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The Cultural Roots of the Innovation Economy

Silicon Valley has been the center of the venture capital and high impact entrepreneurship world for so long that most people under say sixty or so don’t realize that it wasn’t always so. Way back when I was a kid (I was born in 1958) what we now call Silicon Valley was mostly known, if at all, for its orchards. Boston and the adjacent Route 128 region was the birthplace of the modern venture capital industry, and reigned supreme as, well, the Silicon Valley of the day.

In Regional Advantage: Culture and Competition in Silicon Valley and Route 128, Annalee Saxenian looks at the “Myspace-to-Facebook” like competition that saw Boston (Myspace) lose its early lead over a nascent Silicon Valley (Facebook). By roughly 1980, the competition for dominance was over: Silicon Valley triumphed, with more or less half the mass of the entire venture capital universe, while Boston faded into the ranks of the also-rans.

Saxenian’s analysis of Boston’s eclipse by Silicon Valley as the innovation engine of the country (and for that matter the planet) is cogent, and deserves ample attention from folks interested in building regional innovation centers on the Silicon Valley model. Folks in places like Wisconsin, where, despite some encouraging signs over the last decade, the state’s share of annual venture capital investment remains stubbornly under one percent. Thus I heartily recommend Regional Advantage to anyone interested in what factors transformed an otherwise obscure farming region into the center of the innovation universe. There are lessons in the book that are well worth thinking about here in Wisconsin.

First, a couple of things Saxenian talks about that do not explain Silicon Valley’s winning assault on Boston – and by extension do not explain why Wisconsin has not (yet) emerged as even a second-tier center of venture capital investment and high impact entrepreneurship. Both Boston and Silicon Valley – and Wisconsin – were and are home to great research universities. Check that box off, then, as probably necessary, but not sufficient.

The next straw man is tolerance for risk – well, straw man in the context of the Boston/Silicon Valley competition. Cultural acceptance of taking big risks in business is a necessary ingredient for a thriving, entrepreneur-driven innovation economy. But here again there was little to distinguish Boston from what became Silicon Valley. Now we certainly could do better, here in Wisconsin, on that axis. But a bigger appetite for risk won’t be enough, by itself, to push Wisconsin into today’s innovation big leagues.

Finally, we get to some of Saxenian’s points that Wisconsin policy makers, entrepreneurs, investors and business professionals generally can learn from. She identifies several business and social cultural factors beyond business tolerance for risk to explain Silicon Valley’s emergence as the greatest engine of technology innovation in the world- factors that are consistent with my own experiences in the Valley in the 1980s, and my conversations with Valley colleagues since then. Factors that led me to, at one point, put the book down and think to myself “I never should have left the Valley.” (Fortunately it was just a passing thought: more a trip down memory lane than a serious impulse.)

What are some of those factors? In terms of the business culture one key Silicon Valley advantage was a largely “flat” management paradigm, which contrasted sharply with Route 128’s (and Wisconsin’s) more traditional hierarchical management paradigm. Largely a product of World War II’s center-dominated “command and control” economic model the business culture in Boston continued, after the war and even to a lesser extent today, to focus on vertically organized and centrally controlled distributions of power and responsibilities. This dynamic was reinforced by the region’s conservative and much more class-conscious social structure. It’s a paradigm that should be familiar to our more established industries here in Wisconsin today.

Another key factor explaining Boston’s decline was the social culture itself. Albeit to some extent a matter of risk tolerance, and surely related to the region’s hierarchical management paradigm and class-conscious social structure, the social dimensions of the “one career, one company” paradigm that produced the giants of Route 128’s technology community also resulted in the inbreeding that ultimately destroyed most of them (think DEC, Data General, Wang, etc.). Saxenian’s research found, in contrast, that the average career stop in Silicon Valley is … two years. I wonder how long it is here in Wisconsin?

Saxenian goes on to quote a successful entrepreneur in Silicon Valley that“when you ask someone around here where they work, they are as like to say “the Valley” as to name a particular company.” When people ask me about my career, I always start off with something like “I began my career in Silicon Valley” not“I began my career at Cooley Godward,” the firm that paid my salary. Go ahead: ask some people in Milwaukee, Madison or The New North where they work, or got their start, and see if anyone says “Milwaukee” or “Madison” or “The New North.”

Beyond dulling their own firms, the in-breeding and corresponding lack of mobility of key entrepreneurs, engineers and managers in the early days of Route 128 essentially choked off the natural source of supply for later generation start-ups. Think about it: even today the roots of many of the major, and a good chunk of the emerging, semiconductor firms in Silicon Valley – for example Intel, Cypress, AMD, etc. – can be traced, sometimes directly, more often via multiple interim stops, to Fairchild Semiconductor, or, as it is still often referred to even today, “Fairchild University.” (It is no coincidence, I think, that in contrast to Massachusetts, California long ago declared non-compete agreements unenforceable.)

How many comparably important firms can trace their roots to DEC? Or, closer to home, Kimberly Clark? The bottom line is it wasn’t/isn’t “cool” to strike out from an established firm in Route 128 and, as several entrepreneurs have told me here, it’s not cool in Wisconsin, either. (The next time someone leaves Kohler to launch a new, high-risk business here in Wisconsin, consider asking them “what took you so long” rather than “what happened.”)

Back to the business culture. Boston’s problems included a “silo” and “if someone wins, someone loses” approach to business innovation and success. Boston companies like DEC, DG and Wang were well known for being tight-lipped places loath to cooperate with competitors or partner with suppliers. Again, this should sound familiar. (It may seem far-fetched to think of Kimberly Clark cooperating with Proctor & Gamble, but everyone knows that there was no love lost between Microsoft and Bill Gates and Apple and the late Steve Jobs, but Microsoft played a critical role in Apple’s turnaround several years ago with a major capital investment in Apple.)

And today, most of Silicon Valley’s leading companies both cooperate and compete with each other and more to the point with the entire ecosystem of high impact innovators from small startups to established Valley legends. People talk about“Open Innovation” as if it is something new. It’s been going on in Silicon Valley for 50 years, as often between competitors as allies: indeed as often between firms that are both competitors and allies.

©2019 MICHAEL BEST & FRIEDRICH LLP

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About this Author

Paul Jones, Michael Best, technology lawyer, life sciences attorney,
Of Counsel

Paul draws on his extensive business experience as a successful serial venture capital-backed entrepreneur, investor, and angel investor to represent emerging technology and life sciences companies, and venture capital firms in financing and other strategic transactions and general corporate matters. His focus includes:

  • Venture capital financing

  • Startup business and financial planning

  • Strategic business development planning and execution

  • ...
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