May 29, 2006
Nerds + Rich People = The Next Silicon Valley?
Posted by Victor Fleischer

Nerd/Programmer/VC Paul Graham has posted an essay, How to Be Silicon Valley.  (HT to Phil Weiser.)  Graham argues that you only need two kinds of people to create a technology hub: rich people and nerds.  If you don't have enough nerds, you'll need a great university to attract them.  Graham continues:

However, merely creating a new university would not be enough to start a silicon valley. The university is just the seed.  It has to be planted in the right soil, or it won't germinate.  Plant it in the wrong place, and you just create Carnegie-Mellon.

To spawn startups, your university has to be in a town that has attractions other than the university.  It has to be a place where investors want to live, and students want to stay after they graduate.

You need a town with personality to draw in the rich folks and prevent brain drain.  Graham cites Boulder and Portland as the two most promising cities-with-personality, but he notes that the existing universities in those two towns aren't great (i.e. not the caliber of Stanford and Berkeley.)  I haven't been to Madison, but I suspect it would be in the running too from what I've heard (and seen on Althouse).

I largely agree with his analysis, and I'd argue that the "limiting reagent" to startup growth in Boulder is the cramped budget of the university.  So my question is this.  How, exactly, do you convince the good folks of the state of Colorado  (or Oregon or Wisconsin) to pour money into the university when the technology hub benefits -- esp. in the first few years -- would be concentrated in Boulder (or Portland or Madison)?  Or is additional university-private sector collaboration the key?

In any event, Graham certainly understands the geographic preferences of nerds:

Most nerds like quieter pleasures.  They like cafes instead of clubs; used bookshops instead of fashionable clothing shops; hiking instead of dancing; sunlight instead of tall buildings.  A nerd's idea of paradise is Berkeley or Boulder.

Hard to argue with that.

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Comments (18)

1. Posted by Cathy on May 29, 2006 @ 16:07 | Permalink

AnnaLee Saxenian at the School of Information Management at UC Berkeley has done a lot of research on what made Silicon Valley Silicon Valley, as opposed to, say, the 128 corridor near Boston, which, though endowed with tech companies and lots of smart people nearby did not evolve into an equal rival.

It's been quite a few years since I studied her work, but IIRC one of the differentiating factors was a greater fluidity to Silicon Valley companies than those in MA. They were smaller, with less of a rigid hierarchy so that change could be adapted to faster, and employees often moved around from company to company more so than their northeastern counterparts.

So access to smart people is one thing, but you need a certain organizational structure as well in order to really capture something special.

Her book on the subject.
Her homepage.

2. Posted by Vic on May 29, 2006 @ 16:28 | Permalink

Great comment Cathy -- yes, Saxenian's book is a classic, and there's no doubt that organizational structure is important. It's interesting to think about -- which is more important, having an attractive place to live, or a culture of fluidity and innovation?

3. Posted by Cathy on May 29, 2006 @ 16:59 | Permalink

Probably the latter. I remember in the class where we studied her book I prepared an experiment where the class was divided in half, with an East Coast team and a West Coast team. The East Coast team was structured as one multi-layered hierarchy. The West Coast team was a bunch of smaller groups.

Each team had an identical task to complete, which in this case was to decode a message. So first they had to divide up the task among themselves to complete. I think IIRC the East Coast team started out with a small advantage because it could divide up the task more efficiently within itself. But then midway through we changed the technology on them and gave each team a new code to use. The West Coast team could much more easily absorb the change since the communication routes were much flatter. Whereas the East Coast team had to funnel the change up through several levels before being able to completely redisseminate it to all the lower ones.

However, the physical environment of each locale still may matter. One of the problems with 128 is that it was old. Whereas Silicon Valley was new. As a result it was much easier for new companies to organize themselves into new ways than it was for the older ones to.

(There also may be a psychological effect of the weather and terrain of California in the inherent optimism and flexibility of its workers, but I don't think that's the driving factor.)

4. Posted by Cathy on May 29, 2006 @ 17:03 | Permalink

By the way, it also comes to mind that it wasn't nerds + rich people that made Silicon Valley originally. It was nerds + government contracts that did. The rest just sprouted up around it.

5. Posted by anon on May 29, 2006 @ 17:11 | Permalink

Let's not forget the different treatment of non-competes allowing for more fluid movement of employees in CA versus Mass

6. Posted by James on May 29, 2006 @ 20:53 | Permalink

As a member of the Republic of Boulder I can say your chance of encouraging more funding to CU is very unlikely. The majority of the state believes in tax cuts rather than tax increases. Recently we had an election that would have used our sales tax refund for eduction. Lets just say I had no problem getting my sales tax refund.

Additionally, pockets of small tech companies seems to be another key in creating a Silicon Valley. Boulder/Superior/Louisville/Broomfield have been moving in a direction of big companies. Storage-tech, a traditionally local tech company was just gobbled up by Sun Micro-systems. On the other side of Boulder IBM has done the same with several small tech companies.

The center of money is also more spread out in Boulder than people think. Most people live in the wealthy bedroom communities outside of Boulder, and Boulder itself is largely unimpressive with the exception of the popular Pear Street area.

Despite my pessimism in the possibility, there are a number of factors that might help it out. The USFG is already familiar with the area on a sole source contract basis, as Boeing and other aerospace companies are in the area. Boulder also has room to expand, and the trend seems to be in favor of liquifying open space, rather than preserving it. Boulder is also just now starting to really show itself off as a major economic center. Only about 10 years ago, most of the communities around boulder were nothing. Finally, the state is looking for a way improve CU's image. After a rape scandal, and prof scandal (Ward Churchill), and a loud moth basketball coach, CU needs something to be proud of. That fact may just improve a proposal like this if someone actually suggested it.

7. Posted by Robert Schwartz on May 29, 2006 @ 22:25 | Permalink

Silicon valley was a unique set of events. It will not happen again. There will be bubbles, and there will be bursts of creativity, but they will happen in different places, different industries and different circumstances.

P.S. Cathy: Not so. SV began with Hewlitt Packard in the 1930s. Before government contracts. The microprocessor was devised to power a handheld calculator designed by a Japanese company. The government contracts went more to Route 128, BBN, Lincoln Labs, Raytheon etc.

8. Posted by Cathy on May 30, 2006 @ 5:04 | Permalink

Actually, Silicon Valley predates computing.

HP began in 1939 by making an audio oscillator, and its first customer was Walt Disney. But one customer does not a corporate powerhouse make. With WWII the governement orders for its electronics picked up and that's what got things rolling.

Products from the fledgling company win excellent acceptance among engineers and scientists. The start of World War II turns a trickle of U.S. government orders for electronic instruments into a stream and then a flood. HP builds the first of its own buildings and adds several new products.

It didn't get into computing until the 1960s, long after the company was already quite large.


9. Posted by Paul Gowder on May 30, 2006 @ 9:29 | Permalink

I don't know about Colorado, but the problem with Oregon is that it has no money to pour in. The Willamette valley is fairly prosperous (though nothing like the Bay Area even, but the rest of the state is rural and, honestly, fairly poorish. The state government is always pinched, etc.

So does this mean we're officially in the second, google-driven, .com boom?

10. Posted by Robert Schwartz on May 30, 2006 @ 11:03 | Permalink

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