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April 2009  
  
Recently I realized I'd been holding two ideas in my head that would explode
if combined.  
  
The first is that startups may represent a new economic phase, on the scale of
the Industrial Revolution. I'm not sure of this, but there seems a decent
chance it's true. People are dramatically more productive as founders or early
employees of startups—imagine how much less Larry and Sergey would have
achieved if they'd gone to work for a big company—and that scale of
improvement can change social customs.  
  
The second idea is that startups are a type of business that flourishes in
certain places that specialize in it—that Silicon Valley specializes in
startups in the same way Los Angeles specializes in movies, or New York in
finance.   
  
What if both are true? What if startups are both a new economic phase and also
a type of business that only flourishes in certain centers?  
  
If so, this revolution is going to be particularly revolutionary. All previous
revolutions have spread. Agriculture, cities, and industrialization all spread
widely. If startups end up being like the movie business, with just a handful
of centers and one dominant one, that's going to have novel consequences.  
  
There are already signs that startups may not spread particularly well. The
spread of startups seems to be proceeding slower than the spread of the
Industrial Revolution, despite the fact that communication is so much faster
now.  
  
Within a few decades of the founding of Boulton & Watt there were steam
engines scattered over northern Europe and North America. Industrialization
didn't spread much beyond those regions for a while. It only spread to places
where there was a strong middle class—countries where a private citizen could
make a fortune without having it confiscated. Otherwise it wasn't worth
investing in factories. But in a country with a strong middle class it was
easy for industrial techniques to take root. An individual mine or factory
owner could decide to install a steam engine, and within a few years he could
probably find someone local to make him one. So steam engines spread fast. And
they spread widely, because the locations of mines and factories were
determined by features like rivers, harbors, and sources of raw materials.   
  
Startups don't seem to spread so well, partly because they're more a social
than a technical phenomenon, and partly because they're not tied to geography.
An individual European manufacturer could import industrial techniques and
they'd work fine. This doesn't seem to work so well with startups: you need a
community of expertise, as you do in the movie business.  Plus there aren't
the same forces driving startups to spread. Once railroads or electric power
grids were invented, every region had to have them. An area without railroads
or power was a rich potential market. But this isn't true with startups.
There's no need for a Microsoft of France or Google of Germany.  
  
Governments may decide they want to encourage startups locally, but government
policy can't call them into being the way a genuine need could.  
  
How will this all play out? If I had to predict now, I'd say that startups
will spread, but very slowly, because their spread will be driven not by
government policies (which won't work) or by market need (which doesn't exist)
but, to the extent that it happens at all, by the same random factors that
have caused startup culture to spread thus far. And such random factors will
increasingly be outweighed by the pull of existing startup hubs.  
  
Silicon Valley is where it is because William Shockley wanted to move back to
Palo Alto, where he grew up, and the experts he lured west to work with him
liked it so much they stayed. Seattle owes much of its position as a tech
center to the same cause: Gates and Allen wanted to move home. Otherwise
Albuquerque might have Seattle's place in the rankings. Boston is a tech
center because it's the intellectual capital of the US and probably the world.
And if Battery Ventures hadn't turned down Facebook, Boston would be
significantly bigger now on the startup radar screen.  
  
But of course it's not a coincidence that Facebook got funded in the Valley
and not Boston. There are more and bolder investors in Silicon Valley than in
Boston, and even undergrads know it.  
  
Boston's case illustrates the difficulty you'd have establishing a new startup
hub this late in the game. If you wanted to create a startup hub by
reproducing the way existing ones happened, the way to do it would be to
establish a first-rate research university in a place so nice that rich people
wanted to live there. Then the town would be hospitable to both groups you
need: both founders and investors. That's the combination that yielded Silicon
Valley. But Silicon Valley didn't have Silicon Valley to compete with. If you
tried now to create a startup hub by planting a great university in a nice
place, it would have a harder time getting started, because many of the best
startups it produced would be sucked away to existing startup hubs.  
  
Recently I suggested a potential shortcut: pay startups to move. Once you had
enough good startups in one place, it would create a self-sustaining chain
reaction. Founders would start to move there without being paid, because that
was where their peers were, and investors would appear too, because that was
where the deals were.  
  
In practice I doubt any government would have the balls to try this, or the
brains to do it right. I didn't mean it as a practical suggestion, but more as
an exploration of the lower bound of what it would take to create a startup
hub deliberately.  
  
The most likely scenario is (1) that no government will successfully establish
a startup hub, and (2) that the spread of startup culture will thus be driven
by the random factors that have driven it so far, but (3) that these factors
will be increasingly outweighed by the pull of existing startup hubs. Result:
this revolution, if it is one, will be unusually localized.  
  
  
  
  
  
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