by Alex Lazarow
Most seem to follow the same pattern: they start with a "disruptive" plan to revolutionize an existing industry, resort to capital injections to grow as quickly as possible, and accept high risks in the race to dominate the market. However, this is not the only way to launch a successful start-up. How venture capitalists, I have worked for the past decade with very high-growth technology companies located in unlikely places, far away from any innovation hotspots. Some are located in economies developed (in cities like Winnipeg and Provo), but many are in economies emerging (in Tel Aviv, Jakarta, Lagos, Nairobi, Guadalajara and São Paulo, for example). Entrepreneurs operating outside of technology hubs take a different approach than those found in Silicon Valley and they are having extraordinary successes.
The start-ups that operate in conditions of relative scarcity, where capital and talent are nowhere to be found and economic shocks are more likely, they find themselves supporting pressures that others are unaware of. Still, many have become full-fledged superstars. Their formula is made up of a more balanced approach to growth, of a particular effort to identify solutions to problems real and long-term investments in the workforce. These “frontier innovators” have a lot to teach Italian companies of all sizes and locations. But also to those of Silicon Valley.
Silicon Valley: Burning capital is acceptable
In Silicon Valley, the desire to grow often prevails over sustainable economic and profitability logics. It's not uncommon for them to burn millions of dollars a month to pursue more ambitious growth goals, often keeping costs down for users in order to generate favorable results for an acquisition. The hope is that, in markets competitive where whoever wins takes it all, the company's turnover grows exponentially as its dominance on the market increases and profitability ends up exceeding zero and then growing faster and faster. This strategy works well for those start-ups that manage to pass a certain threshold: if the number of users takes off, start-ups can in fact become very large and very quickly.
While, however, in Silicon Valley it is acceptable to burn capital, frontier innovators are likely to accept the idea of losing money on every customer with greater difficulty. Not that they aren't trying to grow, not least because many of these companies benefit from the same network effects that make the Silicon Valley giants so successful globally. However, they tend to avoid a high-risk, "grow or die" approach to growth: they focus on both growth and profitability, create resilient models, charge for the value they create from the start with a long-term perspective.