Mike Masnick on Silicon Valley and Innovation

Mike Masnick, CEO of floor64 and founder of TechDirt, was in Edinburgh this week, and he talked to the Edinburgh e-club about Silicon Valley: why it is like it is, and how it got to be like that.

Mike showed figures that Silicon Valley received twice as much investment as the whole of New England, which itself received twice as much as the largest next investment area. This article shows the same: in 2004, Silicon Valley received $7.1bn in venture capital, New England $3.0bn and metropolitan New York $1.5bn. That is a huge amount of investment pouring into a tiny area.

He gave a potted history of Silicon Valley – the influence of Stanford University as it decided to commercialise academic research and profit from land it couldn’t sell (but could lease out); the founding of Hewlett-Packard in 1939 (in the obligatory garage – apparently you can now go on guided tours of the garage; that must make for a short visit!); the serial entrepreneurs in the 1950s and 1960s who designed silicon chips; the founding of Intel and Apple in the 1970s, Sun, Cisco and SGI in the 1980s and Google, Yahoo! and Netscape in the 1990s – all on the back of the flourishing technical community and enhanced by connections with Stanford and Berkeley who facilitated graduate students setting up businesses on the back of their research ideas.

Mike identified the key factors which he thought contributed to the flourishing of innovative businesses in the area:

  • the universities and their willingness to commercialise
  • early access to buyers – Disney were an early purchaser of electrical products (an early oscillator from HP being used to in the productions of Disney’s Fantasia, and the US military supported a lot of research through their bases in the Bay area
  • location – kind of tautological this – but with several firms springing up they were able to cross-fertilise each other, with staff moving from one business to another, sharing ideas and know-how, and helping to sort out each others’ problems.</li

Which is fine, but as Mike pointed out, there are a lot of other places that have these factors. Around the world, development agencies have for years been spending money to create them. So what is it that Silicon Valley has or had that gave it the critical mass?

Mike came up with this list:

  • access to capital: the venture capital industry started out early in Silicon Valley, with both Kleiner Perkins Caulfield & Byers and Sequoia Capital being founded in 1972
  • a willingness to accept risk – failure is an option (failing to learn from failure is not, though!), leading to a culture of improvement – if you think there is a better way to do something, go and do it
  • most important in Mike’s view, though, was the willingness to share ideas, facilitated by…
  • high job mobility.

It was these last two that prompted a lot of discussion. California doesn’t enforce non-compete clauses in job contracts, which enables people to easily change job – unlike in other parts of the USA. So people move companies more, taking their knowledge and experience with them; but with so many other companies around, they don’t move far – instead, they build their networks. The proximity of former colleagues means there is a lot of exchanging ideas. Face-to-face contact – even in today’s wired world – is important because it promotes trust. Researchers share their ideas, not too worried about someone stealing the idea.

This of course goes against a lot of what is taught. In the popular TV show Dragons’ Den, for instance, they bang on about the need to protect intellectual property rights – patents and copyright. Mike was sounding positively anti-IP protection – because that stops the cross-fertilisation of ideas, which he sees as an essential part of innovation. (Similar ideas are described in Wikinomics.)

There was a fair bit of dissention to this idea – during questions, some people were saying that they would protect their idea at all cost. But Mike reckoned that the idea wasn’t the key thing: there are few unique ideas; instead, it is the implementation of the idea that is important – and sharing and discussing your ideas will help you hone them. Indeed, he reckoned that most ideas won’t work – but whilst you are trying to sort it out, you’ll have other ideas which will. (There was an article somewhere that supported this view – that a lot of innovation stems from people trying to sort out different problems and stumbling across another idea in the process – like the famous story of 3M’s Post It notes – but I can’t find it!)

I asked about the flow of venture capital in the current economic climate, and Mike reckoned that there was no shortage of capital for good ideas. Indeed, he thought that a reduction in capital and the consolidation of venture capital companies might actually be beneficial, reducing the possibility of bubbles around tech companies. What has changed is the structure of deals.


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