The Not Unreasonable Podcast

Alex Lazarow on Frontier Startups

July 29, 2020 David Wright Season 1 Episode 48
The Not Unreasonable Podcast
Alex Lazarow on Frontier Startups
Chapters
The Not Unreasonable Podcast
Alex Lazarow on Frontier Startups
Jul 29, 2020 Season 1 Episode 48
David Wright

My guest for this episode is Alex Lazarow, VC with Cathay Innovation and author of OUT-INNOVATE How Global Entrepreneurs–from Delhi to Detroit–Are Rewriting the Rules of Silicon Valley. In this show we discuss:

liberation of constraints
whether this is all survivorship bias (in either direction!)
How innovation hubs might compete with one another
How the Silicon Valley model can be both wrong and right
How frontier cultures can contribute or take away from startup success
How community minded entrepreneurs can be

And more!

Alex was a fantastic guest and like all of my most enjoyable interviews I was delighted to be surprised a few times by Alex's insights as he challenged me to learn even beyond my preparation for the conversation. Bravo, Alex!

sign up for my newsletter at notunreasonable.com/signup

Show Notes Transcript

My guest for this episode is Alex Lazarow, VC with Cathay Innovation and author of OUT-INNOVATE How Global Entrepreneurs–from Delhi to Detroit–Are Rewriting the Rules of Silicon Valley. In this show we discuss:

liberation of constraints
whether this is all survivorship bias (in either direction!)
How innovation hubs might compete with one another
How the Silicon Valley model can be both wrong and right
How frontier cultures can contribute or take away from startup success
How community minded entrepreneurs can be

And more!

Alex was a fantastic guest and like all of my most enjoyable interviews I was delighted to be surprised a few times by Alex's insights as he challenged me to learn even beyond my preparation for the conversation. Bravo, Alex!

sign up for my newsletter at notunreasonable.com/signup

David Wright :

My guest today is Alex Lazarow, a VC with Cathy innovation. Startup frontier has been himself from Winnipeg, Manitoba, and author of out innovate, how global entrepreneurs from Delhi to Detroit are rewriting the rules of Silicon Valley. Alex, thank you very much for joining me today.

Alex Lazarow :

Thank you so much for having me.

David Wright :

The overall impression got from the book, actually is probably one that's obvious to you, but is Silicon Valley startups really have a lot of advantages over non Valley startups. And that's got to be why Silicon Valley exists. I'm wondering if there's an environment where you've witnessed or seen where the ethos or the valleys of the values of the valley have hurt those companies and competing against frontier startups, where maybe these non Valley startups have successfully beaten out Silicon Valley startup or Silicon Valley new entrant?

Alex Lazarow :

It's amazing in many ways, this is one of the root questions that I try to answer in the book. And as part of the reason I call the book out innovate. How, in many ways startups born at what I call the frontier are forced by the situation by the constraints they face to reinvent the startup playbook in some meaningful ways. And that then results into some meaningful advantages. So I'll answer the question, but maybe I'll just give you one bit of context first, which is why I wrote the book and what the context is like a little bit at some of these ecosystems, and, and then maybe jump into the tactical example of how that plays out. But, you know, in my day job, I have one foot in the valley and one foot investing in startups outside outside the valley all over the world in many emerging markets. I also teach entrepreneurship at the Middlebury Institute, and most of my students are, you know, going back to places like Winnipeg, or wherever they're from, or moving to emerging markets. And I wrote the book in many ways, because the context for those entrepreneurs and those students was so different than what is the reality in the valley. And I always felt like I had to contextualize what I was sharing with them about how to build and succeed in this ecosystem. around the world. And what's exciting today is that there are over 480 startup ecosystems around the world. There's over a million venture backed startups. And some of these are becoming some of the biggest companies around the world in their categories. The biggest digital bank in the world is in Brazil, the biggest robotic Process Automation company was started in Romania. The biggest super app in the world isn't China, the list goes on. And so we are seeing David's your question a bunch of startups that are top of their game, not just in their geography, but around the world in one very specific way, where I think that entrepreneurs outside the valley are forced to out innovate, because of the adversity face because of the constraints they face is how they think about building a boring global company. So in the valley, there's a playbook to start on, you move to Silicon Valley, you start your team here, your first customers are here. Your first market is here and that's fine. Right? The US is a trillion dollar economy, and it's totally natural to build your business. This year and centered around that, in many markets around the world, we don't have the luxury of having a huge domestic market with a very, very deep well of local talent. And so as a result, many startups build in a born global way they build their organization, their culture and their product to adapt across multiple markets from the get go. And obviously, that's more acute, the smaller the market is right? So Singapore, Estonia, Israel, by nature have to scale internationally. One of my favorite stories about this is the case of UiPath which was born in in Romania, I was alluding to it earlier, robotic process automation. This is essentially automating a set of repetitive white collar work. So imagine you're taking something from one database and then entering it in another system. This can basically automate those kind of tasks, simplify it and really free up people to do higher value activities. The company was was based in started in in Romania when I interviewed Daniel dines on the CEO and the founder, he talked a lot about the fact that he was based in Romania forced him to be born global, force him to build a product that could work across different languages across different industrial content contacts across different geographies, and an organization that was built to scale that and so today UiPath. As of this recording is rumored to be out in the market, raising a $10 billion valuation, it is the fastest growing enterprise sales business of all times and is out innovating some of the other RPA companies that exist in the valley and elsewhere. And I believe is really driven by the fact that you build an organization that was meant to scale in tougher ecosystem that was meant to scale and be born global from the get go. And because of that, they ended up having a product that was more adaptable, and a team that was more flexible to be able to succeed. And so that's one one of many examples of where I think and how I think some of the best founders around the world are succeeding.

David Wright :

Are they are they really different? Are the people because I think of like it. There's two ways of thinking about this, maybe like that that one. On the one hand, you might have these startups as just being kind of better versions of the same thing. Right? So they're just kind of dialed up? Or do they have like other distinct features of them, which just just are not you don't see elsewhere in Silicon Valley?

Alex Lazarow :

Yeah. And we can talk about two questions. One is how different are the people founding the businesses? And second is, how different are the companies? Let's start with the ladder first, which I think is the direction you're going in on the realities. I think the way innovation is happening these days, is it follows what I call in the book this innovation supply chain, where increasingly the best ideas are born everywhere, and they get improved around the world, historically, and I think the old stereotype is someone builds a business in Silicon Valley and then it gets copycat it elsewhere and that might very well have been the case. Look at the eBay or Groupon story and the replicators elsewhere around the world and encountered At web 1.0. But these days some of these business models are really coming from from everywhere getting replicated everywhere. But to take the case of Uber as an example, just to borrow one that actually happened to come from the valley, Uber and Lyft, which do ride sharing that model was was replicated in different geographies, right think of 99 taxis in LA time or think of DD in China, I think of a bunch of these other players that succeed everywhere today. By the way, the biggest ride sharing company is not in the valley. It's actually DD it's China. But what's amazing to me is how the model was actually adapted and changed. So in Indonesia, for instance, go jack which is a multibillion dollar business. They built the ride sharing model not on taxis, but on motorcycle taxis because that was what was prevalent. That's why it's called go jack. Oh, Jack's were the name of these motorcycle taxis and when I talk to an idiom, I'm the founder of the business, his vision For how to build a model was totally different than the way Uber would have articulated. His idea was to build an ecosystem of products that keep the drivers and his ecosystem busy throughout the day. In the morning, they would drive people to work. At lunch, they would deliver food in the afternoon, drive him home at night, they would deliver food in the middle of the day, they would do a range of things like delivering ecommerce packages, offering financial products and services. And go jek also offers things like Doctor services and massages and things like that. So really this idea of building an ecosystem, that model has now actually come to influence other models everywhere in the world. It's no surprise to me that Uber, for instance, is doubling down on Uber Eats, right? And that's their new product, and the Uber financial services and things like that, right? This whole ecosystem model has been improved around the world. And so I think that's the nature of innovation these days. It's less about one model being better to the other. I think innovation is coming from different geographies is getting adopted and increasingly is getting improved as a result of this. Innovation supply chain.

David Wright :

You mentioned several characteristics and in the book, and it's one of the things that intrigues me about a lot of the a lot of the call it the features of these, of these, of these frontier startups is that they're considered constraints everywhere else. And so it's you taking kind of these things that a typical Valley startup would call a weakness, right? You know, for example, there's a lack of funding environment, so they have to survive without on a shoestring budget, bootstrapping is important. Whereas in the valley, you're saying, well, that's a problem that we can solve with money, and we have lots of money. So we solved the problem. And it just kind of strikes me that there's this there's this kind of rejoicing in the in the beauty of constraint here. And I'm wondering if you might kind of reflect on that. And also on this idea that, does it mean that more of them, you know, this, how much of this is just survivor bias, right? They're just killing off all the ones that could be successful if they didn't have these constraints.

Alex Lazarow :

I think this is such an important question. And in many ways, I actually I actually believe that out of adversity comes strength, if anything, building a startup everywhere is one of the toughest endeavors in the world, right? a startup is not a company. It's a project. And it's a project that you hope will succeed and become one day, a company with cash flows and sustainable economic scale, etc. And in the valley, we have an ecosystem with a lot of resources for, for these projects, and some of them I think, are really good, but I think some of them have gone to excess. And we've built a culture of access that I think is has also created, in some ways a survivorship bias. And so if you think of the valley approach of unicorns, unicorns is a word that literally means billion dollar businesses, but it's also it also underpins and represents a philosophy and the philosophy is growth at any cost. And that is within a context of abundance of capital, where there is a lot of abundance where there is a lot of capital and in fact can access it at across every stage seed series A Series B and beyond. And around the world, that isn't the case. And so in the book, I talk about building camels instead of unicorns, building businesses that have sustainability and resilience built into the business model from day one. And so whereas in the valley, it's okay to subsidize user acquisition in service of growth, it's okay to burn a lot of money in service of growth. It's okay to take a short term approach in service of growth. In many emerging startup ecosystems, a little bit of this what's old is new movement. This is not a new idea to say you should build sustainable unit economics from the gecko is rational, thoughtful business approaches. But in that context of building unit economics, that work it's building a cost structure that works is taking a long term view to change in the market. And I actually believe the fact that entrepreneurs are operating in this ecosystem of constraint positions them to actually have a better risk adjusted outcome to their businesses. I think, to your point, we definitely have a survivorship bias in the valley where we look to the most successful businesses that are scaled. And we say, Wow, look at this business, you know, whatever it is Uber or Lyft, or whichever business you call, they say, look, what were the recipes to success that they did? And you say, Well, you know, they burned a lot of capital, and they grew really fast. And you say, well, that that must be the recipe for success. But what we don't know is if you would play that story back 10 times, if you would play the Uber story 10 times raising that much capital and sustainable economics, we know one of the outcomes, what we don't know is the other nine, we don't know the other nine times the story would have would have played out and potentially a bunch of them would have would have failed. And I believe that building a camera like strategy brings you a better risk adjusted outcome of success. So more often than not, you will get to both startup. Of course, building a startup in any context is risky, but I actually think that being forced to think with sustainability resilience in mind from the get go, prepares you for this long haul. Success. And yeah, go ahead.

David Wright :

I was gonna say it's so interesting. I was actually thinking of survivorship bias in the other direction, right on on the behalf of the frontiers markets. But what one of the things that struck me is you were talking there was actually in a really weird, ironic way. You're preaching business practices that are sensible, literally everywhere outside of that. I mean, it's not even about a tech, it's not about technology. This is like, this is, you know, the guy that starts to dry cleaner gal on the corner is like, Well, yeah, you have to make money in every customer, because that's what it's all about, right? And in some ways, that's bootstrapping. It's got this fancy term to it now, but it's actually a sensible business practice. And it's valid. It's the weird place, right? That's the place where you can you can succeed without doing those kinds of things.

Alex Lazarow :

It's interesting, it's, um, in some ways, I'm also i'm also espousing a little bit of a middle ground because, you know, startups everywhere are going to lose money. I'm in service of building a product, and a business, I think the question is how do you approach that problem? Because the difference between a business and and I'm writing about startups not, you know, not not SMEs, I'm writing about startups that have the ambition of growing, growing and scaling something that have a technological business model innovation is part of the part of the story. So I'm writing about those kind of businesses. But I think you're right on David, that the, the strategy I'm talking about are not new, right. They're logical in many ways. Um, you know, in in the valley, we have this thing called the valley of death. And it's true of any startup where you know, the beginning, if you map the cash curve, the amount of cash that's being used for the business, there's a dip at the beginning, and then eventually start making revenue. And then hopefully cumulative, the cumulative cash curve comes up over zero eventually as revenue scales. And this growth at all costs methodology means that the cash curve dips is jacked as deeply as possible in service of exponential growth as quickly as possible. And what I'm arguing for here is a model where you still have the value of death and you're still building towards something and you have to invest towards it. But instead of aggressively raising capital and burning capital in service of growth, taking this more balanced approach to doing it, and in some cases actually love the example of grubhub, which I talked about in the book, grub hub, I often think of on demand delivery as the quintessential venture subsidize model. Think of doordash which has raised $1.5 billion on grub hub. When I interviewed Mike Kevin's one of the co founders and the CEO, he talked a lot about how they were sustainable at every single fundraise. And every single fundraisers for a very specific purpose. It was to expand to another couple cities or it was to make a small acquisition. And so their actual cash curve looked less like one one valley of death and more when I call ditches of death, but little spurts where they're investing towards a growth objective. They're taking a little bit of Balance objective I asked Mike, you know, why did you raise a little bit more money grow a little bit faster, and you know, took you 10 years IPO, you could have done it a little bit faster. And he said, Look, I could have done in eight years, two years faster, but I would also tremendously more risk. And so that's really what I'm talking about is there's still, there's still the ambition of scaling the business, still ambition and building a really industry to finding organization, but also doing it with a balanced growth long term approach to it. And so that's, that's really kind of the approach to this middle ground balanced growth approach that I'm talking about with the Campbell.

David Wright :

So let me let me let me try and put on you know, you're the one in Silicon Valley and I'm not but so let me put on my Silicon Valley entrepreneur hat or push back right so here's the pushback says, well, that you know that that obviously sounds nice letter can, you know, convince conventional wisdom but you know, like a lot of time tested truths in what you're saying here. But, and the button here is software has high fixed costs up front, zero marginal cost to scale. You just sell more Software. And so we need to race to get to the end of that fixed cost fastest. Because if we don't, somebody else will. And we might as well because there's a curve, like a, you know, hockey stick curve is much, you know, ridiculed, but you can imagine a margin curve for a software company very much looking like a hockey stick where you're losing losing losing money, and then suddenly, you can't get past that breaking point. And Holy cow, now you're just printing money, because, you know, there's a contribution margin is incredibly high, once you get past the fixed cost. And so it makes sense to throw monies at these money at these companies, because they can make huge amounts of money once they once they get that adoption curve. Right? What's wrong with that model?

Alex Lazarow :

So what you're talking about is the classic venture capital model. And I think the question is, is at what level are we talking about this? You know, just to be clear, I'm not arguing against venture capital. You know, I I think it's a wonderful tool. And, you know, for disclosure, I am a VC. But I think what I'm pushing up against is this notion of growth at all cost. So for instance, there's a book called blitzscaling. That came out by Reed Hoffman and Chris Yeah. And they argue for this notion that you need to scale and it's okay to have unsustainable economics. It's okay to burn, because it's winner takes all. I think that what people have misunderstood in the author's this book, explain it clearly in their book. But I think that we have fundamentally misunderstood the nature of markets, and that some markets are inherently winner take all. And in those markets, it might actually make sense to, as you described, David, to scale as fast as you can, and own the market. Because if you don't, someone else will. The reality is that most markets are not that take the case of Uber that we were talking about a second ago. I actually think that Uber fundamentally misunderstood the nature of their network effects. So there's three dimensions in network effects that I believe are really important. The first is a user network effects. The second are around cost like you talked about, and the third Around kind of the the regulatory constraints or ecosystem constraints, a business like Google or Facebook, as a user sitting in San Francisco, I benefit more. If people in the Philippines or in Singapore or in Jakarta use. Google is able to tag those webpages. And as a Facebook user, I benefit more if my friends from all over the world are able to join their truly global network effects. Uber conversely, as a rider in San Francisco or a driver in San Francisco, I don't actually care if other people are on the platform in the Philippines or Indonesia or frankly, even in Chicago, it literally does not matter, because I care about my local concentration. The network effects are real, but they are they're local. And that's one of the reasons that there are replicators all around the world that are scaled, taking a little bit more of a local strategy, right, Didi and China. Grab and Go jack in Southeast Asia and others. The second is the cost structure. And I think you're right that There are some businesses that have really deep cost structures. Think of something like SpaceX, I think stream, right, where you have to build rockets and engines and a vertical stack to make that work. And as a result, it actually gives a cost advantage. It's also one of the reasons for instance, in cloud computing, that there's a oligopoly of players that are really starting to dominate globally, because it's really expensive to build these massive server farms. But there are a range of businesses that don't have those same cost structures. It isn't that expensive to set up a local Uber, it isn't a capex cost. Most of it is optics cost is marketing to acquire users and drivers. And it's ongoing and it's verified. It's different than this high upfront cost. And third, and this is one of the reasons that historically FinTech businesses have had a hard time scaling across borders is it's hard regulatorily right. The US market is different than the Canadian market is different than the UK market. And you can't just scale across borders because there's a bunch of things you have to do around compliance and KYC and AML. And so I actually think That there is a very, very narrow set of businesses that are truly winner take all. And we are this blitzscaling model does work. But I actually think that for the vast, vast majority of businesses, you can take venture capital or not. But you can take this camera like approach ability, sustainability and resilience, choosing to grow, but choosing to grow with balanced growth at the same time. And by the way, as the world has changed over the last few months, as we've entered COVID. What's amazing is that in the valley, we don't have that many examples of businesses that are camels, the best camels around the world around are frankly, around the world. They're outside of the valley. And so all of a sudden, we've had a seismic shift where people are talking about sustainability, resilience and the model of how to build businesses in ecosystem diversity matters more than ever. And so the Campbell model that I talked about in the book, and that's really perfected around the world is becoming more relevant than ever, and I think is, is teaching entrepreneurs in the valley a thing or two as well.

David Wright :

So Here's an interesting, interesting thoughts come to my head. I think it's interesting. You can tell me. So in the book you you, you have some treatment for for alternative startups, right Silicon Valley. I mean, what a success, right? Let's just all marvel at the extraordinary success of Silicon Valley as a place to incubate startups and just what a special place in the world. Naturally, many mayors and politicians look at that and say, Man, I want one of those. And one of the things that strikes me is that there's a possibility that if Silicon Valley specializes in this very specific kind of invented and specializes in, of course, this very specific kind of funding model and business model prosecution, that maybe Silicon Valley can pick all the fruit all over the world that had that business model and and other innovation hubs maybe should actually specialize a little bit in a different direction than Silicon Valley because how are you going to compete with them? You know, as a come later entity, what do you think about that?

Alex Lazarow :

So first, I agree with you. It is an interesting question. And secondly, I actually think there's an interesting example in a totally different industry. That was the innovation at the time. And that's the car industry about 100 years ago. The technology the day wasn't software, it was automobiles, and at the time, it was set to reshape the way the world functioned, and make cities more efficient, make transportation cheaper, etc. and Detroit was the Silicon Valley of the day. If you were an entrepreneur, you moved to Detroit there are hundreds of car startups there. The Big Three the top, the top three in the world, were all in one city in Detroit. Fast forward what happened? innovation went global. And today the best place in the world for a sexy sportscar is Italy. The capital of raw engineering might be Germany, the most reliable cars are built in Japan, and arguably the capital of electric cars is is in the valley or maybe in Shenzhen. Innovation went global and with it, so did best practice. And so just in time manufacturing is one example. was pioneered in Japan and perfected with in the automobile industry. And I think the very same thing is gonna happen in the innovation industry. Today Silicon Valley is the capital of the world. But innovation is becoming global. And I actually believe that around the world, some of the ecosystems are going to specialize and become the world leaders at certain types of businesses, or specialize for their regional geography as well. I don't think that that means that the valley is going to become irrelevant. I think it has this self perpetuating cycle of innovation and has very deep strengths around a range of startups. But I think it's going to face a lot of competition from others, and for it to continue to succeed, and to survive, and to scale businesses. I believe it's really important for the valley to also take a moment and learn but what's happening outside the world as well and, and take that learn, evolve and build so that it avoids its own Detroit moment. itself.

David Wright :

Do you feel? Well, what other hubs are you aware of? Right? So, one interesting, very interesting characteristic of the book is you define frontier very broadly being kind of like x Valley. Right? So and if it's not Silicon Valley, can you tell me if you think that's right or not, but at least most places that aren't Silicon Valley make the cut. What other place do you think is coming closest to to replicating or at least, you know, putting a spin on the valley to some success?

Alex Lazarow :

Yeah, in the book, you know, obviously, it's way too simplistic to define the world as Silicon Valley and not so Silicon Valley. And there's so much heterogeneity out there around what ecosystems look like. In the book I make one gross oversimplification around a two by two matrix. I'm a former consultant everything falls into two by two matrix. But But think of think of two axes just for simplification. One around developed country versus developing country and a second round ecosystem developed startup ecosystem developing Started people, some, you might say top right corner, there are places like Silicon Valley that have both a developed country ecosystem, as well as a developed startup ecosystem. And there's probably a couple other places up there. I put Tel Aviv in there, London for FinTech products, etc. You go the polar opposite, right bottom left corner, developing country, developing startup ecosystem. I take you to places like Pyongyang in North Korea in the book, believe it or not, but also you know, cities like Lusaka in Zambia river, right. And that context is obviously diametrically opposed. But then there are some more nuanced cases right Bangalore, developing country, but very, very thriving, startup ecosystem that has pumped out many, many very successful billion dollar businesses and another the other quadrant, right you say developed country, but developing startup because we might put my hometown Winnipeg there, among other places. And so in the book, I purposely try to draw examples between the extremes to really show the differences. But obviously to also pull out some of the nuances. I compare places like Chicago to the valley, or places like Winnipeg in the valley or, or Bangalore, etc. And so I think it's important to understand some of those nuances that come out of that. And the reality is, is that I think the best entrepreneurs operating and this is the reason the book is called, you know, has deli Detroit in there. But I think the best entrepreneurs operating in cities like Detroit, or Amsterdam, or Delhi, New Delhi, or Singapore have more in common with the best entrepreneurs operate in Sao Paulo than they do with those in San Francisco. And we have an opportunity for emerging best practice in more nascent startup ecosystems to start that conversation. That's really the purpose of the book. But of course, you know, the book is not a recipe book. It isn't do ABC and you will have success is much more of a menu. And as a founder or as someone that works at a corporate or an ecosystem builder or what have you. It's important to understand what's going on elsewhere. What are some of these emerging trends? Take what resonates, apply it, evolve it, but you know, certain things don't work for you because that's okay. and discard it, but at least know about it and need to learn about it. So I think that's really critical is I think it's important to take that nuance and apply that nuance thoughtfully and started building an ecosystem building. But how about this, which give me a city

David Wright :

that, you know, back to the earlier earlier, spin you took on this, of specializing and kind of like, adapting in a different way from Silicon Valley? Is anybody doing that? Well?

Alex Lazarow :

Yeah. So I think we're seeing that one is we're seeing certain cities becoming the capitals for hubs. Certainly launching pads for hubs, I think of Singapore for Southeast Asia or Dubai. For the Middle East. I think we're also seeing certain cities specializing for particular industries, Estonia, for instance, has done around some of the work they've done around government is pretty interesting of what's happening there. And I expect We're gonna see more of that industry specialization sees like Minneapolis, for instance, I would expect that over time, given the really strong healthcare sector, and we're already seeing a bunch of companies come out of that will specialize in healthcare companies, and perhaps Detroit around automotive, down the line. And so I think we're going to see more of that. But already we're seeing some of the signs on the startup genome report came out actually this week, and talked about how they're already over 30 startup ecosystems that have scaled a, excuse me, over at startup ecosystems, they've scaled $1 billion business today. So we're already seeing this proliferation of ecosystems from which the biggest businesses are getting built.

David Wright :

And that's pretty interesting. That's, that's, that's a it's a very inspiring kind of stat. So thinking about like, what are the characteristics of a local, you know, local culture that might contribute? You know, here's, here's another way thinking about it. When I think about A frontier, right? But when I first picked up the book, what immediately thinking is Kenya, or, you know, the bottom left quadrant of your two by two, there are these countries that you know, where you have an amazing story, let's say in, in Sub Saharan Africa, where they didn't never had to build the phone, phone lines, because they have cell phones. And now it's kind of just really weird, you know, and it's like an alien mapping, right, just as their developmental path is gonna look nothing like ours. And it was seemed to me to be like a lot of interesting opportunities that might arise there. And I'm wondering, like, in these sorts of really, really foreign looking growth culture, but also business culture, you know, are there things that they can do that we can't do? Because otherwise you think that lower left quadrant man, they're kind of screwed, right, that there must be something some advantage that comes out of that, that that we wouldn't perceive?

Alex Lazarow :

And we're absolutely seeing that. And so maybe you take the Kenyan example. Kenya actually in that ecosystem is pioneered The leading mobile banking platform for the unbanked globally. So in partnership with Safari calm the local telco funding from USAID, the British Development Agency, they launched m pesa, which now I believe 90% of adults in Kenya have accesses mobile banking platform. And on top of that, on top of this, essentially, you know, for dumb phones, right for, you know, SMS based phones now simple, very cheap smartphones, you can actually have the full digital payments functionality that you would have out of any Western system at much lower the cost. And within a context that the western system didn't work. It's literally leapfrog that. And on top of that innovation, a whole cadre of entrepreneurs are building new apps that are disrupting other parts of the ecosystem, everything from lending and savings products to actually a banking functionality and other financial products, but also in totally different industries. So in the book, I talked about the story of Zola, for instance. Which is an off grid energy company. So there are about 1.3 billion people that don't have access to power. So don't have access to electricity to light at night to a light for kids, their kids to study in the evenings, etc, right there's and what they do is they literally burn kerosene jet fuel to light their homes. What Zola does is they have built a home solar system, imagine two solar panels, a battery, a couple of lights, radio, a TV, those kind of things on a hyper efficient system. The problem is, is the average customer in East Africa where they sell can't afford this system out right right there 200 to $500. But what they can afford is the daily, weekly or monthly spend, they're already doing on kerosene. And so because of platforms like m pesa, in some of the replicators in the region. What this company has been able to do is build a home solar system and do it pay as you go. So pay daily, weekly, monthly, and because it would have been impossible to collect it. You know, a couple pennies are a couple of dollars a day, all of a sudden, we're banking, it's very possible. And so they have built essentially a electrical utility product on top of an innovation in payments, that in many ways, right? I live in California, and we're having our fire outages. And I wish we had some of these solutions over we're in many ways, right like are, are really being forced to do constraints to really create and build innovative solutions. And so we're definitely seeing that. And obviously, there's some other stories like that, with what, you know, the China the rise of Chinese ecosystem is totally different than some of the story in the valley and in many of the more emerging market stories that I talked about there. But, you know, obviously in China, I would talk about the WeChat ecosystem and the super app ecosystem, and how there's really big usage on on WeChat and, and, and financial, for instance, that then powers a range of other applications in both the physical and digital world. And so the super app ecosystem, not just payments, but a range of services. Through it has been totally different. And that's getting copied and replicated elsewhere too. So I'm absolutely lose you, David on that point.

David Wright :

So there's one thing about what you know, a few has many things that are different about Kenya. Among them, is this culture of the call petty entrepreneurs, right? So, if you're gonna place like that underdeveloped country, there are a lot of people who just they're on their own right, they have to sell fruit by the side of the road, or it's almost everybody in the informal economy is enormous. Almost everybody's an entrepreneur in that place. And I'm wondering if, if you if you've detected or seen in your experience, you know, is there a different kind of culture with respect entrepreneurship, for people to come from these places to the heat, they see it differently? Because you could imagine, in those places, people even more so than here would aspire to actually not being having to do with entrepreneurship, right, even though so common, it's probably a very low status thing. You want to actually work for the government or have a stable job of some kind. Is the culture of entrepreneurship different there as a result? Yeah, so this um,

Alex Lazarow :

it's a really important question, David. And, you know, the reality is, is that there's so first I think the book focus is around these types of entrepreneurs that are taking business model innovation and have an ambition to, to scale a product. So these are, I really think about this question of entrepreneurs of opportunity, not entrepreneurs of necessity, a little bit what you were alluding to with, with the fruit vendor. And, and those efforts are noble and really, really challenging, but it's a little bit of a different style of business. But I think your point around the culture of entrepreneurship is critical. Because in many emerging ecosystems, there has not yet been those role models that people that have scaled successfully, and the changing the hearts and minds of this is a respectful outcome and your parents will be proud of you for doing this type philosophy. And so getting people to start and taking the leap. I think that i think i think that i think that definitely is going to take time and that is a is one of the barriers and in Many in many Sub Saharan African context, his concept of portfolio entrepreneurship is entrepreneurs that don't have either the resources but also don't take the dive to only work on one product. They hedge their bet by doing a couple different projects at the same time, and maybe they have one tech thing, but maybe a couple other side hustles too. And the challenge with that is because because this culture around risk, and risk avoidance is so strong in many in many ecosystems, it actually makes it more likely that you're not going to succeed at building a startup that you're you're hoping to succeed to scale, because you're diverting your attention is diverted building one startup is hard enough building more than one is is next to impossible. And that bits important, what we're seeing though, and so in the book, I profile, this movement that i i really resonate with, with what's called fun, literally stands for fuckup nights. voted in Mexico. And it was by, you know, four founders, entrepreneurs in the Mexican ecosystem, who were really frustrated by this lack of conversation around failure and his lack of culture of entrepreneurship and that in many ways, stymied innovation. And so what they decided to do, the first ever event was, you know, over a bottle of Miss cow, they talked about each of their respective failure stories. And that cathartic effect led them to do that a couple more times. And all of a sudden, a bunch of folks within the ecosystem, sorry, asking them to do it and others started replicating those kind of events elsewhere, they decided to formalize into this organization. Fun and is now one of the largest distributed entrepreneurial movements around the world and fun events have been hosted all over the world, and I think are one small part of how to change the culture and how to how to shift some of these hearts and minds and build a culture of failure because building a startup is hard and Starts are going to fail, not all are gonna succeed. And I think it's important that it's okay for that to happen. And I think this is one part of that I think this is a good example of entrepreneurs, leading the cultural change in their ecosystems. And so this will take time this will, you know, that the five wellness needs needs to get built on the person, but we're seeing, we're seeing the movement of that in many places around the world.

David Wright :

How about the problem of and a lot of countries that, you know, somebody might just pull out a gun and take your stuff? Right. You know, there's like, there's political risk, there's corruption. I mean, these environments are toxic to any kind of sustained development. How do they get around that? Do they maybe is that just kind of just increase the probability of failure? Are they themselves corrupt? I mean, all kinds of things probably can happen here.

Alex Lazarow :

Yeah. So I think this is a really important question. And one to be fair, that I didn't talk as much about in the book. I think you could write an entire book on this topic alone, but maybe maybe a couple thoughts. First is, is that the startup ecosystems that will succeed will have some amount of these basic building blocks that will be in place. And it's no surprise when you look at the ecosystems around the world, in both emerging markets and developed markets, the ones that are building the most successful startups and where entrepreneurs are choosing self selecting to build their businesses are the ones with building blocks, like rule of law, low corruption, ease of doing business on the world banking ratings. So I think one is, you know, this is a basic building block and some of the countries that have chosen to do this really well are able to more succeed. It's one of the reasons Singapore has become one of the big hubs for Southeast Asia is because they they have a bunch of that built in and we see that kind of in different ecosystems around the world. So I think that's one thought. The second thought is the nature of digital businesses are a little bit different, because they are not in the physical world because they're on the internet. And so there is, is different than, you know, your the risk of being put off For extortion, etc, the challenges of the many frontier markets, right? This this question of corruption is, is ever present and how to manage it if your employee has a gun pulled out on him or her, or is getting arrested unless you pay a bribe, and you know, those are real issues that entrepreneurs operate in frontier markets have to deal with, and have to be really thoughtful of. And so you know, perhaps when I write the sequel, David, I'll have a have some better and more tactical responses for you. But yeah, no doubt, I think, I think I think it's one of those things. But you know, if I was going to put a policymakers agenda on this, you know, the in the book, I talk a lot about strategies on how to build a startup ecosystems. And what I don't believe is that a startup ecosystem is built by policy by government. I think entrepreneurs are critical at building it. But one thing that policymakers can do really well is set up these basic building blocks, set up the rules of the game, because that actually will attract entrepreneurs to start that will actually help catalyze it. That'll help Make sure that the businesses that are scaling, don't get stymied by these problems and are able to scale and build role models and builds what I in the book I call older siblings, but entrepreneurs, they've been there done that I've trained a bunch of folks in the scaling story. And so I think getting this base these building blocks in place is critical. So I thank you for raising the important question. I think.

David Wright :

So I'm, you know, if I'm a politician, listen to that, right. I'm kind of disappointed, I think, because I'm thinking to myself, man, I really want to Silicon Valley. And here's Alex telling me, all you have to do is make sure that we have rule of law like Well, I mean, if I'm the one have the right kind of places, I already have it. If I'm not, you know, I guess that's something that's been pretty hard for me to implement. I probably would have done it already. But that's it like is there nothing else that we can do?

Alex Lazarow :

Certainly, that is not the only thing one can do. But it is it is one of the things. First thing are things in direct relation to the question of, of corruption. So maybe my first observation, David, is that As a policymaker, I actually think that too much and too often, we say, hey, I want to build Silicon Valley here. And I actually don't really like this Silicon Valley for x terminology that has proliferated itself around the world. Silicon slopes and Utah are the silicon Savannah, in East Africa, I think that we should just call it Kenya and we should just call it Salt Lake City. And and realize that each of these ecosystems are going to look different and are going to enter in are going to have a different growth trajectory to our earlier conversation. But and then a lot has been written around these questions on how to build startup ecosystems. I think there's obviously a big role for government and some of it is around the building blocks, I think there is an opportunity to help catalyze some of the infrastructure. Let's not forget, right, Silicon Valley, as in men, as well as many startup ecosystems around the world, including Israel, for instance, had very strong support from the government in catalyzing the venture ecosystem, right in the SBA, for instance. In the US around some of the early funds, so there's a big role in that, you know, the internet right in the US came out of DARPA funding as well. Right. So there is a role for policymakers in supporting ecosystem. What I think is a risk, and I've observed is that people will map and say, Look, what are all the things that Silicon Valley has? Well, they have capital, and they have cch companies, and they have X, Y, and Zed things like a little bit of a menus that I want to just have all those things. And I think those things can be important. Those inputs are important. But one of the things that I think is also important, and as I give advice to to policymakers and founders on how to build startup ecosystems, I think one of the things that I think is critical to not forget is the rise of what I call older siblings, but it's these entrepreneurs that have scaled, it's supporting the companies that are out soon as BMC that are you know, growth stage, but still relatively small businesses and helping them get to be massive businesses. Because what that leads to is some of these entrepreneurs that are role models, and then often give back to their ecosystems. But it also trains an army of folks that might one day become founders. They've been there done that, perhaps among the senior management and army of angel investors that might do this again. Right. And so that bid, I think, is one of the things that a lot of startup ecosystems don't think enough about is how to make sure that you have a couple of these winners that that that are not stymie that can scale and they can succeed. So you know, I'm a lot has been written around startup ecosystem development. I think one of the areas that I focus a lot on the book is, how do we actually adjust our startup ecosystem building strategy, with the knowledge of what it actually takes to build startups in more emerging systems with the fact that you know, it's different than doing it in the valley and with that knowledge, how will you adjust it? So that's, that's the contribution of the book focuses on as well as this question. Ron, how do you actually support these older siblings in their quest to build their business, but ultimately also build their startup ecosystem at the same time?

David Wright :

You know, one thing that's interesting about all this is, is you're pushing back against the idea of replicating Silicon Valley. And what's interesting about that earlier point you made on this idea of specialization, right? So Silicon Valley kind of has this, this idea of high fixed costs, zero marginal cost, infinite scale, negative cash flow, then putting hockey stick casual, as their sort of bundle of, of characteristics of markets of companies. They're good at that. Right. It was interesting about maybe another, let's say, the, you know, the other places from Delhi to Detroit is the kind of asking them if I have this right to embrace a kind of path dependence. So if you're, if you're a politician looking at saying what have I got here, you know, I've got these kind of companies are successful, and it's actually you kind of want to double down on that. So you're saying that industry for Whatever reason has emerged here, not under my control, usually, or maybe it is maybe even military research facility, you know, maybe DARPA, or maybe have some just under your control, and it's seeing what resources are available to you, and then and leaning on those. And that will become your strategy, which maybe is just a bottom up thing. And it's not about intent. So much it is about nurturing what you already have.

Alex Lazarow :

I think that's a good framing to it, David. And in many ways, I actually think a lot of strategy is a little bit of a feedback loop feedback loop between the two, where you might have a top down strategy and an idea of what are some of the strengths of your local ecosystem, but then also seeing what's working and learning and then adjusting based on that. And by the way, what I've just described is also what I would advise the startup founders that I invested is that say, look, start with a hypothesis. Start with a strategy that's top down based on your knowledge of the problem, the market, the customers, whatever, and then try it out. Build a minimum viable product, scale your product learn. And as you learn, evolve, and in many cases, the business model that results is different than the original hypothesis, but is guided by some of the original research and top down strategy, but it evolves as a result. And so I think the same is true with startup ecosystem builders were, you know, coming up with a hypothesis what the problems are, and act on some of those, but also ask an interface with entrepreneurs, let them guide. A lot of the drivers in the book I talk a lot about and this echoes to some of Brad Feld work around the bolder thesis. But you know, some of the infrastructure and startup ecosystems needs to be driven by the entrepreneurial community, it can't be put top down. And so as a result, it also needs to be built and infused with the flexibility of course crafting to what is needed and what what essentially your constituents, your customers, in this case, the founders and the entrepreneurial community need and want to be able to be catalytic. So absolutely I think that is one of these where it's going to be an ever, ever continuing cycle when executed well between top down strategy and bottoms up reaction and learning.

David Wright :

One of the things that I marvel at in reading the book and also just in my own reflections and experience is actually how we're going to call it community minded entrepreneurs can be right and i mean that across many definitions of community because you can have them be interested in their startup community. Obviously, that's a community they're a part of, but also have a social mission that they want to fulfill. You know, I think that the call it the caricature, maybe extreme left caricature of entrepreneurs is the rapacious take the money and run kind of thing. And that's just it, maybe, I mean, listen, the diversity of the world. Plenty of people, but but definitely not all, but maybe not even most of the successful ones. Were this idea of people helping each other even in spite, maybe they compete. Maybe there's next door is really powerful, and an important source of how to build any of these kinds of businesses. But maybe we can talk a bit about about the This philosophy an entrepreneurial entrepreneurship.

Alex Lazarow :

happily. And two thoughts on that. I think the first is I think you're right. Among the most successful startup ecosystems, I have observed that the startup leaders, those that are emerging are often the ones that are giving back to their ecosystem are the ones their angel investors, the ones that are mentors, they're the ones that are doing that. And they're also also often the ones that are building some of this startup infrastructure at the same time. And that's why I call them older siblings. I was an older brother. And I felt like at every step of the way, I felt like I had to break different barriers, extending the bedtime or being able to practice on the car or what have you. And then my brother automatically graduated to whatever standard I had. He's two years younger in some ways. I think older siblings are driving that they're, they're breaking the ceiling in in some ways for the founders that come behind them, but also, and like I think I did for my brother, we can ask him also helping them Right along the way and giving them mentorship and helping them avoid some of the mistakes and pitfalls that they themselves did. In the endeavor ecosystem endeavor is one of the leading startup ecosystem builders and mentorship organizations around the world. They talk about this multiplier effect where one successful founder actually has a multiplier effect with a bunch of other founders in their ecosystem. It harkens back to this idea of mafias like the PayPal mafia, and and how a lot of these, these founders come together and they started in one place, and they lead to change across a bunch of different organizations. So I think that's the first thought is that we see that and the second is that is backed up and data, where I'm in New York, for instance, and I can pick up the number the number for you, but in a study by endeavor to catalog the rise of the New York startup ecosystem, what they discovered is that a lot of the founders, not even the ones that are successful yet AK exit. billion dollar businesses. But you know, we're just on the rise. We're also angel investors and mentors at the same time as their business. When I mapped the acceleration of billion dollar businesses and startup ecosystems around the world, one of the things that I discovered is, you know, if you just have one success, right, you say Daniel dines and Romania or whatever, um, that tends not to radically change the ecosystem. It's actually when you get certain amount of critical mass, that you then get some of the catalytic offensive effects and the number was around five, right? So in China, for instance, there's, you know, one a couple years later, there's another a couple years later is another and then all of a sudden, there's five and the next year, that number exponentially increased. And I think that's because, uh, once you build a network, and you get a couple of these nodes that starts unlocking things and unlocking the flywheel, and I think we're gonna see more of that as well.

David Wright :

So we're running low on time, but um, maybe we can close on this question of the getting super concrete. You're an entrepreneur and Somewhere between Delhi and Detroit. And you you really would love to do this. What do you do and feel free to define the the context more specifically since I imagine advice might differ depending on where you're talking about, maybe Winnipeg, maybe Kenya?

Alex Lazarow :

Well, I will give, I will give generalized advice that I think could work for any of your listeners, which is, you know, one of the things I observed around the world is that some of the best entrepreneurs were taking a different lens to the problem. So instead of taking the lens of disruption, you know, the valley I think we're obsessed with this notion of disrupting, you're either being disrupted or you're the disrupter. And it's this modern day David and Goliath story of the small vanquishing the inefficient. incumbent that doesn't serve customers very well, and it's emotionally appealing. But I think that narrative influences the problems that get soft, and in emerging ecosystems. Most startup founders, particularly in emerging markets, are what I call creators. They are tackling problems that are unsolved. By incumbents where there is no solution, they're doing it for the mass market and they're often the shoulders of giants upon which others build, and is more than a semantic difference. If you look at the valley right or in the US, less than 20% of startups they're founded are in industries like financial services, or healthcare or education or agriculture or any of these more critical needs lower on the Maslow's hierarchy. In many emerging ecosystems. That number is split in Sub Saharan Africa. I did the analysis, it was over 60%. And as we are working our way through COVID, and what is a recession, health crisis, a conversation about quality and rights and helping underserved minorities. I think that that situation is laid bare many of the biggest challenges in our society. These challenges are not new, by the way, right? It is not new that there are a couple billion people that are unbanked, right, 60 million Americans in the US it's not new that there's 80 million people in America that have insufficient access to health care, but the coven crisis has sharpened our lens on those problems. And when my students asked What should I do? Why am I going to be an entrepreneur? What problem I solve, I invariably will ask them, I said, Why do you want to do this? What's the reason you want to embark on this journey? And they'll consistently Tell me, Look, I want to have an impact on the world, I want to make a difference on people's lives. And what I would tell them and what I'd say, you know, perhaps as a closing reflection is take this frontier innovators lens that I talked about in our innovating, and try to be a creator, try to find a massive problem, where existing incumbents are not solving it where there isn't a solution and try to use business model and technological innovation to solve it. I think focusing entrepreneurship on that will yield both incredibly successful big businesses but also incredibly impactful ones as well. And so that would be my recommendation on how to out innovate for entrepreneurs anywhere in the world.

David Wright :

My guest today is Alex Lazarow, thank you very much

Alex Lazarow :

Thank you so much for having me.