The new frontiers of innovation

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| The European | 6 January 2021

Think Silicon Valley is still the centre of the tech world? Then think again, venture capitalist and best-selling author Alexandre Lazarow tells Alex Katsomitros

Nairobi is an especially bad place to have a heart attack. The capital of Kenya lacks a reliable street address system, forcing the locals to rely on informal directions to find their way in the city’s sprawling neighbourhoods. Not surprisingly, it can take more than two hours for an ambulance to reach the site of an emergency. To solve the problem, Timbo Drayson, a British engineer and entrepreneur who spearheaded the launch of Google Maps in many developing countries, founded OkHi, a startup allocating digital addresses to buildings through a combination of GPS data, pictures and additional descriptors. The company received £1.4m from angel investors in autumn 2020, and is now expanding in other African countries.

Drayson’s story is far from unique, claims the venture capitalist Alexandre Lazarow in a provocative book entitled Out-Innovate: How Global Entrepreneurs–from Delhi to Detroit–Are Rewriting the Rules of Silicon Valley. Lazarow is Investment Director at Cathay Capital, a Silicon Valley venture capital firm, and teaches entrepreneurship at the Middlebury Institute for International Studies. Through his exchanges with students and innovators from around the world, he concluded that modern entrepreneurship defies the one-size-fits-all Silicon Valley model. “Innovation is becoming global, but we are not having a conversation about what it takes to scale around the world. Silicon Valley breeds a specific type of software-based company that wants to grow extraordinarily fast. And yet, its rules can’t be copy-pasted and have to be contextualised,” Lazarow says.

The new frontier

Based on conversations with over two hundred entrepreneurs and investors, Lazarow takes his readers on a trip to “the Frontier”, as he calls areas beyond Silicon Valley where the future is born. “The frontier is in many ways a mindset, but also a reality. In 2013, four startup ecosystems had created all billion-dollar businesses, whereas today 85 ecosystems do that. So the frontier is also a place, in the sense that innovation is more global,” he says. Although a diverse bunch, these innovators tend to share some common traits. They are scattered all over the world, even in unlikely innovation hubs in developed countries such as Winnipeg in Canada; their firms employ distributed teams operating remotely; they are creators rather than disruptors, building new industries from scratch, like OkHi; they educate customers, like M-Pesa, which convinced Kenyans to use their mobile phones to transfer money. More importantly, they are highly successful. Today, around one in ten unicorns – tech firms worth more than $1bn – are born outside Silicon Valley and other well-known innovation hubs. ™n

Although Lazarow is cautious to avoid a simplistic Silicon-Valley-against-the-world narrative, he acknowledges that the tech industry is increasingly heterogeneous, with cities like Bangor or Sao Paolo taking the mantle from California. The latter is now the empire that revolutionaries assail from all sides, he argues: “California likes to describe itself that way, as a frontier. It’s one reason why I chose that word. It was once the frontier, but today it’s the establishment. What’s happening outside Silicon Valley is the new frontier.”

Be a camel, not a unicorn

One reason why Silicon Valley has been under fire lately is the perception that it lives and breathes short-termism. As Lazarow points out in his book, citing a McKinsey study: “If a healthcare company grew at 20% annually, its managers and investors would be happy. If a startup grows at that rate, it has a 92% chance of ceasing to exist within a few years.” For Silicon Valley entrepreneurs, founding a unicorn is the Holy Grail. Their firms rise fast, fly high and occasionally fall spectacularly. But this modern Eldorado, Lazarow argues, is a one-trick pony. With its endless capital, aggressive risk culture and need for a quick buck, it is a machine hardwired to create a specific type of firm: digital mavericks that grow exponentially and are all too eager to go public or get acquired by the big fish, before they are even profitable. In contrast, frontier entrepreneurs take the long view, aware that the well of venture capital is not bottomless. Many do something with nothing: “Frontier startups have to build the full stack, including creating the enabling infrastructure and changing customer behaviour. In some cases, entrepreneurs are building entirely new industries. These things take time,” Lazarow says. 

In the book, Lazarow uses the camel as the perfect analogy to capture the mentality of frontier entrepreneurs. The queen of the desert is the ultimate survivor; resourceful and adaptive in the face of adversity, just like startups operating in unstable environments. Frontier innovators tend to take calculated risks, knowing that the price might be too high. “These entrepreneurs are building with sustainability and resilience in mind, rather than growth at all costs,” Lazarow says.

If there is one area where resilience can come handy these days, it is politics. Silicon Valley has emerged as a modern Prometheus, offering people a powerful, but double-edged tool that not only lights the fires, but can fan the flames out of control. Unlike many Californian companies that openly embrace political activism, frontier startups take a different approach. In Out-Innovate, Lazarow explains how many of them work within the laws and regulations of their countries and even help shape much-needed legislation from scratch in some cases, while others incorporate social impact into their business models. Could they try to bring broader changes in their societies, often plagued by problems such as corruption and nepotism? That would be a bridge too far, Lazarow warns: “It’s often tempting to look at technology as a panacea. I don’t think it is. Frontier entrepreneurs are creating new industries, so they are often working within the system rather than breaking things, which is the Silicon Valley approach. Keeping that attitude is critical for technology to keep being a force for good.” 

Global from the get-go

One reason why frontier startups are successful, Lazarow argues, is that they are born global. In California, the local consumer market is big enough for an ambitious launch. For frontier businesses, this is a luxury they can’t afford, as their native markets are smallish. Inevitably, the world becomes their oyster. It’s a wager, but it can pay off, according to Lazarow: “Doing innovation outside the Valley is harder, but adversity brings advantages. For example, when you are forced to be born global, you have to build an organisation, product and culture that can work across borders. That forces you to build a different ‘muscle’ that positions you well in the long-term.” He cites as an example the case of UiPath, a Romanian AI firm. Starting in Romania was a blessing, one of its founders told Lazarow, that forced the firm to expand globally. Today, UiPath is one of the world’s fastest-growing enterprise software firms. 

This is one reason why some of the world’s best entrepreneurs are what Lazarow calls “cross-pollinators”: digital wanderers who tend to have experiences from different countries and mix elements from various cultures, technologies and sectors. It’s not a coincidence that immigrants have a prominent place in the history of the technology industry. “Immigrants are the ultimate cross-pollinators,” Lazarow says, pointing to the number of foreigners who launch startups or hold leadership positions at tech powerhouses. 

Europe: The new frontier 

Europe has notoriously failed to breed its own digital champions, lagging behind the US and Asia. Is the old continent part of the new frontier? Lazarow, whose firm has invested in several European startups, is optimistic that a nascent ecosystem is already coming to age. Critical mass is key, he says: “Billion-dollar businesses can operate as ‘older siblings’ that can help breed more like them. One can be written off as an aberration, but once you have five or six you have a repeatable model. I think that we will see more of them in Europe.” These pioneers set an example: “People who have scaled their own businesses become role models for other like-minded entrepreneurs from their countries and have capital to invest. They train other people who become entrepreneurs themselves or angel investors.”

One example Lazarow likes to use is closer to home. Around a century ago, Detroit was the place to be if you wanted a glimpse of the future. Its factories were spewing out state-of-the-art automobiles, ready to cruise the streets of the world. Over time, the Motor City saw its edge being chipped away by competitors in Europe and Asia, specialising in various segments of the market: “The same thing is going to happen to the Silicon Valley. Places in Europe will become the world’s best at certain things, like London at fintech, perhaps even after Brexit, or Tallinn at e-government,” Lazarow says.

A new era

One of Lazarow’s key theories is that frontier entrepreneurs don’t follow the Silicon Valley manual. Most make it up as they go along, constantly adapting to shifting realities. For them, resilience and agility are not marketing mottos, but day-to-day routine. Will the pandemic force more conventional businesses to follow their steps and learn to love uncertainty? Lazarow thinks so. “When I started writing the book, I thought it would start a conversation about frontier ecosystems. Since then, the world has changed. […] Entrepreneurs everywhere now need to think about building sustainability and resilience into their business model, or how to manage distributed teams working remotely and the cultural changes this brings,”he says. 

Does that mean that cities may lose their appeal as innovation hubs? The American academic Richard Florida famously coined the term “creative class” to capture the elan of bright young things flocking to cities and transforming them into cauldrons of the future. Cities attract them with their tolerant culture, ample professional opportunities and technological infrastructure. For Lazarow, however, people go first: “Innovation is entrepreneur-driven, not city-driven,” he says. Local governors can lure ambitious innovators with infrastructure and various perks, but copying Silicon Valley is futile, he says: “Don’t try to build another Silicon Valley. Build your own city based on its local strengths and industry expertise.”

Ironically, it is Silicon Valley, the arch-disruptor, that may find it hard to adjust to this new era. “The challenge is that in Silicon Valley we don’t have any frontier-like role models. It’s not a coincidence that the best companies operating remotely were firms based in Chicago or Missouri, because they had been doing this all along,” Lazarow says. 

The frontier’s roaring success may push the mecca of technology to take a look into the mirror, he adds: “We have the opportunity to learn from the best entrepreneurs and take away this myopic lens of only looking at the Valley.”

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