How global entrepreneurs are rewriting the rules of Silicon Valley [Q&A]

Startup founders and investors have long looked to Silicon Valley as their reference point. Growth at all costs or move fast and break things has been their motto.

But no longer. Venture capitalist Alexandre Lazarow argues that a significant change is under way, as corners of the world such as São Paulo, Singapore or Delhi, rise to the fore as the world’s new centres of innovation.

In a new book titled Out-Innovate: How Global Entrepreneurs from Delhi to Detroit are rewriting the rules of Silicon Valley and published by Harvard Business Review Press, Lazarow draws on countless examples of tech entrepreneurs in these and other places to argue that a new way mode for building a startup is emerging.

In an emailed interview with Ventureburn, he describes what prompted the book and how frontier markets can help Silicon Valley to re-imagine the way tech companies should be run.

Tell us a bit about your background working with startups in frontier markets

I have been focused on the intersection of investing, innovation, and economic development my whole career.

After having worked in investment banking, in government and as a strategy consultant, I had the opportunity to join the Omidyar Network as it was building out a financial inclusion strategy. This was my first taste of working with early stage entrepreneurs across Asia, Africa, Latin America and in the US

Two years ago, I joined Cathay Innovation, another global venture firm which invests across Africa, Asia, Europe, and North America.

I am fascinated by the potential for the combination of new technologies and re-imagining business models as a way to solve some of the world’s largest problems, and I have the privilege of working with entrepreneurs who are at the front lines of doing just that.

What inspired you to write this book?

In short, it was my wife and my teaching.

First, let me tell you about the idea, which germinated in my work but was catalysed by my teaching at the Middlebury Institute for International Studies at Monterey (in California — Ed).

I was frustrated that I kept assigning the latest in Silicon Valley books and materials to my students, many of whom were planning to move to an emerging market and build a startup, yet always felt like I had to contextualise them to the reality of startups at the frontier.

Everything we think we know about startup best practice is rooted in a time and a place: Silicon Valley, and today, and for a very particular type of asset-light software based startup.

Yet around the world, many of the leading entrepreneurs are not only challenging conventional wisdom, in many ways they are reinventing the playbook.

I believe the best entrepreneurs operating in Bangalore, São Paulo, Budapest and Detroit have more in common with the best entrepreneurs in Joburg, Lagos and Nairobi than they do with those in San Francisco. Yet no one is telling their stories or sharing their best practice.

So, I decided I would try.

That’s where my wife comes in. My wife Shea, who is an attorney, had just quit a corporate law job (incidentally doing startup law for many emerging market companies) to become a non-profit attorney. In between she took a sabbatical to write a fiction novel.

Inspired by her, and to keep her company, I started writing down my thoughts. I submitted a book proposal concept to Bracken Bower in late 2017, a contest named after the founders of the Financial Times and McKinsey & Co for the best new book idea.

Mine was one of the top three and that convinced me I should write the book. After finding an agent, I ultimately signed with Harvard Business Review Press.

What’s the key thing that’s wrong with importing the Silicon Valley model to a region like Africa?

The Silicon Valley model has proven extraordinarily effective in Silicon Valley. Yet around the world, entrepreneurs are operating in ecosystems with less capital, less depth of trained startup human capital and in markets that face greater macroeconomic risks.

The Silicon Valley playbook — of growing at any cost or moving fast and breaking things — just does not translate to operating in Africa.

There must be some things that are working in the Silicon Valley model?

Yes and no.

Of course, Silicon Valley is still pioneering new models and remains a force to be reckoned with. I definitely wouldn’t argue against that. However, things are changing.

Many powerful innovations are coming from abroad. The world’s leading mobile banking platform is in Kenya, the largest hotel disruptor is in India, the largest Robotics Process Automation player is in Romania, the largest digital bank is in Brazil and the leading superapp is in China.

Historically, perhaps ideas were exported from Silicon Valley and replicated elsewhere, today things follow what I call the innovation supply chain. The best ideas come from everywhere and are improved as they scale around the world.

In the book for instance I describe the case of ride sharing. The idea may have emanated from Silicon Valley, but it was adapted around the world.

Today, the largest ride-sharing platform is in China. Evolutions in places like Indonesia, for instance with Go-Jek, which focused on the driver ecosystem and offering a range of products and services like food delivery, e-commerce, and financial inclusion services, in turn influenced us everywhere.

Perhaps it is no coincidence that some of Uber’s recent product launches, such as Uber Eats and its Uber credit card, seem to follow in their footsteps.

Can what’s going on in frontier markets help reconfigure the Silicon Valley model?

One dimension I believe will be impacted in the years to come is Silicon Valley’s obsession with growth-at-all-costs.

I believe many emerging market startups are building “camels” instead (rather than Unicorns — Ed).

Camels adapt to multiple climates, survive without food or water for months, and when the time is right, can sprint rapidly for sustained periods of time.

Unlike unicorns, camels are not imaginary creatures living in fictitious lands. They are real, resilient and can survive in the harshest places on Earth.

While the metaphor may not be as flashy, these startup camels prioritise sustainability, and thus survival, from the get-go by balancing strong growth and cash flow.

As the world reckons with Covid-19, the importance of building camels will be increasingly recognised globally, including in Silicon Valley.

The other dimension is venture capital.

When I interviewed Erik Hersman, the co-founder of iHub, Ushahid and now Brck, he had said something that stuck with me: “You’ve got to make sure the tail doesn’t wag the dog. Today, many startups depend on Silicon Valley for funding, so they tell their story to match the practical reality [of raising capital from existing investors]”.

I believe the venture capital model should adapt to serve startups. There are a range of burgeoning innovations that interest me, including the rise of revenue-share financing, longer-term funds and computerised decision making.

Indeed, the rise of new players like impact investors have helped seed the first generation of startups, and support impactful businesses.

This is a sector I hope continues to grow, including in the US, to support critical industries across education, healthcare, financial inclusion, agriculture and cleantech.

What do you advocate governments and policymakers from emerging market economies do?

I am often asked how to support startup ecosystems around the world. I believe the government and other sector builders (including impact investors, foundations and corporates) have a role to play to support thriving ecosystems.

For one, governments should support cross-pollination. One aspect of that is immigration.

In the US for instance, according to a recent study (opens as a PDF) by the National Foundation for American Policy, more than 50% of US-based unicorns were founded by immigrants.

These companies have a collective market capitalisation of nearly $250-billion, which, for perspective, exceeds the stockmarkets of Argentina, Colombia, and Ireland.

Immigration can also help bring much needed tech talent to certain geographies. In entrepreneurship, and in the markets I studied, the figures are clear: immigrants are powerful drivers of innovation.

I also believe government can help support ecosystem infrastructure.

Many startups have to solve for instance the question of identity in informal markets. In India, a live experiment is taking place with Aadhaar, a government-sponsored universal identification program.

Aadhaar provides 1.3 billion Indian residents with a digital identity based on biometrics, along with a unified platform to access government benefits, open bank accounts, subscribe to telephones, and demonstrate their identity.

The Aadhaar platform provides valuable foundational infrastructure for the ecosystem. Through it, identity verification could be as easy as a plug-in.

The government in India, aided by technologists from the volunteer group iSpirit, are building IndiaStack, a portfolio of application programming interfaces (APIs) which will support the ecosystem further.

I believe startup ecosystem development should be driven by the entrepreneurial community, but that doesn’t mean that everyone else — in consultation with the needs of the community — can’t have tremendous impact.

Featured image: Alexandre Lazarow, author of “Out-Innovate: How Global Entrepreneurs from Delhi to Detroit are rewriting the rules of Silicon Valley” (Supplied)