Why is Silicon Valley so awesome?

Silicon Valley is called a miracle because it exceeds people's expectations. The academic research on Silicon Valley has just begun, and there is no theoretical and empirical data to explain the mystery of its success. Next, I will tell a story about Silicon Valley based on my personal observation and conversation with various figures in Silicon Valley for many years.

Silicon valley culture

Many people have a view that Silicon Valley is the sum of a university, a science park and a lot of money. This is a mechanical "trinity theory", which does not conform to the development facts of Silicon Valley. 1994, Anna Lee Lee Saxenian of the University of California, Berkeley wrote a book: Regional Advantage: Culture and Competition of Silicon Valley and Expressway 128. This book compares the development of high-tech companies around Boston 128 Expressway with that in Silicon Valley.

It is worth noting that there are two famous universities near Boston-Harvard University and Massachusetts Institute of Technology, which are well funded-and Boston is close to new york, the financial and commercial center. Before 1980s, the high-tech industries around 128 expressway were far ahead of Silicon Valley. But after the 1980s, Silicon Valley surpassed the former. In this regard, even the author himself was surprised. Frankly speaking, when she wrote her master's thesis in the 1980s, the initial theme was to discuss why Silicon Valley was going downhill, because the production cost there was getting higher and higher. But it turned out that Silicon Valley's income grew faster. This made her think deeply, and she tried to solve this mystery, so she wrote this book.

Obviously, famous universities and sufficient funds are not sufficient conditions for creating Silicon Valley. So, what caused the Silicon Valley miracle? I have asked many people in Silicon Valley this question, and no one can give a convincing answer yet. Many people attribute the success of Silicon Valley to "Silicon Valley Culture". However, the word "culture" is too vague and can contain all the factors we don't know yet. But everyone agrees that an important part of Silicon Valley culture is entrepreneurial culture.

So, what constitutes an entrepreneurial culture? Although we can't say this accurately yet, I have noticed that in recent years, people in Silicon Valley like to describe Silicon Valley as the "habitat" of startups. It is really intriguing to use a biological term to describe Silicon Valley culture. Habitat originally refers to the place where animals and plants live. Animals and plants live here because the environment is suitable. The environment includes complex factors, such as temperature, humidity, vegetation, and many other factors that we have not yet understood. Describing Silicon Valley as the habitat of high-tech startups shows that it is difficult to describe it properly with mechanical or electronic engineering, so it is better to use biological terms for analogy. This habitat includes at least the following seven factors.

First, the production structure of Silicon Valley companies is open. Saxony's book says that companies around the 128 highway (such as Wang An Company, Digital, Prime Computer, etc. ) are large and complete, self-contained, and the accessories are not universal. This is a closed mode of production. In Silicon Valley, the company is not big and complete, but specialized, and the parts produced by different companies are compatible. This open mode of production is conducive to rapid innovation.

Second, there is a frequent flow of talents in Silicon Valley, and job-hopping often occurs. I heard that someone used to work in 3Com, but later they jumped ship. I want to come back after two years, but I feel a little embarrassed. 3Com said it's okay. We welcome you back very much. I'm afraid this is more difficult in other places. In Silicon Valley, changing companies sometimes doesn't need to change the parking lot, because this side of the parking lot is the company you used to work for, and the opposite side may be the company you want to go to. The flow of talents is accompanied by the flow of information and the spread of knowledge.

Third, California's legal environment is more relaxed and job-hopping is easier. The United States is a federal country, and the laws of each state are different. A legal expert pointed out that every state in the United States has laws to protect trade secrets. Employees should sign a letter of guarantee when they join the company to prevent business secrets from being leaked when they change jobs in the future. In other states, the enforcement of this law is too strict, and it is easy for job-hopping people to become defendants of the original company. But California is not like this, which is conducive to job hopping.

Fourth, Silicon Valley people allow failure. There is no shame in failing in Silicon Valley. If one company fails, go to another. In silicon valley, I often hear that failure is ok, that is, "failure is ok." The tolerant atmosphere of failure in Silicon Valley makes everyone eager to start a new business. This also puts pressure on people who don't want to try. In many other places, entrepreneurs will be looked down upon if they fail. 、

Fifth, Silicon Valley people's outlook on life and work is "live for work", while in other places, it is "work for life". People in Silicon Valley are workaholics. Work itself is fun, and entrepreneurship itself is the goal. Thousands of billionaires wear jeans, eat pizza and drink coke. Compared with their wealth, their consumption is disproportionately small.

Sixth, there are many foreign immigrants working in Silicon Valley. The United States is already an immigrant country, but Silicon Valley is particularly attractive to new immigrants. Silicon Valley is a multi-ethnic melting pot. As far as the talents of people in any region are concerned, if their natural distribution is similar, then places that can attract more new immigrants will gain disproportionately more intelligence. There are two countries with the largest number of new immigrants in Silicon Valley, one is Indian and the other is China. "IC" was originally the English abbreviation of integrated circuit. In Silicon Valley, it became the abbreviation of Indian and China. The first generation of new immigrants worked very hard, because there were no local resources to rely on, so they finally survived.

Seventh, the Nasdaq stock market in the United States has created favorable conditions for Silicon Valley companies to go public. Most Silicon Valley companies are unprofitable when they go public, so they are not eligible to be listed on the new york Stock Exchange (NYSE). So the Nasdaq stock market opened the door for these companies to go public. As we all know, listing a company is a way to raise funds through the capital market, and what I want to emphasize more is that listing is the main driving force to motivate entrepreneurs.

The above is just my incomplete description of the habitat of Silicon Valley. These factors have created a new world together. People's understanding of it is just beginning.

Entrepreneurs and startups

We often confuse entrepreneurs with managers. In fact, these are two different concepts. In English, Entrepreneur is an entrepreneur, from which comes the word "entrepreneurship". Managers are managers, which comes from the word "management".

Entrepreneurs have started an unprecedented career. New ideas, new products, new processes, new people, new markets, starting from scratch, abandoning the old and welcoming the new. Entrepreneurs are similar to revolutionaries. They like to be unconventional, like adventure, and don't like safety. After starting a successful business, entrepreneurs often sell their companies and start another company for fun. Jim clark, an entrepreneur in Silicon Valley, founded Netscape. Before that, he founded several companies and sold them when they were finished. Now he is starting a seventh company. Entrepreneurs often have no formal business school education, so there is no ready-made framework.

But managers are different. The manager's main responsibility is to manage an existing enterprise and coordinate all aspects. In most cases, they are unwilling and should not take too much risks. Managers often have formal MBA education, and some graduated from famous universities.

Of course, there is a connection between entrepreneurs and managers, some entrepreneurs and then managers, some managers and then entrepreneurs, or a person is both an entrepreneur and a manager. For example, two entrepreneurs of HP are entrepreneurs. When HP grows up, they are good managers and good managers. But this is not the general rule.

In most cases, a person's quality is not easy to be both an entrepreneur and a manager. A good entrepreneur can be a very bad manager. For example, the founder of Cisco is a couple with poor management skills. This is why the founders of startups are often fired by shareholders later.

In Silicon Valley, entrepreneurship is an ethos. People in other places are keen on buying and selling stocks. But in Silicon Valley, people are thinking about how to start a business or even issue original shares.

The first two basic elements of starting a business are people and ideas. Now it takes about 18 months from having an idea to going public, and this cycle is getting shorter and shorter. Entrepreneurs carry forward the "Yan 'an spirit" and "the spirit of jumping the queue". Everyone crowded into the rented small office, drank some cola and ate some pizza every day, dressed casually or even sloppy.

In recent years, especially in computer-related companies, entrepreneurs can't get paid at first. They take the original shares and sell them to other enterprises in the future, so they can realize their cash and make a fortune. Because that salary means nothing to them. If you want to pay wages, you have to raise this money, and the cost will be high. For example, Hotmail is a company run by Indians. It took only one year for his company to start a business and sell it to Microsoft, and it was over 100 million dollars. Microsoft is willing to pay a big price because Hotmail has tens of millions of customers. Hotmail says that our customers are our assets, which can be compared with the value of cable TV customers.

After the company founded by the entrepreneur is listed or sold to other enterprises, the entrepreneur is accomplished. Usually entrepreneurs don't want to continue working in the company, but start a new stove. The founder of Cisco was an engineer in the computer department of Stanford University in the 1980s. At work, he came up with an idea that adding a piece of hardware between computers can make networking convenient. He went to school, and the school refused to do it. He asked if he could introduce it to other universities, but the school didn't want to.

In a rage, he and his wife ran to San Francisco and registered a company with $25. The name is Cisco, which is the last five letters of the English name of San Francisco. The company's logo is the Golden Gate Bridge. They didn't have any money, so they started their business with the overdraft limit of 1 10,000 dollars on their credit cards and made the first networking router.

Entrepreneurs are reluctant to ask venture capitalists for money unless they have to. Venture capital funds are very expensive for entrepreneurs, and even I will be fired by venture capitalists. This happened at Cisco, and we'll talk about it later.

Innovation and entrepreneurship are two closely related but different concepts. Innovation can be realized in existing enterprises or by establishing new enterprises. Entrepreneurship refers to the establishment of a brand-new enterprise outside the existing enterprise.

The interesting question is: Why do many innovations occur not in large enterprises with existing technical strength and abundant funds, but in newly-built small enterprises that seem to have neither technical strength nor funds? For example, the first best-selling personal computer was invented by two young people from Apple, not IBM. For example, the operating system of personal computer was originally purchased by IBM from Microsoft. Obviously, Apple and Microsoft can't compare with IBM in technology and capital.

This is not an easy question to answer. It may be related to two factors. The first is motivation. Large companies can't provide enough rewards to innovators, because the risks are too great, so the rewards must be large enough. Lack of motivation hindered the development of many new ideas in big companies. The second is constraint. The innovation of large companies is often plagued by soft budget constraints: within large companies, it is difficult to stop a project or close a department, and the market can easily eliminate a small company.

We see that many innovations are achieved through entrepreneurship. So now some big companies will buy products or technologies from small startups in addition to their own R&D. ..

Venture capital/venture capital

There is a place near Highway 280 in Stanford University called No.3000 Shashan Road, where there are several small buildings. It is said that about half of American venture capital companies are here. This is obviously a holy land for venture capital companies. Venture capital has a high investment risk. But we usually only hear successful examples, because either the failed company has disappeared and been forgotten by people; Or the loser doesn't want to talk about the experience of failure. In fact, on average, about 90% of venture capital is unsuccessful. But some successful investments, the return is hundreds of times the investment cost. It is precisely because of high risk/high return that venture capital is mostly carried out by private rather than government.

Venture capital companies have a set of management methods. For example, KPCB is a famous venture capital company in Silicon Valley. It has invested in Intel, Amazon, Apple and other particularly successful companies. Some people say that it is the first venture capital company in the world. How many people are there in it? A ***25 people, including nine partners, four or five assistants and several secretaries, that's all.

For example, when the company invested in Amazon, the founder of Amazon met with the venture capital company about a Saturday and said that he had an idea of selling books online. The company left his website and asked the man to come back in a week. Then several partners immediately ordered some books online, and the books arrived soon. So, very simply, they signed the contract a week later, and the investment was made. This enterprise certainly made a lot of money. So how long is their project evaluation report? One * * * two pages. In this company, one partner is usually in charge of a project, but the last nine partners must agree on it. So they groped their way. Other companies may be another way. Therefore, the winners survive and the losers are naturally eliminated.

Let's talk about Hotmail again. The founder is an Indian, a graduate of Stanford University. At first, he didn't think of doing Hotmail at all, but wanted to do a database online. After talking for a long time, the venture capital firm felt that his idea was hopeless. He said, before the end, I still have an idea to do free web-based e-mail. In fact, there are two layers of ideas: one is free, and the other is based on web pages.

The idea of free email is not new. Before that, three companies had made free mailboxes, all of which failed. The second idea is that e-mail is based on web pages, which is a brand-new idea. Web-based e-mail has two biggest conveniences: first, you can use it wherever you go; Second, an online account can be used by many people to use private email. This is especially meaningful in countries like India and China, where there are few online accounts and everyone wants their own private mailbox. Not surprisingly, Indian users account for a quarter of Hotmail users. How much did the venture capital company ask him at first? He said 500 thousand dollars. However, the venture capital company finally gave only $300,000 in start-up funds. Soon, Hotmail succeeded.

When people talk about venture capital, they are often limited to the role of funds. Yes, venture capital provides capital. But another important function of venture capital is to help organize and transform the leadership of the company. The so-called leadership team refers to the president (CEO) and several vice presidents in charge of finance, sales and technology. What the world lacks more than capital is a good company leadership. In the United States, it is said that there are 150 large companies whose CEO positions can't find suitable people. The reason why a venture capital company is better than other peers is that it knows who can match who. Not only are everyone better, but these people can also work together, which is very difficult. Silicon Valley has concentrated all kinds of talents, and venture capitalists have a wide network of contacts and are familiar with all kinds of people. Which venture capitalist has strong ability in this field, the company it invests in will have a high market value when it goes public.

When venture capital companies organize leading bodies, they sometimes have to drive entrepreneurs away. Entrepreneurs are of course angry. Jobs founded Apple, and was later driven away. Invite him again in a few years, that's another story. Another famous example is Cisco. After the couple started their business, Peng Kaihua Ying injected funds into them. What was the result? Venture capital companies send people to be general managers because they are major shareholders. As a result, one day at the meeting, I called the female partner and told her that now the board of directors has made a decision and you are fired. Say that finish, the date also left.

Like an artist, a female partner has no rules in management and can't cooperate with other managers. The male partner is simply a technician and has no feeling about the company's strategy. In a fit of pique, the couple sold all their 33% shares. At that time, their stock was only sold at about 10, and now it is far more than this price. Later, they divorced, and the lady went to New Hampshire to open a company specializing in nail polish. Maybe she occasionally thinks Cisco is one of the most successful companies in Silicon Valley.

Entrepreneurs make the company bigger, and the corporate governance structure will go through a transformation process. Enterprises need different talents to manage after they enter the mature stage from entrepreneurship. The process of this transformation needs a mechanism. Venture capitalists often play a very important role in it. Therefore, the relationship between venture capital companies and the enterprises they finance is very close. From the point of view of organizing teams, participating in management and exercising supervision, venture capital companies are significantly different from financial intermediaries such as investment banks and mutual funds on Wall Street, because the relationship between the latter and the companies they invest in is "independent", and their operations are limited to transactions and they do not participate in the company's strategic decisions, while the former plays a strategic decision-making role in the companies they invest in.

"alternative" universities

To tell the story of Silicon Valley, we can't help but mention Stanford University. Anyone familiar with the history of Silicon Valley knows that Stanford University played a very important role in the rise of Silicon Valley. The output value of enterprises related to Stanford University (that is, enterprises founded by Stanford teachers, students and alumni) accounts for 50%~60% of the output value of Silicon Valley. Stanford University has a strong scientific research strength, but I'm afraid it's more than that. Together, Harvard University and Massachusetts Institute of Technology near Boston have stronger scientific research strength than Stanford University. In the east of San Francisco, the University of California, Berkeley, is no less powerful in engineering and technology than Stanford University, but there is no area like Silicon Valley around them.

In a sense, Stanford University is an "alternative" university. The first is the school's positive attitude towards teachers and students' entrepreneurship. Sometimes a person's influence has special significance. Professor Frederick Terman, Dean of Engineering College of Stanford University in 1930s, is such a person. It was he who recruited Hugh Park Jung Su and Packard, students who had already worked in the East, back to Stanford and invested more than 500 dollars from his own pocket to help them set up Hewlett-Packard. It is said that this is the first "angel capital" in the world. Later, HP's influence on Silicon Valley was obvious to all. Professor Terman initiated this precedent and created an atmosphere in which universities supported professors and students to start their own businesses, which has influenced it until now.

Entrepreneurship of teachers and students in Stanford University is an ethos. Some companies in Silicon Valley were founded by students studying at Stanford University. A famous example is Yahoo! )。 At that time, Yang Zhiyuan and a classmate wrote a search engine program and put it on the school website. Although this search engine is very popular, the person in charge of computers in the school complains that the network has become too crowded. So, they started their own company, named Yahoo, just for fun. I didn't expect to make a lot of money accidentally.

Three famous companies, SUN, Silicon Map and Cisco, were born in a building in the School of Engineering of Stanford University. The name of Sun Company is the abbreviation of Stanford University Network. The founders are teachers and students of Stanford University. They set up their own company after they invented the workstation. It is not his first company that a professor at Stanford University founded Silicon Map Company. Mosaic, the predecessor of Netscape Browser, was originally developed by a professor at the University of Illinois. The University of Illinois is a leading university in American engineering science with supercomputers. After the discovery, jim clark of Stanford University dug their entire research team into Silicon Valley, founded Netscape Company and developed Navigator browser, which changed people's online experience. Netscape was a sensation when it went public. Similarly, the Unix operating system was invented by the University of California, Berkeley, and was later widely used in SUN's workstations.

It should be pointed out that there is no "school-run factory" or "school-run enterprise" in Stanford University. Its industrial park was leased to a startup company at a symbolic price of 1 USD. Its technical patent office only helps professors apply for patents. Billions of funds of the school are entrusted to a capital management company to diversify investment and risks, and only a small part is invested in venture capital companies. But Stanford University does not participate in the management of invested enterprises. In this sense, schools do not "do business". The school's funds mainly come from donations from alumni and successful entrepreneurs. The school commemorates these donors by naming their buildings and professors.

Silicon Valley is not planned.

What we see from the success of Silicon Valley is the full play of individual enthusiasm and creativity. Silicon Valley is not planned. Nor can Silicon Valley be born out of a rigid system. Only a free entrepreneurial system and a very decentralized decision-making process can create a miracle like Silicon Valley. To develop high technology, capital is important, but it is more important to have a system and culture that can give full play to people's creativity and create a habitat for entrepreneurs.

Entrepreneurs and entrepreneurship, entrepreneurship and start-up companies are important driving forces to promote the development of market economy. In mainstream economics, in the past, it was only limited to the study of price adjustment mechanism. Non-mainstream economics, especially the Austrian school, places great emphasis on entrepreneurship. For example, Schumpeter thinks that the greatest vitality of capitalism is the innovation of entrepreneurs, which he calls "creative destruction". Another important representative of the Austrian school is Hayek. He fundamentally criticized the planned economy, thinking that social knowledge is scattered on everyone, and it is impossible for any planner to master all the information. Therefore, only by giving full play to everyone's enthusiasm and stimulating their creativity can the economy be full of vitality. The success of Silicon Valley today proves that their views are correct.

There is a view that the higher the technology, the more it needs government management, because the market will fail. This is untenable in theory and practice. What is high technology? The important characteristics of high technology are great uncertainty and high risk. If the government participates in venture capital, it will bear great risks.

However, we should also see that the government is not doing nothing in developing high technology. An important thing that the government should do is to mobilize and protect the enthusiasm of entrepreneurs. For example, relax policies, clarify property rights, allow technology to become a shareholder, and allow enterprises to transfer; Do a good job in the capital market similar to Nasdaq and create conditions for enterprises to go public; Relax the policy for returned overseas students and support overseas and domestic high-tech cooperation.