CSIS’s Daniel F. Runde recently sat down with Alexandre Lazarow, a venture capitalist who has spent his career working at the intersection of investing, innovation, and economic development in the private, public, and social sectors. He is currently with Cathay Innovation, a global firm that invests across Africa, Asia, Europe, and North America. Previously, Alex worked with Omidyar Network, a philanthropic investment firm that has invested over $1 billion in hundreds of startups around the world. He has served as a strategy consultant with McKinsey & Company, a financial regulator with the Bank of Canada, and a mergers and acquisitions investment banker with the Royal Bank of Canada. Alex recently authored his new book, Out-Innovate: HowGlobal Entrepreneurs – from Delhi to Detroit – Are Rewriting the Rules of Silicon Valley (Harvard Business Review Press).
The conversation, moderated by Daniel Runde, has been edited for purposes of brevity and clarity.
DR: The title for your book is fascinating: HowGlobal Entrepreneurs – from Delhi to Detroit – Are Rewriting the Rules of Silicon Valley. Can you tell our listeners what prompted you to write this book?
AL: Happily. In my day job, I am a venture capitalist with one foot in the Valley and the other foot into investing in startups worldwide. I currently work for Funchal Cafe Innovation, a Paris-based fund investing across Asia, Europe, North America, and Africa. Before this, I was at Omidyar Network doing the same thing. And outside of work, I have been teaching entrepreneurship at the Middlebury Institute for International Studies in Monterrey.
The book’s genesis? Well, the idea actually started in my MBA classes on entrepreneurship when I was assigning books to my students on innovation. I grew up in the Canadian Midwest, where starting a new business was similar to starting one in emerging markets. Relating those ecosystems in my class, I always felt like I invariably had to contextualize what I was sharing with them, with the reality of building startups in tougher ecosystems and ecosystems with less capital and fewer resources, with less depth of trained startup human capital. Or, frankly, just in markets with more macroeconomic shocks. That germinated, and that became the idea.
I believe that the best entrepreneurs operating in places like Delhi or Detroit, or Chicago, or Amsterdam, or Bangalore have more in common with the best entrepreneurs operating in Sao Paulo than they do with those in San Francisco. Yet no one is telling their stories. So, I interviewed about 200 entrepreneurs from around the world, mostly folks that are leading some of the biggest startups. I think that taken together, what their actions tell us is that not only are they increasingly challenging Silicon Valley’s heartfelt conventional wisdom, but they are reinventing the playbook for what it takes to innovate in innovation ecosystems around the world outside.
DR: This is awesome, and I agree. I saw a Gallup poll that found that one in five young Africans plan to start a business. In the developed world, we think of entrepreneurship as a lifestyle choice. Whereas in many developing countries, it is a necessity. In fact, I would argue that in pockets of real poverty (such as some communities in Detroit), it may be a necessity as well. Which is why this book is very timely.
You talk about frontier innovators in the book: could you tell our listeners who they are and how they shape the enabling environment, including laws, regulations, and the institutions supporting the startup ecosystem? How much autonomy are frontier innovators able to maintain with regards to their local governments?
AL: These are two words: “frontier” and “innovators.” Let me start with the latter as it drives the global phenomenon of entrepreneurship. Entrepreneurship is the biggest force of job creation around the world, and it can be both a “necessity” and “opportunity.” In the book, I focus a little bit more on this toward the startup movement. Opportunity entrepreneurs that the book is targeting have the ambition of building and scaling businesses using a combination of the business model and technological innovation.
They tend to be the type of entrepreneurs I am focused on—the frontier. Because the frontier is really broad in the definition, it is also very heterogeneous. For instance, Detroit is very different than Delhi. Let us look at it through a two by two matrix: developing and developed countries versus developing and developed startup ecosystems. And perhaps you would say in the bottom right, there are places like the Silicon Valley, where you have a developed startup ecosystem operating in the United States. And then the book brings us to places like Pyongyang in the diagonally opposite corner. And there are a number of other cases in between.
|DEVELOPING COUNTRY||DEVELOPED COUNTRY|
|Developing Ecosystem||Pyongyang, North Korea||Winnipeg, Canada|
|Developed Ecosystem||Bangalore, India||San Jose, United States|
In the book, I’ve tried to take a sum of these extremes to pull out and show the really big differences. But I also tried to show that places like Bangalore have a well-developed startup ecosystem (one that can rival the United States) for a developing country. And then you have ecosystems in areas like Winnipeg, Canada, where I am from, which has a more nascent startup ecosystem. Obviously, just having those two dimensions is also a gross simplification but is a really useful framework that pulls at some of the differences.
So, there is a lot to learn, including on the question of what do entrepreneurs do to build their startup ecosystems? I think there are three takeaways: First, entrepreneurs are often building their ecosystems and their startups simultaneously. This is feasible through mentorship, angel investments, and other supporting infrastructure and mechanisms. A study conducted on the New York startup ecosystem found that the startup founders were always waiting to make money before investing in their ecosystem and their peers.
Second, building the critical institutions of entrepreneurship is vital. In my book, I document how some of the toughest ecosystems are in risk-taking culture in the same way that we have in the Valley and building some institutions like coworking spaces and cultural groups.
Finally, the third takeaway is that making entrepreneurs that have successfully scaled and really succeeded in their ecosystems are also the ones that are seeing the next generation of business leaders and training them for the future. They are, often, even giving back to their ecosystem by creating “next venture funds” or things like that. These entrepreneurs are in the driver’s seat of building their ecosystems and frequently are engaged actively with the ecosystem—be it the government, regulators, or other corporations—in a proactive way.
DR: The startup ecosystem—and really the culture of Silicon Valley—is very different from the ecosystem and culture in China, India, and other developing countries. Do you get a sense of one model of the ecosystem being more influential for startups in developing countries versus another?
AL: It is an interesting question. I think if I fast-forwarded the world by 20 years, I would say that there isn’t going to be a single replicable model. I think there will be several models with unique innovation ecosystems that are tailored to leverage local cultures, networks, and other strong characteristics of the ecosystems. A really interesting analogy I often like to use is the car industry.
100 years ago, the capital of innovation in the world was not Silicon Valley but Detroit. If you were an entrepreneur, you moved to Detroit and started your car company there. Today, there are hundreds of car companies, but only the big three has their roots in Detroit. What happened was that innovation started to take roots everywhere, and today, the best accessory sportscars are made in Italy. The cars with the best overall engineering come from Germany. The most reliable cars come from Japan. And arguably, the future of electric cars seems to be here in the Valley.
DR: This is amazing. So can you talk to me about the Valley? And what are some steps that they can take so that their support system is extended to frontier founders and startups?
AL: Absolutely. One of the really unique things about the Silicon Valley startup model is that it allows us to look in the mirror and learn about what works. We believed that the best ideas came from the Valley and tried to copy and paste it for new investments. But the reality is that it is not the case anymore. Today, even models that come from the Valley are getting adapted and improved around the world.
To give you one example, say something like Uber (successfully started in California) was replicated worldwide. And indeed, there are models like 99 in Latin America, Grabtaxi in Southeast Asia, and DiDi in China, which is the biggest ridesharing company in the world. However, the most interesting thing about this is that the models are getting improved as they get implemented. For instance, if you look at the story of Gojek in Indonesia, the CEO talked about a completely different vision for what he was going to build. And he did it on ojeks (not taxis). But his vision was to provide his drivers employment throughout the day. So, in the morning they drive people to work at lunch, deliver food after work, and drive them home. In the evening, they deliver more food and deliver e-commerce packages or provide financial products and services in the middle of the day. They provide this whole ecosystem centered around their drivers and their customers. It is no surprise to me that the Western innovators have looked at that model and replicated it right. And now we are seeing this two-way street on innovation.
So what I think Silicon Valley should do is just make sure that it keeps that two-way street of innovation of learning from these global models, but also sharing what it has, because we have so much to share as well. I think those two dimensions are important. And those dimensions also, obviously, have to do with people too. Last, the case of immigration being a driving force is well documented. Still, there are also the effects of people coming to the United States and then leaving to start anew elsewhere. I think that’s become a hot button issue. Still, it is unquestionable around the value of immigration in driving innovation, not just in the United States, but elsewhere.
DR: So, with innovation going global, do you think that Silicon Valley will evolve, perhaps become leaner and less comfortable, and compete globally?
AL: I definitely think Silicon Valley needs to evolve. And there are a couple of different dimensions that can certainly use some evolution. In my book, I talk about the notion of what to build and how to build on the former. In the Valley, I think we have been obsessed with the notion of disruption for far too long. Everyone is either disrupting or being disrupted. This has come out of academic research pursued by Clayton Christensen at the Harvard Business School, which gave us this lens that we need to look for problems of inefficiency in existing industries and solve them. The best entrepreneurs are creators. They build new markets, and they solve problems that were previously unsolved. This is why I argue that the lens being used should be one that tackles existing problems in financial services, healthcare, education, and other critical industries. That is one area where I think the Silicon Valley model needs to follow.
Second, I would focus on how to build. In the Valley, we have had this “growth at all cost” approach toward everything, which has made it acceptable to subsidize user acquisition and service growth and okay to burn a lot of money in terms of growth. We have also accepted that it is okay to look at the short-term gains. In my book, I talk about the approach of building sustainability and resiliency in business models much earlier. That, I think, will be critical going forward to create longevity and sustainability in our ecosystem that creators can build in their markets. So yes, absolutely, Silicon Valley will need to evolve and learn from some of the best entrepreneurs around the world.
DR: Thanks for speaking with us today, Alexandre.
Originally published on csis.org on October 22, 2020.