Building Companies of Scale from Europe — Fireside Chat with Delivery Hero Chairman Lukasz Gadowski at South Summit

Earlier this month I was in Madrid for my first SouthSummit. I spoke in 3 sessions, including a fireside chat with Lukasz Gadowski, Chairman of Delivery Hero (DH). DH is a global delivery leader. It went public in June 2017 (the largest tech IPO in Germany for several years) and is now worth over $7 billion.

Delivery Hero is in 64 countries and #1 in 50

Here is the transcript slightly edited. The video is at the end of this post.

Topics discussed:

  • The path to building Delivery Hero, after 2 other startups.
  • The key to scale: the business model
  • Scaling with buy and build
  • Challenges: Capital, People, Focus
  • The advantage of Europe: the habit of market differences
  • Lukasz next bets: urban mobility with e-kickboards and flying taxis.


From T-Shirts to Germany’s Facebook to Delivery Hero

Ben (HAX): We’ve known each other for a few years. Let’s recap a bit your background. You were born in Poland, studied in Germany and started a t-shirt printing business (Spreadshirt), which is still going now with over $100m in revenue.

Lucasz (DH): Yes. I am also Chairman of that one. Small numbers, high quality. You can also buy them in Spain.

Can startups scale from Europe?

Ben (HAX): You were the first investor and co-founder of the German Facebook, which got acquired for almost $100 million.

Lucasz (DH): Yes. It was acquired after less than a year. Unfortunately not by Facebook. This was a big mistake that we made — not to sell to Facebook.

Ben (HAX): They were interested in buying?

Lucasz (DH): They were. We would have received Facebook shares. But back then — it was 2006 — it wasn’t clear that Facebook would become what it is today.

Ben (HAX): Facebook didn’t acquire local versions anywhere, right? So that would have been a very unique case. Well, hindsight is 100%.

Lucasz (DH): We grew faster in Germany than they did in the U.S. back then.

Starting Delivery Hero

Ben (HAX): So this exit gave you the initial funding to start your own funding and ‘company-building’ studio in Germany called Team Europe. You were joined by a few partners and you started building companies. Why did you decide to work on Delivery Hero?

Lucasz (DH): We wanted to launch successful companies of a certain scale. And usually when you’re an entrepreneur you look at something completely new. Sometimes you look for too much innovation, and often it’s only the small things.

We looked at scale and the biggest factor in building a company of scale is the business model. At least that’s my experience. It goes back to the Facebook experience and the Spreadshirt experience. To sell custom-printed t-shirts is a very challenging business model when you compare it to how many times you buy food a day. Even with flawless execution if your business model is not right it will be very challenging. A good business model is more forgiving.

Even with flawless execution, if your business model is not right it will be very challenging.

Ben (HAX): Was there a previous model somewhere else?

Lucasz (DH): It wasn’t new but incumbents were lacking some key features, like payment. We could overtake them as a startup by being more aggressive and more innovative.

Ben (HAX): Was there any success in U.S. prior?

Lucasz (DH): Most came out around the same time.

Ben (HAX): In China, Meituan was founded as a local Groupon. It had to compete with thousands of copycats. Eventually margins went down and the market consolidated. Meituan merged with Dianping and acquired Mobike (bike rental). Did you see as much competition?

Lucasz (DH): There wasn’t a price war like that. When we started it wasn’t over-crowded. When it became hot we were well established.

Going Global

Ben (HAX): You started local operations in different countries. How did you do that? How did you find the people or decided to grow organically or acquire?

Lucasz (DH): We started in Germany and after 6 months started a separate international team. In some countries we did ‘buy and build’ by integrating founders in the DH family.

Ben (HAX): How did you pick the markets?

Lucasz (DH): Market size and where we had good access. Later on we picked our battles and went where we could partner with local entrepreneurs.

Ben (HAX): So a mix of market fit and people fit.

Lucasz (DH): Yes. There are a few markets where we were not successful for various reasons. China is one of them.

Ben (HAX): China is a tough one.

Lucasz (DH): Meituan and Dianping waged a strong price war, with lots of subsidies.

Ben (HAX): It’s difficult to outcompete locals in China ...

Barriers to Scale

Ben (HAX): It was your first time scaling internationally like this. What were the pitfalls you noticed?

Lucasz (DH): Several:

  • Raising capital
  • Growing your organization
  • Picking your battles
  • Where to focus

Ben (HAX): In U.S. and China, some investors deploy lots of capital to consolidate a leader, or make a company a leader. You had sold a company, which probably helped with fundraising. What did you feel were the limits in Europe in terms of access to capital?

Lucasz (DH): U.S. and China are more advanced in terms of access to capital, but compared to other places we’re in pretty good shape. We also have access to talent to scale businesses, including internationally.

  • The U.S. has a large domestic market so they have less pressure to go international.
  • China has well, and culturally it’s tougher for them to go abroad — in terms of culture but also differences in terms of ecosystems, in terms of the connections they have. Just very recently China started to play in Western markets.
  • In Europe we’re in a unique position to scale not only in Europe but also Latin America, Middle-East and some parts of South-East Asia. It’s about capital but also services and know-how on how to operate. We can team up rather than compete to win globally against the US or China. Europe is a smaller market but add the rest of the world and it’s a compelling play.
Europe is a smaller market but add the rest of the world and it’s a compelling play.

Europe is also culturally well adapted because we have to deal with different geographies, nationalities and cultures anyway. This is one of our skills. So it’s like a curse and a blessing. To build a large company out of Europe you have to go global.

Dealing with market and cultural differences is one of Europe’s skills

Ben (HAX): So being aware of differences helps.

Lucasz (DH): Yes. We are in a unique position to scale globally.

Going Public

Ben (HAX): You decided to go public after several rounds. 95% of tech startups get acquired. Did you consider M&A? For instance, maybe Meituan-Dianping which just went public and is worth $37 billion could have been a buyer.

Lucasz (DH): When we started we only thought ‘let’s build a lot of value’ and scale over a few years. The other aspect is always looking for the long term. As an entrepreneur, the success should be rooted in created value in the long term. Optimizing for the short term and financial markets is a risky proposition.

Ben (HAX): Let’s remember that an IPO is not an exit for founders.

Lucasz (DH): There could be many reasons for IPO, and sometimes you have no choice.

Next Projects: Urban Mobility

Ben (HAX): Now you’re working on other projects focused on urban mobility. One is e-scooters, another one is flying taxis.

Lucasz (DH): Again it’s about providing value long term. At the macro scale, Europe has:

  • A lot of talent
  • The ability to go global
  • Nascent capital markets

After doing Delivery Hero, social networking, e-commerce, marketplaces and ad-tech I wanted to go back to more technical things. We have a lot of engineers and I wanted to enable them to be successful and grow as entrepreneurs and build large sustainable and independent companies. So I started to look at deeper tech and more engineering.

I ended up in the flying car space. Really spacey. With no wheels, so not able to drive on the streets. We will be seeing individual transport in the air.

Not helicopters but much cheaper, quieter, safer and easier to operate. And affordable for all; not a luxury product. It depends on the ambition of entrepreneurs and regulations, but maybe we’re 3 to 5 years away.

Flying taxis by Volocopter

I started with that and made a few investments and keep looking at this space. It’s not a super fast time-to-market:

  • it’s next-generation mobility,
  • it’s hardware
  • and it’s regulations.

This goes back to business models. One of the most promising right now is shared kick-scooters.

Ben (HAX): Like Lime of Bird.

Lucasz (DH): Yes. With our team we think we’re in a unique position to repeat what we did with Delivery Hero and build a European champion and global player in this field.

Ben (HAX): Haven’t U.S. and Chinese players been faster at going global this time?

Lucasz (DH): They have but it’s still very early. They have their own challenges and are also fighting in their home markets. Also we think we can be pretty good.

Here again our strategy is to partner with local entrepreneurs. We’re not trying to be a pyramid with an HQ in Berlin. We have a dual strategy of building our own markets and partnering with local entrepreneurs. This is a strategy I have not seen to this extent with the others yet.