I have lived in the bay area my whole life, moving in 30-minute increments from Walnut Creek to Berkeley to San Francisco, but it wasn’t by choice that I never left. The opportunity and energy in Silicon Valley is unparalleled by anywhere else in the world. Plus, I’ve grown accustomed to the day-to-day efficiencies (like same-day delivery) that come with an innovation-based economy. Being somewhat of a jet-setter though, I have been hopeful that a similar atmosphere could be recreated elsewhere such as NY (Silicon Alley), LA (Silicon Beach), London (Silicon Roundabout), Tel Aviv (Silicon Wadi), Berlin (Silicon Allee) or even Lagos, Nigeria (Silicon Lagoon).¹
There has been a lot of talk about replicating elements of the Silicon Valley to foster a similar culture of innovation elsewhere. Several nations such as Canada and Chile are even engaging in advertising campaigns to entice entrepreneurs in the Valley to do their startups outside the US with tax incentives and better immigration policy. Most discussion of Valley clones usually ends with the same conclusion I came to in the third grade when I rationalized feeling different from the other kids: we’re special, we’re unique, my mom makes the best lunches at school.
There is indeed validity to these sentiments. It is actually very tough to recreate culture, and after all, the culture is a large reason why the Silicon Valley became what it is today. Sure, venture capital is essential, but it is the culture that made people willing to throw their millions of dollars into the Apples and Googles that kickstarted the industry.
What I do believe, is that the Valley will struggle to become an industry-agnostic technology innovation center and that there is significant potential for other regions to develop industry-specific tech communities.
The Valley as a Bubble of Consumer Goods and Services and Advertising
Let’s take a look at some of the products and revenue streams of some well-known tech companies. Google creates search engines and other consumer products and gets most of its revenue from advertising. Facebook built the biggest social network in the world and has also been monetizing its massive user database through advertising. Amazon is one of the most popular online marketplaces and makes money by taking a percentage of items sold on the site, but it also receives significant revenue from advertising as well. Are you seeing a pattern yet?
The Silicon Valley finds its talents mostly in two domains: consumer goods and services and advertising.
Wait a second… technology permeates every industry! Whether its focus is in healthcare or construction, every business is becoming a digital business. This is true, except that technologists themselves do not permeate every industry, just the ones they know.
The typical² story we hear is that Startup Stan goes to Stanford, majors in Computer Science, meets Co-founder Craig, grows his niche consumer-facing app startup after graduating, gets funding from some head honchos on Sandhill Road and eventually gets bought by Big Tech. The question is: when does Startup Stan have time to learn the ins and outs of hospital management or construction field force management. He doesn’t and that’s why he sticks to his guns in the consumer space. We’ve seen the alternate scenario of entrepreneurs innovating in spaces they don’t really understand end in disaster over and over again – if your name is Elon Musk, forget I said that.³
My favorite example (excuse my schadenfreunde) of this comes from a hackathon I went to where the winner was a group of amateur hackers that created an application to help people manage their diabetes. They were selected by top venture capitalists and tech execs to be part of a prestigious startup accelerator despite the fact that the diabetes app market is over-saturated by existing products with deeper functionality and that many people with diabetes don’t even own smart phones (90% of patients have Type 2 diabetes and typically come from poorer backgrounds).
If these developers went to medical school, things might turn out better for them. Fortunately for the rest of us, there’s no such thing as Consumer School where you go to learn how to maintain friendships, go to bars and buy expensive things online. Well, I guess you can go to Business School for that… Regardless, the point is that we already know how this all works.
The Tech Industry is most successful in domains that the average person understands without much education. Mark Zuckerberg is an expert in personal relationships. He’s had millions of interactions with people over his lifetime; but then again, so have you and I. The difference is that he had the technical skills and the timing to create the technology infrastructure for personal relationships before you or I did. Now take a hospital EMR system: in addition to timing and technical chops, you would also need as deep an understanding of healthcare management as you have for personal relationships.
Considering this, will the Silicon Valley be the center of all technology innovation or just that pertaining to consumer products and services and advertising?
Niche Industry Opportunities Outside the Silicon Valley
When I was in high school, I thought I was going to be a professional songwriter, so naturally I applied to schools in LA and New York and had aspirations to live there permanently. Why? Well, the music industry is centered in these cities and if you want to be anybody in music, you’d better move there. While the Silicon Valley is the center of tech right now, big industry-specific companies won’t move to Palo Alto just to attract entrepreneurs to innovate in their space. It’s up to the entrepreneurs themselves to embed themselves in their startup’s industry.
If I have a financial services startup, does it make more sense to be in Palo Alto or New York were many financial services companies have head quarters. In terms of gaining access to industry subject-matter-experts and potential acquirers, New York is the correct answer.
So, am I suggesting that all the financial services startups in the Valley should GTFO? No. Not at all. At the end of the day, bountiful venture funding is the lifeblood of the vibrant tech industry we have in the bay area, and is more or less unparalleled elsewhere (if not in amount of capital but willingness to fund startups). Opportunities for funding is indeed growing outside the Valley. Waze (Tel Aviv) was rumored to be in talks with Google for a $1.3 Billion acquisition, and SnapChat (LA) has been valued between $500 Million and $1 Billion. When these companies are acquired it will create a new generation of millionaires that will likely turn around and fund startups in their respective ecosystems. Once money is flowing, I believe that each Silicon [[insert idiosyncratic noun here]] will become specialized technology innovation centers.
¹ Seriously, these are real. Wikipedia says they are.
² There are indeed many exceptions to this story, but this one seems to find its way into tech media every day.
³ Though, I can’t imagine Musk threw in millions of his own money into SpaceX and Tesla without gaining a deep understanding of the space and auto industries.