The Myth of the ‘Next Silicon Valley’

5th August 2013

THE MYTH OF THE ‘NEXT SILICON VALLEY’

The ‘next Silicon Valley’ meme has become a tired cliche.

I awoke this morning to an article by Richard Florida that asserts Why San Francisco May Be The New Silicon Valley.   What?  I thought San Francisco was part of the greater Silicon Valley ecosystem?

Stop for a moment and Google ‘next Silicon Valley’.  C’mon try it.  How many hits do you get?  I just got 101,000,000.  One hundred and one million hits… This writer believes Dublin is the next Silicon Valley?  Back in 2004, this writer hung his chin out positing Shanghai might be the next Silicon Valley by 2009.  Whoops.  Wikipedia now lists 70+ places around the world with Silicon in the name, lets call them collectively the Silicon ‘Blanks’.

It’s (largely) well-documented why Silicon Valley can’t be duplicated.  Vivek Wadhwa recently argued in the MIT Technology Review that Silicon Valley Can’t Be Copied because it’s ‘all about the people’.  Vivek is partially right, but it’s an incomplete answer.  Others trying to explain Silicon Valley’s success have talked about the culture of risk taking, the acceptance of failure, the culture of innovation/experimentation, the huge casino called Sand Hill Road, the proximity to Stanford (and Berkeley), the 75+ years of expertise, the ‘pay it forward‘ model exhibited by the PayPal Mafia, Xooglers, the Facebook Mafia and so many others.  All valid points, yet at least five additional factors contribute to the Valley’s uniqueness.  These factors are largely under the radar, unreported and thus not well understood by many.

  1. Critical Mass of Serial Acquirers: Silicon Valley companies have been a cluster of serial acquirers for 30+ years.  Starting with the likes of Oracle, Cisco, HP, Intel and Symantec, and joined in the past decade by companies Google, Salesforce.com, Yahoo, Facebook, Zynga, LinkedIn and others.  Do they over pay?  Sometimes most definitely.  Paying $1B for an 18-month old company with zero revenue and a handful of employees certainly attracts scrutiny  globally, but that’s not the point; (I’m certain many serial acquirers have substantially underpaid for acquisitions too).  The point is there is a sizable cluster of Silicon Valley serial acquirers all with the balance sheets and foresight to make very large acquisitions.  It’s fashionable to say for instance New York is the ‘next Silicon Valley’.  Really?  Based on what criteria?  Simple truth is New York has been selling the family silverware and not even realizing it.  When DoubleClick sells to Google and Tumblr sells to Yahoo, it means New York doesn’t build a critical mass of serial acquirers for itself – these exits weaken their ecosystem, not strengthen it.  The DoubleClick’s and Tumblr’s no longer exist locally in the New York ecosystem to acquire more assets and be the ‘next Silicon Valley’.   A critical mass of acquirers simply doesn’t exist in the other 70+ Silicon ‘Blanks’ around the world.
  2. Critical Mass of Serial Disruptors: Silicon Valley is home to a lot of serial disrupters.  Apple and Google have disrupted the mobile industry, Google and Facebook have disrupted the advertising industry, Apple has disrupted the music industry.  Square, Netflix, Airbnb, Uber and dozens of others are beginning to siphon off billions of dollars in other industries.  A critical mass of industry disruptors at scale simply doesn’t exist in the other 70+ Silicon ‘Blanks’ around the world.
  3. Industry Clusters: 200+ non-tech multinationals have opened strategic beachheads in Silicon Valley across a myriad of industries.  Financial Services, Telco, Automotive, Retail, Media, CPG, Education, Healthcare and others.  Each industry cluster in the Valley is a rich ecosystem of multinationals, serial disruptors, serial acquirers and startups.  We’re not seeing a financial services industry cluster of 350+ companies working in tandem with a mobile/telco cluster of another 400+ companies anywhere else in the world.  This pattern repeats itself across several industry clusters in the Valley.  This critical mass of industry clusters and their interlocking collaboration simply doesn’t exist in the other 70+ Silicon ‘Blanks’ around the world.
  4. The Trifecta Of Large, Global and Weird: the Silicon Valley ecosystem is very large, very global and very weird.
    • Large: Silicon Valley has 350,000 workers broadly in the tech sector.  Count the supporting infrastructure of service providers and it might be perhaps twice that size.  Remember Metcalfe’s Law; essentially stating each new node to a computer network adds new value to said network?  Same goes for groups of people, right?  More people in the cluster contributes to the strength of the cluster (groupthink notwithstanding!)  No other Silicon ‘Blank’ globally has nearly the sheer scale of Silicon Valley.
    • Global: 64% of people working in Silicon Valley are ‘foreign workers’.  People migrate to the Valley from all over the world to ply their trade here.  They are bringing a very diverse set of experiences of how industries in different countries work.  It’s the permanent facilities for the Geek Olympics.  They come here not to make money per se, but to compete on their intellect.  Do the other 70+ Silicon ‘Blanks’ have anywhere near this immigration rate?
    • Weird: Q: how do you tell an extroverted engineer?  A: when they stare at your shoes.  The Valley is weird, very weird. (with all due respect to my friends & neighbors reading this, I think you are all very normal)  The Economist once labeled it In Praise of Misfits.   Does the Valley perhaps have higher rates of people with Aspergers, people on the Autism Spectrum Disorder (ASD) and people with dyslexia and does this in fact contribute to it’s enduring success?  What’s with SAP’s recent announcement to overtly hire people on the ASD?  Do ‘Weirdo’s Outperform Normals‘?  Does some  recently understood Entirely New Autistic Way of Thinking Powers Silicon Valley?  Let say a 19 year old college dropout applies for a job at a large multinational.  Of the charts smart, but you can tell in the interview he’s going to be very hard to manage; he strikes you as exceedingly arrogant.  Smells too, seems he hasn’t bathed in a few weeks.  Oh, and admittedly does a lot of illicit drugs.  Insta-hire or politely end the interview?   Most companies screen out the Steve Job’s of the world very early in the interview process (yet posthumously praise his once-in-a-century genius).
  5. Wrong Formulas: many of the Silicon ‘Blanks’ around the world are simply following the wrong recipe.  Usually government led initiatives to re-create the ‘next Silicon Valley’ are way wide of the mark.  Some countries try to focus their efforts on invention and IP coming out of their universities.  Simple fact is that very little that drives Silicon Valley success comes from IP out of local Silicon  Valley universities.  A lot of government-led initiatives to re-create Silicon Valley confuse ‘invent’ with ‘innovate’.  Silicon Valley invents very little; it didn’t invent the integrated circuit, the internet, the browser, the PC, the smartphone, the database, core search technology — all of that was invented outside Silicon Valley. That said, the Valley has an uncanny knack of capitalizing on others inventions and creating massive shareholder value.  Similarly, a lot of government-led initiatives globally go down the path of opening lots of ‘science parks’ throughout their country.  Problem with this approach is it disperses the very entrepreneurs who ought to be co-located near each other.  Proximity matters.  Understandable that politicians worldwide would take this approach, given they need to spread the love and money around in their country to keep all constituents happy.  These IP and dispersed science park approaches are rather the antithesis of Silicon Valley, irregardless of the billions invested in them to date.

Point I’m making is straightforward; the ‘next Silicon Valley’ meme is a very tired one and comparisons of startup activity alone are shallow.  I certainly understand the ambition, but people globally riffing the ‘next Silicon Valley’ theme are only focused on one aspect of the Valley ecosystem, startups.   When making such comparisons, I suggest one ought to look also at the critical mass of serial acquirers, the critical mass of serial disruptors, the strength and size of industry clusters, any evidence of the trifecta of large/global/weird as well as the formula being applied.

There is a completeness and richness to the Silicon Valley ecosystem that simply doesn’t exist elsewhere and there are aspects that are exceedingly difficult to build, even with the benefit of time.

I admire startup communities globally and I’ve worked with many of them.  Respect.  Keep doing what you are doing.  The clever entrepreneurs will always do well.  There is plenty of room to build new businesses and potentially get an exit; if it’s a high growth disruptor and strategic, odds are the exit will come from Silicon Valley.  There are now simply too many industry ecosystems in the Valley with very large balance sheets to let big opportunities globally pass them by.

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