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June 06, 2006

How to Kick Silicon Valley's Butt

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From the fjords of Norway to the sands of Israel to the ice of Alberta to the waves of Honolulu, many regions of the world have Silicon Valley Envy. They look at the Valley as a place where people start cool companies that generate billions of dollars of wealth (and tax revenue), create thousands of jobs, and yet does not pollute the environment (at least compared with a smokestack). The question I hear over and over is, “How can we create our own Silicon Valley?”

First, a little background. It’s taken more than seventy years to create Silicon Valley. Any politician who thinks she can create another Silicon Valley in one or two terms is overly optimistic—perhaps one has to be very optimistic, if not delusional, to be a politician, but I digress.

Second, to my knowledge, there has never been any “master plan” for the creation of Silicon Valley. What stands before you is an amalgamation of hard work, luck, greed, and serendipity but not planning. Indeed, Silicon Valley has probably worked because there was no plan.

Third, my father was a state senator in Hawaii, so I understand how politics work. I have zero interest in a political career. Just to make sure I‘m never tempted, I penned this posting to burn down any bridge to a political career. (Sometimes it’s a good thing that the Internet archives everything you ever said.)


Stuff You Can’t Do Jack About
  • Beautiful, but not gorgeous, surroundings. California is beautiful. The weather is good. It’s fun to live here. No matter how great an entrepreneurial environment Cleveland creates, it’s always going to have people wanting to move away. If a place is gorgeous, like Hawaii, then the distractions are sometimes too great. Some place in the middle is what’s ideal. At the very least, it would be good to have a lousy season so that the company can be extremely productive part of the year.

  • High housing prices. If houses are cheap, it means that young people can buy housing sooner and have kids. When they have kids, they can’t take as much risk and don’t have as much energy to start companies. (I have four kids—I barely have the time and energy to blog, much less start a company.) Also, if houses are cheap, it’s easier to “make it big,” and you want it to be hard to make it big.

  • Cities, crowds, and high- if not over- population. The pressure of these conditions make people jealous of each other; this in turn makes them compete. Cities also bring people together to work. People can’t telecommute to a startup. People need to get together to bounce ideas off one another, argue, and cajole. Also, over-crowding gives people something to shoot for: that is, achieving success so they can get out of there.

  • Absence of multi-national companies—especially the finance industry. If your companies have to compete with conglomerates or banks like Goldman, Sachs throwing money at people, it’s going to be hard to get anyone for a startup. Pity the startups in New York, London, and Singapore. Come to think of it, how many tech success stories have come from these cities? There is intense competition for employees in Silicon Valley too, but we’re using the same currency: the upside of equity, not high starting salaries.

  • Life-threatening enemies. Israel is a speck of dust that has few natural resources, and it’s surrounded by real enemies. And yet the country has produced some of the world’s best technology companies. There’s nothing like a life-threatening environment to get the entrepreneurial juices flowing, I guess. If a region has to do nothing more than stick a pipe in the ground, throw a net in the ocean, clean beaches, or manage a natural seaport, it’s going to be tough to be the next Silicon Valley.


Stuff You Can Do Jack About

  • Focus on educating engineers. The most important thing you can do is establish a world-class school of engineering. Engineering schools beget engineers. Engineers beget ideas. And ideas beget companies. End of discussion.

    If I had to point to the single biggest reason for Silicon Valley’s existence, it would be Stanford University—specifically, the School of Engineering. Business schools are not of primary importance because MBAs seldom sit around discussing how to change the world with great products. Mostly they care about how to get interviews at multi-nationals and consulting firms. As my mother used to say, “Best case, engineers give buildings. Best case, MBAs endow chairs.”

    On a tactical level, this means that aspiring regions should raid the best engineering schools. What do associate professors at Stanford, MIT, and Carnegie Mellon make? Whatever it is, offer them double the amount to move. Be clever: how hard could it be to recruit top flight faculty to move to your beautiful (but not gorgeous) region if you conduct interviews at MIT in the winter? This is a trivial expense compared to the various incubator, tax treatment, and venture capital fund formation schemes that are the usual solutions to the challenge.

  • Encourage immigration. I am a third-generation Japanese American. My family moved here to drive a taxi and clean white people’s homes. If I had a choice between funding someone from a family who moved here from Vietnam whose father and mother run a 7-Eleven versus a descendant of a Mayflower passenger with “IV” in his name, I’ll give you half a guess as to my preference. You need to encourage smart, hungry, and aggressive people to immigrate from around the world. And to do that, you need good schools. To mix several metaphors, if you want to cover your ass, you need to open your kimono because trust-fund kids don’t make good entrepreneurs.

  • Send the best and brightest to Silicon Valley. I can hear the complaints already: “This will lead to a brain drain which is exactly what we are trying to prevent.” This attitude misses the essence of entrepreneurship: it’s not about preventing bad things, but fostering good things. Would it have been better for Hawaii if Steve Case had become a lawyer at his father’s Hawaii law firm instead of moving to the mainland and creating AOL? I don’t think so.

    The goal is to infect them with the disease called entrepreneurship and show them that there can be more to life than “a job;” that two guys/gals in a garage can change the world; and that a lot of money = millions of dollars. Sure, some people will never return—like me. But those who do return come back with a much broader perspective on what life and a career can be. Maybe they will build another Silicon Valley because they’ve seen it done before. Here’s a dirty little secret: Silicon Valley is more a state of mind than a physical location, and you can’t alter a state of mind by staying a home.

  • Celebrate your heroes. Every region needs its heroes. These folks take role modeling to an extreme; they have names like Steve Jobs, Bill Gates, Ted Turner, Steve Case, Anita Roddick, and Oprah Winfrey. Kids need heroes, so that they can say, “When I grow up, I am going to be the next Steve Jobs.” In many places, a successful person is pulled back down because of jealousy. Sure, there’s jealousy in Silicon Valley, but our way of dealing with it is to try to outdo the person, not pull her back down.

  • Forgive your failures. There is no better place to fail in the world than in Silicon Valley. (Where else can you get your clock cleaned by Microsoft and become a venture capitalist and top-ranked blogger?) Indeed, some people here have made a career of failing. Some of this is cultural—failing in Europe or Asia casts a cloud over one’s family for generations. Not in Silicon Valley. Here, it doesn’t matter (within reason) how many times you fail as long as you eventually succeed. So many entrepreneurs who failed went on to create massive successes that we’ve learned that failure is a poor predictor of future results.

  • Be logical. Make the challenge to create a Silicon Valley as easy as possible. Thus, a region should use it’s natural, God-given advantages. For example, aquaculture in Hawaii, security technology in Israel, alternative fuels in the Midwest, and solar power in the Sun Belt. There’s a reason why the best woolen sweaters come from Norway and the best Aloha shirts come from Hawaii. It’s not because people tried to buck the trend.

  • Don’t pat yourself on the back too soon. Many regions declare victory because Microsoft, Sun, or Google opened a branch office. These branch offices don’t hurt but don’t kid yourself into thinking that the existence of a branch office means that you are now a tech center. Truly, a region is a tech center when its companies open branch offices elsewhere, not when tax incentives and kowtowing got a company to open up a branch office in it.

  • Be patient. There is nothing short-term in these recommendations. I estimate that creating something that begins to look like Silicon Valley is at least a twenty-year process. This is certainly longer than most politician’s reign—mdash;hence the challenge of doing the right things for the long run.


Stuff You Shouldn’t Do Jack About

The short answer is that the government should not do much except provide more funding to the engineering schools. Unfortunately, that probably won’t seem like enough to most people.

  • Don’t focus on “creating jobs.” When a region adds the second bottom line of creating jobs, things get whacky. Such a goal perverts the objective of a startup because the primary, perhaps the sole, goal of a startup is to kick ass. If it also has to create jobs for the sake of creating jobs, then you defocus it. The thinking should be: “If this company kicks ass, then it will survive and grow. If it survives and grows then it will create jobs.” So let startups focus on kicking ass and the jobs will come naturally-or not.

  • Don’t pass a special tax exemption. There’s an assumption that tax benefits for investing in startups encourages entrepreneurship. I disagree; I think it mostly creates sloppy decisions by unsophisticated investors and crooked ones by others. Indeed, the unstated (and perhaps unrealized) goal of a sophisticated investor is to create, not avoid, tax liabilities. Nothing would make me happier than having to pay $100 million in income taxes. I would hand deliver that income tax return to the White House.

  • Don’t create a venture capital fund. The thinking here is that a government created venture capital fund would kickstart entrepreneurship because of the influx of money. However, if there’s one thing you can depend on in venture capitalists, it’s greed. If you show them good engineers with good ideas for good companies, they will appear by (private) plane, canoe, dogsled, and camel. Such a region doesn’t need to create a fund. A supply of capital does not create demand from entrepreneurs—mdash;at least not the kind of entrepreneurs that you want.

    (There is one notable exception to this: the government of Israel created a seed fund that launched its venture capital industry. However, my interpretation is that the fund was successful because there were already entrepreneurs there; the fund didn’t cause entrepreneurs to suddenly appear out of the desert.)

  • Don’t provide cheap office space and infrastructure. The rationale is that if entrepreneurs had office space, photocopying machines, T1 lines, and adult supervision, they would be successful. I can’t think of a case where cheap space, incubation, whatever caused success. This isn’t to say that there haven’t been successful companies from incubators (eBay is arguably one), but the key point is to determine the actual causes of success. Cheap space, etc, can’t hurt, but I’d buy engineering professors, not crappy buildings. Just because there’s a cheap building doesn’t mean you should create an incubator out of it.

There’s one more thing you need to do: Aim higher than merely trying to re-create Silicon Valley. You should try to kick our butt instead. That’s true entrepreneurship.

Acknowledgement: Thanks to Glenn Kelman of Redfin for a huge contribution to this posting.

Comments

I'm trying to find a list of the cities that are officially or unofficially part of "Silicon Valley" for a project I am working on. I tried Ask.com and your article came up as the top item, however the list of cities in Silicon Valley hasn't popped up yet. Please advise.

g_mcpaul

nice post you have here

Guy Kawasaki has an intriguing post on How to kick Silicon Valley’s butt ; advice to all governments who set out with the objective of replicating Silicon Valley’s success.

Some of these may be relevant to aspiring entrepreneurs, too - especially the bits about life-threatening enemies, being patient, and not patting yourself on the back too soon.

And, of course - aiming high. Don’t plan to replicate. Plan to do better.

Guy:
I think you know a lot about startups in Silicon valley, but as I posit in my blog, "What does Guy Kawasaki know about starting a company outside of Silicon Valley?" Have you ever done it? Have you noticed that VCs will come by camel, or canoe, but ONLY if they think that "everybody who is anybody" is also coming? Figuring out how to jumpstart that capital infusion is crucial in today's tech environment, regardless of the # of engineers you graduate or whatever. No capital = crummy entrepreneurial environment.

Still, I love your conclusion - how do those of us outside of Silicon Valley, figure out how to kick some SV butt?
http://startupnotes.com/2006/10/18/what-does-guy-kawasaki-know-about-starting-a-company-outside-of-silicon-valley-part-1.aspx

Guy,

Thank you for your insight on this post, and thank you for visiting and inspiring us here in Cleveland. We needed to hear some new perspectives, and your presentation gave us a shot in the arm.

Cathy Horton-Panzica

Wow real good information on silicon valley and its innovations.

Great post. I moved from Cleveland to Mountain View when our company got bought in 2000. I was in awe when I drove down 101 the first time. I realized something pretty quickly though, great companies can be built anywhere. It is a mindset. Agree 100%.

Manual Trackback
Thanks for this nice post, Guy!
http://www.hannestreichl.com/index.php/gute_zeitn_schlechte_zeiten/
(language German)

Actually I really shouldn't be here since I don't care a rat's ass for most valleys (prefer beaches) but I am a bit of a writer and happened to notice the following in one of the comments:

"Nice to see that the west coast is noticing what's going on in and around Cleveland.

Even before Jumpstart, Lorain County Community College launched GLIDE (http://www.glideit.org) to help entrepreneurs get started, get cash, and get noticed."

Is this person REALLY referencing the banned Harvard student's (lifted) book title in daily conversations? Are things so bad? Aren;t cliche's better than illegal paraphrasing? (Gasp) this truly is a spawn of the devil forum.

Hallo Guy
Great post, I blogged the link to it with some comment on my country's political and technology situation. Thanks
H.

I don't get the constant focus on 'education' in these sorts of articles. Good education != good entrepreneur != good engineer. Sure, many good engineers also went to college, but that's probably less than half the reason they became a good engineer.

Are even 50% of the greatest people working in Silicon Valley Stanford graduates? It's a guess, but I'm thinking not.

I'd say that universities foster local environments that smart people like to live in, but not necessarily that universities produce smart people who go on to create great companies, because those companies are the exceptions, not the rule.

Guy,

Great post Guy!

I have recently started working at Australian Technology Park, in Sydney Australia. I am also doing a Masters in Urban Planning in which my major will focus on the relevance and contribution of tacit information exchange in technology clusters (how does it, and how can it contribute to the business). Can you point me to any current literature please?

This is my first ever blog so i feel initiated....

Regards
Eddie

Indeed Silicon Valley is the dream of a lot of people and it is also mine. By the way, do you have any advice or companies interested by my profile to get the chance to achieve my goals one day or simply faster:)

Liked the post but resented the "...to the sands of Israel" description. I think its about time you come down here :)…we have an abundance of many things, and sand is not one of them. Oh…maybe you meant SUN.. that I agree with!

I gladly volunteer to be your tour guide :)

Nice to see that the west coast is noticing what's going on in and around Cleveland.

Even before Jumpstart, Lorain County Community College launched GLIDE (http://www.glideit.org) to help entrepreneurs get started, get cash, and get noticed.

Trust-fund kids are not the only non-entrepreneurs, those who
-depend-on- welfare or "secure" income: i.e. "guaranteed" subsidies & "union" secured jobs are likewise sure targets for perpetual decline. Both of these abound in Michigan due to governmental policies.

However, it should be noted that Michigan began with a heavy engineering emphasis. If you want money bad enough, you will always find a way to get it.

The ultimate basis though for enduring prosperity does come from what God gives: life.

Thus, pursuit of "prosperity" apart from or even equal to the pursuit for the presence of God will ultimately result in collapse. The missing "twins" in NYC testify to the terminal nature of human endeavor.

Thanks for thoroughly answering a question I've been asking around for a long time now.

Thanks for the clarification :)

I do agree with you in principle on most of the content here, in particular what you seem to be getting at is having the conditions for (among other things) opportunity, attracting "hungry" motivated/talented people, and invoking a "fight or flight" response in the business community.

The part I disagreed with, and should have been more specific about is the implied causality (or perhaps it was my perception) of some of the conditions listed, since the post is titled "how to kick silicon valley's butt".

By the way, I enjoy reading your blog greatly. You speak candidly and with conviction, and interact with the community. Your post "Hindsights" from Jan 12 was one of the most enjoyable posts I've come across and I can identify with, thanks for this gem of information.

**************************

I'm completely serious and believe it. You won't have to wonder if I'm not being serious when I'm not being serious. :-)

Guy

I don't think you are 100% right there but maybe 90%. Anyway it's close enough and it explains very clearly why Cambridge (UK) and Cambridge/Boston(MA) are also successful startup locations and not many other places are.

I went down the list thinking of Cambridge (UK) and going check, check, check ... I also went down the list thinking of Sophia Antipolis - one of the places France would like to have as "Silicon Valley" - and went No, no, no, ...

Through the internet it's hard to tell if you're dead serious, joking, or sarcastic on some of these points in the post but I seriously hope you don't honestly believe this nonsense.

**************************

I'm completely serious and believe it. You won't have to wonder if I'm not being serious when I'm not being serious. :-)

Guy

I think the overall message you give is that there is no such thing as Silicon Valley anywhere else, and actually noone should strive to build another one somewhere else because it would be best case a mere copy and therefore always second place at best.
My comment to this is: there is already now not A Silicon Valley anymore if you see how many startups (having their headquarters still there) have roots or R&D operations in India, Israel or China. And these places are only now still low-cost engineering "shops" but will soon move up the food chain.

I personally think this trend of global startups will only intensify and Silicon Valley will not be copied but sort of exported if you like. In Europe, in contrast, they are still waiting for Silicon Valley to come but that's a different topic...

Interesting post. I live in Bangalore, India - known as the Indian version of Silicon valley, though neither "silicon" nor "valley" make any sense here.

1. Bangalore is beautiful, fun, and overpopulated. The city has too much traffic and is polluted, but just an hour away south or west is a great countryside. Oh and the weather is just brilliant.

2. Bangalore has high housing prices, one of the highest in India.

3. There are very few finance companies (other than the call centers) that operate from Bangalore. India's financial hub is Mumbai. But there are tons of MNCs. And the biggest threat to entrepreneurship is that these MNC's - Accenture, IBM and the like - and LARGE Indian Software firms are offering ridiculously high salaries. Startups can't hire good people with stock (pooh poohed) and cash is scarce.

4. We have no known enemies other than our politicians. But they are more than a handful; who needs enemies when you have our politicians!

5. Bangalore has great education - the state with the highest number of engineering colleges and high quality training institutes. The bad side of this is: We have a dearth of good teachers, because they're swallowed by the higher paying industry. And most colleges don't even have industry cells for sponsored programmes.

6. Bangalore's a great immigrant place: There's more migrated population here than "locals". Not just from India, but from the US and Europe as well!

7. Bangalore's had a huge "return from the silicon valley" reverse exodus, and entrepreneurial ambitions run high. And are infectious. (We have a club called eClub-Blr - at www.eclub-blr.com - got a few of the silicon valley "graduates")

8. Forgiving failures and celebrating heroes: Happening more now than earlier. Saying "I moved on" is no longer a bad thing, and would even land you an opportunity because "she wouldve learned what NOT to do".

9. Bad thing: The local government celebrates when a Microsoft or Google opens it's branch office. And sulk when a Dell or a $1 billion fab goes to Hyderabad. Really stupid, this whole sulking/celebrating thing. What's the big deal if you offer those people carrots you don't give to local industry?

10. The local govt. focusses on the wrong things; Job Creation, Tax Exemptions, VC Funds (the govt has like fifty of them) and cheap infrastructure. Tax exemptions are the worst - zero tax for software exporters.

Guess what, I calculated that infosys, one of bangalore's largest software companies, pays zero tax on its net income of nearly $600 million. It's 50,000 employees pay a total of $50 million in tax. What a ridiculously dumb trade-off.

Recently another city has built a "tech park" and offered lowered rents of Rs. 10 per sq. ft per month. And yet another offers cheap land, incubation space etc.

But the biggest problem in Bangalore is the absense of "deal flow". No one likes to trade capital - if you get in, the only way to get out is the IPO or an acquisition. No wonder VCs shy away from smaller aggressive companies, and that brand of entrepreneurs almost exclusively service US investors.

In all, I think Bangalore is not any Silicon Valley. At best it's an Outsourced Plateau, with mediocre entrepreneurship support. Startups survive not because but inspite of government initiatives.

Here in Calgary, home of the Clagary Flames National Hockey League franchise, with fans located around the world, we like to defer to other regions as to why we don't want to build $10 billion super refineries.

Dreaming of a high tech industrial heart land may be a hard sell in an area that refuses to show any leadership or courage.

I get the seeming irrefutability of the hypothesis that geography and that proximity matters...

Some regions have an existing edge in terms of critical mass of entrepreneurs and a culture that has become self-replicating, the impossibility of telecommuting to a startup, etc, etc, etc.

BUT ... I still don't completely buy that geography is the insurmountable barrier it is advertised to be ... we humans are perhaps only two or three "revolutions" away from telling geography to f*** itself ... the "revolutions" we can think about are the really big impactful ideas ...stuff like LeanMfg + quality + JIT, cheap networkable PCs, widespread internet access, virtual prototyping / mfg, microcredit and protection for property rights ...

Perhaps we aren't that far from the day when we can reserve our need to travel, transport people and stuff to those pathological special cases like sending peacekeepers to Darfur.

Guy, I really enjoyed this post. As an engineer, an MBA, and an entrepreneur myself, I especially like your suggestion to focus on educating engineers.

"The most important thing you can do is establish a world-class school of engineering. Engineering schools beget engineers. Engineers beget ideas. And ideas beget companies. End of discussion."

I had the good fortune to attend a top engineering school where students are expected to constantly develop new and creative ideas. Most of our courses were hands on, so I learned more than just the concepts included in my text books. This isn't a luxury afforded to every engineering student.

I posted this portion of your article on my blog and linked to your post here: http://www.angiedawn.net/blog/2006/06/how-to-kick-silicon-valleys-butt.html

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