There is a lot of hype around entrepreneurship. A pet hate of mine is where the exception is made the rule. Elon Musk, Jeff Bezos and Steve Jobs are the exceptions to the rule. Silicon Valley is an exception to the rule. Normally entrepreneurship is hard work, boring, tough and with a small chance of success. That is why I enjoyed “Out-Innovate: How Global Entrepreneurs–from Delhi to Detroit–Are Rewriting the Rules of Silicon Valley”.
Silicon Valley vs China
Yep, Silicon Valley is important. They used to have a monopoly on innovation. Only twenty-five years ago, 95% of the world’s venture activity occurred in the United States. The vast majority concentrated in the two hundred square miles spanning San Francisco and San Jose. However, China is now home to 35% of the world’s unicorns (a universally used colloquial reference to companies valued at more than $1 billion), up from a mere 4% in 2014. Read “Tech titans from China“.
There are currently more than 1.3 million technology start-ups globally. International entrepreneurs are quickly eclipsing their Silicon Valley counterparts. Uber has 75 million users worldwide, and China’s DiDi has 550 million users, but emerging market leaders like Grab, Gojek, 99, and Cabify are not far behind across Latin America and Southeast Asia, with 36, 25, 14, and 13 million users, respectively.19 Similarly, PayPal, founded in 1998, has 267 million users, while Paytm, founded over ten years later in India, boasts 300 million users. Innovation started to take root all over the world. This book maps the Frontier, which collectively refers to innovation centres located outside Silicon Valley and its closest counterparts.
Frontier Innovators are writing their own innovation playbook.
- Silicon Valley’s obsession with asset-light, highly focused start-ups is not practical when enabling infrastructure does not exist, as is often the case when industries are being created. This means that Frontier entrepreneurs have to build the whole stack themselves.
- Where Silicon Valley strives to breed unicorns, the Frontier raises Camels—organisations that can capitalise on opportunity but also can survive in a drought.
- Frontier Innovators don’t just sell to the world. They also build the fabric and machine of the organisation in a distributed way.
- Frontier Innovators are also Multi-Mission Athletes who interweave both profit and impact-based goals into the core fabric of their business models.
- The most successful Frontier Innovators are not solely focused on growth and financial returns; they consider social impact a central goal from the start.
- Venture capitalists at the Frontier are innovators in their own right because they are adapting the model for challenging environments.
- Frontier Innovators don’t just scale their start-ups; they take an active role in building their ecosystems by laying the cornerstones of entrepreneurial culture, creating a community of mentors and supporters, and building the requisite infrastructure for the ecosystem.
- Frontier Innovators, often by necessity, are creating new industries, new business models, and ultimately new products and services for their markets.
- Frontier Innovators focus on sustainable growth from day one.
- Frontier Innovators understand that a product’s price is not a barrier to adoption but rather one of its features, reflecting its quality and positioning in the market.
- At the Frontier, repatriates are often among the early set of entrepreneurial successes.
- Increasingly, Frontier Innovators are not choosing a single location. Instead, they are building the piping of their organisations in a globally distributed manner.
- Frontier Innovators use five key strategies to build and scale top teams. They test candidates for behaviour and capabilities, develop a proprietary talent pipeline, leverage global distributed options, take a growth mindset to retention and training, and think critically about compensation and perks.
- At the Frontier, innovators focus on character, behaviour, and demonstrated skills rather than the perfect résumé.
- The best Frontier Innovators look to offer perks and financial compensation that reflect their unique strategy, organisation, and location.
- Compared with their Silicon Valley counterparts, Frontier Innovators tend to target human needs that are lower on Maslow’s hierarchy.
Using case studies such as OkHi, M-Pesa, Guiabolso, Gojek, Grubhub, Murugavel, Zola, Skylight, Kiva, HashiCorp, Shopify, Fetchr, Fenix, Village Capital, Arbisoft, Maktoob, MercadoLibre, Careem and UiPath. The The lessons:
It is hard
The reality is that building a start-up, any start-up, is extremely hard and takes a long time.
Be platform independent
Don’t just rely only on software. Foster and own the fulls stack, making you platform-independent and creates the barriers to entry you want. Eventually becoming an ecosystem at scale.
Focus on sustainability and resilience
Ignore blitzscaling and all or nothing. Build for the long haul. Forget unicorns. Build a camel. Their humps, primarily composed of fat, protect them from the desert’s scorching heat. When they do find water, they can rehydrate faster than any other animal. Camels are not imaginary creatures living in fictitious lands. They are resilient and can survive in the harshest places on earth. Signing up for Silicon Valley’s unicorn-hunting strategy is a bit like mortgaging your home to buy three new homes.
A movement called Zebras Unite (yes, another alternative animal name for start-ups that are not unicorns) is focused on raising awareness for the range of start-ups for which the Silicon Valley unicorn-chasing growth strategy is not appropriate. The movement now has more than forty chapters and fifteen hundred members around the world.
Fundraising timelines are long
In emerging markets, most rounds take months to get to a term sheet and longer still to close—a reflection of the global nature of the businesses and the investors, and often a lack of urgency given a lack of competition for the deals.
Failure is personal
Failure is regarded as a personal tragedy. Failure is much more financially and personally painful at the Frontier.
Finance is the language of business
Breakeven is the new black. Frontier Innovators manage costs through the life cycle of their companies. If you are not managing costs [and investing only in growth], you’re not building a business. You are building a financial instrument, which is not healthy. The combination of leveraging this cost advantage and managing spending levels means that even when innovators face smaller rounds, the capital can go further.
Don´t give it away
Entrepreneurs working in tougher, less-developed markets don’t share Silicon Valley’s obsession with offering free or subsidised products in service of growth. They charge their customers for their products.
In financial planning, we are taught not to put all our eggs in one basket, but rather to diversify assets and geographies. There is evidence that the diversification strategy is effective in building resilience in emerging markets. Research published in Harvard Business Review explains that “highly diversified business groups can be particularly well suited to the institutional context in most developing countries. At its extreme, this dynamic presents itself in certain developing ecosystems as a phenomenon called portfolio entrepreneurship, whereby entrepreneurs start a series of unrelated subscale businesses.
Take a long view
Analysis of start-ups in Asia, Africa, and Latin America suggests that the average time to exit is more than thirteen years, and exit times can drag on far beyond that. That’s about double the exit times in Silicon Valley. Supposedly, Albert Einstein once said, “Compound interest is the most powerful force in the universe.” A long-term view allows Frontier Innovators to grow their ideas to maturity and reap the compound benefits of that growth.
An entrepreneur builds companies based on their life experience. And a twenty-two-year-old’s experience is short, local, and often myopic. At the Frontier, a typical innovator’s lived experience is longer and spans geographies, sectors, and industries. Silicon Valley’s obsession with youth and its outward ageism is misplaced. The average technology start-up founder at founding is forty-two years old, and among the most successful (the top 0.1%), the average age is forty-five. Even among the founders of the most successful companies, performance improves with age. Being old is good. More-experienced founders are the ones who typically scale successful businesses.
Go international quick
Frontier start-ups expand to other markets early in their life cycles. Frontier Innovators are selling in multiple markets early in their journeys. Indeed, mastering this strategy is fundamental to their success. Having a small local market allows start-ups not only to sell in multiple markets but also to start from anywhere. Broadway is famous for testing its shows in small markets before committing them to the big stage. Similarly, using market laboratories can be a powerful strategy.
Felxible organisation structure
Distributed as a strategy. Distribution refers to an organisational structure in which the team is dispersed in multiple locations. Some companies are fully remote, more akin to a flat network. Basecamp, InVisionApp, and Zapier, all formally based in the United States, have employees worldwide. As a general rule, as companies become increasingly distributed, decision making also becomes decentralised. Building remote teams (and distributed teams more broadly) is associated with increasing diversity. Some 28% of remote companies have female founders, presidents, or CEOs (compared with the 5.2% of S&P 500 companies that have female CEOs).
Focus on talent
Perhaps even more than capital, Talent is the critical resource for a start-up’s success—even the ones associated with legendary founders. Therefore, Frontier Innovators adopt unique strategies to build A-teams in emerging ecosystems and offer their recruits compelling, longer-term careers.
In interviews with leaders of hundreds of start-ups, the one unanimous sentiment was the importance of passion. Giving employees an opportunity to channel their passion drives retention. 85% of millennials would take a pay cut to work for a mission-aligned company (versus only 7% among baby boomers).
The rise of mixed martial arts (the combination of multiple fighting techniques like karate, boxing, jiu-jitsu, and judo) represents a turning point in the history of hand-to-hand combat. The best fighters are not experts in any one technique but in many fighting styles.
Focus on quality
Frontier Innovators view risk—particularly certain risks—as an externality that should be avoided. In Silicon Valley, most start-ups solve customer pain points that aren’t a matter of life or death. Therefore, the consequences of failure typically are not catastrophic. In this context, it is fine, most of the time, to move fast and break things. It is also much easier to build trust with users if the worst-case scenario is not that bad. To cement a focus on quality products and trust, Frontier Innovators often create an organisational culture that manages risks and empowers their employees.
Some short lessons
- It’s the principle of karma. Focus on giving back and solving the problem. Read “The diamond cutter“.
- Build an adaptable product, and localise
- Build an organisation that can grow across markets
- Establish a distributed team
- Tap talent from across the globe
The book has a great piece about the positive impact of immigrants. Also, read “Utopia for realists“. Immigrants play a central role in technological innovation. Between 1995 and 2005, immigrants co-founded 52% of all technology start-ups in Silicon Valley (representing 25% of all entrepreneurship in the United States writ large). More than 50% of US-based unicorns were founded by immigrants. These fifty companies have a collective market capitalisation of nearly $250 billion, which, for perspective, exceeds the stock markets of Argentina, Colombia, and Ireland. Further, more than 80% of US unicorn companies have an immigrant in a key executive position.
I do some work for an organisation called SPARK. They specialise in training and coaching immigrants in developing countries to become entrepreneurs. The business case is compelling. Successful companies, like Maktoob, MercadoLibre, and Careem, act as informal schools of entrepreneurship. In Bangalore, alumni from Infosys have founded and scaled more than two hundred companies. Older siblings scale their companies, and these companies become entrepreneurial schools (and badges of credibility) for a new generation. Unsurprisingly, older siblings were critically important in the rise of Silicon Valley as well: more than two thousand companies—including Instagram, Palantir, WhatsApp, and YouTube—can be linked to eight individuals who co-founded Fairchild Semiconductor back in 1957.
There is a multiplier effect
A certain number of innovators will succeed. They will go on to inspire and enable the next generation, which smooths the path for the next generation, and so on, often exponentially. Looking at China, after its first unicorn scaled in 2010, it took five years to reach its fifth, and the very next year, the count skyrocketed to twenty-one. A similar dynamic is happening after a similar number of unicorns were created in India, the United Kingdom, and Latin America. A select few Frontier Innovators play the disproportionately powerful role of older siblings. Creating the density, fluidity, connectivity, diversity that ecosystems need. Most importantly, the number of older siblings: the number of later-stage entrepreneurs who have successfully scaled to exit.
The future is at the frontier
The author claims that the future is at the Frontier. Just look to China for a preview of what happens when innovation ecosystems kick into gear as they are now doing worldwide. In the span of a decade, Bangalore, Chicago, São Paolo, Singapore, and many other parts of the world are becoming innovation powerhouses. I think that the lessons (it is hard, focus on financials, be sustainable, passion, structure, attitude to exit, etc.) are just as relevant to any start-up or business. The Frontier is everywhere.