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Starting up outside Silicon Valley

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We’re moving away from the entrenched idea that successful tech start-ups need to have their roots in San Francisco, says author Alexandre Lazarow, whose new book examines the emergence of global innovation frontiers.

“When my students ask me ‘What should I build?’ or ‘What sort of start-up should I be doing?’, I respond by asking them what their motivation is in the first place,” says Alexandre Lazarow.

Invariably, he notes, the answer to these questions will be an expression of creating a force for good. “They want to make an impact, generate jobs and wealth for their ecosystems. That’s what drives them. That’s what drives entrepreneurship. It’s not just the launching of new products. It’s the impact that it has on society.”

Lazarow is discussing his new book,‘Out-Innovate’, which discusses the current wave of change in global innovation and entrepreneurship. There is a shift from a Silicon Valley-centred model to a global way of doing things. “I’m not saying that Silicon Valley is dead. I’m saying that there is a new concept emerging on the global frontiers. The focus is moving away from San Francisco. There’s an alternative innovation paradigm.”

The US-based Canadian author and global venture capitalist is a specialist in economics and innovation, a university professor in the field of social-impact investment and entrepreneurship, as well as a Harvard Business School graduate. Lazarow says he started to conceptualise ‘Out-Innovate’ out of frustration. When his students asked him for reading matter on how to initiate a start-up, the only books he could recommend focused on the Silicon Valley trend, “which is to grow at all costs. Everything that I was offering was incredibly context-specific, locked in a place and time – Silicon Valley, today. There is this thesis that everything we think we need to know is rooted in Silicon Valley. And yet around the world, the best entrepreneurs are operating in different contexts and are challenging these conventional wisdoms. That was the problem that I saw, and I decided to solve it.”

Entrepreneurs and innovators outside the Silicon Valley ethos are, in Lazarow’s opinion, important because they are “rewriting the playbook. I believe that the best entrepreneurs operating in Detroit, Chicago, Bangalore and Edinburgh have more in common with the best entrepreneurs operating in Sao Paolo than they do those in San Francisco. I wanted to tell their stories and discuss what works and why. But ‘Out-Innovate’ isn’t meant to be a recipe book for success, rather a menu. For example, you’ll be able to see that the context is different in Nairobi from Detroit. Take what resonates and discard the rest.”

These are the start-ups on the new frontier. The concept of the ‘frontier’ is important because it differentiates between what goes on in Silicon Valley and elsewhere. Frontier innovators, he says, are “creators, not disruptors. Silicon Valley is focused on disrupting established industries. But at the frontier, innovators must create new industries, build entirely new sectors offering customers a range of products and services that Silicon Valley takes for granted.” But there are practical considerations too. Silicon Valley’s obsession with asset-light, highly focused start-ups just doesn’t work on the frontier, says Lazarow. “You need to build infrastructure too. You’ve got to build the ‘full stack’ the business requires, not just write the software.”

Extract

View from the frontier

Silicon Valley thrives on the stereotype of the 21-year-old college dropout building a company in a garage, combining youthful passion and a dose of grit to challenge age-old industries. The stereotype is the stuff of legend. The storied founders of the world’s most successful tech companies support this trend: Apple (Jobs, 21, Wozniak, 26), Microsoft (Gates, 21) and Facebook (Zuckerberg, 20). Yet prizing youth comes at a cost. Silicon Valley is known for its ‘tech bros’ – the young hoodied warriors often accused of building products and services to do tasks their mothers don’t do for them anymore.

This should not come as a surprise. An entrepreneur builds companies based on their local experience. And a 21-year-old’s experience is short, local and myopic.

At the Frontier, a typical innovator’s experience is longer and spans geographies, sectors and industries. This diversity in experience explains the issues they choose to tackle and the unique approaches they employ.  

Innovation is moving in integrated global flows. The innovation supply chain describes the phenomenon by which the best ideas traverse continents and improve with successive waves of adaptation. Cross-pollinators leverage the innovation supply chain to find multiple sources of inspiration for their models. Frontier innovators tap into information about which innovations are thriving, along with where and why. With this data, they are better positioned to conceive of innovative models.

One approach is to focus on ‘superconductor’ locations such as Silicon Valley. But China is emerging as a global leader with pioneering e-commerce and fintech models outshining what’s coming out of the United States.

Edited extract from ‘Out-Innovate’ by Alexandre Lazarow, reproduced with permission.

All of which means that the goal of creating a billion-dollar ‘unicorn’ company, as glamorous as it may seem, isn’t the ambition of frontier innovators. Lazarow posits that the global creative innovator is more interested in ‘raising camels’. “Silicon Valley’s blasé approach to moving fast and breaking things doesn’t work in the world of the camel, where risk acceptance is lower, and the consequences of failure can be devastating.” The camel analogy works for frontier innovators because you need to position yourself to capitalise on opportunity when it arrives. In other words, “you need to be able to go a long time without water and then when you find it, you’ve got to drink fast and store it”. Lazarow also likes to extend the metaphor by saying that while unicorns are mythical, rare and elusive, “camels are all about sustainability and resilience”– qualities that lead to developing customer trust. You could just as easily use the metaphor of a Land Rover in this situation: “It’s about dependability in a context where there isn’t the same pre-existing culture or infrastructure of Silicon Valley.”

This is the key difference between San Francisco and the frontier. Silicon Valley has a rich pool of A-players just waiting for the next project. “But I believe what’s happening here is a bit of a Detroit moment. Go back 100 years, it was the technological capital of the world. This dominance wasn’t based on software, but automobiles. It was, nevertheless, a technological hub, and then it lost its way. Every entrepreneur in the world wanted to work there and learn from the best companies. But if you fast-forward to today, we are looking at a different story.”

Detroit, once the centre of the automotive industry, home to Ford and high wages, yielded ground as car manufacturing became more globalised with frontiers in Europe and Japan. “Now the biggest car companies in the world are international and the automotive innovation story has become global. We can learn a lot from that. I think that the same thing is happening today with Silicon Valley. Out on the frontier you don’t hire in A-players, you build A-teams. In Silicon Valley a high employee turnover is tolerated because they are easily replaced. Frontier innovators have a growth mindset towards their team and a long-term outlook. They also cross-pollinate, leveraging diverse experiences, often across multiple geographies, industries and sectors. That’s how they build their business.”

Lazarow says that frontier entrepreneurs are differentiated in that they need to think globally from the very beginning of their projects. He explains that the conventional roadmap for a Silicon Valley start-up is to “focus initial concentration on the Bay Area and the domestic market. By contrast, frontier start-ups have to strategically target multiple global markets from day one. They don’t just sell to the world: they build their organisation in a distributed way. They recruit the best talent regardless of where they are from and foster an integrated culture through technology and organisational design.”

At the end of the day, Lazarow concedes that “Silicon Valley has done a tremendous job. But there are global problems that need solutions, and they won’t all come from the Valley. They’ll come from some of the toughest ecosystems on the frontiers.”

‘Out-Innovate’ by Alexandre Lazarow, published by Harvard Business Review Press, £22 

We read it for you

‘Out-Innovate’

Over the past few decades, Silicon Valley has codified what tech start-ups should look like. It has completely dictated how they should be built to the point where its culture, clothing and language have been defined by the leaders of the San Francisco unicorns. But, says Alex Lazarow in his new book ‘Out-Innovate’, we can’t expect this model to work everywhere and from Delhi to Detroit innovators are starting to rewrite the rules.

Instead of aiming to be unicorns, innovators on the frontiers are looking more like camels: tough, dependable survivors that can adapt to changing conditions. That’s not the only difference: frontier innovators tend to be creative rather than disruptive, they tend to nurture home-grown talent rather than hire in. And they tend to think globally right from the start.

A fascinating insight into the future of tech start-ups.

 

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