Out-Innovate … How a new generation of global entrepreneurs are rewriting the rules of Silicon Valley

May 6, 2020

A great new book by Alex Lazarow explores how the best ideas come from beyond America, and the best new start-ups come from beyond Silicon Valley. In the United States, many startups, such as Tesla, Apple, and Amazon, have become household names. The economic value of startups has doubled since 1992 and is projected to double again in the next fifteen years.

For decades, the melting pot of this phenomenon has been Silicon Valley. This is changing fast. Thanks to technology, startups are now taking root everywhere, from Delhi to Detroit to Nairobi to Sao Paulo.

Yet despite this globalization of startup activity, our knowledge of how to build successful startups is still drawn primarily from Silicon Valley. As venture capitalist Alexandre Lazarow shows this Silicon Valley “gospel” is due for a refresh – and it comes from what he calls the “frontier,” the growing constellation of startup ecosystems, outside of the Valley and other major economic centres, that now stretches across the globe.

Here to illustrate the global spread of start-ups, is WEF’s latest map of the world’s unicorn businesses, (393 at end of 2019, according to CB Insights):

The frontier is a truly different world where startups often must cope with political or economic instability and lack of infrastructure, and where there might be little or no access to angel investors, venture capitalists, or experienced employee pools.

Under such conditions, entrepreneurs must be creators who build industries rather than disruptors who change them because there are few existing businesses to disrupt. The companies they create must be global from birth because local markets are too small. They focus on resiliency and sustainability rather than unicorn-style growth at any cost. With rich and wide-ranging stories of “frontier innovators” from around the world, the book explores why and how they emerge.

Here’s a short extract:

One of the hardest decisions for any entrepreneur to make is when, and if, it is time to start their own company. The decision can cause so much anxiety that, for some, the time never comes.

Many would-be entrepreneurs dream of success but never start, because they have no idea how to succeed and are intimidated by the likelihood of failure. This critical decision rests on myriad factors, including individual sensitivities to risk, about which much has been written in the academic theater.

In many markets, failure can be a lifelong black mark on careers. As the New York Times once wrote about Europe’s entrepreneurial ecosystem, “Failure is regarded as a personal tragedy.”[2] Failure is much more financially and personally painful at the Frontier. Accordingly, it is not flaunted as a battle scar, but hidden as a blemish.

One explanation is that many entrepreneurs around the world simply have much more to lose. Outside of the bubble of Silicon Valley, or other major startup ecosystems, in a place we call “the Frontier,” the cost of failure for founders is considerably greater from a social, psychological, and financial perspective. Starting a business in an emerging ecosystem tends to require an assumption of great personal risk.

It can take many years for a company to gain access to venture capital funding, and, in the meantime, salaries don’t come in and fees pile up. In many markets, debts are not forgiven in bankruptcy and can follow you for the rest of your life. In other places, bankruptcy can even be illegal.[1]

Unlike Silicon Valley, there is a limited safety net for founders at the Frontier. If things don’t go well, the company likely won’t get absorbed by a larger player; that’s because the culture of “acquihires” (acquiring a company only for its team, giving founders a face-saving exit and an attractive stock option package in the new host company) is much less prevalent. Failing often means really failing—firing all the employees, killing the product, and going bankrupt.

In some countries, founders even have to worry about success. The entrepreneurial culture needs in North Korea, for example, are completely different from those anywhere else on earth. One of the founders there, Geoffrey See, explained, “In many markets, the risks to starting a business overwhelm the dream of the potential of the business. In North Korea, paradoxically, success can also be a big risk. Entrepreneurs are worried that the business will get confiscated. Therefore, in the past, they were motivated to take cash out of it and not reinvest in growth.”[3]

However, times are changing, and those on the front lines of that change are entrepreneurs themselves, who are helping to shift the psychology and narrative of risk.

Geoffrey See is an extreme example. Over the last nine years, he has offered targeted workshops to teach business, economic policy, and law in North Korea. Of course, given the political situation in North Korea, Choson, the company he started, operates in narrow segments. It provides critical training for a burgeoning market-oriented system where households engage in trade activities and small business. Choson Exchange focuses on training young entrepreneurs and has already trained hundreds of men and women, and established the country’s first startup incubator. He partnered with North Korea’s State Academy of Sciences (SAS) and attracted over 20,000 researchers who are interested in commercializing their ideas.

Yet this movement to help ease the culture of fear of failure and teach the next generation of entrepreneurs how to stare down risk is on the rise. In Mexico, for example, where the startup culture has a distinct aversion to failure, a small group of founders led by Pepe Villatoro found themselves discussing past business mistakes and defeats over a few bottles of mescal. Each of them came to understand that, by communicating openly about failure, they left energized to imagine their next companies, and the group began to meet monthly for honest discussions about risk and failure.

The idea went viral, and so “F*ckup Nights” (FUN) was born. Pepe and his friends created a platform for others to replicate similar events in their own startup communities. The objective was for participants to share stories of their professional or personal failures, all while creating a culture that accepts risk taking and the failure that may ensue. Over the next few years, FUN organically and unpredictably turned into a global platform for entrepreneurs to share their stories of defeat and reflect on what they had learned, thereby helping others learn to avoid the same mistakes. FUN redeemed failed projects and startups by putting their stories to use.

Later, FUN launched the Failure Institute, which collects and analyzes data on entrepreneurial failures in cities, tracking rates of failure by location, industry, and startup type and calculating trends in the development of resilience in entrepreneurial communities. FUN recently launched academic chapters to de-stigmatize failure in the education system and is working with more than 200 corporate partners to help change their cultures and mindsets.[4] FUN has scaled rapidly around the world. Its events have been hosted in more than 330 cities in 90 countries. More than 10,000 people have told their stories to more than 1 million people.[5] It has become a leading distributed entrepreneurial social movement.

Like Pepe and his friends, these Frontier Innovators shape cultural perceptions of risk. They may also impact regulations (e.g., punitive bankruptcy laws), decreasing the real costs of failure. Over time, Frontier Innovators can foster a culture that accepts entrepreneurship as a viable profession, supports entrepreneurs in taking risks as they scale their businesses, and enables them to commit fully to one venture.

Acceptance and celebration of failure is a time-honored Silicon Valley tradition. However, entrepreneurship is on the rise outside of California. Startup ecosystems are popping up all over the world, with more than 480 hubs worldwide, from Detroit to Bangalore to Puerto Rico to Nairobi to Sao Paulo.[8]

Success will be amplified by entrepreneurs—usually scarred veteran founders—who help change the culture and mindset around risk and failure at the Frontier, to lower the mental hurdles and inspire the next generation of entrepreneurs.