The Silicon Valley Edge
A Habitat for Innovation and Entrepreneurship
Edited by Chong-Moon Lee, William F. Miller, Marguerite Gong Hancock, and Henry S. Rowen

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The Silicon Valley Edge

Edited by Chong-Moon Lee, William F. Miller, Marguerite Gong Hancock, and Henry S. Rowen

Overview

Like a natural habitat for flora and fauna, the habitat of Silicon Valley is one in which all the resources high-tech entrepreneurial firms need to survive and thrive have grown organically over time. Silicon Valley's habitat is made up of a distinctive collection of people, firms, and institutions dedicated to the region's particular industrial activities. The Valley's focus on the intersection of innovation and entrepreneurship is evidenced by the many specialized institutions and individuals dedicated to helping start-ups bring new products to market. These include universities and research centers, specialist suppliers, and local services-from chip designers to software writers; from angel investors and venture capitalists to commercial banks; from patent and venture lawyers to marketers, headhunters, accountants, and more. These people, firms, and institutions are linked by the accumulation of shared conversations, projects, and deals that, over time, have yielded a treasure trove of rich and productive relationships. Their interactions are marked by collaboration, competition, and mutual feedback, which facilitate the critical flow of knowledge and ideas, people, and capital.

This book tells the story of Silicon Valley as a practiced and creative process among people networked within a habitat, the cumulative product of much trial and error and learning over time. Widely acclaimed for its unprecedented technological and entrepreneurial achievements, Silicon Valley today deserves recognition for another major contribution: the model it provides of an industrial system, a vibrant environment for sustaining innovation and entrepreneurship. The authors of The Silicon Valley Edge argue that ten elements are crucial to the habitat of Silicon Valley, ranging from the macrolevel environment of national laws and regulations to the region's distinctive specialized business infrastructure. An understanding of this set of features is necessary, but not necessarily sufficient, for appreciating-and possibly emulating-the Valley's model.

Ten Elements of the Silicon Valley Habitat

Favorable rules of the game. Silicon Valley operates within the distinctive American system of innovation and entrepreneurship. As described in Chapter 9 by Henry Rowen, this national system is composed of laws, regulations, and conventions for securities, taxes, accounting, corporate governance, bankruptcy, immigration, research and development, and more. Because these governing rules are generally uniform throughout the country, they alone do not explain Silicon Valley's unique position within the United States, but they have been a necessary condition for Silicon Valley's preeminence.

Knowledge intensity. The Valley is a cauldron of ideas for new products, services, markets, and business models. They come from entrepreneurs, people in established firms, faculty and students at universities, venture capitalists, and people elsewhere in the world who move here. In this book, several chapters discuss the origins and circulation of new ideas and practices in the Valley. Using Jerry Yang and David Filo, John Chambers, Scott McNealy, and Jim Clark as examples, Chong-Moon Lee lays out four distinct styles of Valley entrepreneurship in Chapter 6. In Chapter 8, Christophe Lécuyer describes how the seminal advances in silicon were made at Fairchild Semiconductor; Michael Nevens (Chapter 5) treats the development of new business models; and, with a broader eye to the region as a whole, John Seely Brown and Paul Duguid (Chapter 2) show how collaborative practices give participants working closely together an edge in creating new products-and also cause knowledge to spread widely.

A high-quality and mobile work force. The Valley is a magnet for talent. Many engineers, scientists, and entrepreneurs have been educated in Silicon Valley, and skills are continuously advanced in doing demanding work. The region's major universities play a critical teaching and training role; in this book, James Gibbons (in Chapter 10) and Emilio Castilla et al. (in Chapter 11) describe the contributions of Stanford University. In addition, because merit is rewarded-and the rewards can be large indeed-many talented people come here from around the world, as exemplified by the immigrant entrepreneurs discussed by AnnaLee Saxenian in Chapter 12. The Valley's labor force is also unusually mobile, resulting in a market that matches the needs of individuals and firms in a rapid, continual recycling of people.

Results-oriented meritocracy. In the Valley, talent and ability are king. In today's Silicon Valley, ethnicity, age, seniority, and experience are not what dictate opportunity or responsibility. As illustrated by Chong-Moon Lee in Chapter 6, successful entrepreneurs in the Valley vary widely in age and style, but they share a common feature of raw ability. The region's merit-based system removes obstacles for immigrant entrepreneurs, as demonstrated by the founding members of Intel, Sun, Yahoo!, and many other pillar Valley firms. In addition to their impressive contributions here, large groups of immigrant entrepreneurs from around the world build connections to high-tech centers in their home countries (see Chapter 12), resulting in two-way flows of capital that lead to outsourcing, co-investments, technology exchanges, and network-based innovations across countries, an important source of Silicon Valley's vitality.

A climate that rewards risk-taking and tolerates failure. Certainly a distinctive-and to many observers, unique-feature of Silicon Valley in comparison with other regions, especially non-U.S. ones, is the degree to which its business climate encourages risk-taking and tolerates failure. As discussed by Floyd Kvamme in Chapter 4, calculated risk-taking and an optimistic entrepreneurial spirit are part of the fabric of the Valley. In Silicon Valley, there are many examples of entrepreneurs who have failed and successfully started over. These entrepreneurs (and their financiers) usually view failure as a learning experience, and they are rarely punished for it in subsequent ventures.

On the reward side, laws that permit entrepreneurs to receive stock in a company for the ideas, organization, and hard work they put into it reinforce the taking of bold initiatives. Regis McKenna, in Chapter 19, attributes "the culture of independence, egalitarian management, and networking and the introduction of venture capital" to the eight rebels who left Shockley Transistor to form Fairchild Semiconductor, a model that established the pattern for a host of spin-offs over the years.

Open business environment. Although companies in Silicon Valley fiercely compete, there is also an attitude that all can gain from sharing knowledge that is not company-secret. Within this open environment, individuals are open to win-win exchanges of knowledge. Whether in formal or informal settings, interactions among people with overlapping networks of relations are continuous and intense. Chapter 2, by Brown and Duguid, and Chapter 11, by Emilio Castilla, Hokyu Hwang, Ellen Granovetter, and Mark Granovetter, detail these interactions.

Universities and research institutes that interact with industry. Research institutions and universities are such rich sources of advanced research, and of well-trained and often experienced scientists and engineers, that locating near them is now widely recognized as a powerful advantage for high-tech companies. In the information technologies, Stanford has been a major source of ideas and people that have led to the creation of many Silicon Valley firms. (Gibbons, in Chapter 10, and Castilla et al., in Chapter 11, address Stanford's roles.) The universities foster these exchanges by allowing faculty to participate in industry as consultants and advisors to companies, to be on their boards of directors, and, if it is consistent with the universities' needs, to take short-term leaves of absence. The companies, in turn, further exchanges by sponsoring research at universities.

Collaborations among business, government, and nonprofit organizations. In addition to collaborations between universities and industry, those among companies and trade associations, labor councils, and service organizations have built a coherence of purpose in Silicon Valley's community. As discussed by Doug Henton in Chapter 3, these organizations, including such nonprofits as Joint Venture: Silicon Valley Network, are financed and largely led by those in the private sector, along with public-sector and community leaders. Initially aimed at mitigating the Valley's economic downturn in the late 1980s, these organizations worked at improving education, building the information infrastructure, reducing traffic congestion through telecommuting, and improving government operations.

High quality of life. The beauty of the Bay Area, its proximity to open spaces and the urban amenities of San Francisco, and the intellectual qualities of its leading universities historically have been major attractions. Recently, however, frustrating highway congestion, soaring housing prices, and a relentless, "24/7" pace of work have led some people to a less enthusiastic view of life in the Valley. Nevertheless, opportunities for innovation and entrepreneurship, as reflected in new job growth and higher wages, have (so far) continued to draw people to the Valley. As discussed by Henton in Chapter 3, these factors are in a delicate balance, with major initiatives underway to address growing concerns about the Valley's quality of life.

A specialized business infrastructure. Perhaps the most distinctive feature of Silicon Valley's habitat is its array of support services for new high-tech businesses. These include venture capitalists and bankers, lawyers, headhunters, accountants, consultants, and a host of other specialists.

Finance. Individuals ("angels"), venture capital limited partnerships, commercial banks, and investment banks are some of the channels though which businesses receive financing. In addition, these backers, many of whom have experience in running high-tech firms, often coach founders who lack important kinds of know-how and need advice. Thomas Hellmann in Chapter 13 promotes a view of venture capitalists as coaches to start-ups. Steve Jurvetson, and Dado Banatao and Kevin Fong offer the perspective of experienced venture capitalists in Chapters 7 and 14. John Dean (Chapter 15) describes how the Valley's leading commercial bank adapted to serve start-up firms.

Lawyers. In conjunction with the American system of laws, which is especially suited to fostering entrepreneurship (as noted above), Silicon Valley's lawyers themselves have become important assets for local start-ups. Lawyers are not only expert at handling the legal procedures involved in putting together and running new firms but, more importantly, in counseling inexperienced entrepreneurs; they, too, act as coaches. Craig Johnson, in Chapter 16, offers the perspective of a long-time Valley counselor.

Headhunters. Headhunters make the market matching people with jobs more efficient, especially by recruiting people for CEO and other senior positions. As discussed by Thomas Friel in Chapter 17, Valley executive search firms have played a key role through rapid, effective targeting and recruitment of top company leaders, especially through aggressive compensation and equity packages.

Accounting firms. Accountants in Silicon Valley serve firms whose needs and practices often do not fit with generally recognized accounting rules and standards. James Atwell, in Chapter 18, discusses how Valley accountants provide value far beyond their traditional roles as auditors and tax advisers, acting as innovative interpreters of accounting practices and valued guides for structuring new venture deals.

Consultants. As Silicon Valley, with its dynamic business environment and advancing technologies, has evolved, so have the roles of the growing array of consultants. In Chapter 19, pioneering marketing consultant Regis McKenna gives his perspective on consulting the Silicon Valley way.