Breakaway had the opportunity to speak to Alex Lazarow, the venture capitalist and author of a brand new book — Out-Innovate: How Global Entrepreneurs from Delhi to Detroit Are Rewriting the Rules of Silicon Valley.
Below is a condensed version of our interview — for the full interview, please click here! We found the book a fantastic compilation of lessons learned from global entrepreneurs who have succeeded by being resilient. Powerful lessons on distributed and remote working and building resilient teams that are super instructive during these challenging times.
QUESTION 1:
Why did you decide to write the book now, and what was animating you to take that on?
Alex: I was getting really frustrated because I kept assigning my students books on entrepreneurship like Reid Hoffman and Chris Yeh’s Blitzscaling, or Ben Horowitz and The Hard Thing About Hard Things, but I always felt like I had to contextualize them to the reality of building startups in more emerging ecosystems. I think that the best entrepreneurs operating in Detroit, or Toronto, or Winnipeg, or Amsterdam, Bangalore, Nairobi, have more in common with the best entrepreneurs in São Paulo than they do with those in San Francisco. And yet no one was telling their stories, and so I wanted to give voice to that story, and that was the genesis of the book.
QUESTION 2:
What did you mean when you talked about frontier startups as Camels?
Alex: Silicon Valley has taught us one model and one philosophy of how to build companies. We use the term “unicorn”, and it’s not just a billion-dollar company, it’s the method of growth at all costs. It often comes with spending a lot of money in service of growth, and I think this alternate model, which is what I call the camel, is really a powerful approach. Unlike the unicorn, this is a real animal that could survive, it is still focused on growth, and it obviously still is building businesses that have the network effects that are enviable, but they do it from a position of infusing the business model with sustainability and resiliency from the get-go. You’re charging for the value that you create, so offering a product, charging for the value, having a really deep focus on unit economics. You’re being really thoughtful about burn and managing the burn. You’re taking a long-term approach to decision-making. That’s what I meant by building a camel, and I think it’s an approach that was developed out of constraints but actually is very strong and gives us a model that works in any condition.
QUESTION 3:
At Breakaway Growth, we’re very focused on capital-efficient growth — can you talk about the relative scarcity of capital on the frontier, and the benefits and the issues of that?
Alex: I interviewed Mike Evans, one of the cofounders of GrubHub. The on-demand delivery model is often venture-subsidized, but actually GrubHub was built in a context where they raised $2M in their Series A, a paltry 80 million of venture capital in total, a little bit of growth funding later on and then did an IPO as a multi-billion dollar company. Put that in comparison to something like DoorDash, which has raised $1.5 billion to date, and still doesn’t have positive unit economics. What’s interesting is that Mike talks about how they were in a sustainable position at every single fundraise and they raised venture capital money for very specific purposes — a city expansion or an acquisition. Mike was able to achieve success at a lower risk by taking a long-term view. It took him eight, nine years to IPO. He told me, “Look, I could have done it in two years’ shorter time but that would have done at measurably more risk.” So his risk-adjusted outcome was better by doing it with this camel-like approach. Paradoxically, by the way, it’s only now when competing against companies like DoorDashes of the world that GrubHub has actually had to change their model a little bit and really really fight, and so it’s kind of in this different context.
QUESTION 4:
What are your thoughts on access to talent on the frontier?
Alex: I believe that talent is distributed evenly, but opportunity is not. One of the challenges that frontier entrepreneurs have is that there isn’t the same depth of trained startup human capital. There isn’t this whole army that the Valley has of these “been there, done that” employees that you can tap in at different points of growth. As a consequence, I’ve seen entrepreneurs do some really interesting experiments, and some really interesting emerging best practices on how to solve some of that. Shopify is based in Ottawa, and they’re no longer really a startup, they’re a pretty established company. Jean-Michel Lemieux, the CTO, did a partnership with Carleton University, a local university, to create a Dev Degree as a way to create a pipeline, because he was tapping out the local supply! So his response was, “I’m gonna build my own.” Now he has a fully-funded engineering degree with Carleton University, where students co-op throughout the degree with Shopify, and when they graduate, they land there. The students win, they have a subsidized degree and they get to work with a world-class company. Shopify wins because they have developed a pipeline of talent that actually knows the company really well and can onboard very quickly. And the ecosystem wins because there’s this flourishing of experienced talent. I think we’ll see more of that, they are already actually on their way to do a second one of these programs in Toronto.
Chris Albinson: I remember talking to Tobi and Harley when they were starting the business in downtown Ottawa. They had a lot of venture capital interest from the US, but all of them seemed to kind of come with the condition that they move the business. I give the guys a lot of credit to sticking to the type of company and culture they wanted to build, and rooting the company really deeply in Ottawa, even when some really well known Silicon Valley investors were saying it was impossible, not even within the realm of possibility to create a billion-dollar company, not from a valuation point of view, but from a revenue point of view, in Canada, let alone in Ottawa. As we know now, Shopify got to a billion in revenue faster than any company before or since on the planet, proving all those critics wrong.
QUESTION 5:
Are we seeing more proof points now, of that Shopify level of success on the frontier?
Alex: Yeah! One of the advantages of success on the frontier is that they can start being one of the marquee companies of an ecosystem, and really get and attract more talent. So much earlier in the journey of a startup, you can be kind of the go-to place to work, and I think that’s powerful. One of the things that I’ve seen is, in many ecosystems, they tend to take off as there are a handful of these anchor tenants. There starts to be this network of folks that might have made a little bit of money and that are becoming angel investors but are also trained in building startups and are hungry to build their own. We get a little bit of this Mafia going that starts the flywheel, and that becomes really popular. We’re starting to see that in Ottawa. I think we’re seeing that in a bunch of other ecosystems around the world. That is obviously not unique to just emerging ecosystems, because the same thing unlocked Silicon Valley back in the day.
QUESTION 6:
How do frontier entrepreneurs handle remote and distributed teams, and how does that impact talent?
Alex: Mary Meeker had a quote where, in the space of 20 years, we’ve doubled the number of remote workers in America to 5%. We’ve done more than double it now, we’ve done more than double it in the last two weeks! It’s totally du jour right now, I see my Twitter is blowing up with people sending me their remote set-ups at home. One of the skills that entrepreneurs outside the Valley have had to think about and orchestrate is how to build distributed teams. If you’re operating in an ecosystem that you’re lacking certain specialties — let’s say a CMO that has taken a company through IPO, and managed SEO at scale, then you often have to look beyond your ecosystem. Frontier entrepreneurs have figured out how to build distributed teams as a way to tap talent from wherever it resides.
Alex: I don’t think remote work will be the new normal. I think it will be more normal over time, but not every job can be done totally remotely. And in venture, I think we can do a bunch of meetings remotely, but I think it’s also really important to spend time face-to-face and get to know entrepreneurs. So I think we’re gonna see a hybrid, but we’re definitely gonna see a shift towards it. What I do believe is that with this shift that we’re going through right now with coronavirus, I think we’re understanding, one, how much can be done in the remote context; two, I think every culture is learning best practices on how to run an organization in a remote way. I think if you’re a startup that works on remote, the cultural challenges in your organization become obvious so much faster than if you were in person, and so you actually are forced to be reactive.
QUESTION 7:
What’s this idea of pollinators, and how is that different than sort of the engineers bouncing from one company to another in the Valley?
Alex: I think in the Valley we have this stereotype of the 22-year-old hoodied warrior going to take down the industry, but the data in the Frontier is that entrepreneurs tend to have more degrees, have worked across more industries and functions, and have lived across a bunch of different industries — and the result is they are able to tap into a network of ideas. Take the example of Uber and Lyft. That started in the Valley, and it was replicated all over the world. Today, China has DiDi, which dwarfs Uber by many multiples. In other countries, Uber was copied by Gojek, but with Gojek, Nadiem Makarim, the CEO, talks about his own unique vision for it. Instead of cars, Gojek is for motorcycles — and in the morning, people get driven to work. At lunch, he delivers food. In the evening, he drives people home. For dinner, he offers food or groceries. Over the course of a day, it’s e-commerce, it’s mobile banking, it’s a bunch of other services. Now that’s influenced us here in the Valley — it’s no surprise, Uber has Uber Eats, has the Uber credit card, etc. I think cross pollinators are able to tap whatever the lessons that are happening in Chicago, in Toronto, in Amsterdam, and understand that the nature of innovation will no longer be unidirectional. It’ll actually be about tapping these horizontal networks of ideas and really understanding what’s happening. At the same time, it’s adapting it and localizing it by really understanding your actual particular context.
QUESTION 8:
How is venture capital changing to serve the needs of frontier innovators?
Alex: A lot of the changes in entrepreneurship that are happening have happened, and I think venture is still lagging. A couple of changes that are exciting to me are that I think we’re seeing global firms instead of local firms. So instead of this, “Hey look, I need to work in the Valley, go to my board meeting, come home for dinner”…
Chris: The proverbial “I won’t invest in any company I can’t bike to”?
Alex: Yeah. Exactly. Now there’s the same cost of meeting an entrepreneur in San Francisco as there is in Toronto for me for the first meeting. Second thing is, that venture’s current model got its inspiration from the whaling industry. That’s literally why we call it carried interest, it was what you’d carry off the boat. I think now we’re seeing some experiments in other models. Clearbanc, a Canadian company, is at the forefront of investing using revenue-sharing models, and we’re seeing them do experiments with computerized decision making. One of the things I think is pretty interesting is how you guys at Breakaway are building the ecosystem approach. In some ways, it’s a cross-pollinators model as a service, but I think we’re seeing a bunch of those that are coming together.
Chris: Our view for the gurus is that, in terms of global infrastructure and capital, the world is effectively flat. Obviously, some geographies like Africa, where you’ve gotta build the full stack, are still challenges, but by and large, we’re getting closer and closer to full equivalency. That means that the big deficit and the big difference is having access to people who have done that and been there, and getting those answers to those questions. So, if you’re Bob Meese, one of our gurus, who’s running Duolingo in Pittsburgh, he’s taken that company from zero to 100 million in revenue in 36 months using zero paid acquisition. His challenge is, who is he gonna talk to in Pittsburgh about going from 100 million to 500 million. And so, flattening that access is a big thing that we’ve done with Breakaway Growth.
Alex: And also something you’ve done with C100 too, in terms of helping Canadian companies!
Chris: Well, that was really the first version, if you will, which was built on the shoulders of TiE which is a phenomenal organization from the Indian ex-pat community. I do think TiE and CICC, which is the Israeli organization, a lot of these global communities, the foundations, people don’t realize, have been built for almost 20 years. C100 is 10 years old now. TiE is now 20 years old. With that foundation, things are happening faster, information’s coming together faster. It’s allowed these Frontier innovators to really stand par to par with any Silicon Valley startup, and in many cases like Shopify, it’s helped them beat them.
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Out-Innovate is currently the number one new release in Venture Capital!
You can find the book on Amazon here, and watch the full-length interview here.
