Clusters in global innovation

Good news

The good news, if you are local, is that Silicon Valley cannot be replicated. Not for lack of trying, mind you; lots of countries and regions have poured resources into this idea. Professor Josh Lerner of HBS has an interesting book on this topic - Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed--and What to Do About It.

In the US alone, there are the Silicon Corridor around Route 128 about Boston, Massachusetts, the Silicon Alley of New York City, New York, Silicon Forest of Seattle, Washington, and Silicon Hills of Austin, Texas. All the same, Silicon Valley has the singular noteriety in the public imagination and, more objectively, it consistently pulled in the highest amount of VC funding for new ventures around the world.

Bad news

Lest people get too smug in the San Francisco Bay area, it is also worth noting that anything that has not had an overwhelming geek component, Silicon Valley does not seem to have an inherent advantage.

For example, the recent wave of social buying firms that has gotten the tech world buzzing are not based in Silicon Valley - GroupOn is based in Chicago, Illinois and Gilt's headquarters is in New York City, New York. Even Google's much venerated advertising supported business model came from Overture in the decided "low-tech" Los Angeles, CA according to Mark Suster http://www.bothsidesofthetable.com/twitter-101/.

Looking across the Pacific ocean, Silicon Valley has nothing on mobile handset hardware technology compared to Asia. As anyone who has studied it can tell you, Apple's iPhone is indeed an iconic product, but it is not because Apple is a mobile hardware powerhouse.

The real news

Point by point and in isolation, one could make a plausible case that Silicon Valley is not the best place in the world for a given innovation. On the other hand, with the combination of ethnic diversity, employment, overlapping clusters, and other ecosystems, Silicon Valley still offers the most complete package for disruptive innovation.

As long as you remember that technical geeks suck at shopping.

Moore's Law for software?

Had lunch with Joel Brinkley of Stanford University and talked about the idea of how the half life of a software firm's public awareness seems to shorten by about half for each generation.

Joel suggested that it sounded like the Moore's Law for software. I kind of like the ring of it.

Observations:

• IBM dominated between 1960's-1980's (You don't get fired by buying IBM)
• Microsoft dominated between 1980's-1990's (The evil empire)
• Google dominated around 2000's (Google is working on that problem)
• Facebook dominates since 2005 (Facebook has 500+ million users and counting)

I wonder who will gain the top spot next and how long that would last.

Cluster map of Silicon Valley

Anchors

Here is a cursory view of Silicon Valley clusters and their respective anchors circa end of 2010. This follows Prof. Tony E. Smith of the University of Philadelphia's research in identifying that 1/4 mile and 40 miles having specific impact on technology clusters.

Roughly, it goes from hardware in San Jose to social media applications in San Francisco.

The format goes by City: Company name (industry/technology)

North Bay

• San Francisco: Zynga (Social media/gaming, software)
• South San Francisco: Genentech/Roche (Biotech/pharmaceutical)

Pennisula

• Redwood City: Oracle (enterprise software)
• Menlo Park: San Hill Road (VC)
• Pal Alto: Stanford University (R&D)
• Mountain View: Google (Software/search)

South Bay

• Cupertino: Apple (Consumer hardware/software)
• San Jose: Intel/Cisco (Consumer/enterprise hardware)

East Bay

• Fremont: Tesla (Auto/Cleantech)
• Berkeley: University of California Berkeley (R&D)

Disclaimer

The list above is meant to be an illustration of clusters. There are many exceptions with the most glaring one being that Facebook is located in Palo Alto.

The germane point, nonetheless, is that if you want to start up a solar panel company which utilizes semiconductor manufacturing technologies, the natural location is to be near South Bay near where the semiconductor cluster is.

Self-organized clusters

Not a monolithic blob of geeks

One of details about Silicon Valley is how it is self-organized into clusters of technology, not unlike the traditional service clusters in New York or London. Silicon Valley is best think of as a series of circles each anchored by a leader and these overlapping allows easy cross-pollination to create new companies.

Advantage of proximity and diverse clusters

Proximity to critical mass(es) of diverse skill set is a vital part of new idea formation. Having a deep portfolio of ecosystems within a two hour driving radius, it allows for a solid support infrastructure. If you need to file a provisional patent? If you need to set up your VoIP system? If you need to find co-founders? There are plenty of good patent agents, IT administrators, and start-up soul-mates to be found.

With the overlapping technology and industry ecosystems, as people interact with each regularly, general technology diffusion and the likelihood of finding and applying aspects of known technologies/approaches to a new arena are also much higher.

Until fairly recently, many Silicon Valley VC's have opined that part of their success is due to the fact that they never have to drive for more than two hours to source, monitor, and exit their portfolio investments.

A two edged sword

On the other hand, overlapping clusters has its problems given Silicon Valley's at-will employment.

For starter, if your idea or your execution is sub-par, it is easy for people to leave and find a comparable position. Even if your idea is good and your execution above average, sometimes people leave to join a hotter opportunity. For example Google announced in November of 2010 an across the board 10% salary increase because people, so it seemed, was decamping for Facebook. Finally, for the same infrastructural advantage of clusters, people also leave to start their own companies.

Ecosystem intersections that CFO's will pay for.

What is the ROI

Given the potential benefits of exploring technical and business innovations, companies pay good money to engage in these activities. Below is a sample of different ways interactions can be facilitated.

Company driven

At a company level, many will have a Silicon Valley office. For example, Honda Research Institute has a campus in Mountain View where they active work with other organizations.

Industry driven

In most industry conferences and tradeshows, there will be time dedicated to explore new ideas and technology. For example, RSA, a security conference has a half-day program called Innovation Sandbox to showcase upcoming technologies. Another example is the Demonstration Street area at Printed Electronics USA where novel product ideas are on display for attendees to ponder.

Venture Competitions

Blame it on American Idol, there seems to be a new conference announced every week to let startups compete for a conversation with VC's. Cleantech Open is a good example.

Another twist that combines aspiring startups, funding opportunities, rapid development, and quick financial exit that is gaining a lot of attention lately is Y Combinator with its current focus on "social" related innovations.

Supporting Services

Banks, accounting firms, and law firms are part of the critical infrastrcuture of any economy. In Silicon Valley these firms play an unique role in facilitating cross-industry conversations on topics that are not limited to an industry sector. For example, on a quick check, Orrick, a law firm, is hosting a discussion on the topic of leadership succession planning on February 17, 2011.

Academia

Stanford University is one of the major universities in the area and it has been actively engaging Silicon Valley ecosystems since the early days. Stanford Technology Ventures Program is an example where it allows ideas, experiences, and mentoring to mix.

Another key organization within Stanford that people often don't think about is its Office and Technology Licensing. Did you know that Serge and Larry (Google founders) tried to sell the Google search algorithm through Stanford's OTL and did actually find a buyer?