May 2006(This essay is derived from a keynote at Xtech.)Could you reproduce Silicon Valley elsewhere, or is there somethingunique about it?It wouldn't be surprising if it were hard to reproduce in othercountries, because you couldn't reproduce it in most of the USeither. What does it take to make a silicon valley even here?What it takes is the right people. If you could get the right tenthousand people to move from Silicon Valley to Buffalo, Buffalowould become Silicon Valley. [1]That's a striking departure from the past. Up till a couple decadesago, geography was destiny for cities. All great cities were locatedon waterways, because cities made money by trade, and water was theonly economical way to ship.Now you could make a great city anywhere, if you could get the rightpeople to move there. So the question of how to make a siliconvalley becomes: who are the right people, and how do you get themto move?Two TypesI think you only need two kinds of people to create a technologyhub: rich people and nerds. They're the limiting reagents in thereaction that produces startups, because they're the only onespresent when startups get started. Everyone else will move.Observation bears this out: within the US, towns have become startuphubs if and only if they have both rich people and nerds. Fewstartups happen in Miami, for example, because although it's fullof rich people, it has few nerds. It's not the kind of place nerdslike.Whereas Pittsburgh has the opposite problem: plenty of nerds, butno rich people. The top US Computer Science departments are saidto be MIT, Stanford, Berkeley, and Carnegie-Mellon. MIT yieldedRoute 128. Stanford and Berkeley yielded Silicon Valley. ButCarnegie-Mellon? The record skips at that point. Lower down thelist, the University of Washington yielded a high-tech communityin Seattle, and the University of Texas at Austin yielded one inAustin. But what happened in Pittsburgh? And in Ithaca, home ofCornell, which is also high on the list?I grew up in Pittsburgh and went to college at Cornell, so I cananswer for both. The weather is terrible, particularly in winter,and there's no interesting old city to make up for it, as there isin 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 BureaucratsDo you really need the rich people? Wouldn't it work to have thegovernment invest in the nerds? No, it would not. Startup investorsare a distinct type of rich people. They tend to have a lot ofexperience themselves in the technology business. This (a) helpsthem pick the right startups, and (b) means they can supply adviceand connections as well as money. And the fact that they have apersonal stake in the outcome makes them really pay attention.Bureaucrats by their nature are the exact opposite sort of peoplefrom startup investors. The idea of them making startup investmentsis comic. It would be like mathematicians running Vogue-- orperhaps more accurately, Vogue editors running a math journal.[2]Though indeed, most things bureaucrats do, they do badly. We justdon't notice usually, because they only have to compete againstother bureaucrats. But as startup investors they'd have to competeagainst pros with a great deal more experience and motivation.Even corporations that have in-house VC groups generally forbidthem to make their own investment decisions. Most are only allowedto invest in deals where some reputable private VC firm is willingto act as lead investor.Not BuildingsIf 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 "technologyparks" in other places, as if the active ingredient of SiliconValley were the office space. An article about Sophia Antipolisbragged that companies there included Cisco, Compaq, IBM, NCR, andNortel. Don't the French realize these aren't startups?Building office buildings for technology companies won't get you asilicon valley, because the key stage in the life of a startuphappens before they want that kind of space. The key stage is whenthey're three guys operating out of an apartment. Wherever thestartup is when it gets funded, it will stay. The defining qualityof Silicon Valley is not that Intel or Apple or Google have officesthere, but that they were started there.So if you want to reproduce Silicon Valley, what you need to reproduceis those two or three founders sitting around a kitchen tabledeciding to start a company. And to reproduce that you need thosepeople.UniversitiesThe exciting thing is, all you need are the people. If you couldattract a critical mass of nerds and investors to live somewhere,you could reproduce Silicon Valley. And both groups are highlymobile. They'll go where life is good. So what makes a place goodto them?What nerds like is other nerds. Smart people will go wherever othersmart people are. And in particular, to great universities. Intheory there could be other ways to attract them, but so faruniversities seem to be indispensable. Within the US, there areno 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 auniversity, but one of the top handful in the world. It has to begood enough to act as a magnet, drawing the best people from thousandsof miles away. And that means it has to stand up to existing magnetslike 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 thingabove all: the quality of the other faculty. What attracts professorsis good colleagues. So if you managed to recruit, en masse, asignificant number of the best young researchers, you could createa first-rate university from nothing overnight. And you could dothat for surprisingly little. If you paid 200 people hiring bonusesof $3 million apiece, you could put together a faculty that wouldbear comparison with any in the world. And from that point thechain reaction would be self-sustaining. So whatever it costs toestablish a mediocre university, for an additional half billion orso you could have a great one. [3]PersonalityHowever, merely creating a new university would not be enough tostart a silicon valley. The university is just the seed. It hasto be planted in the right soil, or it won't germinate. Plant itin the wrong place, and you just create Carnegie-Mellon.To spawn startups, your university has to be in a town that hasattractions other than the university. It has to be a place whereinvestors want to live, and students want to stay after they graduate.The two like much the same things, because most startup investorsare nerds themselves. So what do nerds look for in a town? Theirtastes aren't completely different from other people's, because alot of the towns they like most in the US are also big touristdestinations: San Francisco, Boston, Seattle. But their tastescan't be quite mainstream either, because they dislike other bigtourist destinations, like New York, Los Angeles, and Las Vegas.There has been a lot written lately about the "creative class." Thethesis seems to be that as wealth derives increasingly from ideas,cities will prosper only if they attract those who have them. Thatis certainly true; in fact it was the basis of Amsterdam's prosperity400 years ago.A lot of nerd tastes they share with the creative class in general.For example, they like well-preserved old neighborhoods instead ofcookie-cutter suburbs, and locally-owned shops and restaurantsinstead 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 eachbuilding is the work of a distinct group of people. A town withpersonality is one that doesn't feel mass-produced. So if you wantto 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, youcan always tell. [4]Most towns with personality are old, but they don't have to be.Old towns have two advantages: they're denser, because they werelaid out before cars, and they're more varied, because they werebuilt one building at a time. You could have both now. Just havebuilding codes that ensure density, and ban large scale developments.A corollary is that you have to keep out the biggest developer ofall: the government. A government that asks "How can we build asilicon valley?" has probably ensured failure by the way they framedthe question. You don't build a silicon valley; you let one grow.NerdsIf you want to attract nerds, you need more than a town withpersonality. You need a town with the right personality. Nerdsare a distinct subset of the creative class, with different tastesfrom the rest. You can see this most clearly in New York, whichattracts a lot of creative people, but few nerds. [5]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 inBoston, a friend came to visit from New York. On the subway backfrom the airport she asked "Why is everyone smiling?" I looked andthey weren't smiling. They just looked like they were compared tothe facial expressions she was used to.If you've lived in New York, you know where these facial expressionscome 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 muchenjoy 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-lifeisotopes of style and fame.Nerds don't care about glamour, so to them the appeal of New Yorkis a mystery. People who like New York will pay a fortune for asmall, dark, noisy apartment in order to live in a town where thecool people are really cool. A nerd looks at that deal and seesonly: pay a fortune for a small, dark, noisy apartment.Nerds will pay a premium to live in a town where the smart peopleare really smart, but you don't have to pay as much for that. It'ssupply and demand: glamour is popular, so you have to pay a lot forit.Most nerds like quieter pleasures. They like cafes instead ofclubs; used bookshops instead of fashionable clothing shops; hikinginstead of dancing; sunlight instead of tall buildings. A nerd'sidea of paradise is Berkeley or Boulder.YouthIt's the young nerds who start startups, so it's those specificallythe city has to appeal to. The startup hubs in the US are allyoung-feeling towns. This doesn't mean they have to be new.Cambridge has the oldest town plan in America, but it feels youngbecause it's full of students.What you can't have, if you want to create a silicon valley, is alarge, existing population of stodgy people. It would be a wasteof time to try to reverse the fortunes of a declining industrial townlike Detroit or Philadelphia by trying to encourage startups. Thoseplaces have too much momentum in the wrong direction. You're betteroff starting with a blank slate in the form of a small town. Orbetter still, if there's a town young people already flock to, thatone.The Bay Area was a magnet for the young and optimistic for decadesbefore it was associated with technology. It was a place peoplewent in search of something new. And so it became synonymous withCalifornia nuttiness. There's still a lot of that there. If youwanted to start a new fad-- a new way to focus one's "energy," forexample, or a new category of things not to eat-- the Bay Area wouldbe the place to do it. But a place that tolerates oddness in thesearch for the new is exactly what you want in a startup hub, becauseeconomically that's what startups are. Most good startup ideasseem a little crazy; if they were obviously good ideas, someonewould 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. Withoutexception 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'sbecause liberal cities tolerate odd ideas, and smart people bydefinition 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 nevergoing to succeed as a startup hub. The 2004 presidential election,though a disaster in other respects, conveniently supplied us witha county-by-county map of such places. [6]To attract the young, a town must have an intact center. In mostAmerican cities the center has been abandoned, and the growth, ifany, is in the suburbs. Most American cities have been turnedinside out. But none of the startup hubs has: not San Francisco,or Boston, or Seattle. They all have intact centers.[7]My guess is that no city with a dead center could be turned into astartup hub. Young people don't want to live in the suburbs.Within the US, the two cities I think could most easily be turnedinto new silicon valleys are Boulder and Portland. Both have thekind of effervescent feel that attracts the young. They're eachonly a great university short of becoming a silicon valley, if theywanted to.TimeA great university near an attractive town. Is that all it takes?That was all it took to make the original Silicon Valley. SiliconValley traces its origins to William Shockley, one of the inventorsof the transistor. He did the research that won him the Nobel Prizeat Bell Labs, but when he started his own company in 1956 he movedto 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 niceit was. Now Palo Alto is suburbia, but then it was a charmingcollege town-- a charming college town with perfect weather and SanFrancisco only an hour away.The companies that rule Silicon Valley now are all descended invarious ways from Shockley Semiconductor. Shockley was a difficultman, and in 1957 his top people-- "the traitorous eight"-- left tostart a new company, Fairchild Semiconductor. Among them wereGordon Moore and Robert Noyce, who went on to found Intel, andEugene Kleiner, who founded the VC firm Kleiner Perkins. Forty-twoyears later, Kleiner Perkins funded Google, and the partner responsiblefor the deal was John Doerr, who came to Silicon Valley in 1974 towork for Intel.So although a lot of the newest companies in Silicon Valley don'tmake anything out of silicon, there always seem to be multiple linksback to Shockley. There's a lesson here: startups beget startups.People who work for startups start their own. People who get richfrom startups fund new ones. I suspect this kind of organic growthis the only way to produce a startup hub, because it's the only wayto grow the expertise you need.That has two important implications. The first is that you needtime to grow a silicon valley. The university you could create ina couple years, but the startup community around it has to groworganically. The cycle time is limited by the time it takes acompany to succeed, which probably averages about five years.The other implication of the organic growth hypothesis is that youcan't be somewhat of a startup hub. You either have a self-sustainingchain reaction, or not. Observation confirms this too: citieseither have a startup scene, or they don't. There is no middleground. 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. ShockleySemiconductor, though itself not very successful, was big enough.It brought a critical mass of experts in an important new technologytogether in a place they liked enough to stay.CompetingOf course, a would-be silicon valley faces an obstacle the originalone didn't: it has to compete with Silicon Valley. Can that bedone? Probably.One of Silicon Valley's biggest advantages is its venture capitalfirms. This was not a factor in Shockley's day, because VC fundsdidn't exist. In fact, Shockley Semiconductor and FairchildSemiconductor were not startups at all in our sense. They weresubsidiaries-- of Beckman Instruments and Fairchild Camera andInstrument respectively. Those companies were apparently willingto establish subsidiaries wherever the experts wanted to live.Venture investors, however, prefer to fund startups within an hour'sdrive. For one, they're more likely to notice startups nearby.But when they do notice startups in other towns they prefer themto 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 causestartups to form around them, and those draw in more startups throughacquisitions. And although the first may be weakening because it'snow 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 toget started. But by no means impossible. Ultimately power restswith the founders. A startup with the best people will beat onewith funding from famous VCs, and a startup that was sufficientlysuccessful would never have to move. So a town thatcould exert enough pull over the right people could resist andperhaps even surpass Silicon Valley.For all its power, Silicon Valley has a great weakness: the paradiseShockley found in 1956 is now one giant parking lot. San Franciscoand Berkeley are great, but they're forty miles away. SiliconValley proper is soul-crushing suburban sprawl. Ithas fabulous weather, which makes it significantly better than thesoul-crushing sprawl of most other American cities. But a competitorthat managed to avoid sprawl would have real leverage. All a cityneeds is to be the kind of place the next traitorous eight look atand say "I want to stay here," and that would be enough to get thechain reaction started.Notes[1]It's interesting to consider how low this number could bemade. I suspect five hundred would be enough, even if they couldbring no assets with them. Probably just thirty, if I could pick them, would be enough to turn Buffalo into a significant startup hub.[2]Bureaucrats manage to allocate research funding moderatelywell, but only because (like an in-house VC fund) they outsourcemost of the work of selection. A professor at a famous universitywho is highly regarded by his peers will get funding, pretty muchregardless of the proposal. That wouldn't work for startups, whosefounders aren't sponsored by organizations, and are often unknowns.[3]You'd have to do it all at once, or at least a whole departmentat a time, because people would be more likely to come if theyknew their friends were. And you should probably start from scratch,rather than trying to upgrade an existing university, or much energywould be lost in friction.[4]Hypothesis: Any plan in which multiple independent buildingsare gutted or demolished to be "redeveloped" as a single projectis a net loss of personality for the city, with the exception ofthe conversion of buildings not previously public, like warehouses.[5]A few startups get started in New York, but lessthan a tenth as many per capita as in Boston, and mostlyin less nerdy fields like finance and media.[6]Some blue counties are false positives (reflecting theremaining power of Democractic party machines), but there are nofalse negatives. You can safely write off all the red counties.[7]Some "urban renewal" experts took a shot at destroying Boston'sin the 1960s, leaving the area around city hall a bleak wasteland,but most neighborhoods successfully resisted them.Thanks to Chris Anderson, Trevor Blackwell, Marc Hedlund,Jessica Livingston, Robert Morris, Greg Mcadoo, Fred Wilson,and Stephen Wolfram forreading drafts of this, and to Ed Dumbill for inviting me to speak.(The second part of this talk became Why StartupsCondense in America.)
