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Understanding Silicon Valley: A Model of Innovation and Entrepreneurship

Explore the unique characteristics of Silicon Valley, a dynamic region defined by innovation, entrepreneurship, and continuous reinvention. Learn how small companies drive technological advancements and economic growth through endogenous innovation.

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Understanding Silicon Valley: A Model of Innovation and Entrepreneurship

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  1. The Silicon Valley Model Russell Hancock President & Chief Executive Officer Joint Venture: Silicon Valley Network November 14-15, 2008

  2. What is Silicon Valley?

  3. Some things Silicon Valley is NOT: NOT A PLACE YOU CAN POINT TO ON A MAP REALITY: • Loose collection of independent cities, most of them small towns • No formal identity, no borders • No regional government, no regional framework for decision-making

  4. Some things Silicon Valley is NOT: NOT A PLANNED PHENOMENON REALITY: • Not targeted or supported by national policy • Not a product of local government planning • Follows (very) chaotic patterns of development

  5. Some things Silicon Valley is NOT: NOT CHARACTERIZED BY SILICON OR CHIPS REALITY: • At least 7 major industrial clusters, plus a cluster dedicated to company formation • Region changes its portfolio over time

  6. Some things Silicon Valley is NOT: NOT NECESSARILY SOMETHING THE REGION CAN TAKE CREDIT FOR REALITY: • A series of historical accidents • Has as much to do with larger American patterns of capitalism (bankruptcy law, tax law, labor stance) … • … and the American legal system (property rights)

  7. So What is Silicon Valley? 1,500 square miles 35 Cities, 4 counties 2.4 million people, 41 percent foreign born 1.2 million workers 81 percent high school diploma; 40 percent college degree 25 percent of workforce in high-skill occupations Income average 60 percent higher than US 6 percent US GNP, 11 percent of US patents Productivity rate growing 50% higher than US average

  8. But our most important characteristic … Is that we keep reinventing ourselves!

  9. Milestone Silicon Valley Innovations

  10. Top Patent-Generating Cities, 2007 Source: Joint Venture: Silicon Valley Network, 2007 Silicon Valley Index

  11. However, the Valley’s edge doesn’t stem from innovation alone …

  12. … but also from entrepreneurship Silicon Valley has a remarkable capacity to create and grow new companies New Companies New Technologies (Entrepreneurship) (Innovation) Endogenous Growth New Wealth Creation + 

  13. The Valley spawns the leading companies in every technology generation

  14. The Valley also proliferates new business models • Internet-based commerce (Netscape) • Free search, supported by advertising (Google, Yahoo) • Music downloads (Apple itunes) • Social networking (Facebook, MySpace) • Consumer as producer (You Tube)

  15. Largest Silicon Valley Firms

  16. But the real story is the small companies Source: Joint Venture: Silicon Valley Network, 2005 Silicon Valley Index

  17. Technology Regions Will Always Experience “Boom-Bust” Cycle • New technologies drive dynamic waves • Entrepreneurs take advantage of new opportunities • Swarms of new firms cluster around new technologies creating short term bubbles • New products eventually become commodities and investment leads to breaking of bubbles. • New technologies emerge from the convergence of old technologies and the process of “creative destruction” begins again

  18. “SILICON VALLEY LOSING ITS EDGE.” Cover Story, Business Week. “DREAMS OF STRIKING IT RICH FADING IN SILICON VALLEY.” Front page, Los Angeles Times “SILICON VALLEY WILL NO LONGER BE AN ICON.” Po Bronson, Wired

  19. “SILICON VALLEY LOSING ITS EDGE.” Cover Story, Business Week, 1985. “DREAMS OF STRIKING IT RICH FADING IN SILICON VALLEY.”Los Angeles Times, 1991. “SILICON VALLEY WILL NO LONGER BE AN ICON.” Po Bronson,2003.

  20. Bubbles Aren’t New • Between 1846 and 1852 telegraph miles in the US rose from 2,000 to 23,000. Three lines covered New York and Boston, though there wasn’t enough traffic for onne. • In 1894 the US had 192 railroads in bankruptcy (41,000 miles of track)

  21. Bubbles Aren’t All Bad • Spread of cheap telegraphy fostered other key innovations: Associated Press, national markets in stocks • Railroads served as crucial platform for new industries: Sears & Roeback.

  22. After the dot-com bubble … • Prices plunged: servers, digital cameras, domain-name registration, web design, web hosting, office space • System in place for transmitting data, voice, documents, companies like Vonage and Skype rise up. • Google prospers by lashing together thousands of cheap servers and tapping into an installed base of 172 million web surfers, and hiring redundant engineers

  23. To further illustrate:consider Silicon Valley’s macro performance during the last downturn

  24. The Dot-com Crash • In 2000 Silicon Valley generated $35 billion in venture capital. • The region added 350,000 jobs. • By 2005 the region lost 200,000 jobs, in what became the most prolonged regional contraction since the Great Depression (1929).

  25. The Bubble in a single picture:

  26. Yet even through the downturn, most key indicators continued to rise

  27. Value-Added per employee grew at twice the national rate

  28. Region’s share of Venture Funding Continued to Grow

  29. Average Pay Continued Rising

  30. So what’s the secret?

  31. What’s the secret? A HABITATfor Innovation • Results oriented meritocracy • Climate that rewards risk and tolerates failure • Strong markets (capital, labor) • Mobile, fluid workforce • Favorable government policies • Open business environment • Universities and national research institutions that collaborate with industry • Specialized infrastructure: venture funding, lawyers, accountancies, executive search • Quality of life • Cluster effect

  32. What’s the secret? A HABITATfor Innovation • Results oriented meritocracy • Climate that rewards risk and tolerates failure • Strong markets (capital, labor) • Mobile, fluid workforce • Favorable government policies • Open business environment • Universities and national research institutions that collaborate with industry • Specialized infrastructure: venture funding, lawyers, accountancies, executive search • Quality of life

  33. What’s the secret? A HABITATfor Innovation • Results oriented meritocracy • Climate that rewards risk and tolerates failure • Strong markets (capital, labor) • Mobile, fluid workforce • Favorable government policies • Open business environment • Universities and national research institutions that collaborate with industry • Specialized infrastructure: venture funding, lawyers, accountancies, executive search • Quality of life

  34. What’s the secret? A HABITATfor Innovation • Results oriented meritocracy • Climate that rewards risk and tolerates failure • Strong markets (capital, labor) • Mobile, fluid workforce • Favorable government policies • Open business environment • Universities and national research institutions that collaborate with industry • Specialized infrastructure: venture funding, lawyers, accountancies, executive search • Quality of life

  35. What’s the secret? A HABITATfor Innovation • Results oriented meritocracy • Climate that rewards risk and tolerates failure • Strong markets (capital, labor) • Mobile, fluid workforce • Favorable government policies • Open business environment • Universities and national research institutions that collaborate with industry • Specialized infrastructure: venture funding, lawyers, accountancies, executive search • Quality of life

  36. What’s the secret? A HABITATfor Innovation • Results oriented meritocracy • Climate that rewards risk and tolerates failure • Strong markets (capital, labor) • Mobile, fluid workforce • Favorable government policies • Open business environment • Universities and national research institutions that collaborate with industry • Specialized infrastructure: venture funding, lawyers, accountancies, executive search • Quality of life

  37. What’s the secret? A HABITATfor Innovation • Results oriented meritocracy • Climate that rewards risk and tolerates failure • Strong markets (capital, labor) • Mobile, fluid workforce • Favorable government policies • Open business environment • Universities and national research institutions that collaborate with industry • Specialized infrastructure: venture funding, lawyers, accountancies, executive search • Quality of life

  38. What’s the secret? A HABITATfor Innovation • Results oriented meritocracy • Climate that rewards risk and tolerates failure • Strong markets (capital, labor) • Mobile, fluid workforce • Favorable government policies • Open business environment • Universities and national research institutions that collaborate with industry • Specialized infrastructure: venture funding, lawyers, accountancies, executive search • Quality of life

  39. What’s the secret? A HABITATfor Innovation • Results oriented meritocracy • Climate that rewards risk and tolerates failure • Strong markets (capital, labor) • Mobile, fluid workforce • Favorable government policies • Open business environment • Universities and national research institutions that collaborate with industry • Specialized infrastructure: venture funding, lawyers, accountancies, executive search • Quality of life

  40. What’s the secret? A HABITATfor Innovation • Results oriented meritocracy • Climate that rewards risk and tolerates failure • Strong markets (capital, labor) • Mobile, fluid workforce • Favorable government policies • Open business environment • Universities and national research institutions that collaborate with industry • Specialized infrastructure: venture funding, lawyers, accountancies, executive search • Quality of life

  41. INDUSTRY CLUSTERS:geographic concentrations of related industries Exporting Companies Specialized Suppliers Supporting Infrastructure

  42. An example of the cluster effect:THE SEMICONDUCTOR CLUSTER AMDINTELCYPRESS chemicals, equipment, software tools, clean room design, toxics monitoring research, workforce training, building inspectors, electricity, airports, executive search, accountancies, law firms

  43. CLASSIC EXAMPLE OF CLUSTER EFFECT: Kleiner Perkins Network, ca. 1998 Thin Line: Partnership between two KP companies Dotted: Exec from one KP company on board of another Thick: KP partner sits on board of more than one company

  44. Cluster effect transcends national boundaries Taiwan Value-added IC design Productization Advanced IC manufacturing EXAMPLE: Applied Materials, Inc. Maximizing the Semiconductor Food Chain China Silicon Valley Systems and Chip Architecture Global Marketing Capital Investment Regional Distribution Low Cost Manufacturing Three Regional Centers growing together, increasing the overall size of the pie

  45. So what’s next for Silicon Valley?

  46. The Next Big Wave? • We’re not finished with Information Technology yet! • Telecommunications, hand-held devices, entertainment • Ubiquitous internet, WIFI, WIMAX • Media, Web 2.0

  47. The Next Big Wave? 2. Alternative Energy, Clean Technology, Green Design Venture Funding in Clean Tech, 2006

  48. The Next Big Wave? • CONVERGENCE Nanotechnology, Biotechnology, and Information Technology

  49. Examples of Convergence

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