Silicon Valley lessons--decline of the West?

Commentary--In over 30 years of travel to and from Silicon Valley I have seen the rise from near-obscurity to it being a dominant force in the world, to a slump during the dot-com bust, to what I now perceive as another rise in fortunes.

At the height of the dot-com bust San Francisco police were finding over 80 cars a day with the keys left in the ignition at San Francisco airport. This was mainly down to the population of Indian and Chinese immigrant engineers and scientist going back home. Having suddenly had their employment terminated by American companies and corporations they had no choice--it was time to go home.

Having been employed for many years in Silicon Valley, they had learned about turning ideas into commercial success. They’d learnt about capitalism, manufacturing, sales and marketing--and they had learnt how to network and how to manage. No surprise then that these people are now the heart of the outsourcing industry in India and the manufacturing miracle that has become China.

This is all good news for the world from the perspective of wealth redistribution, as a key element of globalization, and of course for cultural exchange. And, perhaps even, as a mechanism for the lessening of racial intolerance and the risks from future terrorism.

The bad news for the Valley is that these workers are not coming back and the holes they have left may well be permanent. Worse, the output of universities in the United States, especially in terms of scientists and engineers, may not be sufficient to rekindle past glory.

However, I feel that the Valley should not look backwards to the days of electronics and software for its future. It should look forward to nanotechnology, biotech and smart materials. And in this regard there is a new breed of engineer and scientist arriving, more holistic in their views.

The only question is: how long it will take for these new industries to rise to the point where they can replace the old? The number one impediment will most likely be the US dollar. While its rapid devaluation against other currencies is an aid to export, it is a big negative when it comes to attracting high quality R&D staff. A second impediment is the reduction in the number of business angels and venture capitalist willing to take big risks.

Almost without exception venture capital operations throughout the United States have suffered from dot-com stupidity and many are still trying to recover before they hit their investment deadlines.

This situation sees almost everyone focused on the quick flip: how do you take $1 million and turn it into $3 million in 12 to 18 months? This is the big question, the almost singular objective. For sure you don’t invest in speculative things like nanotech, bio and new materials. These are most likely going to take another decade to come to fruition and on the way there will be many casualties. So today no one wants to bet on a potential casualty, no one wants to run any risk.

Before the dot-com bust, the market place here was so vibrant that people would take a punt on almost anything and there were sufficient people doing so to spread the risk. Sooner or later, people made money and the world moved on. The angel and venture capitalist really lived up to and deserved their titles.

But look at the time that it took the laser, optical fiber and the microprocessor to take a grip on the world and then think in terms of the exponential speed of technology. How long will it be before nanotech, bio and smart materials do the same? My guess: we are in for a minimum of a 10-year run. But who wants to invest in anything that takes 10 years?

Friends and family investment can get you quite a way down the track of getting started and making headway into the technology to a proof of principle stage. But things have now become so dire that most venture capitalists won’t invest in anything unless it has a place in the market, has customers, is actually making money and, most importantly, the first profits are on the horizon. At the same time the really big corporations born of the period up to, during and after the dot-com bust have become myopic, have gone back to basics or have diversified to the point where they have lost their basic grounding and expertise and don’t know what to do.

All of this seems very depressing and could lead you to believe that it is all over for the Valley and even high-tech in the West. I don’t think that is the case. A little bit like life, technology always finds a way. Try and constrain really smart people and they will become ever inventive and creative in solving problems.

In the past this marked quite a difference between innovation in Europe and North America. North America was awash with optimism and money. Europe had far less money to spend and always seemed naturally pessimistic. But it didn’t stop the invention of new technology or the creation of new markets by either side.

When I look at the output from our universities, the best scientists, engineers and technologies fill me with optimism. But on the other hand the output of our business schools and the lack of good students tends to make me a little more pessimistic. When I review the success stories of the last 25-30 years, the real successful individuals didn’t have an MBA--they were entrepreneurs, innovators and real drivers. I just hope that the next generation can find a way out of this current rut and see a way of getting new technologies quickly to market.

In south and east Asia they are turning their attention from outsourcing and manufacturing to design, creativity and R&D, while in the West there has been a significant decline. Critically, there comes a point where the vital infrastructure necessary to support creative change is no longer available locally. It just dies through the lack of support in any environment where creativity subsides.

In the United States something like 60 per cent of all new start-up companies have to go abroad for half their workforce. More often than not half their workforce is in south and east Asia and half in the United States. In Europe the small support companies required to do the bending of metal, wielding of plate, printing of material, lithography and fabrication of silicon are disappearing. Once this attrition is complete, or has hit critical point, you eventually have no choice but to outsource all key R&D. Economically this is not good news. I just hope we manage to hold it together and retain our current lead in nanotechnology, biotech and smart materials.

Dictated as I drove down 101 past Palo Alto reflecting on how much busier the traffic was, and how many meetings I now see in the local restaurants, compared to three years ago when the place seemed to have almost died.

The digital draft was e-mailed to my PA and arrived on my screen two days later back in the UK. Three weeks later it was revised and despatched to silicon.com via a dial-up line at a hotel just outside Lancaster after a discussion with the manager about Wi-Fi and broadband.

biography
Peter Cochrane is a co-founder of ConceptLabs CA, where he acts as a mentor, advisor, consultant and business angel to a wide range of companies. For more about Peter, see: http://www.cochrane.org.uk/. He writes a regular column for silicon.com that is archived here.