An occasional paper by Waikato Chamber of Commerce CEO Chris Simpson

  1. Basically, how it came to be

Because WW2 + Cold War + Space Race drove defence spending and research dollars into computers and semiconductors, Silicon Valley happened to be in proximity to two of the countries most active research universities (UC Berkeley and Stanford), a major NASA research centre, plus Lockheed Martin’s aerospace division.

  1. Universities supply ideas and talent

It began with Fred Terman, Provost at Stanford, who recognised that federal investment in research led to the winning of WW2. He leveraged this to expand the engineering department at Stanford & encouraged graduates, such as Hewlett and Packard, to start new companies. 

  1. Three main reasons for being

3.1. Technology
In 1955, one of the inventors of the transistor, William Shockley, moved back to Palo Alto. Shockley was a Nobel prize physicist . Because he was cool/brilliant, Shockley was able to recruit some of the brightest young researchers in the country.

 3.2. Culture
Secondly: culture. The traitorous 8 (eight guys left William Shockley) created Fairchild semiconductors were the start of the new breed of thinking – wanting to get things done fast.

From the beginning, Silicon Valley entrepreneurs saw themselves in direct opposition to the Ivy league east Coast – read as slow and boring.

The “Westerners saw themselves as cowboys and pioneers”, working on a “new frontier” where people dared greatly, and failure was not shameful!

Stanford, meanwhile, was actively trying to build up its physics and engineering departments. Professor Frederick Terman worried about a “brain drain” of Stanford graduates to the East Coast, where jobs were plentiful. So, he worked with President J.E. Wallace Sterling to create what Terman called “a community of technical scholars” in which the links between industry and academia were fluid.

3.3. Money, money, money
Money was a big component of driving the birth of Silicon Valley. Sure, Silicon Valley was kick-started by federal dollars. Whether it was the Department of Defence buying 100% of the earliest microchips, Hewlett-Packard and Lockheed selling products to military customers, or federal research money pouring into Stanford.

But, the first significant wave of venture capital firms hit Silicon Valley in the 1970s. Both Sequoia Capital and Kleiner Perkins Caufield and Byers were founded by the Fairchild alumni (see previous page) in 1972.

NOTE: HP. Hewlett and Packard went to Stanford. On graduation, the University loaned them start-up capital. They became the IBM of the second half of the 20th century. They repaid Stanford by pouring billions back into the University’s endowment – they gave back.

  1. Other factors

4.1 Land

Low cost land was available. At the end of World War II, the entirety of Silicon Valley was fruit orchards. The site of all those trees are now the valley’s innumerable “business parks” containing light industrial electronics and software companies.

4.2 Patents

The city of Sunnyvale’s leaders peered into the future. They encouraged business park development and, despite their current size being under 140k, they invested into a municipal patent library. Up until the advent of the Internet in 1990s, that meant the best place to do patent research in the world, was DC or Sunnyvale.

4.3 Niche players

What the Valley produced tended to be made from interchangeable components which were not produced in a vertically integrated supply chain (thus allowing room for many niche players). This made for a richer ecosystem of ideas and processes, further feeding innovation.

  1. The Bay Area Council asked the question why Silicon Valley came about

In 2012, the local council attempted to answer the question regarding how Silicon Valley came to be. They found there was a special trait that distinguishes Silicon Valley’s firms from ordinary companies: the ability to integrate their innovation strategies with their business strategies.

The corporate culture of a Silicon Valley firm is also two and a half times more likely to be attuned to the company’s innovation strategy.

Their ongoing research identified three basic innovation strategies: Silicon Valley is dominated by what they call the “need seekers,” companies that focus on discerning their users’ actual needs, both spoken and unspoken; figuring out how to meet those needs; and then getting the necessary product or service to market as fast as possible.

They found there was a special trait that distinguishes Silicon Valley’s firms from ordinary companies: the ability to integrate their innovation strategies with their business strategies.

The other two categories are the “technology drivers” who take their direction from their engineering departments, rather than from their customers, and the “market readers” who rely on an incremental, fast-follower development approach.

  1. Can it be replicated?

People around the world have tried to reproduce Silicon Valley.

No one has succeeded. Why? Can anyone ever reproduce the unique concoction of academic research, technology, counter-cultural ideals and a California-specific type of Gold Rush reputation that attracts people with a high tolerance for risk and very little to lose.

Partially through the passage of time, partially through deliberate effort by some entrepreneurs who tried to “give back” and others who tried to make a buck, this culture has become self-perpetuating.

Can you build another Silicon Valley? Well, yes and no. To get the ingredients just right like Silicon Valley also takes a lot of hard work, single determined focus and luck.

In New Zealand, you see the likes of government/council agencies that try and replicate this kind of success but fail. Why? Because often they don’t look at bringing the competitive/comparative advantage of that area and double down on it. A failure to have an ethos around getting the very best people and organisations to invest in your region also hampers opportunity.

And, if the government through its learning institutions doesn’t focus on what true opportunity is and works with business, then there again is lost opportunity.

  1. Today’s Silicon Valley success is not the startup. It’s the scale-up.

Reid Hoffman LinkedIn’ creator says…

 Over the past 20 or 30 years, the rest of the world has realised the value of the Silicon Valley-style start-up.

“We’ve beaten the drum very well — and a lot of people have heard — that it’s good to build a small team that is willing to take a bold risk, to assemble some knowledge and some capital and really take a run at it.”

What the rest of the world has yet to grasp, he says, is that success—true success—requires the means and the wherewithal to expand your operation at ridiculously fast speeds.

“What most people don’t appreciate about why so many great companies come out of Silicon Valley is the knowledge of how to do scale-up. It’s not just that you build an app and everything works out.

“What first mover means is first mover to scale. If you don’t play the move-fast game, you can frequently lose out to someone who is.”

Hoffman calls this blitzscaling, and he points to Facebook as a prime example. Mark Zuckerberg and company built the world’s most popular internet service in a mere six years.

If the rest of the world doesn’t already appreciate the idea, it soon will.

  1. Lessons learned

 Our take on this paper, regarding lessons learned seems to be: Leadership, vision, focusing on what you do best, give the customer what they weren’t expecting and scaling up fast and giving back.

We hope you see opportunity within your own business from this paper.

Thanks for reading, from the team at the Waikato Chamber of Commerce.

NOTE: this paper incorporates approximately 15 different articles/opinions and brings it into one paper.