Silicon Valley: Blaming the Victim

SILICON VALLEY:  Blaming the Victim by Michael S. Malone

What’s wrong with Silicon Valley?

Don’t ask Business Week.

One of the things you deal with living in a ‘hot’ community like Silicon Valley is the biennial arrival of journalists parachuting in to take a quick read and then make sweeping pronouncements about the overall health of the place.

I’m sure folks in New York, Washington D.C. and Hollywood suffer through this far more than we do, but it’s all a bit dispiriting sometimes – especially when you realize that most of the world is accepting this nonsense as gospel.

I first encountered this back in the 1980s at the San Jose Mercury-News.  Back then, long before it was its current dying husk of a paper, the Merc was the fastest-rising new star in the newspaper pantheon.  Ambitious young reporters from all over the country vied for positions at the paper, believing it to be the crucial final step before jumping to the New York Times or Washington Post.  And, of course, once they got to the Mercury-News, the crucial thing was to quickly build a big clip file of sweeping, big-picture type stories – jus the kind of stuff to appeal to editors Back East.

The result was that every few months, the Merc seemed to ‘discover’ Silicon Valley in its backyard for the first time (and not just the Valley:  an in-house parody issue carried the headline “Mexicans Discovered in San Jose”).  It was always the same breathless profile of Apple or Atari or Sun Microsystems, as if they were brand new enterprises, instead of old news.  Not surprisingly, the ‘silicon’ in Silicon Valley – semiconductors – was rarely written about . . .that was too complicated a topic.

The same thing happened again in the late 1990s, during the dot.com Bubble, when the national media suddenly determined that the Valley was the Big Story and sent teams of reporters and camera crews out to San Francisco to cover those wacky web guys.  Then, when the Bubble burst in 2000 – a natural, if in this case supercharged version, of the standard boom-bust cycle of tech – they declared the tech revolution over, packed their bags and went home . . .thereby mostly missing the even more important Web 2.0/Social Network boom two years later.

In truth, it’s been kind of nice not to have been much noticed by the national media the last few years.

But now, the cycle seems to have begun again.  This time, the Big Story seems to be a ‘failure of innovation’ in Silicon Valley.  Or more precisely:  “What’s Wrong with Silicon Valley?” the current cover story in Business Week magazine.

It is, in fact, a very good question.  But the reporter, senior writer Steve Hamm, somehow got the answer all wrong.  And, once again, he did so by looking through the wrong end of the telescope.

In Hamm’s case, this is a bit surprising.  He was one of those reporters who parachuted into the Valley in the ‘80s, working as a business editor for the Merc, then as a Silicon Valley bureau guy for Biz Week.  But he stuck around long enough to get a good understanding of the dynamics of the place.  Plus, he’s a very good writer.

But apparently he’s been back in New York a little too long, because his article somehow misses the point completely.  He should have spent more time West of the Sierras, rather than East of the Hudson.

Basically, the thesis of Hamm’s piece is that Silicon Valley, once the heartland of big-thinking dreamers who set out to change the world with dynamic new inventions and equally dynamic new companies, has suffered a failure of nerve.  It is now the land of small-dreams and small-timers, all operating under the regime of a gutless, broken venture capital industry.  He then quotes industry legend and former Intel CEO Andy Grove as saying that today’s Valley start-up companies “give us refinements, not breakthroughs.”

Hamm’s solution?  Well, once you realize that this is Business Week, the most statist of the nation’s business magazines, the answer is predictable:  More government incentives.  That, and Valley entrepreneurs just need to buck up and start taking risks again.  Oh yeah, and big tech companies need to start doing some serious, ground-breaking research again.

This is the point that, if you’ve spent a lot of your life in high tech, and especially in Silicon Valley, you bury your face in your hands.  Oh God, not this again.  And you think about all of the Business Week readers out there (fewer and fewer these days, but enough of them to have influence in Washington) and shudder.

What is most astonishing about the article is that somehow, Steve Hamm, even after living out here all of those years, completely misread the tenor of this place.  He seems to believe that, magically, human nature has been revoked – and that the world’s highest-concentration of risk-taking entrepreneurs has suddenly become a flock of frightened sheep.  Then he goes out and confirms that fact with, of all, people, Andy Grove.

Now Andy is an extraordinary character and one of the greatest businessmen in American history, and he ran one of the most amazing high-tech companies, Intel Corp., ever.  But he is not an entrepreneur, he has never been an entrepreneurs, and though most of his career, he has shown he hates entrepreneurs and tries to crush them whenever he has the chance.  He is also 72 and three generations removed from the young Web 2.0 crowd at places like Facebook and Twitter.  Go to him for a pronouncement about how things aren’t the way they used to be, and you’re going to get the money quote you’re looking for.

Since Steve Hamm and Business Week aren’t willing to give you anything but their own big government/big business solutions to the perceived crisis, let me give you the real story – and real solutions – from somebody who has been on the ground here in Silicon Valley for 45 years:

Yes, Silicon Valley – and by extension, the U.S. high technology industry, is in something of a crisis right now.  Part of it is the fact that, as the largest manufacturing sector in the US economy, electronics is not immune to the larger financial crisis currently impacting the world. 

But there a lot of other problems as well.  For one thing, the venture capital industry is in real trouble – not because of a lack of courage, but because government interference – most notably, Sarbanes-Oxley – has proven almost fatal to the new company creation process.  With almost no potential for a big pay-out on the back end (because companies don’t ‘go public’ any more), VC’s are having to be much tighter on the front end.  That’s good business, not gutlessness.

As for the entrepreneurs themselves, to charge them with a lack of courage or character is truly insulting.  Instead of hob-nobbing with senior executives, Steve should have called me.  I would have taken him to the little Peet’s Coffee shop in nearby Cupertino where I get my lattes twice per day.  There, I would have shown him that on any given day you can see at least two entrepreneurial teams – a half-dozen guys huddled over a single laptop editing spreadsheets – almost always different, and all dreaming of starting the Next Big Company.  There are hundreds of these start-up teams all over the Valley right now – indeed, I think there is more entrepreneurial fervor going on right now than just about any other time in Valley history.

Are these folks thinking small?  Are they short on courage?  No, what they are is pragmatic.  That’s the essence of being an entrepreneur.  They know what the business landscape is out there, and they are adjusting their plans to succeed in that new reality.

No, the problem is not that entrepreneurs and investors in Silicon Valley and the rest of high tech aren’t thinking big, it’s that they aren’t being allowed to.  If Business Week would just take off its ideological blinders, it would realize that if Washington really wanted to help a sick Silicon Valley, it would get out of the way, and strip away all of those worthless regulations that are inhibiting the imagination and the creativity of this town.  And, since the Feds can’t help but throw money at problems, how about spending some of that dough on Big Science and other original research – and start growing the seed corn (as DARPA did in the 1960s) for the next fifty years of high tech companies?

Too much regulation and not enough basic research.  That’s what’s really wrong with Silicon Valley.  And articles like the one in Business Week, by distracting policy makers to the wrong discussion, only make the situation worse.