The Great Technology Shift Part Deux: Why Now and What Do They Need?

Why is global innovation and startups rising so rapidly, and what is unnecessarily and wastefully slowing it down.

OK, let’s fly the plane a little lower to the ground.

In my last post I talked about the Great Technology Shift from decades of dominance in the West, and primarily the United States. I described how with near universal access to technology – certainly smart devices but now easier access to the newest technology in AI, machine learning, robotics, drones, biotech – world class innovation is coming from rising markets serving billions of new customers who were hard to meet even a few years ago.

I just came back from a week in the tech ecosystem of Cairo, Egypt and reflected on three sub-shifts that are driving why this is happening now and what these regional and global innovators need to take this bottom up problem solving to a new level.

1)    The quantity of quality entrepreneurs is far larger and more impressive almost daily. Obviously Egypt, the Middle East and every corner of the world has not lacked for entrepreneurial acumen. As one entrepreneur in Jakarta recently said to me, “If the definition of a great entrepreneur is to figure out how to work around challenges, you’ve come to the right place!” But in all the access to technology, the new generation now has a globally competitive understanding, sophistication and mature outlook on how to succeed.

Why?

Access to technology has meant access not only to pretty much all of human knowledge essentially for free, but access to others in similar circumstances and trying things that both succeed and fail. These lessons prepare them for executing the ideas they are about to launch but also have a two-fold additional and profound psychological, cultural and empowering affect. First, global entrepreneurs not only see how it’s done, but how it is also done in parts of the world they are more familiar with. And when they see someone try something and it works they say; “I can do this. If large enterprises are built there, I can dream bigger here. And failure – once limiting if not career ending – can be survived and actually be learning for the next one!”

And now many new startups have seen this rodeo before. For most I meet, this is their second or third attempt to build something. Last week, I saw several entrepreneurs who split off from major regional tech successes – in one case from a successful scaled global company that, it self, spun out of another regional juggernaut. They know how to scale enterprises from first-hand experience, they understand operations, funding, sales, team/culture building -- and are eager to take their shot.

2)The days of “copycat” are over if they were ever really there to begin with. I’ve never understood why rising markets were criticized for taking a successful model from the West or somewhere else and apply it to a home market. There is enough risk in starting any enterprise, why not limit it by filling a need with lessons from something similar that works? 

Today, however, great entrepreneurs understand that deep local/regional/rising market experiences and nuance are significant competitive advantage beyond copying. This is obviously true in product. Ride-sharing star in the Middle East, Careem, understood early on, in ways many in Silicon Valley dismissed them, that offering cash in an app was essential to a market hesitant to use credit cards in digital transactions.  It is equally true in navigating local regulatory environments for any company trying to offer payments, banking, credit and more. 

Local edge is now becoming essential in the new era of big data. I’m often asked where the AI, math and machine learning skills will come in these rising markets – and this is a good and important question. But the back bone of any such application is the access to massive and unique data sets. Entrepreneurs in these markets are building one of the greatest, most defensible assets for the 21st century as they scale. The gating question is then what to do with what they are gathering. Finding – partnering – for the talent will be relatively easy.

Finally, rising market entrepreneurs are understanding that many of their dynamics, challenges and opportunities are shared by other rising markets. To “think global” no longer means how to market to the West. Companies in Africa are looking to Dubai or Riyadh; Companies in the Middle East are looking to South East Asia; Asia is looking at all of the above and also Brazil and Mexico and so on. There is a new definition of “global.”

3)   Venture Investment is still not enough, but there is more than ever and increasing. Quietly, local venture capital firms are raising larger funds and professionalizing themselves after a decade of experience and lessons. Only a few years ago, a large VC fund in almost any market outside of the West was large at $80 to $100 million. In the last 18 months, most have raised three, four or five times that amount.

And new money is coming to bear once on the sidelines. A few American funds have recently put real – but still toe-in-the-water – investment with entrepreneurs they have experience with and side by side with one of the top local firms. But large private equity funds, investors from China, successful tech companies in their own right are entering the fray. There are generational shifts in family offices eager to invest in the future at home and in this new definition of global opportunity. 

That great enterprises in rising markets have regularly reached the legendary “unicorn” status of being worth over $1 billion have peaked attention even among the cynical. Sure, many are new rounds of investments – and not exits where investors can truly book returns. But the direction is clear.

* * *

What is needed to put rocket fuel in this inevitable shift is so simple that I have long wracked my brain as to why it is so hard to move faster. 

Too many investors yank entrepreneurs around, drawing out their investment process, offering term sheets that try to dominate their control rather than unleashing a founder’s potential to, ironically, mutual benefit. These investors need to be more humble and educate themselves on these new worlds in hard-nosed terms. This is not charity. There are out-sized returns here. Done right, they can actually help young companies move through the capital they require to grow, succeed, create jobs, improve their economies overall.

There is a dire need not only for tech talent, but also managerial/operational skill to scale companies rapidly. Traditional institutions that help more mature tech ecosystems – like early and university education – are too often  painfully weak on the tech skills and critical thinking required to problem solve at globally competitive levels. And as “startup incubators” have become the rage in most rising markets – often without assessing how much value they really create – almost no attention is given to what can have a company, in LinkedIn founder Reid Hoffman’s term from his recent book, “blitzscale” to massive growth. One Egyptian entrepreneur told me going from one to 700 employees in two years almost killed him. What happens when it’s 1000 employees in a year? In three years, China’s Bytedance grew to 60,000! 

It is easy to say the best thing policy-makers can do is get out of the way of this innovation – and often this is, in fact, the right answer. But problem solving happening in most rising markets – in health, education, financial inclusion, credit, transportation – will hit the buzz saw of regulation sooner than an entrepreneur may think. There is an opportunity to co-author solutions with regulators, investors and entrepreneurs early on – as we’ve seen some evidence in Brazil and Indonesia. Too often, however, things at best take too long, at worse are in the pocket of established interests that don’t want change. The irony is in much of what is coming everyone wins – companies boost the economy and create jobs; tech leap-frogs decades of infrastructure challenges that are mathematically impossible to address in the time increasing young populations require them; millions (billions) can buy, sell, grow and create by having safe access to transact and build companies at costs unimaginable previously.

What is clear is this is happening now and happening everywhere. There will be a historic bonus to the countries and economies that embrace it. There may be generational competitive advantage to countries that lead.

What is most clear of all – there is no going back.