For all those in the Obama administration-to-be, Congress, and policymakers around the country looking for ways to “stimulate” the American economy, I suggest reading Steve Hamm’s great BusinessWeek article, entitled “Whatever Happened to Silicon Valley Innovation?”
Hamm clearly outlines a phenomenon that America needs to address if it’s going to fix its economy not only for tomorrow, but for the decades to come: the disappearance of Silicon Valley startups that matter. The kind of startups that will evolve into the Intel’s, Google’s, Microsoft’s, and Oracle’s of tomorrow. The kind of startups that will redefine technology, business, and society in a meaningful way.
The article echoed the concerns that Tim O’Reilly made public late last year at the Web2.0 Summit. As CNET reported his remarks, O’Reilly warned that:
“…you have to conclude, if you look at the focus of a lot of what you call ‘Web 2.0,’ the relentless focus on advertising-based consumer models, lightweight applications, we may be living in somewhat of a bubble, and I’m not talking about an investment bubble. (It’s) a reality bubble…You have to ask yourself, are we working on the right things?”
However, the Business Week article identifies that the problem is bigger than Silicon Valley entrepreneurs chasing quick profits from silly social media apps while eschewing things that matter. In fact, the entire Valley VC culture has shifted to make it much more difficult to create significant startups:
Venture firms are shying away from the kind of large and risky bets they made in the 1990s, and some experts say a company like Transmeta could never get off the ground today. “If it takes more than $100 million to get a company started, you probably can’t get the returns VCs want,” says Navin Chaddha, managing director of Mayfield Fund, which has backed standouts such as Compaq Computer and Genentech. The venture model for capital-intensive companies is “broken,” he says.
The article quotes Andy Grove, former chief executive of Intel (INTC), as saying that
“These days, people cobble something together. No capital. No technology. They measure eyeballs and sell advertising. Then they get rid of it. You can’t build an empire out of this kind of concoction. You don’t even try.”
The result is that much of the most promising new R&D is being done by large companies like IBM and Microsoft, which is actually a problem:
“Established companies are usually not the most capable of creating truly disruptive technologies. As management guru Clayton M. Christensen explained in his hallmark Innovator’s Dilemma, established companies have a vested interest in selling what they already produce, and they’re often reluctant to launch technologies that upset existing businesses. Scrappy upstarts are the ones who usually come up with breakthroughs, and they push established companies to new achievements.”
As we attend innovation conferences around the world, Silicon Valley is always the example that everyone else is trying to recreate…but it’s the Silicon Valley of the past 20 years, no the Valley of today. If policymakers want to get America’s economy back on track, they must examine this problem and find some ways they can help. We came up with a few ideas here, but they are by no means a complete list. Anything else we should include?