The Second Entrepreneurial Revolution

The last forty years have been about the US & China, the next frontier is Global.

We are in the midst of the next great Entrepreneurial Renaissance.

The last forty years of innovation have been defined by historically dominant companies being created in the US and China — creating role models and cultural phenomena that have been passed down from generation to generation like religious artifacts; blossoming an ambition to create Billion Dollar companies from scratch, with ideas written on napkins and coded up in garages in Palo Alto or Beijing.

A Swinging Pendulum.

Chinese companies were originally students of the US. Jack Ma’s initial ambition for Alibaba was to build a company that would be revered in the West. Now the tide has turned. It used to be that competing with Google was something to fear. And that Facebook’s speed of innovation and focus on real identity was the pioneering force on the internet. In 2019, Facebook no longer worries about Google, and instead is left scrambling in the dust by Bytedance, a company that was barely a twinkle in its founder’s eyes in March of 2012.

How could Bytedance emerge with such force in just 7 years? And to boot, a Chinese company that started in its home country and went global, topping the App store in 150 countries, crossing 1.5B daily active users, and with 60,000 employees — double that of Facebook.

The Global Innovator’s dilemma.

In Clay Christensen’s Innovators Dilemma, the author talks about how large companies, seemingly lazy from their profits, fail to acknowledge niches, and sit back allowing nimble young companies to take over and become the incumbent.

Rather than the innovators dilemma existing on a company level, I would argue we are at a geographic inflection point — a global innovators dilemma — where the structural barriers outside the US and China are precisely the most fertile soil for the next great nationally dominant companies. These companies will start locally, monopolize their home markets, and assemble enough firepower and talent to go global and be bigger than US or Chinese incumbents combined.

The mistake is to think these global markets are going to be occupied just by copycats — a reputation wrongly attributed to early globalization work by the Samwer Brothers, the founders who created Rocket Internet. By contrast, the opportunity is to build highly original companies that look nothing else in technology history. Sequoia India Managing partner Shailendra Singh terms this strategy as business model mutation precisely because there are so many adjacencies to the initial market entry strategy with typically no strong competition.

The combination of cultural, behavioral, regulatory, and talent availability factors in each nation create completely unique starting points for Nationally dominant companies. The next billion first-time internet users will be in India, Latin America, SE Asia, and Africa. In 2019, the majority of GDP will be outside the US and China, and with GDP expansion through technology a new generation of consumers and businesses will set the tone for adopting new technologies unhindered by existing patterns. Most of these users don’t speak English as their first language, and will make default historical choices for the way they spend money, entertain themselves, house themselves, work, consume information, look after their health, friends and family.

Tremors of the global resistance breaking are evident. Companies like UIpath emerging from Romania, show that one can build a complex enterprise technology worth $7BN with a monopoly of machine learning and data engineers in Bucharest. The other leader in the RPA space, is an Indian company — Automation Anywhere, hailing from Bangalore via San Jose — where growth is fastest for the company outside the US. The myth is that these companies are US born and bred, but with high living costs, high egos, and low originality, its very likely that the next great company will be born outside of the mirage. Twitter investing $100m in Sharechat, to avoid missing out on the next 900m non-english speaking users in India, or Bytedance’s acquisition of Music.ly for $1BN to create the assets for TikTok, are examples of a new cross-border battleground for technology.

Unbundling and re-exporting US and Chinese Entrepreneurial culture.

The greatest accelerant to the global entrepreneurial renaissance will be unbundling and re-exporting Silicon Valley and Chinese entrepreneurial culture globally. Last batch, 38% of the 200 strong Y Combinator Summer 2019 cohort were international companies. It is expected that >50% next batch will be international — with Indian and Latin American companies dominating the international cohort. YC has also reversed its policy of only doing interviews in Mountain View — and is now holding interviews in Bangalore, Tel Aviv, and Paris.

Reverse migration from major startup ecosystems will catalyze entrepreneurial activity globally — the most experienced executives, founders, investors will move back home, to find opportunities that didn’t exist 15 years ago. Firms like Accel or Lightspeed are actively working on programs to re-import US trained Indians back home to ignite National startups. For Chinese entrepreneurs — returning home and building great companies have been a hallmark of the Chinese entrepreneurial revolution. We will see that happen everywhere else.

The evolution will be a pan-global collaboration network where Local, US, and Chinese investors bring their respective knowledge and ambition into diverse global investments collectively amplifying the potential of these globally dominant companies.

There has never been a better time to build and invest in the next great global companies.

This is a second entrepreneurial renaissance.

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References

1. Jack Ma’s speech when starting Alibaba. From the Movie: Crocodiles of the Yangtze.
2. ByteDance: The tech unicorn you have’t heard of and why.
3. The Innovator’s Dilemma. From Wikipedia.
4. Inside the Clone Factory Wired Magazine on the Samwer Brothers.
5. Business Model Mutation, By Shailendra Singh, Managing Partner at Sequoia India.
6. Non-US GDP outpacing the majority. NYU economic professor William Easterly.
7. From Communism To Coding: How Daniel Dines Of $7 Billion UiPath Became The First Bot Billionaire Forbes on UIPath founder, Daniel Dines.
8. Biggest US cities losing hundreds of workers every day, and even more should be fleeing CNBC
9. WeWork is selling the company’s $60 million luxurious private jet Business Insider
10. Peter Thiel thinks the next Google won’t come from Silicon Valley Quartz
11. Twitter leads $100M round in top Indian regional social media platform ShareChat Techcrunch
12. China’s Bytedance buying lip-sync app Musical.ly for up to $1 billion Reuters
13. YC Summer 2019 Batch Stats ; 38% of companies were international. YC
14. YC Interviews in India YC
15. YC W20 Interviews in Western Europe YC
16. Accel creates platform to get Valley talent Econnomic Times of India
17. A new generation of Chinese entrepreneurs. Daysm research.