Disruption. One of the most feared words that can be uttered to CEO’s of global companies and in board rooms around the world. Companies and entire industries have belatedly discovered that their decades old, tried and true businesses have been disrupted by upstarts the likes of (fill in the blank). Today, every major corporation has an outpost in the Valley and/or a corporate venture fund as they scramble to stay ahead, or at least in touch with many of the new companies and innovations which will likely affect them.
Silicon Valley has been about change and disruption. And over the years it has delivered, creating disruptive companies such as Google, PayPal, eBay, Facebook, LinkedIn, Workday, Tesla, Slack, Dropbox, Uber, AirBnB and hundreds of others which have materially changed industries and provided value to their customers. Entrepreneurs, as well as corporate executives, flock to Silicon Valley in the hopes of figuring out how to recreate the magic and how to avoid being disrupted out of business by the startups using innovative software, hardware, and platforms across a range of businesses and industries.
But Silicon Valley is not without its own flaws. Women and minority entrepreneurs often struggle for funding and advancement. A small number of male venture capitalists have used their position and power to make unwanted sexual advances on women and some founders, such as Travis Kalanick, Founder and former CEO at Uber, create unethical, hostile workplaces. Companies are often measured on their unicorn valuations instead of their true worth, creating incentives to raise money instead of building a successful business. And the cost of Bay area housing makes it difficult to attract and retain talent. Current constraints around visas, work permits, and immigration make it more challenging for the best and brightest to find their way to Silicon Valley as they have in the past. Instead of investing in innovative technologies, entrepreneurs and investors have focused on startups that can scale quickly and require limited capital to get to initial product and revenue. Hardware has become a four letter word for the vast majority of investors who can fund 10 software companies for the same amount of capital it takes to get one hardware company to first customer ship. While Silicon Valley has done a lot of good for the world, it is responsible for a fair amount of bad as well.
The investment cycle is often driven by fads that turn out not to be real and those companies fail. Bitcoin, AR/VR, cleantech, and even many companies in the gig economy turn out to severely underperform as business opportunities and investments. For those old enough to have lived thru the dot com bust, the parallels are a bit worrisome. Webvan raised money for an idea that was, at best, far ahead of its time. Theranos raised the same billion dollars with product promises that could not be met. Hampton Creek, Zenefits, and Skully have materially misrepresented themselves. Other questionable companies such as Juicero, Jawbone, and Beepi all turned into expensive write-offs. The Silicon Valley mantra of move fast and break things has been a justification to. at times, do bad and often illegal things. Equally culpable are a small number of venture capital investors who practice a form of “pump and dump” by hyping a company or sector and then seeking an early exit before the inevitable reality sets in. Creating businesses that really aren’t viable companies in the long run doesn’t work in my world. What ever happened to built to last?
Silicon Valley has had an unprecedented run-it has been the most successful, most innovative ecosystem for decades. Until now. One of Silicon Valley’s key strengths has been the ability to change, to reinvent itself and find new talent, new industries and new ways to build successful businesses. While Silicon Valley is an attitude, an approach a style of doing business, it is also a place. Where it was once unique it now has other parts of the US and the world which are rapidly catching up. There is talent, money and markets in New York, Berlin, Beijing, and Singapore. But whether SV knows it or not, it is history. First, silicon isn’t a major factor driving innovation in the valley; software, AI, blockchain, and analytics are where the opportunities and investment dollars are focused. While hardware isn’t dead, at best it is on life support as entrepreneurs and investors try to build businesses that rely on little hardware or use standard hardware. Secondly, Silicon Valley is still stuck in the 20th century where physical location is key to success. In a global economy with talent available everywhere, companies no longer need to be clustered in a specific location, and certainly not in SV. The most recent decade has seen innovative companies expand to San Francisco, Eastern Europe, Africa and Asia. Yet Silicon Valley investors and the funds are structured so it is difficult if not impossible to invest in most out of area, early stage companies and any international companies at any stage. Silicon Valley’s model has been to wait for those companies to show up with hat in hand-or wait for a Silicon Valley based company to outmaneuver the out of town competitor.
And yet, the world races ahead while Silicon Valley continues as though nothing can usurp its dominance. But China will soon surpasses the Valley on the magnitude of venture dollars invested in startups; likewise, India is moving forward, driven, like China, by large domestic markets, numerous universities, and money from both local and international sources.
The world still has big problems that need solutions, and the talent that startup entrepreneurs possess. Food waste, clean water and energy, global climate change, better healthcare and nutrient for the other two-thirds of the world remain pressing problems. Many of these businesses are currently difficult to get funded by Silicon Valley because of where they are located, their non-US markets and the fact that many don’t “fit” the model of typical Silicon Valley investments.
If Silicon Valley is to retain its global leadership position it needs to do what it is best at-disruption. Or more precisely, in this case, Silicon Valley needs to disrupt itself. Over the ensuing months, I will examine, in further detail, the challenges that Silicon Valley faces as well as the ways in which it can materially change. Silicon Valley is at a crossroad; it can either change and lead or stay as stuck in time like many of the companies who now struggle to keep up with more nimble startups. Lead or follow, that is the question.
The goal of this blog is to inspire dialog and discussion. And hopefully, change. I do believe that the change will come from entrepreneurs who believe that they can change Silicon Valley and the world through innovation, creativity and perservance. My objective is to be the spark that helps initiate that powerful force.
If you believe that change is needed, then please share this blog with your friends. And in particular share it with those who can be inspired to make changes.