February 29, 2012
Silicon Valley Elsewhere?

Again and again I am confronted with the idea to create another Silicon Valley elsewhere, be it in my native Germany or here in Taipei where I am attending tomorrow’s Startup Labs Demo Day. Is it possible?

The short answer is: No.

But there’s hope. So bear with me.

Let me first discuss my impressions why I think the Valley is so different than any other place, from a personal perspective.  

Many people in the Valley are outside arrivals and they usually go through 3 phases:

  1. Enchantment: There are few people who arrive in the Bay area and are not enchanted by one or more of the components that make the Valley so unique: The smart people, the open culture, the focus on bleeding edge innovation, the weather, the outdoors, what not.
  2. Disillusionment: After about 6-18 months many people start to be slightly more critical or leave the Valley again, because they realize that the place, despite its apparent easy going style is actually a brutally competitive for plenty yet highly demanded and hence very scarce resources: venture capital, talent, decent housing, a good paycheck. Eating Ramen is fun for a while, but not forever.
    Most people then realize that in the order to succeed in the Valley they need to be some 10x better in what they contribute than what they have been at their origins
  3. Adjustment: Those who take up the challenge are switching into a higher gear and think extremely strongly how to survive and succeed in this environment. They start to become more real about their strength and weaknesses. They team up and seek mentorship from strong or complimentary people around them. They adjust to the risk taking culture (since some expectations are already deflated, things cannot get much worse.) They sharpen their axe; learn new programming languages or marketing skills, or hang out at Hackathons. Of course they also align with the cluster's overall competitive position in a global industry and fit in where they can add most value (e.g. move from engineering to product management, or from psychology to UI design).
    In short, I think many individuals who have come to the Valley can tell you how much they have adjusted massively to the competitive pressure around them.

In aggregate, those individual adjustments lead to a massively more competitive environment for high tech or consumer Internet entrepreneurship.  Because of the common culture being the driving force and direction, this aggregation is a network effect, which, as every economics student knows, is a “winner takes it all” play.

Silicon Valley is the winner.

In the Valley, 100,000s of individuals have gone through this adjustment process, which takes up to 5 years.  Something which is impossible to orchestrate elsewhere.

You cannot change a culture towards something that doesn’t exist yet in another place, just because a few politicians or industry leaders want it.  There are few role models.  There are not enough self-affirming cycles. There’s not enough competitive pressure to adjust or die. There’s no critical mass for this chain reaction to happen. Goodwill, subsidies and inherent talent are not enough to make up for it, because you need to orchestrate a whole network bonded by a common culture.  

And I realize this effect every time when I meet aspiring entrepreneurs in far flung geographies. It’s just not the same thing.

It only gets better for people who bridge the Valley with some of their local elements. Which brings me to the more hopeful part.

Look at Israel, with a conveyer belt to the Valley.  Look at the Samwer brothers’ Valley clones in Berlin. Look at the open-minded Scandinavians who created Linux and MySQL on the back of the Bay area’s own GPL, plugged into the Valley through the Internet. Look at the semi-conductor industry in Taiwan.  Look at the Wipro campus in Bengaluru (fka Bangalore). These are subclusters which are successful because they have their own, appropriate local culture, but are constantly interacting with and complementing Silicon Valley.

Even more puzzling is the success of China in creating something independent in around Beijing Haidian district, which I would characterize as the second best possible location for high tech and entrepreneurship after Silicon Valley in the world. Supercharged by the rise of the Chinese economy and abundant capital something has emerged here which is big enough to matter globally in the mid term.  More important than government protectionism, though, is the fact that the Chinese Silicon Valley was mainly built by Hai gui (海龟), Chinese ethnics who often studied and lived for an extended period of time in North America before returning to the Mainland.

Which brings me to my recommendation for those who try to create their own Silicon Valley:

Deliver to the Valley what’s not there - complement it, don’t compete with it

Right now the scarcest resource is programmers: if you can churn out a lot good coders, you’ll have a Silicon Valley like subcluster in a few decades, because the Valley will come and find you, your talent, import them for a while, but in the long run return them and inseminate the Valley culture just as it happened in Beijing, Berlin, Tallinn, or Bengaluru. Admittedly, making brain drain your strategy to build a local yet globally competitive subcluster is a longterm bet for a politician eying the next election.

If you cannot pull that off, stick to what you’re already doing better than the Valley. Like building great cars.