What it Takes to be Silicon Valley
Silicon Valley is an ecosystem of engineers, programmers, venture capitalists, academe, and entrepreneurs whose passion for hi-tech, innovation and big bucks spur the creation of the internet and in the process, spark the phenomenon called "globalization". One key hallmark of the Valley is the role of failure in innovation, according to Dennis Posadas, author of "Rice & Chips: Technopreneurship and Innovation in Asia". The concept of "creative destruction" coined by Joseph Schumpeter is the process by which successful new technology companies come from the lessons of other failed companies. Thus, Silicon Valley drives the creation of laws that allow rapid formation and dissolution of venture companies such that bankruptcies will not be seen as stigma for failed companies but as a necessary and inevitable cost of innovation. As the renowned VC John Doerr says, "it is OK to fail and in fact it may even be important that you failed on someone else’s money".
Mr. Posadas adds:
For creative destruction to work, however, the parties whose companies have failed should be willing to have their stories shared. This can be in the form of case studies for business schools, or advice for young entrepreneurs. If the lessons from past failures are not shared, then there is little to gain from those failures.
Of course, VCs thrive because they are taking calculated risks and diversifying their portfolio. When the companies’ executives rear their ugly head, the US Sarbanes-Oxley Act is there to protect the interests of the general public.
So what does it take to be a Silicon Valley? Here are the ingredients:
- Human resources (engineers, scientists, labor force)
- Venture capital (angel investors, VC firms, government capital)
- Academe and research centers (universities, IT parks)
- Legal framework (to accommodate "creative destruction" and IP protection)
- Financial framework (investors’ exit strategy through the stock market)
- Risk-tolerance (contrary to what the chief says, failure is an option)
- Geographic proximity (key players in the ecosystem should be close to each other)
- Ideas, ideas, ideas (it’s survival of the fittest ideas)
Like in the ecosystem of nature, companies play it out under the forces of globalization, economy and strength of vision. The Silicon Valley is a habitat for innovation and entrepreneurship. For innovation to thrive, R&D must first be taken care of.