Can We Learn Anything from Silicon Valley?

(Note: This article first appeared in “Innovation: America’s Journal of Technology Commercialization

With the American economy still limping along seven years after the Great Recession, seemingly unable to make a complete comeback, it’s got to be hard for the rest of the country not to look at the current roaring boom in Silicon Valley…and dream of getting a little piece of that action. In fact, it’s even crazier here in the Valley than you might imagine.  This isn’t the everyone-is-now-rich bubble of era fifteen years ago.  It’s more like some people are getting crazy rich and that money is slopping over onto the rest of the community.  Thus, a lot of folks are still driving the same old car and living in the same old house, but they are sharing the freeways with Maseratis, S-Class Mercedes and endless Teslas.

Meanwhile, that same old house has now tripled in value since 2010.  In my neighborhood, filled with nice three bedroom/two bath ranch houses built in the late 1950s (and typically upgraded a couple of times), we were astonished when the original $12,000 price crossed $500,000.  That was in 2005.  Then, despite the Crash, they crossed $1 million in 2012.  Last week, the first house in the neighborhood was sold for $2 million.  We all know it’s crazy, but, as we tell each other when we meet walking our dogs, why not cash out and get a condo just outside the Valley, or even Oregon or Arizona, and enjoy a comfortable early retirement?

My house is the oldest in Silicon Valley (c.1852) on the biggest lot in Sunnyvale.  We’ve owned it for twenty years and my guess is that its market value is approaching 10X what we paid for it.  A few weeks ago a Hong Kong couple knocked on the door to inquire if we’d like to sell.  Standing there I realized that I could throw out any insane number in the high seven figures and they wouldn’t blink.  Indeed, they might just go for it.  And then what?

Why this madness?  And why now?

The answer is, I think, that instead of some new Silicon Valley rising elsewhere in the country, or in the world, those forces are instead just building a new Valley on top of the old one.  Or, more precisely,  Old New Valley, based in San Francisco, is building New New Valley in the South Bay on top of the Old Old original Silicon Valley of HP, Intel, Cisco, etc.  From where I live I can see that transformation everywhere around me, from the cranes over the giant new Apple headquarters in Cupertino, to Google’s progressive takeover of Moffett Naval Air Station in Mountain View, to LinkedIn’s takeover of downtown Sunnyvale.  The new SF 49ers stadium.  The giant new startups like Tesla and Theranos taking over old HP real estate in Palo Alto.

Recent studies bear out this revitalization.  One extensive report, created by the Silicon Valley Leadership Group last year, found that by almost every metric, after a half-century Silicon Valley was not still only holding its own against other regional tech contenders but was accelerating away.  In fact, in most of these metrics, Silicon Valley-San Francisco’s only real competition was Silicon Valley-San Jose.   And if the recent building is any indication, that combination will continue to stay on top, merely reversing their rankings as hardware once again begins to dominate software.

Meanwhile all of this growth and success is occurring in spite of growing regulation, a statewide drought, miserable traffic, a stratospheric cost of living and, of course, utterly insane real estate prices.  Usually, any one of these problems will bring down a community or at least open the door to other competing regional and national business centers.  Why not here?

It’s a question that has been asked at least since I was a cub reporter at the San Jose Mercury News in 1979.  Even then it was assumed that the Valley couldn’t go on forever.  That at least one of those new tech enclaves springing up around the nation— Silicon Mesa, Silicon Forest, Silicon Alley, etc.—would eventually rise up and take away the crown as the world’s Tech Capital.  And indeed, some of those centers, notably in New York City, Los Angeles and Austin, continue to thrive and grow.  But no one, not even in such faraway tech centers as Bangalore, Dublin and Tel Aviv, still believes that they are going to supplant the Valley.

Why is this so?  Why did those other communities, blessed as they are with talent, money, infrastructure and civic commitment, end up also-rans?  What is it about the Silicon Valley model, which seems easy to replicate, that turns out to be so elusive?  What’s in the Valley’s secret sauce that makes it so successful and enduring?

After a half-century living here and forty years working in and reporting on the Valley, I think I have some answers but they probably aren’t the ones those other tech communities want to hear.  Here they are:
History. Silicon Valley was founded at a unique moment in history: the end of World War II, the return of GIs wanting to pursue technological fields, the invention of the transistor and the rise of digital computers, the Cold War and the Space Race.  All buoyed the young community with talent and money.

Leadership. Do the times make the man (or woman) or vice versa?  Either way, from David Packard to Bob Noyce to Steve Jobs, the early Valley was led by some extraordinary, larger-than-life figures who shaped the place, drove its greatest companies, spoke for it inside the Beltway and on a global stage, and defended the Valley from both political and competitive threats.

Money. Because it was the first entrepreneurial community, Silicon Valley also pioneered modern venture capital.  It started here, and because investing in startups is a communal activity, it has remained here.  Silicon Valley venture capital not only leads the world, it utterly dominates it.  And there’s a big difference between driving to Sand Hill Road to pitch your company, and flying in from Omaha.  And VCs like to be close to their portfolio companies to keep an eye on them.
Climate. It’s still true, and still underrated:  the San Francisco Bay Area has some of the best weather on the planet.  Everyone in the rest of the country talks about how much they love the “four seasons” and yet, funny how many visitors the Valley gets every January.

Culture. We’ve learned that a tech culture is not something that can be bolted on to an existing community—look at the troubles even San Francisco, a deep 150-year-old culture, is having between the hot tech company employees and long-time residents.  That didn’t happen in the original Silicon Valley because there was basically no here, here:  just endless orchards and cheap land with a handful of world-class universities nearby.  Where can that be done today?  The Valley grew its own culture, which is why it is so deeply embedded.  So deep, in fact, that most of the rest of the world doesn’t really understand it.  They work at entrepreneurship; we live it.  We breathe it, it is the talk of every conversation in every coffee joint and movie theater.  We don’t feel complete if we haven’t been part of at least one startup.  Our heroes, from Jobs to Zuckerberg, would be considered dysfunctional monsters anywhere else.  And this culture has been growing, marinating and evolving now for fifty years.  It can’t be planted and cultivated overnight.

So where does that leave the rest of the tech world that’s not Silicon Valley?  A good start would be to stop trying to be the next Silicon Anything.  The Valley has won; move on.  Most of all, find an exciting new paradigm.  Stop trying to convince Valley companies to move to your community, or worse, set up sales offices and manufacturing divisions.  The lesson of Portland, Oregon, over the last thirty years is that if your tech community is mostly small parts of big Valley companies, no matter how famous, then you are economically expendable. You’ll always be first for layoffs, first into downturns and last out.

In other words, there is no short-term solution.  You can’t become a great tech community by buying, enticing or stealing existing companies.  You can only do so by growing your own entrepreneurs in the hopes that over the upcoming decades one or two or ten of them will create great, world-beating corporations.

And how do you grow these entrepreneurs?  It takes a great university or two nearby to identify and train them.  It takes homegrown venture and angel money. Who are your local tycoons willing to seed these companies or assemble an investment fund?    It takes cheap facilities and a top-notch technology infrastructure (broadband, etc.)  And most of all, it takes a cultural commitment —an indigenous culture, not a borrowed one—that is committed to risk, and accepting of “good” failures.  That’s a whole lot tougher than it sounds, but you can make it easier by bundling this attitude with the uniquely appealing attributes of your region: the boho cowboy culture of Austin, the Big Apple life of Manhattan’s Flatiron District, the high culture world of Oxford.

Finally, you need patience.  The tech world may move at the pace of Moore’s Law, but human society doesn’t.  It will take at least one (human) generation to the see the results of your efforts, and to turn the germ of a unique tech community into a thriving one.

That’s a long time, at least five (tech) generations.  So you’d better start now.

Michael S. Malone, a veteran Silicon Valley observer, writes a column for Innovation.