Digital Transformation – The company building kit

The magic attraction of the keyword "company building" wasn't unleashed by the rocket Internet, but sooner. Capital investors have long since identified the potential efficiency gain of the studio model. Why is now the right time for company building?

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Digital Transformation – The company building kit

GETTING STARTED

“Whether you plan to change the world with a capital-funded startup, or whether you want to be profitable with a small family business: It has never been easier than it is today.”

These are the words of Andrew Chen. He is responsible for the recruitment of new drivers and thus the growth of the company.  Additionally, he invests venture capital and has stakes in companies such as Tinder or Dropbox.  His newsletter on growth is one of the most valuable gems in the digital transformation segment, because unlike many colleagues, Chen always becomes concrete and specific. Even web veteran and über investor Marc Andreessen recommends reading Chen's works.

Andrew Chen, however, adds another morsel of wisdom to his statement: 

"Both models share the common feature that they nowadays have to be founded with low initial budgets". 

Chen points out that the risk of failure is increasing and that one must plan for this risk. Every day, thousands of start-ups are founded worldwide - the Chinese government speaks of 12,000 per day in the Middle Kingdom alone –  and only a few really take off.

The modular principle  

 "Delticom acquires Gourmondo and Lebensmittel.de for EUR 30 million."

This message raised a lot of eyebrows among many observers of the e-commerce landscape in Germany last summer. Why should a large, successful tire retailer encumber itself with the difficult online grocery business? The development of the market is by no means secure and the core expertise seems to be missing to the Hanoverians.

Insiders quickly came across the rather clumsy justification that board spokesman Andreas Pruefer sweetened his return to Delticom by selling his own companies to his new employer.   And even if the auditor emphasized that he had not been involved in the corresponding debates on the board, there remains an "aftertaste". Some shareholders found the deal anything but funny. And his skepticism seems appropriate: In the first half of the year, the food division generated 6.2 million euros. It was 13 million in 2015, and traditionally the second half of the year is clearly stronger for Gourmondo.

Noteworthy in the takeover, however, are two facts that reviewers highlighted in conversation with the InternetWorld Business last August. On the one hand, he built the two food companies with his experience from the tire trade.  In this respect, the company structures are similar and easy to dovetail.

Secondly, auditor Delticom does not consider itself a tire retailer, but simply an e-commerce specialist. 

"Whether I do search engine marketing for tires or for champagne, there is only a gradual difference. The same applies, among other things, to logistics.“

The old saying of the shoemaker, not to quit his day job, is no longer valid; at least as far as the merchandise to be distributed is concerned.

The auditor establishes a connection with the Andrew Chen with these two statements. If it is so easy to become an online retailer, then the key strengths of an enterprise today are in speed – both in terms of time to market and growth. And of course it is a question of efficient use of resources. Why not use the expertise Delticom developed in web design, user experience, online marketing, shop software, market places etc. in a completely different project? Off the cuff you have a powerful team at the start, which would be difficult to build up with freelancers.

What Delticon achieves through acquisitions, Rocket Internet implements with start-ups.  The entire arsenal of basic technologies can be adapted to a new business by clicking a button. This starts at the heart of analytics, through the store's frontend, CRM, referral system and email marketing. The different modules are searched together as if from a building kit and adapted by excellent designers and coders to the respective model.

In the meantime, the Berlin-based company's wealth of experience is so broad that even extremely diverse supply scenarios can be served. From the classic online retailers like Home24 to a middle-class concept like Delivery Hero to a strictly platform-based business, e.g. camping reservations site campsy. The brands are of course completely different on the surface, but they have a lot in common.

Florian Heinemann bases his choices of investments on a similar idea. Project A Ventures invests in eCommerce models if they go beyond traditional merchandising ideas. They need something special. Just like LostMyName, a start-up that creates personalized children's books. To make this possible, Project A provides numerous strong subject matter experts for technology and marketing that feed in know-how where the start-up needs it. 

More than just investing

Studio model is the name of the approach whereby investors not only want to give money but also want to actively engage. On different micromanagement levels, but definitely more thoroughly involved than the traditional VC investor. "It's about feeding both animals," says our founder and CEO Andreas Schwend.

"You want to be as fast as a start-up and as efficient and organized as an established company with proven processes."

The studio model has been the most dynamic concept in Silicon Valley for three years. Companies such as Betaworks, Science Inc. or Obvious Corp. are focusing on an overarching team idea, where the new start-up is to become part of a community and not only goes home with a fat check. 

"This model doesn't work for everyone",

says Andrew Chen.

"Some founders are better advised to go their own way. Some don't need any help at all“.

The transition from straight-forward investor model ultimately is also related to the fact that a large percentage of today's investors and business angels come from the start-up camp themselves and do not have an investment banking background. They can be infected with new ideas and like to participate more directly in a company's development instead of just looking at naked figures.

Netscape veteran Marc Andreessen is one of them; Twitter founder Ev Williams is another, and Snapfish founder Raj Kapoor is a third. Groupon founders Eric Lefkofsky and Brad Keywell are also running a studio with Lightbank today, for example the start-up belly emerged. Belly offers a loyalty program that is very easy to configure. Bit.ly also arose from a studio concept. The obstetrician was Betaworks, one of the first studios, founded by John Borthwick and based in New York, interestingly enough.

Incidentally, the concept name "studio" actually comes from Hollywood. The idea is similar to that of the film studios, which compete with each other and produce different works, but still share basic resources, especially in the technical business.

Digital Grownups

"Company building must not get stuck in the experimental stage," 

explains Andreas Schwend. 

“It's not just about looking for new business models in labs. Existing companies in particular are also looking for ways to optimize processes, which is much closer to existing operations than a pure start-up."

Schwend and his diconium are looking for the link between start-ups and large companies. The golden mean lies in a kind of joint venture, which is usually set up with a clear focus on what is on offer. diconium calls it the digital company. It benefits from the group's data, resources and experience, but operates highly digitally and with agile processes from the start-up world. "Many corporates have had to realize in the past that the financing of start-ups can be an exciting investment opportunity, but that does not bring their main company further," says Schwend.

At  Digital Grownups, the managers from the group meet the creators of start-ups. They develop together and the group managers as well as the operational staff contribute the knowledge gained back to the parent company. Incubator cells for digital transformation are set quasi from the inside.

Why now?

Company building is start-up culture on speed. There are several reasons why the idea is now beginning to triumph in Central Europe as well.

1.  Less risk:  To give a start-up a digital core, basic know-how is indispensable in a handful of complex disciplines. Building this over freelancer is expensive and not particularly sustainable. Payroll employment positions come with considerable risks on both sides.

2.  More speed: Especially in the start-up phase, the modular model is quicker to achieve impact on the market and, for example, to be able to take up the effects of TV advertising. In order to optimize sales and profits, detailed fine tuning with topic expertise is necessary.

3.  War for talent: Especially in the early stages, the question of where to find talent arises for many start-ups. Studios can make things look more attractive. And for existing employees, switching between projects can be quite attractive.

4.  Better risk diversification: An aspect that not only interests investors, but also corporations that are fond of promoting start-ups. "Company building is also attractive for large companies, who can easily learn more at the company building compared to the pure investment," says Andreas Schwend.

5.  The competition is getting tougher: Not a single day goes by without a new incubator opening its doors. Many of them are now driven by companies, such as L'Oreal, Microsoft or Deutsche Bahn.

The last point is not to be underestimated, because in the meantime cities, counties and entire state governments are also involved in the venture business. Dream Town is the name of the start-up Dorado in China. The municipality of Hangzhou is currently supporting over 700 start-ups here. In addition to access to classic central resources, salaries are also paid out and start-ups can apply for special promotions if the business model is more expensive. The funds for this also come from the Chinese central government.

Mishi is a start-up that originated in Dream Town. Founded by two former Alibaba employees who missed their home, Mishi provides self-cooked food from private individuals to companies or self-employed people. The Uber model for grandma's apple pie. After two years, Mishi has 100 employees and 10,000 homecooks. The company operates in four cities.

"The founding and enlarging of companies is now more of a craft than an art," 

says Andrew Chen.

"Even a good idea has only short survival. It would be better to have a hard-to-reproduce form of uniqueness or perhaps a patent." 

The rest is available from the kit.