Do you really want to be The ‘Next Silicon Valley'?

Almost every week I hear about a city or region across the world that says it wants to be – or will be - the ‘Next Silicon Valley.’ I also see Linkedin posts with photos of smiling business people, students or community leaders all heading to Silicon Valley to see what they can learn and find opportunities for themselves, their business, city or region. That’s all good, but Silicon Valley is not the only - or even the best - place to visit or learn from, particularly if you are trying to build a better future for your city or region.

A quick Google search brings up many places all set to be the ‘Next Silicon Valley’. Just a few examples are Ukraine, Vietnam, Cuba and seemingly almost everywhere here in Australia - including Melbourne, Western Sydney, Central/Eveleigh in Sydney, Manly in Sydney, Adelaide and South Australia, Sunshine Coast, Gold Coast, Cairns and Brisbane. So it seems almost everywhere is in the race to be the next Silicon Valley. But is this the right race to be in and – even if it was – is it winnable?

My guess is that many of the places seeking to be the next Silicon Valley might not truly understand or mean that they are going to be the ‘Next Silicon Valley.’ 

These aspiring places may simply be saying they want to be innovative high tech hotspots and using Silicon Valley fairly loosely or as a piece of media spin. Aiming to be an innovation hotspot is a good idea for many cities and regions but naively trying to mimic the Silicon Valley model is very unlikely to succeed - see quote from Vivek Wadha below and full MIT Technology Review article here - and can have unintended consequences.

Hundreds of regions all over the world collectively spent tens of billions of dollars trying to build their versions of Silicon Valley. I don’t know of a single success.
— Vivek Wadha, Distinguished Fellow Carnegie Mellow University Engineering at Silicon Valley and former entrepreneur.

Asking ‘Which city will be the next Silicon Valley?’ is not a very useful question as it implies that the Silicon Valley model can be replicated and is the best model for many of these up and coming cities across the world to emulate. 

I do not think that any of these places mentioned above – or hundreds of other up and coming cities - are going to be the next Silicon Valley. There are several reasons for this assertion:

There is no master plan to copy

Silicon Valley evolved as a complex system influenced by history and culture, geography, climate, government spending on defence research, the contribution of key individuals, random events and meetings, key businesses and their spin outs, the impact of Stanford University and other education institutes, networks, growth of investors etc. – it was not master planned by government or anyone else.

…. what made Silicon Valley was behavior, mindset, and seeding the environment for an innovative system to emerge—(most) everything else came later, and there was no central plan to make it all happen.
— Ian Hathaway, Research Director, Centre for American Entrepreneurship. 

Silicon Valley was not built in a day

Silicon Valley took many decades to develop and milestones along the way included the establishment of Stanford University in 1885, the startup of Hewlett-Packard in a Palo Alto garage in 1939 and the establishment of what is now the Stanford Research Park in 1951, or more recently Apple’s foundation in another garage in 1976. The name itself was coined in 1971 by a journalist Don Hoefler, almost 50 years ago. So assuming you have many of the ingredients for success, it might still take 50 – 100 years (or longer) to bake your Silicon Valley cake.  

Lack of understanding of the central role of Silicon Valley

The Bay Area – San Francisco and Silicon Valley – accounted for around 44% of total US venture capital investment in 2016. 

The chart below from CB Insights shows the Bay Area is off the charts in terms of tech deals since 2012. Note that the left hand chart has a split scale and the right hand insert shows how Silicon Valley compares too the next cities - New York, London and LA. Although there has been a significant increase in VC investment in Australia, this charts shows Sydney as a small tab on the far right.

  Number of Tech Deals by Metro Region Since 2012

Number of Tech Deals by Metro Region Since 2012

The Silicon Valley model may not be relevant to your region

Silicon Valley is all about startups, technology and the next big thing. It is an amazing place – a magnet for talent and investment – and plays a massive and distinct role in the global economy, but it is not the only part of the economy.

Trying to mimic Silicon Valley may not be relevant to your city or region and could lead to an over emphasis on technology startups and finding the next unicorn - a startup with a billion dollar valuation. This focus - which may be very appropriate for some cities and regions - can bring with it an an emphasis on solely tech businesses, technology incubators, venture capital, tech accelerators etc and this may be at the expense of supporting the growth of non tech businesses - including tech enabled businesses - and the growth of more established businesses.

Silicon Valley is not a utopia

Silicon Valley is not exactly known for diversity and according to Ross Baird of Village Capital:

‘Less than 5% of the new ideas that get funding are founded by women, and less than 1% of venture funding goes to Latinos and African-Americans…you’ve concentrated capital in the hands of a few people (nearly all white guys).’

Male domination and sexism in Silicon Valley has become more widely known through a series of books and articles, including a blog post by Susan Fowler, an Uber engineer, that went viral and contributed to the departure of Uber’s CEO.

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Another factor cities and regions may not wish to emulate - as the ‘Next Silicon Valley’ - is the massive congestion and sky high house prices. In Palo Alto, for example, the typical home is valued at more than $US3.2 million as of September 2018, according to Zillow. So not everything about Silicon Valley is worth emulating.

I think that attempting to mimic the Silicon Valley model can lead to misguided economic development plans and activities. Some economic development initiatives seem to be influenced in part by the Silicon Valley model and may consciously or unconsciously emphasise:

  • High tech global businesses

  • Startups over more established businesses

  • Venture Capital backed businesses 

  • Technology Accelerators 

  • Younger entrepreneurs

  • Male entrepreneurs

  • Pitching events

These are all part of business, but not the only parts. Tech businesses have a big advantage over many others as they can be more scaleable, but work by NESTA and others highlights that high growth businesses include an almost equal representation by businesses from both the ‘high-tech’ and ‘low-tech’ sectors. There is also a strong case for economic development efforts to focus on helping existing businesses make the most of technology - to be technology enabled - and not simply focusing on tech developers.

An over emphasis on younger entrepreneurs may also be misguided. A recent Harvard Business Review article highlighted that the average age of the founder of a successful startup was 45, so not 25. Yet in many cities and regions the positioning and messaging of many startup programs seems to target young people with little business experience. Again, younger people are an important part of the mix - particularly in high tech sectors - and some may be open to risk and see new opportunities but I rarely see startup initiatives targeting middle aged people with experience, networks and real insights into industry opportunities.

Be the best version of your own city

So rather than asking how can we be the ‘Next Silicon Valley?’ it might be better to ask how can we be the best or next version of our own city? How we can be a relevant, dynamic, connected, 21st Century economy?’ What strengths and advantages does this city have to build upon? How to be inclusive and involve ambitious people and businesses of all ages and stages? How do we develop skills to help businesses grow?

We also need to look beyond just startups and acknowledge the importance of scaleups - businesses with at least 10 employees at the start of the recording period with an average annualised return of at least 20% in the past 3 years (OECD, 2007) - which is a neglected sector. Cities and regions would benefit identifying these businesses, understanding their needs and supporting their growth.  

There is a lot to learn from Silicon Valley but I don’t think we should try to mimic it. Instead, cities and regions need to find their own thing to build upon and be great at. Startups are critical for renewal and creating new employment opportunities but the established business base is also critical and efforts are needed to boost innovation in businesses at all stages and to invest in skills development to help businesses become technology enabled and reach markets across the world. This is vital for cities and regions to survive and thrive in this dynamic economy.  

Colin Graham