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May 2006  
  
 _(This essay is derived from a keynote at Xtech.)_  
  
Could you reproduce Silicon Valley elsewhere, or is there something unique
about it?  
  
It wouldn't be surprising if it were hard to reproduce in other countries,
because you couldn't reproduce it in most of the US either. What does it take
to make a silicon valley even here?  
  
What it takes is the right people. If you could get the right ten thousand
people to move from Silicon Valley to Buffalo, Buffalo would become Silicon
Valley.   
  
That's a striking departure from the past. Up till a couple decades ago,
geography was destiny for cities. All great cities were located on waterways,
because cities made money by trade, and water was the only economical way to
ship.  
  
Now you could make a great city anywhere, if you could get the right people to
move there. So the question of how to make a silicon valley becomes: who are
the right people, and how do you get them to move?  
  
**Two Types**  
  
I think you only need two kinds of people to create a technology hub: rich
people and nerds. They're the limiting reagents in the reaction that produces
startups, because they're the only ones present when startups get started.
Everyone else will move.  
  
Observation bears this out: within the US, towns have become startup hubs if
and only if they have both rich people and nerds. Few startups happen in
Miami, for example, because although it's full of rich people, it has few
nerds. It's not the kind of place nerds like.  
  
Whereas Pittsburgh has the opposite problem: plenty of nerds, but no rich
people. The top US Computer Science departments are said to be MIT, Stanford,
Berkeley, and Carnegie-Mellon. MIT yielded Route 128. Stanford and Berkeley
yielded Silicon Valley. But Carnegie-Mellon? The record skips at that point.
Lower down the list, the University of Washington yielded a high-tech
community in Seattle, and the University of Texas at Austin yielded one in
Austin. But what happened in Pittsburgh? And in Ithaca, home of Cornell, which
is also high on the list?  
  
I grew up in Pittsburgh and went to college at Cornell, so I can answer for
both. The weather is terrible, particularly in winter, and there's no
interesting old city to make up for it, as there is in Boston. Rich people
don't want to live in Pittsburgh or Ithaca. So while there are plenty of
hackers who could start startups, there's no one to invest in them.  
  
**Not Bureaucrats**  
  
Do you really need the rich people? Wouldn't it work to have the government
invest in the nerds? No, it would not. Startup investors are a distinct type
of rich people. They tend to have a lot of experience themselves in the
technology business. This (a) helps them pick the right startups, and (b)
means they can supply advice and connections as well as money. And the fact
that they have a personal stake in the outcome makes them really pay
attention.  
  
Bureaucrats by their nature are the exact opposite sort of people from startup
investors. The idea of them making startup investments is comic. It would be
like mathematicians running _Vogue_ \-- or perhaps more accurately, _Vogue_
editors running a math journal.   
  
Though indeed, most things bureaucrats do, they do badly. We just don't notice
usually, because they only have to compete against other bureaucrats. But as
startup investors they'd have to compete against pros with a great deal more
experience and motivation.  
  
Even corporations that have in-house VC groups generally forbid them to make
their own investment decisions. Most are only allowed to invest in deals where
some reputable private VC firm is willing to act as lead investor.  
  
**Not Buildings**  
  
If you go to see Silicon Valley, what you'll see are buildings. But it's the
people that make it Silicon Valley, not the buildings. I read occasionally
about attempts to set up "technology parks" in other places, as if the active
ingredient of Silicon Valley were the office space. An article about Sophia
Antipolis bragged that companies there included Cisco, Compaq, IBM, NCR, and
Nortel. Don't the French realize these aren't startups?  
  
Building office buildings for technology companies won't get you a silicon
valley, because the key stage in the life of a startup happens before they
want that kind of space. The key stage is when they're three guys operating
out of an apartment. Wherever the startup is when it gets funded, it will
stay. The defining quality of Silicon Valley is not that Intel or Apple or
Google have offices there, but that they were _started_ there.  
  
So if you want to reproduce Silicon Valley, what you need to reproduce is
those two or three founders sitting around a kitchen table deciding to start a
company. And to reproduce that you need those people.  
  
**Universities**  
  
The exciting thing is, _all_ you need are the people. If you could attract a
critical mass of nerds and investors to live somewhere, you could reproduce
Silicon Valley. And both groups are highly mobile. They'll go where life is
good. So what makes a place good to them?  
  
What nerds like is other nerds. Smart people will go wherever other smart
people are. And in particular, to great universities. In theory there could be
other ways to attract them, but so far universities seem to be indispensable.
Within the US, there are no technology hubs without first-rate universities--
or at least, first-rate computer science departments.  
  
So if you want to make a silicon valley, you not only need a university, but
one of the top handful in the world. It has to be good enough to act as a
magnet, drawing the best people from thousands of miles away. And that means
it has to stand up to existing magnets like MIT and Stanford.  
  
This sounds hard. Actually it might be easy. My professor friends, when
they're deciding where they'd like to work, consider one thing above all: the
quality of the other faculty. What attracts professors is good colleagues. So
if you managed to recruit, en masse, a significant number of the best young
researchers, you could create a first-rate university from nothing overnight.
And you could do that for surprisingly little. If you paid 200 people hiring
bonuses of $3 million apiece, you could put together a faculty that would bear
comparison with any in the world. And from that point the chain reaction would
be self-sustaining. So whatever it costs to establish a mediocre university,
for an additional half billion or so you could have a great one.   
  
**Personality**  
  
However, merely creating a new university would not be enough to start a
silicon valley. The university is just the seed. It has to be planted in the
right soil, or it won't germinate. Plant it in the wrong place, and you just
create Carnegie-Mellon.  
  
To spawn startups, your university has to be in a town that has attractions
other than the university. It has to be a place where investors want to live,
and students want to stay after they graduate.  
  
The two like much the same things, because most startup investors are nerds
themselves. So what do nerds look for in a town? Their tastes aren't
completely different from other people's, because a lot of the towns they like
most in the US are also big tourist destinations: San Francisco, Boston,
Seattle. But their tastes can't be quite mainstream either, because they
dislike other big tourist destinations, like New York, Los Angeles, and Las
Vegas.  
  
There has been a lot written lately about the "creative class." The thesis
seems to be that as wealth derives increasingly from ideas, cities will
prosper only if they attract those who have them. That is certainly true; in
fact it was the basis of Amsterdam's prosperity 400 years ago.  
  
A lot of nerd tastes they share with the creative class in general. For
example, they like well-preserved old neighborhoods instead of cookie-cutter
suburbs, and locally-owned shops and restaurants instead of national chains.
Like the rest of the creative class, they want to live somewhere with
personality.  
  
What exactly is personality? I think it's the feeling that each building is
the work of a distinct group of people. A town with personality is one that
doesn't feel mass-produced. So if you want to make a startup hub-- or any town
to attract the "creative class"-- you probably have to ban large development
projects. When a large tract has been developed by a single organization, you
can always tell.   
  
Most towns with personality are old, but they don't have to be. Old towns have
two advantages: they're denser, because they were laid out before cars, and
they're more varied, because they were built one building at a time. You could
have both now. Just have building codes that ensure density, and ban large
scale developments.  
  
A corollary is that you have to keep out the biggest developer of all: the
government. A government that asks "How can we build a silicon valley?" has
probably ensured failure by the way they framed the question. You don't build
a silicon valley; you let one grow.  
  
**Nerds**  
  
If you want to attract nerds, you need more than a town with personality. You
need a town with the right personality. Nerds are a distinct subset of the
creative class, with different tastes from the rest. You can see this most
clearly in New York, which attracts a lot of creative people, but few nerds.
  
  
What nerds like is the kind of town where people walk around smiling. This
excludes LA, where no one walks at all, and also New York, where people walk,
but not smiling. When I was in grad school in Boston, a friend came to visit
from New York. On the subway back from the airport she asked "Why is everyone
smiling?" I looked and they weren't smiling. They just looked like they were
compared to the facial expressions she was used to.  
  
If you've lived in New York, you know where these facial expressions come
from. It's the kind of place where your mind may be excited, but your body
knows it's having a bad time. People don't so much enjoy living there as
endure it for the sake of the excitement. And if you like certain kinds of
excitement, New York is incomparable. It's a hub of glamour, a magnet for all
the shorter half-life isotopes of style and fame.  
  
Nerds don't care about glamour, so to them the appeal of New York is a
mystery. People who like New York will pay a fortune for a small, dark, noisy
apartment in order to live in a town where the cool people are really cool. A
nerd looks at that deal and sees only: pay a fortune for a small, dark, noisy
apartment.  
  
Nerds _will_ pay a premium to live in a town where the smart people are really
smart, but you don't have to pay as much for that. It's supply and demand:
glamour is popular, so you have to pay a lot for it.  
  
Most nerds like quieter pleasures. They like cafes instead of clubs; used
bookshops instead of fashionable clothing shops; hiking instead of dancing;
sunlight instead of tall buildings. A nerd's idea of paradise is Berkeley or
Boulder.  
  
**Youth**  
  
It's the young nerds who start startups, so it's those specifically the city
has to appeal to. The startup hubs in the US are all young-feeling towns. This
doesn't mean they have to be new. Cambridge has the oldest town plan in
America, but it feels young because it's full of students.  
  
What you can't have, if you want to create a silicon valley, is a large,
existing population of stodgy people. It would be a waste of time to try to
reverse the fortunes of a declining industrial town like Detroit or
Philadelphia by trying to encourage startups. Those places have too much
momentum in the wrong direction. You're better off starting with a blank slate
in the form of a small town. Or better still, if there's a town young people
already flock to, that one.  
  
The Bay Area was a magnet for the young and optimistic for decades before it
was associated with technology. It was a place people went in search of
something new. And so it became synonymous with California nuttiness. There's
still a lot of that there. If you wanted to start a new fad-- a new way to
focus one's "energy," for example, or a new category of things not to eat--
the Bay Area would be the place to do it. But a place that tolerates oddness
in the search for the new is exactly what you want in a startup hub, because
economically that's what startups are. Most good startup ideas seem a little
crazy; if they were obviously good ideas, someone would have done them
already.  
  
(How many people are going to want computers in their _houses_? What,
_another_ search engine?)  
  
That's the connection between technology and liberalism. Without exception the
high-tech cities in the US are also the most liberal. But it's not because
liberals are smarter that this is so. It's because liberal cities tolerate odd
ideas, and smart people by definition have odd ideas.  
  
Conversely, a town that gets praised for being "solid" or representing
"traditional values" may be a fine place to live, but it's never going to
succeed as a startup hub. The 2004 presidential election, though a disaster in
other respects, conveniently supplied us with a county-by-county  map of such
places.   
  
To attract the young, a town must have an intact center. In most American
cities the center has been abandoned, and the growth, if any, is in the
suburbs. Most American cities have been turned inside out. But none of the
startup hubs has: not San Francisco, or Boston, or Seattle. They all have
intact centers.  My guess is that no city with a dead center could be
turned into a startup hub. Young people don't want to live in the suburbs.  
  
Within the US, the two cities I think could most easily be turned into new
silicon valleys are Boulder and Portland. Both have the kind of effervescent
feel that attracts the young. They're each only a great university short of
becoming a silicon valley, if they wanted to.  
  
**Time**  
  
A great university near an attractive town. Is that all it takes? That was all
it took to make the original Silicon Valley. Silicon Valley traces its origins
to William Shockley, one of the inventors of the transistor. He did the
research that won him the Nobel Prize at Bell Labs, but when he started his
own company in 1956 he moved to Palo Alto to do it. At the time that was an
odd thing to do. Why did he? Because he had grown up there and remembered how
nice it was. Now Palo Alto is suburbia, but then it was a charming college
town-- a charming college town with perfect weather and San Francisco only an
hour away.  
  
The companies that rule Silicon Valley now are all descended in various ways
from Shockley Semiconductor. Shockley was a difficult man, and in 1957 his top
people-- "the traitorous eight"-- left to start a new company, Fairchild
Semiconductor. Among them were Gordon Moore and Robert Noyce, who went on to
found Intel, and Eugene Kleiner, who founded the VC firm Kleiner Perkins.
Forty-two years later, Kleiner Perkins funded Google, and the partner
responsible for the deal was John Doerr, who came to Silicon Valley in 1974 to
work for Intel.  
  
So although a lot of the newest companies in Silicon Valley don't make
anything out of silicon, there always seem to be multiple links back to
Shockley. There's a lesson here: startups beget startups. People who work for
startups start their own. People who get rich from startups fund new ones. I
suspect this kind of organic growth is the only way to produce a startup hub,
because it's the only way to grow the expertise you need.  
  
That has two important implications. The first is that you need time to grow a
silicon valley. The university you could create in a couple years, but the
startup community around it has to grow organically. The cycle time is limited
by the time it takes a company to succeed, which probably averages about five
years.  
  
The other implication of the organic growth hypothesis is that you can't be
somewhat of a startup hub. You either have a self-sustaining chain reaction,
or not. Observation confirms this too: cities either have a startup scene, or
they don't. There is no middle ground. Chicago has the third largest
metropolitan area in America. As a source of startups it's negligible compared
to Seattle, number 15.  
  
The good news is that the initial seed can be quite small. Shockley
Semiconductor, though itself not very successful, was big enough. It brought a
critical mass of experts in an important new technology together in a place
they liked enough to stay.  
  
**Competing**  
  
Of course, a would-be silicon valley faces an obstacle the original one
didn't: it has to compete with Silicon Valley. Can that be done? Probably.  
  
One of Silicon Valley's biggest advantages is its venture capital firms. This
was not a factor in Shockley's day, because VC funds didn't exist. In fact,
Shockley Semiconductor and Fairchild Semiconductor were not startups at all in
our sense. They were subsidiaries-- of Beckman Instruments and Fairchild
Camera and Instrument respectively. Those companies were apparently willing to
establish subsidiaries wherever the experts wanted to live.  
  
Venture investors, however, prefer to fund startups within an hour's drive.
For one, they're more likely to notice startups nearby. But when they do
notice startups in other towns they prefer them to move. They don't want to
have to travel to attend board meetings, and in any case the odds of
succeeding are higher in a startup hub.  
  
The centralizing effect of venture firms is a double one: they cause startups
to form around them, and those draw in more startups through acquisitions. And
although the first may be weakening because it's now so cheap to start some
startups, the second seems as strong as ever. Three of the most admired "Web
2.0" companies were started outside the usual startup hubs, but two of them
have already been reeled in through acquisitions.  
  
Such centralizing forces make it harder for new silicon valleys to get
started. But by no means impossible. Ultimately power rests with the founders.
A startup with the best people will beat one with funding from famous VCs, and
a startup that was sufficiently successful would never have to move. So a town
that could exert enough pull over the right people could resist and perhaps
even surpass Silicon Valley.  
  
For all its power, Silicon Valley has a great weakness: the paradise Shockley
found in 1956 is now one giant parking lot. San Francisco and Berkeley are
great, but they're forty miles away. Silicon Valley proper is soul-crushing
suburban sprawl. It has fabulous weather, which makes it significantly better
than the soul-crushing sprawl of most other American cities. But a competitor
that managed to avoid sprawl would have real leverage. All a city needs is to
be the kind of place the next traitorous eight look at and say "I want to stay
here," and that would be enough to get the chain reaction started.  
  
  
  
  
  
**