The Future Is at the Frontier
On April 10, 2018, Mark Zuckerberg was called in for his second day of testimony in the US Senate. He was being asked a barrage of questions regarding the role of Facebook in the aftermath of the Cambridge Analytica scandal. His prepared answers were written on a piece of paper in front of him, and well rehearsed.
One answer concerned a potential Facebook breakup. He never received the corresponding question, but his canned statement underscores the current state of the world. “Break Up FB? U.S. tech companies key asset for America; break up strengthens Chinese companies,” his notepad read.1
Facebook’s chief worry wasn’t its US competitors like Twitter, LinkedIn, and Snapchat. To Facebook, the real competition is international. Facebook has an enviable 2.3 billion active monthly users on its platform.2 Yet WeChat is close behind, with 1.1 billion and growing rapidly.3 Among the twenty largest global technology companies, eight are Chinese. That’s up from three only ten years ago.4
Technology innovation has gone global.
Household names now come from everywhere: Spotify from Sweden, Waze from Israel, and Alibaba from China. Twenty years ago, at the height of the 1990s technology bubble, Silicon Valley was the top place for innovation. In many ways, it was the only place. But much has changed. In the 1990s, more than 95 percent of the world’s venture capital was located the United States. But now the figure is more like 50 percent.5 This shift will only continue. Increasingly, innovation will come from everywhere.
As the world shifts away from Silicon Valley and toward the Frontier, the conventional rules no longer apply. The best entrepreneurs are charting their own course, leading us toward a more creative, sustainable, global, impactful, and well-rounded vision of innovation.
I hope this book leaves you with five key takeaways.
1. Innovation Is Global
All of our best practices remain centered in a singular time and place—Silicon Valley, today—and for a particular type of business. For a long time, Silicon Valley’s rule book for driving innovation and creating startup ecosystems has been the only one we have had. But Silicon Valley’s rule book rarely translates to the rest of the world, and the rest of the world is no longer trying to fit the mold.
The rule book, in and of itself, is not wrong. To the contrary, it works extraordinarily well in Silicon Valley. But it is specific to the types of products being built in Silicon Valley (asset-light apps), the aspirations of the businesses (growth at any cost), and the available ecosystem and infrastructure (one that is rich and well developed).
In contrast, the rest of the world—what I have called the Frontier—is large, wide ranging, and varied. It stretches from ecosystems having little entrepreneurial activity and concentration, to markets having macroeconomic uncertainty and political risk. That’s why building startups at the Frontier is different and why uncritically adopting Silicon Valley’s approaches is a recipe for disaster. Models focused solely on growth will be starved by a limited capital market, ambushed by unexpected currency risk, or wiped out by any number of other challenges.
To copy and paste the Silicon Valley approach without deeply understanding its underlying assumptions is foolhardy and ignorant. Successful Frontier Innovators don’t even try.
2. A New Model for Innovation Has Emerged
A new model for innovation, developed by and adapted to the Frontier, is rooted in lessons from entrepreneurs around the world.
Frontier Innovators have redefined innovation best practices in myriad and meaningful ways. Frontier Innovators create industries rather than disrupt them, focus on acute pain points in ecosystems, and build products that target the mass market. They solve systemic societal challenges using innovative technological and business approaches, from inventing street addresses to developing novel financial services and health care solutions.
Often, they must build the vertical stack and the horizontal stack. This task can add challenging complexity to building a successful business at the Frontier, but it can also offer competitive advantages. That said, Frontier Innovators don’t just grow at any cost. They build “Camels” that are, first and foremost, sustainable and resilient when compared with their unicorn cousins. Facing riskier macroenvironments, Frontier Innovators focus on resilience.
Often immigrants or repatriates, Frontier Innovators take inspiration from various sources, including their own rich life experience. They often build companies that are global from the get-go, piecing together a large opportunity from fragmented regional markets. They tap the best talent from around the world and build A-teams.
Frontier Innovators prioritize the significant social and economic development impact of their companies. While not all social enterprises are startups, most Frontier startups have overlaps with social enterprises. Frontier Innovators’ companies often target more-impactful industries than their Silicon Valley counterparts. Perhaps because Frontier Innovators understand the impact that their products can have, they thoughtfully manage risk to their customers and to their companies rather than moving fast and breaking things.
Meanwhile, investors at the Frontier are beginning to innovate on the financing side. Key players are pioneering new models like evergreen funds, revenue share structures, computerized decision making, and investments by users.
Finally, Frontier Innovators are ecosystem builders. They actively shape culture, provide mentorship, build ecosystem infrastructure, and develop talent—all while developing their startups. Some exponentially accelerate ecosystem development and kick-start a virtuous cycle.
3. It’s a Playbook, Not a Rule Book
Taken collectively, these lessons serve as a new playbook for entrepreneurs everywhere and not only at the Frontier. However, they should not be thought of as a formulaic recipe for success: do A, B, and C, and the result will be Z. Rather, the playbook is a collection of strategies from which aspiring entrepreneurs can draw to maximize their chances of success no matter what challenges they face. You should use your best judgment to choose which play makes sense for a particular situation, and disregard other elements.
Context is key. In places like Brazil, with a large local market and culturally distinct neighbors, it often makes sense to take a more focused national approach. In contrast, in neighboring Uruguay, startups need to think regionally or globally from the outset. Countries with rich venture capital ecosystems and local startups are less likely to rely on creative approaches to venture financing, leaving them free to follow the original Silicon Valley approach. Cities like Toronto or Shanghai have deep technical and management talent markets, meaning that the lessons on building A-teams remain important but are perhaps less urgent.
These strategies intersect and reinforce one another. Often, creating industries requires building the full stack, because more of the infrastructure and ecosystem is lacking at the outset. Creators are often Multi-Mission Athletes, who build businesses with an integral element of social impact. Camels can develop resilience by being born global and full stack, with multiple reinforcing business models. Occasionally, these trends pull in different directions. For instance, adopting a distributed strategy can obviate the need to build A-teams locally.
Silicon Valley approaches should also not be discarded entirely. Silicon Valley remains one of the best places to learn about customer-centric product development, creative design thinking, and product evolution.
Relativism is what innovating at the Frontier is all about. Some of the lessons from the playbook will be readily applicable in different ecosystems. Other ecosystems will feel uncomfortable and challenging for innovators trying to employ a particular approach. That’s natural. Much as it would be difficult to understand the Impressionist art movement by looking at a single one of Monet’s water lilies, it is important to take a step back and consider these trends holistically. Taken together, the principles in the Frontier Innovator’s new playbook offer a more grounded, evolved, and flexible approach to building startups than you will find in the Silicon Valley canon.
4. Don’t Copy Silicon Valley
To build vibrant Frontier startup ecosystems, all players—policy makers, regulators, foundations, investors, and large companies—have a role to play. To do so, they should not look to replicate Silicon Valley but instead support Frontier Innovators based in the Frontier playbook, choosing a course of action inspired by the strategies explored in this book.
For instance, supporting cross-pollination initiatives helps connect ecosystems. Improving local educational institutions, welcoming immigration, and investing in training programs can sustain and grow the local talent ecosystem. Fostering the appropriate legal and regulatory systems also will encourage innovation and startup creation. Offering horizontal infrastructure can provide enabling layers to decrease the cost and risk of startups. And kick-starting the capital ecosystem responsibly, and in partnership with innovators, can create a virtuous cycle.
5. Silicon Valley Needs a Refresh
Frontier Innovators are writing their own playbook out of necessity, so that their companies can survive and thrive in adverse conditions.
Classic Silicon Valley companies thrive in good times. But such times never last. In October 2008, leading venture capital firm Sequoia Capital shared a presentation with its portfolio companies titled “RIP Good Times,” presaging the financial crisis. One of its conclusions was that CEOs should prioritize sustainability and resilience.6
The past decade has seen one of the longest bull markets in history, and capital and optimism are plentiful. Late-stage companies are seeing stratospheric valuations, staying private longer, and focusing on growth at all costs. At the same time, extreme economic inequality and homelessness are on the rise in the Bay Area, and tech companies are increasingly under fire for unethical behavior. And, quite simply, they are no longer pushing the limits of innovation the way they used to.
Many of the best startup companies are built in downturns—for example, Amazon and Netflix.7 One theory for this is that people have less money to spend and entrepreneurs see an opportunity to create more-efficient companies (and some people who would otherwise be employed are forced into entrepreneurship).8 In the current euphoria, Silicon Valley has forgotten this. To remember and learn, we can look to the Frontier and the playbook pioneered by its innovators. It offers Silicon Valley a chance to reflect on what’s working and consider how it can evolve into the next, more sustainable version of itself—before it’s too late.
Like all cycles, it is certain that one day venture funding will dry up again. Much as in the aftermath of 2001 and 2008, when only the most robust businesses survived, we may be reminded that the desert camel is a better long-term mascot than a unicorn after all.
The Future Is at the Frontier
There are now startup communities in nearly every country around the world. Although Silicon Valley will likely remain the leader in startups and innovation for years to come, it will no longer maintain a monopoly on best practices.
Ecosystems around the world are at different stages of development. In emerging markets, most are in their infancy. In former manufacturing towns in the United States, they may be in decline or experiencing a difficult rebirth. The best ecosystems will leverage lessons from across the world and will build in a way that reflects the local market’s skills, assets, and needs.
In a few markets, the virtuous cycle is already in motion. Successful startups have yielded a trove of mentors, angel investors, and trained innovators. But for most Frontier ecosystems, waiting for the flywheel to kick in won’t be sufficient.
Rudyard Kipling once wrote, “Oh, East is East, and West is West, and never the twain shall meet.” To the contrary, innovation is shifting globally. East and West have much to learn from and with each other, and now is the moment to capitalize on the opportunity, for it is truly a vast one.
Although the United States still commands half of the world’s venture capital, a wave of change is swelling, and it is reaching shores around the world.9 Together, emerging and developing markets account for more than 6.4 billion people, some 85 percent of the world’s population—and that doesn’t even include those parts of the Frontier located in more-developed countries.10
Just look to China for a preview of what happens when innovation ecosystems kick into gear as they are now doing worldwide. In the span of a decade, China grew to be the second-largest tech ecosystem in the world, and it is arguably far more diversified than Silicon Valley in terms of technologies that span economic sectors like health care and transportation.11
Bangalore, Chicago, São Paolo, Singapore, and many other parts of the world are becoming innovation powerhouses. Around the globe, nearly five hundred ecosystems are producing startups. Just imagine what will happen as funding becomes more democratized and accessible to those outside the Bay Area.
A sea change is on the horizon as all of these outside-the-Valley entrepreneurs step to the fore of innovation. To succeed, they repeatedly subvert and reimagine Silicon Valley’s rules, out-innovating everyone else as they write a new playbook for a new game. To keep up and remain a home for world-changing innovation, we should all consider taking a leaf from their book.