Out-Innovating Silicon Valley with Alex Lazarow
Alex Lazarow comes from the small city of Winnipeg in Canada. Coming from this small town, having a first-hand view of m-pesa’s growth and working in Venture Capital with the likes of Omdiyar network gave him a perspective about startup playbooks. Listen to this episode about out-innovating Silicon Valley with Alex Lazarow.
The strategies, tactics, and playbooks that entrepreneurs outside Silicon Valley employed fascinated him. They fascinated him so much that he decided to dive deep and chronicle their stories. 200 interviews and numerous discussions later, this fructified into the book – Out-Innovate: How Global Entrepreneurs from Delhi to Detroit Are Rewriting the Rules of Silicon Valley.
Always interested in new scale playbooks that are taking the context around them and putting a startup on the path to scale. We are even more interested if they are from around the world where the context is varied and dynamic.
Our hope is that some of those tactics become relevant to our entrepreneurs who are trying hard to scale their ventures in India. Listen on and read the book!
Here are some excerpts from the Episode:
I think the best entrepreneurs operating in in places around the world, from Chicago to Amsterdam, to Nairobi to Bangalore, have more in common with best entrepreneurs operate in Sao Paulo than they do with those operating San Francisco yet no one’s telling their stories.Alex Lazarow 02:17
There are over 1.3 million startups around the world. There’s 480, innovation ecosystems around the world. And those numbers already probably outdated and are bigger already, innovation is really movedAlex Lazarow 05:41
around the world, and so has the creation of successful businesses. And so now Best practice is shifting and the book I talked about this notion of frontier innovators. And obviously, the world of innovation is not Silicon Valley or not Silicon Valley, it’s much more heterogeneous
You know, I think you’re hitting hitting the nail on the head on a lot of these, right? Because if I was going to take a step back on some of the lessons I learned through all my interviews, is really this necessity of having to do a lot more with a lot less and facing adversity.Alex Lazarow 14:33
Watch on Youtube:
Alex Uses Camels As An Example!
Camels are animals that can be spread across the desert, drink water faster than any other thing when times are good. But they can also survive when they’re tough. And so I think that it is not inconsistent with taking a camel like approach to raise venture capital that you need to be able to get through it.Alex Lazarow 18:05
But it’s rooted in a philosophy and an approach of not massively subsidizing user acquisition, not hiring way ahead of burn, not taking a short term lens on the world. It’s keeping this long term approach keeping sustainable unit economics and a business model and keeping burn under control.Alex Lazarow 18:05
Follow Alex Lazarow at alexlazarow.com
Follow Maharajas of Scale on Twitter here: @maharajaofscale
Here’s what the word cloud looks like for this episode:
build, startups, innovation, entrepreneurs, model, valley, india, book, world, ecosystem, silicon valley, happening, big, innovators, frontier, startup ecosystem, people, approach, created, impact
Krishna Jonnakadla, Nida Sahar, Alex Lazarow
Krishna Jonnakadla 00:02
This is Maharajas of Scale, a podcast where we go behind the scenes and talk to founders who are demolishing the myths around building and scaling a big business in India. These are the stories that have shattered the assumptions around Indian consumers and are changing the game completely. I am Krishna Jonnakadla, serial entrepreneur, co founder of Flit - The Fashion Locator in Town and Start-up mentor, bringing you the stories. Hey, listeners today we have a fantastic speaker, Alex Lazarow. Alex is the author of the book Outinnovate where he chronicles how entrepreneurs across the world are writing a new playbook of building scaling startups. It is a fascinating read and I highly encourage our listeners to check this book out. Alex is also a global venture investor and an adjunct professor at Middlebury Institute of International Studies at Monterey, California. Today we are going to talk to Alex about his own journey and also the stories and insights about scale that are peppered all over the book. Alex, welcome to the show. It's good to Have you?
Alex Lazarow 01:00
Thank you so much for having me. I'm excited to have this discussion.
Krishna Jonnakadla 01:03
Wonderful. Tell us a bit about yourself and your journey about how you came to the world of startups and investing.
Happily, I've always worked at the intersection of innovation, questions of impact and investing. So by day, I'm a venture capitalist. I work for a fund called Cathay innovation. It's a globally focused venture fund based in Paris but investing across Asia, Europe, North America, we also pan Africa venture fund groups affiliate with Catholic capital. That's my day job been there for about two and a half years before that. I was at Omidyar network, investing in startups around the world. I mean, outside of work. I have been teaching entrepreneurship, like you mentioned at the Middlebury Institute. And I've always been kind of focused on those kind of questions. So before that, I spent some time working in strategy consulting, principally emerging markets spent some time doing regulatory work with the Central Bank of Canada, a lot of the industries that care a lot about our highly regulated financial services or healthcare and others and I want to know send those dynamics and before that a little bit more of a traditional finance background. So, in many ways, I'm really passionate about investing in startups and entrepreneurs outside the valley and around the world.
Krishna Jonnakadla 02:11
Great. Tell us how the book came to be. What was the spark, the trigger that drove you to write this book?
Alex Lazarow 02:17
So the book out innovate our global entrepreneurs from Delhi to Detroit are rewriting the rules of Silicon Valley. I just published it with Harvard Business Review press in April. And you know, the genesis of the book I'm, I'm in many ways an accidental author. I had been teaching my class at the Middlebury student I was getting increasingly frustrated that I wanted to sign my students books on entrepreneurship and innovation. And yet, everything I had was invariably context specific, was incredibly center and time in place Silicon Valley today and for a very particular type of software based startup that wants to grow extraordinarily fast. And so I always felt like I did contextualize it with the reality of building startups in more emerging startup ecosystems. I grew up in the middle of Canada, a small town called Winnipeg. When my students were doing that they're going back home to wherever they were from, or they're moving in many cases to emerging markets to build their businesses. And and that was the motivation of starting to write I think the best entrepreneurs operating in in places around the world, from Chicago to Amsterdam, to Nairobi to Bangalore, have more in common with best entrepreneurs operate in South Paulo than they do with those operating San Francisco yet no one's telling their stories. And so I decided I would I interviewed about 200 entrepreneurs around the world, most of them folks that are leading some of the biggest startups. So a couple hundred million dollars to have already exited and, and succeeded and sold their businesses. And I think that increasingly started best practice outside the valley is not only challenging, Silicon Valley is conventionalism. And increasingly, it's reinventing sort of best practices in meaningful ways. And out innovate tells their story is centered around 10 broad thematic areas where I think the best entrepreneurs are taking Silicon Valley's conventional wisdom turning on its head and actually teach us a totally new way to innovate in many cases out anything
Krishna Jonnakadla 04:02
Very interesting. In fact, the genesis of this podcast Maharajas of Scale was also around the same theme. I would be mentoring startups in India and then time and again, I would keep going back to Valley stories. And I thought, hey, there's so much that's different here, that consumer base Well, you know, at the heart of it, maybe psychologically, Maslow's hierarchy of needs and stuff like that you're possibly the same, but in terms of the cultural context, the demographic context, the economic context, or a lot of different things. So, our whole podcast started because we wanted to do justice to those stories. So you know, we are on the same page there. That's awesome.
Alex Lazarow 04:41
I feel very like minded like minded conversation we're gonna have,
Krishna Jonnakadla 04:45
you've introduced readers and us to a new breed of entrepreneurs, frontier innovators, as you call them, right? I can tell that you're very fascinated by them, because we've all been fed this soup unintentionally, I would say by, you know, publications and podcasts and lots of evangelists that, you know, the valleys, the birth of, you know, all entrepreneurism. But you know, that's not the entire truth. While It's a fantastic epicenter of all things. But there are people across the world that are doing it. So I can tell that you're very fascinated by them. How are they different from their Valley peers?
Alex Lazarow 05:24
And by the way, I don't think there's anything nefarious happening. I think that the reality is that, up until recently, we had one Epicenter that kept churning out successful startups. And we've naturally looked to that. I think what's happening today is innovation is gone global.
Krishna Jonnakadla 05:41
Alex Lazarow 05:41
There are over 1.3 million startups around the world. There's 480, innovation ecosystems around the world. And those numbers already probably outdated and are bigger already, innovation is really moved around the world, and so has the creation of successful businesses. And so now Best practice is shifting and the book I talked about this notion of frontier innovators. And obviously, the world of innovation is not Silicon Valley or not Silicon Valley, it's much more heterogeneous, not using one highly simplistic heuristic, you might say there are startup ecosystems that are operating in more developing or developed countries and in more developing or developed startup ecosystems might say Silicon Valley operating in a developed country in a very, very strong startup ecosystem. In the book, I talk about entrepreneurs operating in North Korea, right, you might say, opposite end of both spectrums, developing country, very nascent startup ecosystem. And then there's places like Winnipeg, right in Canada developed country, but very emerging startup ecosystem. And on the opposite end, you might say, Bangalore, right, powerhouse of innovation in a developing country. And obviously, there's a lot of differences in in these places. So in the book, I purposely take us to extremes I juxtapose what it's like to innovate in places In Sub Saharan Africa relative to the valley jewishly extreme differences, but to pull apart at some of the threads, I look in some of the places that are a little bit a little bit more similar in some dimensions and different and others. And I think that taken together when you when you look at it, you say, look, the book is not a recipe book, it isn't a follow ABC and D, and you'll get Z, right, you can't copy paste what happens in Brazil and put it in India. In any case, you still need to be thoughtful and reflective and understand the local context too. So I think this is much more. I think the ideas that I have around, you know, playbook around, take what works, leave, what doesn't apply it, but be reflective and think about what the right playbook is for you and your ecosystem. And so that's a little bit of how I think the frontier works and how some of these entrepreneurs are themselves similar to each other, but also, you know, obviously we have a lot of nuances between them as well.
Krishna Jonnakadla 07:56
Are there's some common threads and similarities? How are these, if you were to pick out let's say, the top four or five differences between frontier innovators and their Valley peers, what would they be?
Alex Lazarow 08:08
Yeah. So in the book, I have 10, broad thematic areas that essentially outline that. And so to give you a flavor of some of the things that I think are a really powerful one is how to think about the type of business you're building. So I talked about entrepreneurs, their creators rather than disruptors. So creating industries from the gecko, rather than taking a philosophical view of taking industries that already exists in our relatively efficient and finding a more efficient solution. So one is kind of the project project selection. Two is kind of the approach to growth. In the book I talked about taking a camera like approach building sustainability and resilience into the business model. From day one, there isn't room to build with a growth at all cost methodology, it isn't possible to burn at all costs have unsustainable union economics, in a context where capitalism unlimited and where there are more macro economic shocks three, often you have to build more enabling infrastructure to make things work software alone doesn't make the product work, you have to build a bunch of a bunch of other things around that for you know how you might think about hiring and building your team in a context where there might not be the same depth of trained star pupil capital. This obviously varies tremendously by city and by geography. Places like Bangalore have incredibly rich startup ecosystem and talent that that's very different than other ecosystems, or you know, how you think about being multimarket from the get go and us people are very us focused, but if you're in a smaller market, like Singapore, by nature, you're taking a multi market approach. And so those are some of the factors that I think there's powerful differences between the different models and, and and we're seeing an emerging playbook on how to how to succeed and how to scale to the point of this conversation. Interesting. Did you
Krishna Jonnakadla 09:53
The Detroit moment that you talk about in the book is a fascinating one. If anyone has visited Detroit, read Lee Iacocca, his bio, or Alfred Sloan's biography, or even watch the most recent Ford versus Ferrari, they can discern how Detroit rose and fell. It is now a shadow of its gloried past, however, one can but feel that what happened to Detroit happened because power and the market was concentrated within a handful of corporations and people. And hence, in some sense, the decline was inevitable. Silicon Valley, on the other hand, is a thriving ecosystem. It's a it's a thriving hub, maybe a little more a lot more democratic in its nature than what Detroit was. Why do you feel that Silicon Valley might still have its Detroit moment?
Alex Lazarow 10:41
Yeah. And in some ways, I think that the comparisons are obviously not and there's totally different but I think he were some other facts that I think are really interesting about the evolution of Detroit. Detroit used to be the Silicon Valley of the day, right the technology of the day, 100 years ago or less than that, frankly, was was technology, not software. And if you were, excuse me, it was automobiles, not software. And if you were an entrepreneur, and you were going to build a new business, you were going to build a car company. And so there's hundreds of entrepreneurs that are building next generation automobile companies. In Detroit, the top three in the world were based there. It was really on top of the book, what happened, innovation started take root everywhere. And today, the most powerful engineered cars might be in Germany and the sexiest sports cars might be in Italy, and the most reliable cars might be in Japan, and the world specialist in different parts of the world figured out how to do different things in the best way possible. In our USA Today, the capital of electric cars in Silicon Valley, or perhaps Shenzhen, that's what happened. The other thing that happened is best practice shifted. And so think of just in time manufacturing, what happened in Japan was created there, and that was developed elsewhere. I think the same thing is happening in the innovation space, where innovation is going Global. And today, the best place to innovate for certain things is Silicon Valley and I, I live in the valley. I'm a big believer in it. And I think it will continue to being a beacon of innovation for years to come. But also, I think the best place to do different things will exist elsewhere. And we're already seeing, you know, innovations in e-government. Perhaps you go to Estonia, cybersecurity might go to Tel Aviv, places like Minneapolis have really thriving healthcare ecosystem, it would be natural places for healthcare. Bangalore is developing its own ecosystem that's inspiring models in many other emerging markets. And so I think we're going to see the specialization that comes and so I'm not predicting the collapse and implosion of Silicon Valley, I am I am a big believer, however, that other places will rise and for Silicon Valley to stay relevant. It needs to learn from and adapt based on the lessons what's succeeding elsewhere as well.
Krishna Jonnakadla 12:53
So, many of the frontier innovators such as Guaibolso to Okhi to m-pesa. They built their entire ecosystem around them as the ecosystem or the enablers as I call them, is usually non existence in non existent in most non value environments. You know, I started talking about this three to 40 years ago when I was building my own fashion tech startup. In the west most creative and digital content is created by the brands and the manufacturers. However, here in India, only tiny only a tiny fraction of them do that and the rest has to be created by us. So similarly, for a startup like Zillow to happen, you needed the market Listing Service or the MLS, which was already being provided by the likes of real page. The only company that perhaps needed to create all of this from scratch is Airbnb, since that model itself was so green, but you don't delve into how these innovators fund the strategy of building the whole stack because building the whole stack means you're building entire pieces of the ecosystem. Capital for the most part is really scarce in these markets. The Venture Capital ecosystem, as I have seen, if we take Bangalore as an example, it falls into two buckets, the ones that imitate the valley peers that are chasing unicorns, and then the rest of them. And most of them, they don't really have a playbook. And, you know, with firsthand being an entrepreneur myself, working with these investors, I can say that if you talk to them about building the whole stack, you know, they'll baulk at you and say, What are you talking? What are you talking about? But when you were interviewing them, what were their capital strategies? How did they overcome the capital problem?
Alex Lazarow 14:33
You know, I think you're hitting hitting the nail on the head on a lot of these, right? Because if I was going to take a step back on some of the lessons I learned through all my interviews, is really this necessity of having to do a lot more with a lot less and facing adversity. And so I think the point you're talking about really pulls on, on my chapter, this notion, having to build the full stack to be able to build your end product. You also have to build a set of enabling infrastructure just to make the business possible there's vertical infrastructure, there's also sometimes you have to build an ecosystem around your single product to actually fulfill a bunch of needs, because the market gap is so wide. And so yeah, I think it's really, really tough. And I think that one of the advantages that some entrepreneurs at the frontier are taking and the attitude they're taking is what the reality is you need to build a product, you need to do all these things, but you don't necessarily do it all at once. Right? There's certain staging you can do on being thoughtful about what you need to do one step at a time. And being very clear with your funding partners, what you're going to do with one set of money, I think, two, is you can enable other part of the stack for you. And so, in e-commerce land, you know, Junia, for instance, who I interviewed talked about how they actually created an enabling software to allow others to do deliveries because there was no, you know, addressing infrastructure, there was no logistics software complete, so they actually created that to then enable some third party providers and so that's something else you can think about doing. And you know, third sometimes, and I think what's happening right now is, is we're seeing more and more infrastructure getting built over time by staging it, perhaps others will, will come in. So I think there are certain things you can do. That being said, the reality is, is building startups when you're creating a market and we are operating with less infrastructure means you have to do more with less. And so you have to be very, very thoughtful on being pretty lean, when you need to be making sure you're, you're able to get through the long build and complexity of having to build a couple different different projects at once. The example you talked about alluding my book is Guaibolso in Brazil, which is a personal finance manager, they wanted to build an app, you know, think of a mint.com or something like that in Brazil. You know, the the analogy in the valley is, you know, you could plug in something like Yodlee or Plaid, which is bank and your connections, you could plug into credit scoring infrastructure, because FICO exists and you can credit into a bunch of different Fintechs they'll pay you for leads and get in Brazil when they started, none of those existed. So they had to build their own interconnections layer, they had to build their credit assessment play a little bit like all the Credit Karma, and they had to build their own ecosystem to be able to monetize on that. That's really tough that took them longer. And so I I think, I think you're nailing it on the head on, you know, one of these, one of these big jobs and having to do more with less.
Krishna Jonnakadla 17:20
So one is do more with less and build a camel, not a unicorn, right? So you bootstrap, you focus on profitability from the get go. And I suppose, because these aren't yet so competitive as to Valley. And the challenges of building the stack itself are so daunting that you don't have too many people jumping in with both hands and both feet and say, hey, I want to do this because there isn't an enabling infrastructure, which gives them some sort of that lead time, that long runway to say, Okay, these pieces don't exist. I have I want to fly a plane but I don't even have a tower. So let me just build the whole thing, and then take off. Do you think that's exactly what's possibly going on here?
Alex Lazarow 18:05
Yeah, I think that's part of it. I think the other side is, when I talked about the camel, it's building sustainability and resilience to the business model from the get go, that doesn't mean that you're staying subscale and you don't have an ambition to grow, right?. Camels are animals that can be spread across the desert, drink water faster than any other thing when times are good. But they can also survive when they're tough. And so I think that it is not inconsistent with taking a camel like approach to raise venture capital that you need to be able to get through it. But it's rooted in a philosophy and an approach of not massively subsidizing user acquisition, not hiring way ahead of burn, not taking a short term lens on the world. It's keeping this long term approach keeping sustainable unit economics and a business model and keeping burn under control. I think you can still raise venture capital to be able to solve some of these problems, like having to build the full stock, right and those are Venture Capital, I think can be a very powerful tool. You know, full disclosure, I am a venture capitalist. But I think it needs to also be used very thoughtfully. And for the right moments at the right times and a company's inflection points and in the right amounts.
Krishna Jonnakadla 19:12
So then these frontier innovators are some really shrewd entrepreneurs that because you know that it takes a lot of acumen to understand, hey, this is the money that I have. But I can't be spraying it all over the place in user acquisition, because I need to build a stack. So that's, that's interesting. The next question I'm about to ask is a little bit controversial. But, you know, bear with me on that one from Go Jek in Indonesia, to Mercado Libre in LATAM, to Arames and Kareem in the Middle East, most of the startups are copies of their Western counterparts, right?. So as much as I'd love to think that they're innovating, I can't help but feel that they are perhaps adapting these Western models to their contexts rather than innovating in some sense, I call it copycat innovation. Let me elaborate. Allow me to elaborate a little bit.
Alex Lazarow 20:03
Either way, I, I actually totally disagree with you. I actually think if anything, some of these models are harder. But if it fit, finish your thought, but I actually do
Krishna Jonnakadla 20:12
Yeah. So let me contextualize, contextualize my comment for a second. Let's take India as an example. Unlike the United States, the Indian market has a huge offline retailer network, right? All these are independent mom and pop stores. In the United States, about 90% of retail is organized. India is just the opposite. Right? So we have a couple of startups in here. While that still exists, when you start going into the hinterland, tier three tier four towns, the retail network is not as dense. It's super disorganized. So if you wanted to build something really a good distribution network, let's say Procter and Gamble, Unilever have existed for quite some time. You don't really get any organized players, right? But smartphone penetration was phenomenal. So if you were one of the things that the internet has done is it's created a lot of the Etsy type entrepreneurs, there are a lot of artisans, there are a lot of independent producers. There are a lot of mini brands, not the Mega FMCG brands. So what there are a couple of startups called Meshow and Glow Road in India, what they've actually done is they have leveraged the Tupperware equivalent network of women. And they've turned each of these women into entrepreneurs. So what that has done is it has created a phenomenal distribution network for brands that cannot afford to build these massive supply chains and then distribution networks, right. I call it contextual innovation. In fact, it's not even replicating a supply chain. All it is doing is taking all of these informal nodes or, you know, endpoints and then building massive networks out of them. Each of these, both of these are now approaching a billion dollars and hundreds of millions in volume. For me, that's an original, local, relevant innovation. You can't take this outside of India, unless and until the cultural context is identical. You cannot make this work because it's got so many nuances here. So I, for me, that is what I'm trying to get at many of the frontier innovators in some sense. They've spent time overseas, they've understood Western models. And don't get me wrong, they're smart. They're shrewd, but in some sense, it's copycat innovation. Maybe it's it's a starting trend. And I feel in some sense, some of the strategies they've used are drawn out of the valley, because not all of it, because they're trying to build a western style startup. Once you start to build a local style startup, then you need a different flavor. What do you think?
Alex Lazarow 22:54
So I think there's a lot of a lot of ways to respond to that. I think first, I think those startups I think are really great examples of local innovation and coming. And I think that's such one of the things we're seeing. That being said, I do disagree with the premise that localization and doing a model like Gojek is not innovation. I think if anything, some of those models are harder because of having to do more with less than a lot of these things. But I actually think the broader point that you're nailing is that the source of innovation is not different. In the book, I talked to this idea of the innovation supply chain. I actually think that historically, if you look back 20 years, like the 2001, a lot of what was happening is you would take the Amazon model, eBay model replicated elsewhere. And that's the Mercado Libre example. I although I still think there's a lot of localization involved to do that. But what is happening now today is that the best ideas are not just emerging from the valley, they are emerging from everywhere, and they're influencing startups everywhere. And so the idea of Gojek by the way, to pick up on that obviously, ride sharing was Started in the US with Uber and Lyft. It was replicated elsewhere. The model was heavily adopted in Indonesia, where it's primarily a ride sharing model. When I interviewed Nadeem, the CEO and the co founder, he talked a lot about his vision for ride sharing was totally different than what the ride sharing companies were doing. Yes, his vision was to actually employ the driver to give the driver work throughout the day in the morning, you might try some of the work I want you to deliver food and afternoon you're driving home at night you deliver dinner and in the middle of the day, you do ecommerce, and often the financial products and services topup providing an ecosystem around them, in some ways inspired by what's happening in China with super apps. And it's no surprise that the model in the US has now been influenced and I believe improved, right? Uber Eats is right now the dominant form of revenue for Uber as we're going through COVID and that is as a result of learning what how these models are playing out elsewhere. And the Uber wallet and Uber credit card i think is no surprise Why's that? We're seeing those kind of things. And so I think the nature of innovation is not linear. And as simple as looking at it as there's one, it comes one place, and it goes somewhere else. I think now, increasingly, innovation is coming elsewhere. And I think what's exciting about what's happening in India to your point is that we're seeing fabulous models scaling in India and in other places that are inspiring startups in other countries Udaan is a great example, right of a business model, firing startup founders in different geographies. I think we're gonna see more of that. And I think that's a result of this frontier where the best entrepreneurs operating in India trying to formalize and digitize these informal supply chains have in many ways more in common with entrepreneurs in Nairobi doing the exact same thing in a similarly informal dominated economy. So I think we're going to see a lot more of those kind of things that are going to happen. But that being said, I still believe that building any type of startup is an incredible feat and I think that it's fabulous to get inspiration from wherever it comes. But I do think there's still a lot of localization that's required to make to make an idea to make an idea work in a tougher ecosystem. So I still want to give those entrepreneurs credit for the for the incredible mountains that they're climbing.
Krishna Jonnakadla 26:17
Oh, certainly, the operational challenges that you have to face in enabling many of those models here. Take the Uber equivalent here, Uber and Ola. If you take a set of forces, let's say government incentives, and a whole host of things. For instance, I'll give you an example right now, the local government in Bangalore or Karnataka, which the state, you know, the state where Bangalore is located, is running a grant/subsidy scheme. So an average cab that a cabbie who drives for Uber or Ola, which is an Uber equivalent locally, costs a couple of hundred dollars shy of 10 grand. What the government is doing is actually subsidizing the purchase by 90%. Right, so, so the cabbie may not be able to afford the entire $10,000. So the government gives him close to $90,000, the other $10,000 he ponies up, and then the cab has his, he doesn't have a EMI or any sort of debt on top on the cap. Now what he does is he has to belong to a certain economic, economic backward class or, you know, certain classified caste. Now he starts driving for Uber or Ola. Until recently, I would run into, you know, drivers and drivers who would say, Hey, I have to do at least 20 rides per day, otherwise I won't be able to fulfill the debt obligation that I have on my car. And one of the things that this has started encouraging is that while genuine drivers who are unable to pay for their cabs will obviously you know, benefit greatly by it. It encourages a great degree of laziness, because now driver drivers are cherry picking rides, you know, they have a free car, you know, which is practically free. And because they've already put in the thousand thousand dollars. So getting those drivers on into the ecosystem is a huge mountain to climb. The economic motivations and the forces in the United States are way different from what what exists here. So I, you know, I hear you these are smart people, you have to be a big tough nut to crack things like these. So, yeah.
Alex Lazarow 28:33
Thats interesting, I didn't know, I didn't know that story. So thanks for sharing.
Krishna Jonnakadla 28:39
Let me touch on the impact aspect that you know, sort of, I think, alluded to finding A players in a building the full stack, those are amazing things, but inherently because any sort of formality that you're bringing to an informal economy means that you will create impact, right. Whether you're intentionally doing it or not. If you take the Uber equivalent, let's take Bangalore as an example, the number of cabbies just under Uber and Ola are 1 million, that is Bangalore's population is 10 million, and out of 10 million, that's about a million cabs. It's a phenomenal number of cabs. So these people all come from the hinterland, many of them don't know the language don't know the lingo. In the process, you know, they're getting a little more smarter, they're getting used to a different lifestyle. So impact is sort of inherent in the model itself. So unintentionally or intentionally, you will end up creating an impact. Have you seen in in the stories and the models that you studied, and did you see anywhere the impact aspect not getting played out? Because I, I thought maybe every one of them would end up impacting because the ecosystem itself is so informal.
Alex Lazarow 29:56
Yeah. You know, I think what's interesting is there's different impacts. Such a broad term, right? Where in the book, I focus on this notion of entrepreneurs that are creating industries rather than disrupting and focusing on things like healthcare, financial services, education, and you might even put future work. I think that's one set of impacting. And actually, the data is pretty clear in the US, less than 20% of unicorns are in those industries and many emerging markets. I, I don't have the data on India, perhaps you do. But in Sub Saharan Africa, for instance, over 60%. So one of the problems that are getting tackled are different, right. I think two, is it the question of how impact is built into the business model? And I think, I think one of these is, is this description that you're talking about? Right, which is job creation and things like that, which are powerful forces for good. In the US, for instance, all net new job creation has been as a result of entrepreneurship. So it isn't something that's unique to emerging markets, I think. I think it's true universally. Then entrepreneurship has incredible power for, for impact. Where I see businesses do this most successfully have had the impact as part of the business is where it's the interests of their ecosystem. And the interests of their impact are tied directly with the impact the operational success of the business. So think of something like Rivigo in India, right? They're doing logistics and supply chain, one of the things that's powerful about their model, their tagline is making logistics human. And they really think about the lifestyle of the driver. And so instead of having a driver drive days and days and days on end with with a load in one direction, and maybe not get anything back and being away from their family or whatever, they built a system where the driver would drive maximum 24 hours in one direction and change it with another driver at the daisy chain and come back and so they could drive better utilization drivers, but also better lifestyle for the drivers. And that's directly tied with strong retention and things like that. That's where I think that the model for impact succeeds best is where The impact of the business is tied to the operations they don't pull in different directions. And where I see it struggle isn't the opposite isn't the opposite. I focused very strongly on a lot of, you know, a lot of businesses are scaling. And I think that was one where those awfully the founders were doing this and part for, for really wanting to have the impact.
Krishna Jonnakadla 32:18
Let's talk about regulation a bit. This is a pretty controversial topic or not, depending on which side we take, when it when it comes to when it comes to the valley many times you know, startups are like, hey, let's break rules and ask for permission later. Let's get so big that we end up you know, forcing really regulation to adapt around the model that we are building, you know, Airbnb, Uber, our poster child for that kind of an argument, right. But in some sense, you know, you can't help but think that all of these are very heavily regulated markets themselves, right, take health care, but in some sense, it's a necessity for them because if you waited for regulation to catch up, you possibly never could build your model in the first place. Right? So you have to you your intention is not to break the rule, but your model is such that it ends up breaking, breaking the rules per se. Right. But when it comes to the frontier, in many cases, you know, I see startups that fall into possibly two buckets. If we take India as an example, the Amazons competition, which is Flipkart, which was acquired by Walmart, I think for 16 or $17 billion, started pushing for protection. You know, when post demonetization, the economy was in some sort of a freefall. And then everybody was like barking at them saying that, you know, you guys are supposed to be the innovators now you're actually asking regulation to be written the wrong way. And I can give you hundreds of examples where frontier innovators and and nobody's denying the heavy lifting, they've done, you know what they've built, but in many cases, You know, they've also benefited from the lack of regulation, right? So now all of a sudden, it's a very classic playbook to benefit from a status quo, and then all of a sudden asked for protection, because a set of things are threatening you. And on the other hand, you have a set of startups that are actually saying, Hey, we don't have a regulatory environment. So let's, I'll give you an example. There's a ride sharing a true ride sharing startup in India called Quick ride, given the number of cabbies regulation locally today is written on paper in such a way that ride sharing is illegal. Right? But these guys are saying, ride sharing is genuine. People genuinely want to Ride share now don't make it illegal. Right. So there are startups working on both ends of the spectrum in the frontier. What sort of contribution are you seeing frontier innovators to, are they being the pariahs or are they being positive contributors to regulation?
Alex Lazarow 34:55
Yeah, what I believe is that this approach of move fast and break things and it's okay to ask for forgiveness, etc. I think generally that attitude is different at the frontier. And I think the reason is because the type of business that you're doing, if you're just providing someone a wallet like Venmo, that's pocket money and it crashes, it's okay. It's not the end of the world for that person. If the Uber app goes down, it's not the end of the world, because you could take a taxi, right? Like the downside is different. But what if you're providing someone their core bank account and access to the formal economy, if you're providing somewhere their health care service, or what have you, the stakes are much higher. And the consumer segment you're targeting is the mass market as a different consumer segment. And so I actually think generally, founders are taking this approach of, you know, let's be much more responsible, this move fast and break things. It's okay to break the law type approach, I think generally is different, and particularly for entrepreneurs that I talked about that are creators where they're building an entirely new industry. I've seen them work constructively. So one examples I talked about in the book because it startup called Zola and in Africa that's building off grid energy. And they among a couple other startups in the sector came together and built an organization called the Global off grid lighting association to basically help figure out what the problems were proactively and figure out how to engage with regulators around those questions. Um, so I think I think that's something generally my philosophy is that that's the right attitude and the right approach, particularly for the sectors that I'm talking about. I also think there's room for regulators to do really, catalytical things to support innovation. And so one of the things that you could do, for instance, is in the FinTech space, people are experimenting with sandboxes creating a boxed environment where you say, you can experiment we'll test and see what happens within this confined amount of users and product specs etc. And then once we have a Data Set rather than regulate you ahead of time saying this new product is legal or not legal, you know, you can even imagine it for ride sharing, right? Let's box it in first see what happens and what the impact is on consumers, and what are the risks and then make a regulatory system. So I actually think there's an opportunity for regulators to have this open dialogue with innovators, particularly when the innovators solution doesn't fit nicely within one of the existing boxes, which is obviously usually the case when you're trying to create a new market and trying to do it in some of these higher impact sectors. So I actually think there's an opportunity on both sides of the table to have better dialogue.
Krishna Jonnakadla 37:38
I think I love what you just said, the sandbox, where you have, you know, a set of pro positive business model enablers on the regulatory on the tech side. We've seen some of that, for example, I think Estonia and Switzerland have done with that for blockchain, and crypto based startups they've proactively create a sandbox is they have created regulatory sandboxes in some sense, which give you certain powers, but we are yet to see that happen. I think the most striking example is India's payments innovation ecosystem. The Indian National payments Corporation of India has put together a bunch of things over the last decade or so. So, yeah, so I i think if other ecosystems started emulating it, I think we would see big impact. You haven't touched on the blockchain part. You've talked about ICOs in the book, how it could become the model itself could become a force to reckon with in terms of the way you know, frontier startups, raise capital, obviously blockchain or cryptocurrencies are not going away, if anything possibly they're going to take deeper root depends on when the you know, the dollar gets off of its reserve currency status. We don't know how those currency wars are going to get unleashed. But in general, what do you think is likely to have happened, what do you think blockchain and cryptocurrencies are likely to do to any of these innovation hubs or the innovation that we see.
Alex Lazarow 39:06
So in the book, I talked about some of the innovations that are happening in the venture capital model. And and I and I like to touch on on on the blockchain bit, because, you know, the VC model has been around for a long time and itself actually wasn't invented by Silicon Valley, it actually is derivative of the whaling industry of all things. I mean, it was applied to the VC model, and it works extraordinarily well, in Silicon Valley for very particular style startup. We've now scaled it all over the world. And, you know, as you know, in our conversation now, I, I'm a man of nuance, and I and I think the nuance and the differences around the world are, are pretty big. And I think the VC model needs to get adapted. And I think that there are some adaptations that are around the corner that are being tried, that people are thinking about, and there's things around how the product VC gets involved. There's things around who does the innovation and one of the things that I think is interesting is like The role of individuals in supporting entrepreneurship. So we've seen the rise of crowdfunding, for instance as a way to support early product development. ICOs, I think of a little bit in this broader kind of arc of having end users being engaged. And in many ways, an Ico is a way for people to buy into a particular ecosystem. And there is a big mania that happened in 2017. And for a quarter more money was raised by blockchain by a CEO than by venture capital. Right. And, you know, it's unclear what their my I think it's unclear what the returns are gonna be like, on those products, and I think is one of those frothy segments in the market where there's just a lot of capital chasing a too few products. And so I actually believe that there's gonna be, there still is a role for the intermediation of cap, there's still a role. I'm biased. I'm a VC. And I think there's a role for VCs, to meet a lot of entrepreneurs support entrepreneurs that are promising startups stage capital delivery, I think there's a role for that. also think that there's a role for users to be engaged and for entrepreneurs create communities around the products. And so I think there's gonna be a role for this, how this plays out is a little bit too early to tell. And I think some of this will depend on our previous conversation on regulation, and will probably depend country by country. So, you know, let's wait and see, but it's definitely one of the things that I touched on in the book that, you know, might manifest itself over time.
Krishna Jonnakadla 41:24
Sure. I, it's one of my favorite chapters. I have several from the book. You know, I know a lot about venture capital, but I didn't know the thing about whaling and that was, I think the chapter was in black. Yeah, it was a fantastic chapter. It's one of my favorite ones. Terrific one. In fact, I think you also did, in very simple and amazing terms explain how ICOs work. You know if, if anybody had any questions around how do I see ICOs work? You know, I'm going to right now I want to just take that excerpt from your chapter and tell people Hey, just go read Alex's You know, write up, you know, that'll tell you all about how ICOs work? So, awesome.
Alex Lazarow 42:04
We put a note on the, in the comments of the in the show notes. We could put a note to the page, if people want to read it reference it.
Krishna Jonnakadla 42:12
Certainly certainly, I'll come back to Valley for a moment. Marc Andreessen famously said, software will eat the world, right. So it's that big that quotes become, you know, a legend now. With COVID you know, we're recording this episode in the, amidst the Coronavirus and the COVID epidemic. Work from home when Marissa Meyer decided she was going to stop all remote work. You know, its felt like you know, major of organization had taken a decision that work from home doesn't work, but COVID has actually forced work from home upon us. And in some sense, I guess, because now it's a necessity a lot of people are discovering that work from home works, right? So when the offshoring and the global IT services era started, you had technologies that had to develop quickly because work was being delivered remotely. So in some sense, I'm just thinking, the COVID era has again put software front and center. And in some sense, nobody plays a software game better than the Valley, you know, companies. So does that put the valley back in the center again for for the foreseeable future?
Alex Lazarow 43:24
Krishna Jonnakadla 45:48
You've touched upon some of those examples in your book, right? So where companies that are distributed globally are trying to create the watercooler conversation with various tech tools that was that was fast Waiting to read one question you already talked about Uber Eats being an outgrowth of, you know, that contextual innovation that was influencing, you know, startups back in the valley. how extensive is the valley actually getting influenced by innovation that's happening across the world? is it happening in a big way? is it happening in a small way? What I'm trying to say is Valley lead the charge, but now Valley is possibly looking to the world. For instance, Walmart bought Flipkart in India, which has a wallet called PhonePe. And, you know, we've heard of many experiments at Walmart is doing with digital payments because of PhonePe. Is it a trickle? Is it a flood already? How big is it?
Alex Lazarow 46:41
I think it is a trend with growing momentum. And today, the biggest digital bank in the world is in Brazil. It's not in the US. The biggest payment network started payment, I might say is Paytm. In India, the biggest robotic Process Automation company came out of Romania - UiPath. Some of the biggest startups in the world are coming from markets all over the world. And that's going to continue and that will accelerate. And that will also affect the valley and inspire the valley and new business models will emerge out of that. So I think we're gonna see more and more that the valley continues to be in is an incredible place to innovate and build startups. I just think everywhere else is too. And I think the best entrepreneurs operating ecosystems elsewhere will have a different literature's, and they'll be understanding different types of problems like the one we were talking about before formalizing the informal economy that would never come out of the valley, because that's just totally different type of thing. And so we're gonna see more of that, and that will influence started because it was elsewhere. And so I think, I think this, this will accelerate, I think there's definitely full swing, and it'll accelerate and I think we will see more and more emerging market startups influencing the valley back as well.
Krishna Jonnakadla 47:54
One last question, and it's some sort of a pet peeve of mine. Now, under Politics, politics, as much as in startups are supposed to be economic engines. And they're supposed to be tugging at the economic aspects of our society. But most of the substandard conditions that we find ourselves in when it comes to emerging or developing markets will take India for example, we have been under the developing label forever now. And 30 years ago, when I was a kid, we would talk about India as a developing nation, and we still talk about India as a developing nation. It is not it's not for the want of capital, or our biggest strength is our people. Right? So if you look at the United States, it was built because of this because of its people, not because some big man over there said, you know, let there be light and then there's like, yes, but that's not the case. But as much as I'd love to appreciate all the innovation that's going on, I can't help but feel frustrated in some sense that nobody is actually hacking away at the political systems. There are actually entrenched in all these developing nations. Have you seen any of them? When do you think we are likely to see disruption, new models being created on the political scene?
Alex Lazarow 49:11
So I agree with you, I think the regulatory and political landscape can be both incredible forces of good. And difficulty in ecosystems around the world of immigration, for instance, is an incredible driver of entrepreneurship around the world. And I think some of the actions happening in the US are really shooting Silicon Valley and the innovation economy in the foot. And I think other countries that are taking a more open stance on like what Canada has done with the entrepreneurial visa program, and things like that, are, are are positive policies to drive to drive that. So I also believe that governments can take really strategic approaches to support innovation, and accelerate innovation ecosystem. And you know, it's important remember, right, the US venture capital ecosystem was also as a result of the US government that funded Some of the early seed funds that also funded a lot of the early research and things like that. And so the governor was actually a big driver of even the internet, right, which is, which is, which is out of government funded. And the same is true of the Israeli ecosystem. And I think that we're seeing this play out in different ecosystems where, you know, in Estonia, where we talked about this before, Estonia has actually been a very big leader in E government, largely driven by political decisions in India, I actually think an incredible experiment is taking place, which is Aadhaar, right, giving universal identity to a, to a country with you know, previously, not everyone had ID ID cards, I think it's an incredible tool, and then tying that with India stack. I think there's gonna be a range of new innovations that will get built on top of that, that will hopefully inspire other countries to make make similar models. And so you know, the work that Nandan Nilekani has been doing around that I think he's taking a very entrepreneurial approach to driving that and so I that's one area that I'm very enthusiastic about what's happening in India and And in a way, you know, in a way that I think the government's been really, I think driving a really powerful experiment that I'm that I'm excited to see play out. So I agree with you, I think I think you can be a tool for shooting yourself in the foot, and can also be an incredible accelerant if done thoughtfully and properly with a long term vision, not one of one political cycle, but really, decades ahead of time. So I think that's a thoughtful question.
Krishna Jonnakadla 51:27
Yeah. Yeah, Aadhaar I think has hit a pause, a set of forces that benefited from the older status quo, use all sorts of subterfuge tactics to defeat it right now. It is a half powerful concept than what existed three, four years ago. But I'm certain that the the framework that exists right now is going to be powerful. Somebody is going to wake up and say, This is fantastic. This is good for governance. Let's resurrect it all over again. So Alex, it's been fascinating chatting with you, you I believe you've lit a fire that has brought frontier innovation to light. I'm certain that this is going to be front and center as the world evolves. I don't think the day is far off when we are going to see this as a moment and say, I think what Tom Friedman did to you know, you know, The World being flatter. I think you did that to Global Innovation out innovate is a fabulous read from Delhi to Detroit. And, you know, Sao Paulo, how are these startups changing the ecosystem? It's it's amazing the strategies that you've talked about from fundraise to building Camels to building A teams and distributed systems are amazing. The amount of work that's gone into the book is astounding. I we should keep this conversation going revisited. You know, as new models continue to emerge. Any closing comments from you?
Alex Lazarow 52:52
First of all, thank you so much for that and thank you so much for hosting me. I'm I'm excited to listen to many of your future guests and learn from their own experience. In, in scaling in India and employing some of these strategies, strategies and developing others as well that I'm excited to learn from. So thank you so much for hosting me. For those interested, the book's available anywhere books are sold, including Amazon. But in the spirit of COVID and small business support, I'd encourage you to to buy it from your local library near you. And you can also follow me at Alexlazarow.com. So thank you so much for hosting me. This is super fun and excited to continue the conversation together.
Krishna Jonnakadla 53:26
Thank you, Alex.
Nida Sahar 53:28
We hope you enjoyed the story. If this story made a difference to you tell us by leaving a comment on the website or our social media channels help us spread the love by subscribing liking and sharing our show. We welcome speaker suggestions and collaborations write to me at email@example.com