Understanding Silicon Valley:
Foreword

When I first came out to the West Coast, I never imagined I would find myself writing a foreword about Silicon Valley. I was deeply suspicious of the place. My intellectual roots were in Cambridge, Massachusetts, where I had come to believe that the whole Silicon Valley thing that people were starting to talk about (the term, we learn here, was coined in 1971) was wildly overhyped, the people subject to mind rot, and the West Coast culture just a bit crazy. So my move to Silicon Valley was made with great trepidation. Indeed, my second thoughts were so strong, that to diminish cognitive dissonance between East and West and to prevent immediate retreat, I sold my home next to Harvard Square before moving. I wanted to eliminate anything that would make the return to "civilization" too easy–or so I thought. That was all in the fall of 1978.

Two decades later, I realize that my career at the Xerox Palo Alto Research Center (better known as Xerox PARC) has afforded me a much wider view of civilization. In particular, it has provided me with endless opportunities to meet with visitors from all parts of the world and in turn to visit nearly all parts of the world. Everyone takes Silicon Valley seriously now. With these visits, hardly a day goes by that I don’t get asked to explain the magical brew that makes up Silicon Valley. What is it? What makes it so special? Can it be copied? If not, why not? And if yes, how? And what about that famous culture? What does it feel like to work for a large East Coast company and yet be a part of the Valley? Does this give me a different perspective–having to bridge those two quite different cultures daily? And how are those cultures different?

These are complex questions that raise serious issues about development–at the regional, national, and even global level. I am not sure I’ve ever answered them to the complete satisfaction of the people who asked. I’m pretty sure I cannot do them justice in these few short pages. But I would like to try at least to raise some of the points that seem to me most significant in trying to answer these questions.

But let me first say that I have often had the good fortune to address these questions at academic workshops. How quickly I learned (albeit the hard way) that simplistic generalizations don’t cut it in the academy. Analytic precision, grounded in deep empiricism with only a speck of speculation, is the coin of the day. So it should be. And this book is an example of excellent empirical research, deep scholarship, tested and testable hypotheses, all conducted with a substantial cross-disciplinary flavor. Its deep engagement with the subject has provided evidence to support some of my theories, challenged others, and directed me to new grounds for speculation. I think it will do this for anyone prepared to read it closely.

My little contribution, however, may deviate from the high standards set in the following pages, so I feel particularly privileged to be able to get my words in first. I want to start with some of my own personal beliefs about the Valley and follow these with some speculative remarks that emerge from my long-time collaboration with Paul Duguid about the dynamics of knowledge creation and flow, both within the firm and throughout a particular region. For yes, even in today’s web-based world, geography matters–perhaps even as much as in the past, but now for different reasons. Then I’ll end with a couple of words on why it is so difficult to replicate the ongoing experiment that is Silicon Valley.

At the center of all questions about the Valley lies the matter of innovation–for the Valley occasionally appears like a perpetual innovation machine. I say "innovation" rather than simply "invention," because innovation, to me, means invention implemented. And I have grudgingly come to realize that invention is often the easy part of innovation. The hard part is usually the implementation. Here I was particularly interested in Stuart Leslie’s well-chosen quotation from a letter of Frederick Terman. Terman was the Stanford University dean who played godfather to Hewlett Packard and so many other early start-ups in the Valley. When he left the university to work on radar during World War II, he wrote back to a colleague at Stanford, "I had never before realized the amount of work required to make a device ready for manufacture after one had a good working model." It was a lesson he clearly learned well as he guided young Stanford graduates to innovative success.

Implementation, I would say, requires the three Fs–focus, focus, focus. First, one must focus on a single value proposition pertaining to the initial invention. Sounds easy, but this focus is hard because a single invention will often support many different value propositions. Deciding on the right one to pursue requires discipline, experience, and a touch of luck. After that, you must focus on assembling a dedicated team to design and develop the invention into a product, then to market that product qua its value proposition, then to create appropriate partnerships around delivering and amplifying its value, and finally, to get mindshare for it. And while doing all this–which is never as linear a process as the above makes it appear–you also need to focus on your competition. Indeed, you need to be permanently paranoid about the likelihood that someone else has the same idea and is moving faster than you are.

The risk of competition and the risk of failure more generally are central to this whole process. If you hit it just right, you can win big; but if you focus wrongly on any one of the above issues, especially if you misjudge the customer value proposition, it all may come crashing down around you. Fine, risk is the coin of the day for any type of innovation. But Silicon Valley puts its own spin on risk. Here taking risks around radical innovations is respected and encouraged. Be shrewd, you will be told, and don’t be timid: go for it.

Silicon Valley has developed some powerful ways to deal with the risk it pushes you toward, however. You can see this if you take the advice to go for it and set out to get a new company off the ground. For this, you need money (today, that’s often the easy part). You need legal help to start the company and protect your intellectual property, or "IP." You need design talent to help define and craft your product. You will need marketing talent to position and validate your product concept. You need help to manufacture, test, and service it, and so on.

As the authors in this book explain, a good deal of Silicon Valley’s strength lies in the way it helps you deal with these matters, effectively helping you both take risk and share risk. Some of these tasks you will want to take on in your firm–so you need to hire the right risk-taking folks to join your firm. But many of these tasks you will want to outsource to experts or consultants well seasoned in the challenges you face and perhaps willing in one way or another to help you spread your risk.

Where do you turn for that? That is not one of the hard questions to answer about Silicon Valley. My fifteen-minute drive from home in Palo Alto to work in the foothills behind Stanford University takes me by one of the best design firms in the world. Next I pass one of the best legal firms for start-ups in the country. If I continue down the road, I encounter one of the best marketing firms in the region. (These are some of the nontechnological firms that make up what Martin Kenney and Urs von Burg insightfully describe as the Valley’s second economy.) And all around lie not only the competitors of these firms but also countless other potential partners, such as the numerous specialty shops and foundries that provide fast turn-around on submodules for a product.

That there are so many kinds of help and so many suppliers for each kind is not surprising. But what may be surprising is just how good these resources are and how well the strengths of each are recognized. As I like to think of it, the knowledge in these firms is extraordinary, and so is the knowledge about them. These two are closely connected. The knowledge in any one of these grows daily because of the intensity of the competition. And that competition is intense because in Silicon Valley, people know so much about their competitors. The amount of knowledge available about the players in the valley is incredible. As Martin Kenney and Richard Florida show clearly in their chapter, venture capitalists (VCs) play a critical role in sharing knowledge and might best be thought of as knowledge brokers. Indeed, in my mind, they are more important for their network of connections than for their money. Mark Suchman’s chapter reveals how lawyers work this way, too.

Even at a more informal level, however–at parties, at restaurants, at sports events, at your kid’s school–you discover whom you need to meet, who is worth working with, whom you should avoid, etc. Here’s one reason why geography matters. The density of the region matters because it enhances serendipitous contacts. Couple this density of the Valley–caught as it is between the bay and the ocean to the east and west, and the cities of San Francisco and San Jose to the north and south–to the regional culture and you get a remarkable petri dish, as AnnaLee Saxenian’s chapter shows. For the culture here is amazingly open to novel ideas and radical ventures and emerging forms of entretainment (entrepreneurship is a form of entertainment in the Valley). All these are supported by a social fabric that maintains constant, ongoing conversations through which you can test and develop your thoughts, find folks to work with, and turn ideas into action. As Stephen Cohen and Gary Fields argue, the Valley’s social fabric is quite distinct. It can also be quite casual. Benchmarking here takes on a new dimension. It’s not necessarily some formal process. Just go to lunch, hear the buzz, and you’ll quickly find out how you stand.

This dynamic that drives you, drives your competition, haunting both of you. It haunts people, in particular, with the unsettling fear of becoming a has-been. Things happen so fast that the step from being ahead to being passé happens in the blink of an eye. It’s not what you’ve done, but what you’ve done lately that counts. So you made it big, even really big, but that was three years ago and maybe it was just luck. If it wasn’t, why haven’t you done something great since? Unnerving, yes. But still, very real. I actually hear billionaires who by anyone’s standards would appear to be outstanding successes complain about their fears along this dimension that leads to the Valley’s vanishing point.

Let me get back to the knowledge in the various organizations and institutions that make up the Valley. Undoubtedly, we live in a valley of riches. We have two major research universities and many smaller universities and colleges, and they all play multiple roles. Most obviously, they prepare students to work in the Valley. Here, I would point particularly to the great business schools that have stayed ahead of the curve despite the profound shifts that information technology has brought to business practices. I also applaud the excellent engineering schools that continue to push these technologies harder and faster. Together these institutions continue to provide a diverse and highly talented executive and technical workforce. But they do more than teach students. They actively encourage their faculty to take what they know and start companies. They also urge faculty to contribute their talents to established companies in the area as consultants. These institutions are then augmented by an excellent and omnipresent community college system for rapidly assimilating immigrants into the workforce and culture of the Valley. It’s a mistake to see this traffic in knowledge as a one-way street. These excellent schools feed the firms of the Valley, no doubt. But as I note below, the firms in the Valley also help feed the excellence of the schools. Along with the schools, boundaries of research are continually pushed in the several major corporate research labs, such as PARC, that wittingly or unwittingly contribute to the Valley’s flux of ideas.

These are the ingredients that go into what Homa Bahrami and Stuart Evans call the Valley’s ecosystem, a system ideally situated for growing new firms and for learning from each other both through successes and failures. This is an image of the Valley that Duguid and I have used ourselves, talking of Silicon Valley as a "knowledge ecology," and it may be useful to elaborate on our view a little here. To us, a knowledge ecology has a dynamical structure that can help one understand how and where knowledge flows: how knowledge can leak out of a firm, presenting those who must defend IP with a constant worry. But the same understanding also reveals how, if that firm is an open participant in the ecology, knowledge can also flow back into that firm. A thriving ecology can turn these flows into feedback loops that serve to amplify the knowledge in the region.

Although it is popular to think that great ideas start with individuals, most knowledge gets produced in and by communities of practice (cops). These are teams of people that have worked together over a sufficient period of time to have evolved a deep ability to read each other, to communicate in highly condensed ways, and to know exactly when and when not to trust an opinion from one another. Within such entities, knowledge gets created, and when it does, it flows almost effortlessly. As we have detailed elsewhere, knowledge travels along the rails of practice. That’s why it moves so easily within a community of practice. For the very same reason, it requires substantial work to move that knowledge to a community with different practices. Here there are gaps in the rails.

Since a corporation’s value chain comprises a collection of quite different skills and practices and so different cops, radically new knowledge created in a corporation can easily stick where it starts (often in research). For example, to get an invention out of the lab, you first need to persuade the engineers. But why would a practically minded engineer trust the opinions of those wild-eyed guys in research and their off-the-wall notions? You can see why innovation is hard. It requires pushing an idea along that value chain. But along that chain, the implicit judgment, understanding, trust, and so forth that function within a cop have to be re-created across a variety of new and often suspicious contexts.

However, in an ecology of firms and universities, even if rails don’t always run smoothly within a corporation, they will often run smoothly out of it. These rails link what we think of as networks of practice. For example, similar researchers in Sun, Apple, or Oracle are much more aligned to the thinking of PARC’s computer wizards than are many Xerox engineers, even though the engineers are in the same company. As a consequence, knowledge may travel more easily around a network of practice that lies across several different firms than between two different communities of practice in the same firm. The mobility of labor in the Valley, the subject of David Angel’s chapter, only accelerates the flows in these networks.

Start-ups usually don’t have to deal with this problem. Since the start-up team is small, totally focused on the same goal, and working shoulder to shoulder, a rich and shared context for trust is easily created. The same is also true for specialty shops and boutique consulting firms, firms whose reputations in the Valley can replace the need for detailed legal contracts and whose reputations, earned through performance with many different customers, make them easy to trust at a technical level.

This helps to explain the flow of knowledge across an ecology. What I called the knowledge in a company may often flow out. As a result, there is a great deal of knowledge "in the air" in such regions, as the economist Alfred Marshall (who first analyzed the economics of clusters) put it. This is what I earlier called knowledge about–knowledge about what people are up to, where things are going, who is good at what, and so forth. It spreads across the larger networks of the Valley. But flow itself isn’t sufficient to explain the drama of Silicon Valley. How, we all need to understand, does this dynamic lead to an ever-escalating regional advantage?

Let’s take Stanford University as an example. Although Stanford is rightly recognized as a seat of knowledge creation and a key player in the Valley (as Timothy Sturgeon’s chapter admirably shows), the flow of knowledge doesn’t just go from inside to out. Knowledge also moves in from the rest of the region. Indeed, some of the most highly attended classes at Stanford are those taught by, or include lectures by, key figures in the Valley, carrying what they know back to the school. So as I look at Stanford University next door to me, I see flows of knowledge moving in and out along rails of practice that stretch across the region. In the process, these flows develop feedback loops that amplify the knowledge both in the university and elsewhere in the Valley.

From this perspective, it’s possible to see why copying the successes of the Valley to other regions may be very hard–a point that is made empirically in several of the essays in this book. Some people might think of planting an innovative firm to get a region growing. Others might choose to start with their university, encouraging that to flourish as a critical center of research. But either approach immediately faces the chicken-or-egg problem. Is it possible to build a great research university without dynamic, growing firms? Is it possible to have the firms without the university? And do both need the multiple other components in place in order to be able to feed off the environment as well as feed into it? Once all are in place, a natural, dynamic growth may develop. But it probably won’t work to seed them one at a time. And it’s very hard to seed them all at once. Bootstrapping an ecology, especially a knowledge ecology, is simply hard–very hard.

Moreover, nurturing seedlings is inherently a protective act. Yet thriving ecologies, as these essays again make clear, grow more robust through death. The death of a firm can happen quickly, and letting it die may be much more beneficial to the region than keeping it artificially alive. Its demise may fertilize new firms. Executives toughened by the experience of failure can be worth more than those who have had none. From the perspective of the region as a whole, then, we have an ecology of thriving species, failing species, and new species exploring untapped or abandoned ecological niches. It’s a remarkable form of natural experiment which, given its interdependent complexity, may be hard to start, but which we have to hope, will also be hard to stop.