Silicon Valley and beyond – how these startup insights can help entrepreneurs around the world
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Business frameworks and actionable tips for founders are well explained in the compelling book by Alexandre Lazarow, Out-Innovate: How Global Entrepreneurs – from Delhi to Detroit – Are Rewriting the Rules of Silicon Valley.
Though Silicon Valley dominates much of the prescriptions about startup business and financing, a new crop of startups in Asia, Africa, and Latin America is introducing other mindsets and skillsets. Some of these “frontier” startups are even present in parts of the US beyond Silicon Valley, and in Eastern Europe, and the Middle East.
Much has been written about startups in Silicon Valley and China, but this book unites insightful and inspiring lessons from other parts of the world. Written in an engaging storytelling format, this book is a must-read for entrepreneurs, investors, innovators, and ecosystem enablers.
Alexandre (Alex) Lazarow is a venture capitalist with Cathay Innovation and was previously with Omidyar Network, McKinsey, and Bank of Canada. Originally from Canada, Alex is a Kauffman Fellow and an adjunct professor at the Middlebury Institute of International Studies, Monterey. He is a graduate of Harvard Business School and the University of Manitoba.
The material is well-researched and thoroughly referenced, with 30 pages of notes and sources. Here are my key clusters of takeaways from this 270-page book, summarised as well in the table below.
See also my reviews of the related books, The Prosperity Paradox, Funding Your Startup, The Startup Community Way, Tech Titans of China, and the Startup Guide series featuring Johannesburg, Cairo, Bangkok, and Singapore.
“Entrepreneurship is a driving force for employment,” Alex begins. “Startups are also a key driver of national innovation,” he adds.
“If we are in the age of innovation, then its economic, philosophical, and spiritual centre is in Silicon Valley,” Alex explains. It is home to three of the world’s five most valuable companies, all of which were once startups — Alphabet (Google), Apple, and Facebook.
Silicon Valley has an estimated 40,000 startups and thousand VC firms. Venture capital has fueled successful companies like Apple, Amazon, Facebook, and Genentech.
However, the rise of broadband, mobile media, cloud computing, and collaboration tools have helped spur a worldwide movement of startups. Innovation clusters have emerged in New York, London, and Berlin; China has become a formidable player as well. The most exciting story, according to Alex, is what’s happening in other hubs like Bengaluru, Nairobi, and Sao Paolo.
Silicon Valley learnings apply quite well for startups based in the region, and are suited for its context of “break things, disrupt, and grow at any cost.” Many of these principles solve problems of its “bro” founders (mostly white males), Alex observes.
In contrast, the “frontier” entrepreneurs offer useful lessons because they thrive despite macroeconomic uncertainty, poor infrastructure, venture capital shortage, fewer public markets for listing, lower tolerance for risk, talent constraints, and less acceptance of entrepreneurship and failure in their cultures.
Just as the “Washington Consensus” on liberal democracy and capitalism as a national formula has been challenged by Scandinavia’s democratic socialism and China’s communism, so also “Silicon Valley gospel” is being challenged by new founders, Alex evocatively explains. Silicon Valley needs to look beyond its “insular bubble” to avoid a “Detroit moment.”
“Uncritically following Silicon Valley’s principles and applying them to different local contexts is a recipe for failure,” Alex cautions. Founders of many large startups in emerging economies are seen as having a positive impact on their societies, more than in Silicon Valley.
The author charts startup hotspots around the world on a two-dimensional scale of macroeconomic stability and ecosystem maturity. Bengaluru, Lagos, and Sao Paolo have high ecosystem intensity but less macroeconomic stability, while Tokyo, Montreal, and Detroit have high macroeconomic stability but less startup ecosystem intensity.
Alex focusses on innovative entrepreneurs who aspire to scale their businesses, and not just launch micro-businesses like restaurants, salons, or small tech consultancies. The material is drawn from 200 interviews and publications. The key principles and examples are reviewed in the takeaways below.
1. Create rather than disrupt
The concept of disruption works well when existing incumbents are ineffective – but in many emerging economies, there are no core infrastructures in place. Startups, therefore, need to create new business models, systems, and even industries from scratch, Alex shows.
OkHi in Kenya is building an address system for streets and buildings – many emerging economies have no effective address systems in place. Rivigo in India is developing relay-based trucking services centred on improving the quality of life for drivers.
Other examples include Dr. Consulta (nationwide chain of affordable medical clinics in Brazil) and M-Kopa Solar (solar energy home systems in Africa).
Mobile payments pioneer M-Pesa was incubated inside Safaricom and received early funding from development agency DFID. Without prior roadmaps, it built a service network, trained customers, and worked with diverse sectors like telcos and banks. “M-Pesa is a classic case in which innovation preceded policy,” Alex writes.
Such creators offer not just business opportunities and industry transformation, but a call to change the world, he adds. M-Pesa has helped spur other players in micro-finance and solar energy solutions, such as M-Shwari and M-Kopa.
Funds for many such startups in emerging economies have come not just from angels or VCs, but impact investors, foundations, development institutions, and CSR programmes, Alex observes.
2. Full-stack development
Silicon Valley’s preference for asset-light startups works well when the overall system and infrastructure is well-developed. But in emerging economies, parts of the value chain like logistics and financial services are not yet mature and need to be built from scratch, Alex rightly observes.
Such enabling ecosystem components like address systems or credit ratings need to be built by the startups or via partnerships. Examples include vertical stacks (Guiabolos and personal finance management in Brazil; M-Pesa and small stores for mobile payment in Kenya; Lazada Group and logistics for ecommerce in Southeast Asia), and horizontal stacks (Gojek).
Nadiem Makarim launched Gojek as an app-based ride-booking platform for ojeks (motorcycle taxis) in Jakarta. He then built out a horizontal “super-app” stack for food delivery payments (GoFood), commerce (GoMart, GoShop), massages (GoMassage), and shipping (GoSend).
Creating full-stacks requires capital and time and increases inter-dependencies and risks – but it also becomes a competitive advantage in future, Alex explains.
India’s Paytm has developed an ecosystem of payments, ecommerce, and wealth management. Pan-Africa ecommerce platform Jumia offers technology tools for local entrepreneurs to track the delivery and collect payments, thus building out the full-stack via partnerships. Other examples are Fetchr (last-mile deliveries in the Middle East).
“Ecosystems often have powerful network effects. As others provide services within the ecosystem, the innovator’s centrality to the model will only get stronger, Alex emphasises.
3. Build for sustainability and resilience
Silicon Valley’s mascot seems to be the unicorn, a term coined in 2013 by venture capitalist Aileen Lee. It glorifies startups that scale fast but at the cost of profitability in the growth stage.
Other metaphors used by Y-Combinator’s Paul Graham are mosquitoes (built for strikes, not defence) as compared to bears (can absorb hits), and crabs (armoured against hits). Indonesian startup Bukalapak even likens itself to cockroaches that can survive any attack.
Terms like “blitzscaling” focus on speed over efficiency, where growth is more valued than unit economics and profitability (see my book review of Blitzscaling by Reid Hoffman and Chris Yeh).
Unfortunately, this has led to the rise of dominant players like Uber which are not yet profitable, and many other scaled companies have failed. But, in cultures outside Silicon Valley, failure is often stigmatised and even regarded as a “personal tragedy.” Hence, slower growth rates may lead to less flameout.
Subsidising costs to drive usage is not sustainable in the long run. The author cautions that venture capital can be addictive. “If companies get used to running on jet fuel, it becomes harder to switch to diesel,” he warns.
Alex proposes a better metaphor for resilient and sustainable startups in emerging economies: the camel. The focus is on balanced growth and cost structure management, rather than hypergrowth and “toxic VCs.”
Their growth curve is made up of a series of waves, and not the exponential hockey-stick curve. Founders have more control since they have sold less of their companies to investors. “Portfolio entrepreneurship” helps hedge bets and reduce risk of failure.
VisionSpring, which sells affordable eyeglasses to the poor, has a diversified business mix of wholesalers and direct sales. Such strategies help cross-fund businesses and move talent to other lines during hard times.
Other examples of such camels include Grubhub, Basecamp, Qualtrics, Atlassian, Mailchimp, and Frontier Car Group (FCG).
Frontier founders excel at connecting ideas, networks, and suppliers from around the world. Many of them have longer work experience in diverse countries and sectors as compared to glorified college dropouts of Silicon Valley.
Alex provides numerous examples of immigrants, repatriates, and “boomerangs,” who have blended ideas, networks, and capital from the West and other countries. They find inspiration from around the world and adapt it to local contexts.
In addition to Silicon Valley, other pockets of innovation excellence are emerging in China (ecommerce, fintech), Kenya (mobile banking), Toronto and Montreal (AI), Minneapolis (healthcare), Columbus (agriculture), Tel Aviv (security), and London (fintech).
BharatMatrimony leverages US online matchmaking models with Indian needs for physical meetings and verification of users’ degree credentials. Zola’s home solar systems leverage China’s solar panel and battery production.
Fetchr adapted existing models for the last-mile logistics challenges for ecommerce in the Middle East, such as undersupply of drivers and cash payment on delivery.
Gojek blended the Uber ride-sharing model with China’s super-app strategy of WeChat. In fact, Uber itself is bringing back some of these models from elsewhere into its own design, the author observes.
Such frontier founders are a relatively privileged lot in their societies. “The prevalence of startups in Sub-Saharan Africa that are founded by expats from Europe and North America also raises important questions about white privilege,” Alex cautions.
5. Global market focus
“There are three dimensions to being born global: the founder, the company, and the team,” Alex explains. Having a global focus can have advantages of scale, network effects, and more effective learning, but calls for proper market assessment and testing for expansion.
Examples include RPA startup UiPath — Romania’s first unicorn. StayAlert first tested its earthquake early-warning system in Mexico. Other startups with an international focus include Media.net and Zola.
A combination of a core global group with localised teams for ownership and expansion helps in this regard. For example, lending startup Branch has specialist teams who work with local leaders for appropriate positioning and relationships with ecosystem players.
Modular architecture and flexible design help tweak products for different markets, for example, baseline lighting or grid backups for Zola’s solar lighting solutions in different countries of Africa.
Some countries are must-wins regionally (for example, Indonesia in Southeast Asia), whereas others have regulatory moats, such as China. “Entrepreneurs in Estonia or Singapore are forced to think globally, whereas startups in India and Brazil often focus locally,” Alex observes.
6. Distributed teams
Having distributed teams has helped frontier startups tap talent and pockets of excellence from across the globe and scale internationally. Zola launched products in Tanzania but had teams in Asia (manufacturing), Europe (logistics), and Silicon Valley (research and development).
Alex describes a range of such distributed team models: earth and moon (Peek Travel, Gojek), reverse offshoring (Branch, San Francisco; FCG, Germany), and fully remote (BaseCammp, InVisionApp, Zapier).
Cimpress’s customised products leverage teams in Boston (technology development), the Netherlands (logistics), Jamaica (customer service in English), and Tunisia (for romance languages).
Special care must be taken to hire employees with demonstrable independence, written communication skills, and desire to create impact. Effective digital collaboration platforms, core team hours, and annual retreats are also important, Alex shows.
Argentina-based Globant has a “Star Me Up” feature to allow employees to award stars to others for contributions, “Better Me” for peer reviews, and “Tinder for Ideas” to surface new ideas and suggestions.
“Remote companies also look to re-create informal water cooler interactions digitally,” Alex shows. Globant has a photo-sharing platform for staff to share cultural moments, and Zapier has an internal chat channel and random matchmaking for virtual “coffee dates.” Other examples cited are HashiCorp, with a “chat roulette” to spur new connections.
7. Build A-Teams
Having a key focus on star performers may work well in Silicon Valley where there are abundant talent and low retention rates. In contrast, frontier innovators systematically build talent pipelines and offer compelling, longer-term careers, Alex shows.
“Retain and grow” is a better strategy than “churn and burn.” Employee loyalty is nurtured, and they are allowed to channel passion and ideas. Recruiting is based on capabilities and behaviour rather than résumés.
Nigeria’s Hotels.ng offers internship programmes to spot talent. Shortlist has a recruiting platform focussed on competency-based hiring.
Canadian ecommerce enabler Shopify developed a degree programme in partnership with Carleton University in Ottawa and Lassonde School of Engineering at York University.
Bridge International Academies created a teacher’s academy, and Zola created a bootcamp and training institute. Fetchr built an entire immigration team to enable recruitment of drivers. The founder of Mexico’s financial inclusion lender Kueski takes star employees with him during visits to meet investors and other firms.
8. Combine profit and impact
“The most successful Frontier Innovators are not solely focussed on growth and financial returns; they consider the social impact a central goal from the start,” Alex shows. Social impact is embedded in the business model, and not tacked on as an afterthought or CSR activity.
India’s Rivigo has a mission of “Making Logistics Human” by offering efficient but driver-friendly trucking services. Babylon Health offers healthcare diagnosis services not just in the UK, but in partnership with the ministries of healthcare in Rwanda and Saudi Arabia.
Gojek has an impact not just on the rides business but in empowering adjacent sectors as well. M-Pesa has enabled other sectors to be built on top of its mobile payment services.
Such models may also inspire a range of replicators in other markets, Alex observes. “This alternative conception is crucial for the United States and other highly developed countries as we increasingly look to business, and particularly innovators, for solutions to society’s challenges,” he adds. Such challenges in the US include homelessness and student loan debt.
9. Manage risk
Silicon Valley mantras of “move fast and break things” may work in the world of harmless consumer apps, but not in higher-stakes environments, or where negative externalities can be harmful.
Frontier innovators carefully choose and manage risks, Alex shows. They create organisational cultures, where employees speak up about and act on perceived risks.
Urban aeroponics startup AeroFarms has a strong focus on people and plant safety first. Mall for Africa reduced business risk in ecommerce by launching physical pick-up locations and partnering with well-known brands to build trust.
“Frontier Innovators often create regulation and formalise industries, decreasing risk to customers, as well as themselves,” the author shows.
VisionSpring started by offering reading glasses, followed by prescription glasses for working-age adults. “Only after mastering these steps did the company attempt glasses for children,” Alex writes.
Indonesian ecommerce player Bukalapak, Mexican payment company Clip, and Kenya’s M-Pesa have held dialogues with the government on regulatory issues. Grab and Gojek have security and insurance requirements for drivers.
“AeroFarms co-launched the Food Safety and Urban Agriculture Coalition. Zola was involved in the early development of the Global Off-Grid Lighting Association (GOGLA),” Alex writes.
“Consumers no longer tolerate Silicon Valley’s cavalier approach to risk. They are demanding a more responsible approach,” Alex observes. He points to the backlash against Facebook for enabling election interference as an example.
“The arrogance of Silicon Valley has no place at the Frontier – nor, increasingly, in Silicon Valley itself,” Alex emphasises. He calls for a more measured approach to risk instead of brazenness and sole focus on profits.
In this regard, the Institute for the Future, in partnership with the Technology and Society Solutions Lab, has published a guidebook that lists potential negative uses of new products, along with ethical measures for product development. “They cover eight principal risk vectors, including truth, misinformation, and propaganda along with the risk of addiction to products,” Alex explains.
10. Reinvent finance
Funding startups in tougher ecosystems calls for new venture models, Alex argues. Emerging economies have more macroeconomic instability, fewer VCs, and less IPO market opportunities.
He traces the growth of the VC model to New Bedford’s whaling industry in the 1800s. Other models to watch are Novel Growth Partners’ revenue share model, inspired by the mining industry.
Rather than either stratospheric successes or total busts, emerging economies may favour stable businesses with repeatable growth. Silicon Valley and China account for the most unicorns, but other metrics may be relevant elsewhere.
Alex recommends strategies such as syndication, investor collaboration, and multi-regionalism. Examples include the author’s own Cathay Innovation, with investments in Asia and Africa. South Africa-based Naspers has an “evergreen” investment structure and focuses on long-term bets, thanks to being a publicly-traded company.
Silicon Valley corporate VCs carefully observe and choose startups for acquisition. “They watch startups mature, and then purchase the ones they deem most synergistic with their operations, or most threatening to their long-term vitality,” Alex observes.
“Facebook’s purchase of WhatsApp and Instagram – two rapidly up-and-coming social networks it couldn’t replicate nor allow to succeed – illustrates the latter scenario,” he adds.
In contrast, China’s tech giants tend to invest in and partner with startups. “In Southeast Asia, corporate investors have become important growth-stage investors,” Alex explains. Grab is backed by Alibaba and Softbank, and Gojek is backed by Tencent and JD.com in a “nurture and partner” model.
Other players to watch are Omidyar Network in impact investing (a term coined at a Rockefeller conference in 2007), and new platforms for crowdfunding.
11. Support startup ecosystems
Highly successful founders can give back to local startup ecosystems and nurture the next wave of entrepreneurs.
For example, the Latin American ecommerce platform MercadoLibre was founded in 1999 and went public in 2007. Its founders have launched Kaszek Ventures whose portfolio includes Nubank, Guiabolso, and Dr. Consulta.
“Similarly, in Bangalore, alumni from Infosys have founded and scaled more than two hundred companies,” Alex observes. See also my profiles of entrepreneurship support network TiE Global and the city chapters of Bangalore, Mumbai, New Delhi-NCR, Silicon Valley, Pune, Kerala, Ahmedabad, and Kolkata.
“When Flipkart was purchased by Walmart, more than one hundred of its employees became millionaires. Many of them will join the next generation of angel investors,” Alex adds.
Successful founders offer mentoring and industry connects to new startups, and have founded entrepreneurship support organisations as well. Examples include “Fuckup Nights” and the Failure Institute, launched by Mexican entrepreneurs to help founders better understand and learn from failure.
“Over time, Frontier Innovators can foster a culture that accepts entrepreneurship as a viable profession,” Alex writes.
Endeavour connects founders to mentors in Latin America. The African Leadership Group has set up campuses in Mauritius and Rwanda and hopes to expand to India and Brazil. Erik Hersman runs his startup BRCK, is an active investor in other startups, and launched iHub in Kenya.
Yasser Bashir, the Founder of Arbisoft, also incubated a ride-hailing startup that was acquired by Careem. Nigeria’s mobile payment firm Paga engages the government on financial services regulation.
Fadi Ghandour co-founded logistics firm Aramex, as well as webmail service Maktoob, and auction website Souq. He invested in Careem, and also launched Wamda Capital.
“Success enables exponential success,” Alex evocatively writes, describing the multiplier effect of successful older generations of founders.
The road ahead
“Developing entrepreneurial ecosystems is a top priority for nations worldwide,” Alex sums up. This calls for virtuous cycles of network effects centred on the needs of the entrepreneur, and favourable ecosystem enablers like laws and cultures not hostile to bankruptcy or failure.
Cross-pollination will be a key success factor for entrepreneurs and investors. Some countries have launched entrepreneurial visa programmes in this regard, and regional hubs have emerged, such as Singapore as a Southeast Asia launchpad and Dubai for the Middle East.
Governments can boost entrepreneurship in several ways, as seen in Rwanda’s embrace of drone startup Zipline and India’s Aadhar platform, UPI, and IndiaStack.
New platforms, frameworks, and playbooks are emerging around the planet. “Bangalore, Chicago, São Paolo, Singapore, and many other parts of the world are becoming innovation powerhouses,” the author observes.
“The best entrepreneurs are charting their own course, leading us toward a more creative, sustainable, global, impactful, and well-rounded vision of innovation,” Alex signs off.
YourStory has also published the pocketbook ‘Proverbs and Quotes for Entrepreneurs: A World of Inspiration for Startups’ as a creative and motivational guide for innovators (downloadable as apps here: Apple, Android).
Edited by Suman Singh