When Silicon Valley-Style “Disruption” Isn’t The Right Answer
For many “real world problems”, the Silicon Valley playbook doesn’t apply
This year’s Global Entrepreneurship Summit, hosted in Silicon Valley, seeks to harness the power of entrepreneurship to solve the world’s largest problems — in the place where entrepreneurship works better than anywhere else on the planet. Yet the playbook that has built Silicon Valley into the most incredible entrepreneurial ecosystem in the world isn’t necessarily the same roadmap that will bring people financial health, educate the next generation, and power the world in the future.
Silicon Valley regularly talks about “disruption”. The smartphone has put a number of industries, from the fax machine to the camera, out of business. In the information age, new communications technology will make old ones irrelevant.
But in “real-world industries” — the sectors such as food, education, agriculture, energy, and financial services that impact our everyday lives and that will grow even larger in the coming years — “disruption” perhaps isn’t the right mindset for success.
Over the past seven years, my firm Village Capital has worked with over 600 ventures worldwide solving major problems in real-world industries. We have learned that as great as Silicon Valley is, most of the world’s problems are more complicated than the ones that the Silicon Valley playbook is built to solve. As we attend this week’s summit, it’s important to remember that startups in these industries will be more successful by understanding and partnering with entrenched institutions than by setting out to “disrupt the world’s problems” — and that partnering with startups is valuable for institutions as well.
Lesson 1: Entrepreneurs: “Ask for forgiveness, not permission” isn’t always the best solution
In unregulated industries — advertising, for example, or social networking — entrepreneurs can afford to be cavalier, “ask for forgiveness, not permission,” and view large corporations as the enemy. When you’re inventing a completely new industry (who had heard of photo-sharing twenty years ago?), that attitude is absolutely fine.
But when you’re working in a field like education, food, or energy, each of which employs hundreds of millions and touches billions of people around the world, any kind of lasting, widespread change is substantially harder.
Do you want to get your education technology into classrooms across the U.S.? Maybe you should partner with a firm that’s been working in US education for three decades, and knows the decision-makers (and their families, their likes/dislikes, and visions for their district). Do you want to expand Internet access into rural areas of Africa? There is likely a corporation that has been advocating with African governments for expanded broadband, and they could serve a great partner. Odds are that if you are engaged in solving a real-world problem, there’s already a big partner who has the same incentives you do.
But wait, entrepreneurs ask: what happens if that corporation steals my idea, or becomes my competitor?
In Silicon Valley-style entrepreneurship, ideas are “winner-take-all”: LinkedIn won professional contacts, Facebook won social networking; and so forth. Not so in real-world industries. There are countless examples of startups building a billion-dollar company by owning a very small part of a large industry better than competitors. As just one example, food systems is a 7.5 billion person market, with 100% market engagement each day — so improving on a subset of irrigation or transportation logistics can lead to a very, very valuable company.
Lesson 2: Corporations: partner or become irrelevant
On the flip side, if you’re a large corporation, it’s very likely that you are going to discover the great idea that defines your next generation from an entrepreneur.
If you’re a successful company, you likely have a lot of smart people working for you. But from a pure numbers perspective, there are far many more smart people who don’t work for you. Among their ranks are entrepreneurs who care about solving the problems you have don’t work for you than do — and who are ready to partner with you if you’re open to it.
If you’re a bank, there are thousands of fintech entrepreneurs looking to re-invent subsets of what you do — from investing to lending to savings — and who have motivated, brilliant teams with real skin in the game.
For many large institutions, the exact terms of engagement are not always clear. Many corporations we encounter have little idea what to do with entrepreneurs. As a result they often have a restrictive, entrepreneur-unfriendly environment — for example, highly restrictive funding, overly severe contracts, or strict non-disclosure requirements — that are a non-starter to many in the startup world.
At the end of the day: if your institution has a good reputation in the startup community, you’ll hear about the best ideas before your competitors. If not, you might lose the best ideas to your direct competitors.
Lesson 3: Understand the value of founders with lived experience
So where do you begin looking for the next wave of entrepreneurs solving real-world problems?
With 80% of US venture funding (and 40% worldwide) going to just three US states, less than 5% going to women founders, and less than 1% going to people of color, we’re seeing a lot of companies essentially creating better perks for the best-off in society — and a few attempting to solve a real-world problem, but failing because they don’t fully understand it.
At Village Capital, we follow one rule of thumb obsessively: the best founders solving real-world problems have lived the problem they are solving themselves.
As just a few examples: Student Loan Genius, founded by first-generation college student Tony Aguilar in Texas, is re-shaping how employers can contribute to student debt (and is partnering with Hancock and Prudential in the process). Ojay Greene, a tech solution partnering with major food producers to streamline the farmer supply chain in Africa, where 80% of the country is employed, was founded by Yvette Ondachi, who grew up in a farmer’s family in Kenya. SevaMob, which is partnering with global pharmaceutical companies to deliver low-cost health care in rural India, was founded by Shelley Saxena, who grew up in a poor community in India.
The fact is, by not investing in a more representative sample of people with solutions to big problems, we’re playing shorthanded — and missing out on great solutions.
What’s next?
This week at GES, Village Capital was excited to announce five partnerships that show entrepreneurs, corporations, and investors a pathway for solving real-world problems. We’re excited to highlight over $2 million in partnerships that bring the resources of America’s most innovative companies to entrepreneurs solving problems around the world:
- A global collaboration with PayPal, including programming and employee engagement, that will expand access to financial services for underserved populations both in the US and in emerging markets;
- An initiative with Blackstone to run a program for entrepreneurs in the energy industry in the US;
- A program with AT&T that will support US entrepreneurs improving student academic performance and positioning graduates for success as they enter the workforce;
- A partnership with BlackRock that will increase financial inclusion through program partnerships in India and Mexico; and
- An engagement with Microsoft that will support entrepreneurs, through funding and resources, who are using technology to increase access to affordable Internet in underserved markets.
Each of these programs will involve a major institution with a global footprint that has identified clear problems in its market that entrepreneurs can solve, and that has resourced startups to be great partners — disrupting the market, not each other.
And we at Village Capital invest in entrepreneurs graduating from these programs from Village Capital’s affiliated fund, VilCap Investments, a $17.7M partnership between USAID’s Global Development Lab and 29 private investors, including GES delegates Jim Sorenson and Jean and Steve Case (if you want an even more thoughtful deliberation on how startups can partner with, and not try and disrupt, corporates, read Steve’s new book The Third Wave). In each program, the entrepreneurs themselves will decide who gets investment capital — making sure the entrepreneurs with the most experience with the problem will be able to solve them.
I’m thrilled that the best entrepreneurs around the world are coming to Silicon Valley, the best ecosystem in the world. And I’m even more excited that as we give access and agency to founders everywhere, new models for solving real-world problems will undoubtedly emerge.
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