbent, Divar, had also taken advantage of launching around the same time, giving it a unique organic macrotrend boost.
The one interesting trends that we were eyeing was that smartphone and mobile internet adoption rate was on the rise. However, we knew that this would be more positive news for mobility-related services such as Uber, Doordash, and Getir, which were in the portfolio of businesses we were launching in the country.
Spotify: how software ate audio
This is the story of what has worked for Spotify in its journey of delivering the perfect listening experience and…
The bottom line: pivot and/or fail fast
Considering our timing and the incumbent’s first-mover massive competitive advantages, we knew that we were starting at a disadvantage and agreed that we needed to learn and experiment quickly and pivot or fail fast intelligibly.
Why Startups Fail: Top 12 Reasons l CB Insights
From lack of product-market fit to disharmony on the team, we break down the top 12 reasons for startup failure by…
How we executed
Taking a portfolio approach
While the conditions of the market were unique for growth and ripe with potential economic returns, we decided to launch a portfolio of different businesses to diversify risk.
In action, we launched a ridesharing business (i.e. Uber), an e-retail and e-commerce marketplace (i.e. Amazon, eBay), a food delivery business (i.e. Doordash), and a real estate classifieds (i.e. Zillow), and an online travel marketplace (i.e. Expedia). With the following three priorities:
- With the businesses where there were no players and huge upside potential, such as the case of ridesharing, we invested aggressively and built products from scratch with a longer-term game plan
- With business models that had risks due to competitive and environmental factors, such as real estate classifieds, we built MVPs quickly with 2–3 rigorously defined hypotheses that needed quick validation
- Pave the path to success with fast and quick execution, partnerships, and acquisitions
Rocket Internet acquires ZoodFood - 2015-09-14 - Crunchbase Acquisition Profile
ZoodFood Zood Service Arman is an E-Commerce Company that is known as a pioneer company in Iran's Online Food Market…
The case of the online real estate classifieds
I took on a 5-pillar mission to quickly experiment with finding market-fit for the Zillow clone in the market.
- Minimum expenditure on the product: I took the global Lamudi product and redesigned its UI for the local market, reducing upfront product development costs, and launched it under a locally meaningful brand, Eskano, so that its potential failure would have minimal impact on the global brand because I was already aware of the challenges ahead
- Built a business development and partnership team to build the supply side: this team quickly partnered with medium-sized real estate agencies, onboard their listings either manually through a customer relationship management system, the automated scraping of the partners' websites, or an XML standard feed
- Built diversified customer acquisition paths: since the marketplace needed to provide partners with leads, we had to raise traffic immediately. So we invested in paid digital ads and referral programs to get the reach and I spent a lot of time on PR to reach the masses. In the meantime, we also took on a longer-term focus on sustained growth by dedicating resources to search engine optimization in the case that the marketplace finds market-fit and scales
اپلیکیشن اسکانو رونمایی شد؛ دسترسی به بازار املاک ایران با تلفن های هوشمند - زومیت
اپلیکیشن اسکانو که با هدف سهولت دسترسی به بازار املاک ایران طراحی شده است، روز دوشنبه ۱۸ خرداد ماه ۱۳۹۴ در یک نشست خبری…
اسکانو معرفی شد: خانه مورد نظر خودتان را در اینجا پیدا کنید!
صبح امروز و در سمیناری خبری که با حضور مدیران اسکانو و برخی از اصحاب رسانه برگزار گردید، اسکانو، نرمافزار هوشمند…
اپلیکیشن اسکانو رونمایی شد؛ دسترسی به بازار املاک ایران با تلفن های هوشمند
امروز دوشنبه ۱۸ خرداد ۱۳۹۴ طی نشستی خبری اپلیکیشن هوشمند جستجوی املاک در ایران، با عنوان اسکانو رسماً رونمایی شد. اپ…
- Invested substantial resources into finding and developing talent: entering a developing market, on paper, where the competitive barriers are low, seems like an opportunity, but in practice, it comes with a massive challenge: a shortage in talent. In early 2015, it was very difficult finding skilled developers and digital marketers willing to join Rocket Internet, because there just weren’t many, and those around, despite more lucrative economic packages, were reluctant to join as they saw risks with the business model. Hence, I had to hire fresh graduates or even those still in school. Therefore, the team required a great deal of attention with training and mentorship, that at times took 50% of my time
- Differentiated the service compared to the incumbent: we provided free photography services and a comprehensive lead generation and analytics dashboard to the supply side partners while the depth and breadth of information of our listing, relative to the incumbent’s, was a differentiative factor for the demand side
Demand was receptive
The easy part was acquiring customers — our Customer Acquisitions Costs were the lowest among the various Lamudi branches across the globe and locally among the different ventures we had launched. This was a positive indication that consumers were waiting for our offering.
Structural problems in the supply side
Scaling the supply side was a massive challenge — real estate agencies are regulated under the Provincial Realtor Association Agency and once an agency acquires licenses, it can recruit as many agents as it wants with the agents mainly making a living on commissions. This created a competitive marketplace where agents were always in competition over listings and sellers had no incentive for an exclusive partnership with agencies.
Therefore, having agents and agencies broadcast and advertise their listings on a publicly available website, was a livelihood risk for them. This meant, that while there was potentially room for luxury apartment listing that had exclusive sales partners, scaling into the mass market to remove information asymmetries, a positioning where Lamudi’s business model made profits, was a challenge
No Takeoff for Rocket Internet
Rocket Internet is one of the least known but most prolific Internet companies in Europe, if not the world. In recent…
Around the country, properties are often advertised without images — something which has become standard — and location is not mentioned. To make matters worse for the Internet company, the local industry is mainly run by independent entities that guard their buyable properties like hawks and don’t trust third parties to muscle in on their action — Financial Tribue, Jan 2016
After 8 months of customer discovery and trying to scale the marketplace, it became transparent that the structural market forces on the supply side would prevent the business model to scale. While there was potential to work on higher-end and luxury real estate sales, we decided that it wasn’t in our core interest.
We also contemplated the idea of disintermediating the agencies and building a Consumer-to-Consumer classifieds platform, however, considering the complexities associated with a property transaction at the time, and the fact that the horizontal incumbent, Divar, already had the scale and network effects for such an offering, it would be best not to enter a direct competition.
So we decided to shut the platform down in late/early 2016, and Eskano’s last blog post went online in late 2017. This was the fate of the other businesses that we launched that were late to the game in the country.
Bamilo was shut down - Shanbe Mag
Bamilo, The second largest online store in Iran after six years of activity was shut down. Although the executives of…
Bamilo — The future of the new Bamilo!
An Iranian online marketplace, Bamilo, published a statement that they have been forced to cut jobs and downsize due to…
The case of other entrants to the real estate classifieds market
Since 2016 several entrants have tried to disrupt the real estate classifieds marketplace in Iran and most, if not all, have failed to find a market fit due to the regulatory status of the market, which remains a barrier to disruption and change for the sector.
Today, the incumbent is the main go-to place for initial real estate research, and despite its dominance, the experience is still sub-optimal. Today, most of the real estate classifieds on Divar are fake advertisements that generate leads for agencies and the agents propose other listings to those in search of a property. This is all while the incumbent had spun off a specialized platform for end-to-end second-hand car sales, Karnameh.
Your people are your biggest assets
While the story of cloning Zillow had come to an end, I had a fresh, energetic, and trained team of 30–40 tech-savvy colleagues and friends who could take on other challenges at Rocket’s portfolio of ventures. Over the next 8 months, the same team launched a new proptech platform, ZoodRoom, that got rebranded under the Snapp brand to SnappRoom. Snapproom rents old and outdated hotels at decent locations on long-term contracts, refurbishes them, and rents them out at premium markups, very similar to BlueGround.
Blueground Secures $180M in Series C Funding
Blueground is poised to dramatically expand its network of designer turnkey homes from 15 to 50 cities by 2025, thanks…
This was the biggest learning for me as an early employee and venture founder at Rocket Internet — the investment that you make in your people is key for sustained growth, as long as:
- You acknowledge their core abilities
- Can build a safe environment for them to experiment and fail in, and
- Have a long-term perspective on your collaboration
Rocket’s portfolio strategy
As we had predicted in the early days of Rocket Internet’s entry into the Iranian technology sector, with the growing adoption of smartphones and mobile internet, mobility-related business models would be best situated to win in the market — and that is exactly what happened.
We launched 6 business models and online marketplaces in 2015, two of which were Uber and Doordash clones. The other four have either failed and shut down or not been as successful. However, the two mobility platforms have grown exponentially and 12 other businesses had spurred out of their core value propositions.
Rocket’s originally established businesses in Iran currently operate under the ‘Snapp Group’ holding in partnership with MTN.