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Comment by rwmj | Hacker News Reader

Is there a business in creating/investing in only market follower companies? They won't ever be the biggest, but they might take 10% of a market, and the winner has done all the hard work of proving that the market exists and creating a viable product.

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See: Rocket Internet.

They have a habit of seeing what works in the US, making it in Europe as fast as they can and either:

1) Selling it to the original US company

or 2) Developing it into a big independent company (see HelloFresh)

Some people are mad at them for that. I think it's pretty brilliant.

They create companies that are broken from inside, and just pumped with marketing money.

Most traditional VCs don't touch Rocket companies, they raise funding from oligarchs, old school industries trying to go "online".

[1] www.livemint.com/Companies/rYKC6HjnShogjE62jO5lpK/The-trouble-with-Foodpanda.html - Pretty typical of Rocket companies. Fake numbers, related party transactions, skimming money.

I worked in several and I disagree. Take the fashion companies (Lamoda, Zalora, Dafiti... I think they're called global fashion group or something now): branded stuff has a 50% gross margin and the private label stuff up to 90%. That kind of economics leaves room for a lot of error and learning - basically, if you can get your costs under control, manage your inventory correctly and so on, you have a new Zara or H&M. So long as you can see this trend towards improvement, it's worth investing in (and will probably IPO eventually).

I used to think Rocket was operationally not that great, but then I started consulting with normal medium sized businesses and by comparison, they are regional leaders (dunno about global, as I haven't had any American clients yet, but based on my interviews with large Californian companies I won't name who still have interns do all their reporting in Excel, I wouldn't be surprised if Rocket was ahead there too). Same applies to marketing - the ones I worked in were surprisingly efficient with up to 10x the conversion rate I witnessed in competitors and a CPO perhaps 1/5th as high.

Could they do better than they are doing? Absolutely, but generalizing from FoodPanda ("pretty typical") or the Samwer "Blitzkrieg email" is like saying Uber and Palantir will end like Pets.com because they're Californian tech startups with VC funding pre-profit. They've made a genuine effort at building sustainable and sellable businesses globally and I learnt to respect that.

Being a fast follower is a very valid business strategy (see e.g. https://hbr.org/2012/06/first-mover-or-fast-follower).

Some fast followers actually do end up being the biggest. (In evidence is the trope of the innovator's gripe that someone stole 'his' market.) See: Microsoft (OS, office software), Apple (iPod, smartphones), Google, Facebook. None were first to market. Google entered its market after search was considered a solved problem.

To be fair to Google though, their search was orders of magnitude better than the predecessors best (Altavista, Inktomi and a whole raft of others). If it had not been for that then they would have been an also ran. I think the 'fast follower' label should be restricted to be used when the new competitor does something that is for the most part on par with whatever the original is doing, only marketing it better or to a different audience. Otherwise it is more of a 'fast innovator' or simply better execution.

I guess it's a matter of perspective?

For example, tech people tend to single out Google as a 'fast innovator', while attributing the success of Windows or the iPod to superior marketing or some other aspect of business hacking (as opposed to perhaps their success at building better product ecosystems).

One could argue that the iPod was a 'fast innovation'. Or conversely that Google followed quickly behind a host of others, simply building on what their predecessors had done before (and in some way at reduced risk, since 'Internet search' was known to be a viable market at Google's inception). The categories are fuzzy -- although hopefully not for those making the decisions!

Either way, the larger point I was making was that yes, being a fast follower is a legitimate business strategy. There are a lot of risks to being first, and the benefits of being first may not outweigh the risks.

Yes, certainly.

I would say that for a long time Apple was an excellent example of that, maybe even still today if your metrics are market share (instead of profit/revenue). Most of Apple's products are follower products - as in, they enter a maturing space where much of the market research and hard technological work has already been done. Once they enter the market with a better product that is released after the early entrants, and it turns out to be a better product, they eat up all the revenue in the space.

I was watching the the iPhone launch video last night and what you're saying is very apropos. Apple was able to piggyback on the failures of existing smartphones to tell a powerful product story: https://www.youtube.com/watch?v=9hUIxyE2Ns8

This is why I'm so surprised that they released a watch. The smart watch market was tiny and extremely immature. To jump in when they did is very different from their previous winning formula. It will be interesting to see how it works out.

Rocket Internet will, with justification, claim they are a "incubator". I don't know how much stock they take (or more likely give) but the idea of copying consumer sites and reproducing in different locales seems ... Brilliant and off putting at the same time.

Yet "competitors are Gods way of telling you there is money in the market" so perhaps we should all follow this idea more. For example I am looking at setting up a blockchain development company. I doubt that is unique. I don't feel like a copycat however.

I wonder why not?

Rocket Internet are the biggest ones, but there's a lot following this strategy.

Fabrice Grinda, a prolific entrepreneur/angel coined the term "International Idea Arbitrage" years ago.

See: http://www.fabricegrinda.com/entrepreneurship/international-...

As he mentions in the first paragraph, he didn't coin that term as we used it widely at McKinsey's office in the 90s, where he was a junior consultant. BTW, the practice of "International Idea Arbitrage" is applied since the early 1800s in all fields and segments.

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