What is the Emerging Character of Today's Silicon Valley?
I happened upon some posts recently that share a common theme—the current reinvention of Silicon Valley. Change is nothing new in these parts—it's what defines the place. And while it's easy to bemoan the changes that are occurring (and conversely, to celebrate what's new as if it was invented for the first time) that kind of discussion is pointless. The discussion that does have merit is represented by these posts. You could title them collectively as "Is this what we want to become?"
The first post is by Steve Blank, one of my heroes. He writes that social media is crowding out all other sectors for venture capital investment, because its (potential) returns are so large and realized so quickly. He notes that other investment sectors, such as clean-tech and life sciences, are being passed over in favor of "Web 2.0" (even that term seems dated now) startups such as Facebook, Google, Zynga and others. 30 years ago, a venture capital firm would invest multiple millions of dollars in a semiconductor company and not expect to see a return for ten years or more. Today, a VC invests a few hundred thousand dollars (at early stages) in a social media startup and might see a payoff in two or three years.
The second post, by William Davidow (another hero) notes the culture change occurring, as the CEO's setting the values for Silicon Valley shift from the likes of William Hewlett and David Packard to Mark Zuckerberg, Marc Pincus, and Larry Page. Where Hewlett and Packard built a business focused on pristine customer service, the new breed of CEO's are building businesses based on the exploitation of customers (more specifically, their data). It wouldn't be fair to imply that these current CEO's don't care about customer service. It's just that their businesses operate (to varying degrees) with a "free" model that focuses on attracting users and mining their data, with the paying customers being the companies that buy targeted advertising on these sites.
And, as if experiencing the zeitgeist, Vinod Khosla also joined the discussion, exhorting today's entrepreneurs to focus on building lasting value vs. "flipping" their startups.
These commentators share a common theme—build your company to last, build it to change the world—because they come from a shared history and experience with "the Valley." Their sentiments are more (much more) than mere nostalgia for the Valley as they once knew it. They've given voice to feelings people like me have had as we've witnessed the emergence of these new style startups, requiring us to reinvent ourselves to remain relevant and valuable to today's startup community.
And Not That
These writers, and those of us who have been here since the 1990's, remember the "dot bomb" era of the late 1990's/early 2000's. At that time you had companies with no proven business model being valued and sold at incredible prices. It was a common joke that you could drive up your company's market capitalization by simply adding a leading "e" or "i" or a trailing ".com" to the company name. I remember taking calls from Internet companies trying to sell me advertising: the callers had no knowledge of what my company was about and couldn't tell me why I needed their advertising. I also remember interviewing a new college graduate for a Business Development role. He had no experience, but was confident that he could command an $80K starting salary. Such were the times.
Bubble? Or No Bubble?
Department of Obscure References
And so those (especially in the media) who witnessed this implosion as it happened now play the parlor game of "Bubble? Or No Bubble?" as they observe the multi-billion dollar valuation of companies like Box, Dropbox, Groupon and others. One difference with today's hot startups is that these companies tend to have an identified and validated business model. They often aren't cash flow positive as yet, but are trending in the right direction. The "Bubble!" crowd wrings their hands and wags a finger at today's startup CEO's: "Just wait! You'll get your just reward!" The "No Bubble!" crowd smoothes their hoodies and says "Wait! This time it's different!" The audience voting falls along the lines of who thinks they will profit from or get crushed by any such bubble.
The discussion of economic implications has largely been theoretical. That changed with the recent news regarding Zynga's secondary stock offering and subsequent earnings dive. To torture a phrase, there may not have been any fire here, but there sure is a lot of smoke.
What Really Matters
But I'm not so interested in the "Bubble? Or No Bubble?" discussion. These are the questions that are worth asking.
- How can a startup leverage the knowledge and experience of a Silicon Valley veteran?
- How can such a veteran embrace new ways of thinking and working?
Let's take the first question. I was talking about this over coffee recently with a colleague and former manager. He's younger than me, but still would be seen as outside the age demographic for today's startup founders. His perspective was that today's company founders are running so fast, they haven't figured out what they don't yet know. A few will learn without doing lasting damage to their companies. Some will realize that this is the point where they need to bring in some experienced help. And others… let's just say it won't be pretty. Remember, some of the "dot bomb" disasters were failures of execution (WebVan) as much as failed business models.
My advice to today's startup community would be this.
- Figure out—quickly—what it is that you don't know, but need to know. Then discover who does have that knowledge, and ask for their help. If your software company finds itself manufacturing devices to run the software, realize that you're now faced with manufacturing and supply chain questions… and you'll get to market faster by engaging with someone who's already solved those problems.
- Remember that humility is a survival strategy. Your success so far is as much about luck as it has been about your idea and the execution of that idea. Acknowledging that fact will make it easier to ask the "what do I need to know?" question.
Regarding the second question, what does it take for a Valley veteran to succeed in today's startup environment?
- It's likely that those who could use your knowledge and skills aren't fully aware of their need. So while it might be obvious to you, it's not to those who would hire and pay you. I recall the moment that I realized I had knowledge of how hardware, software and firmware combined to form a "system" and that was exactly the knowledge needed to solve the logistics and design problems faced by our startup. I had to explain the problem to the founders before I could go on to solve it.
- Humility is valuable here as well. Don't expect the respect of others on the basis of your experience or knowledge. It's all about what you do with that experience and knowledge that will earn you respect. I knew all about setting up 3rd-party interoperability programs, but that's not what mattered. Acting on that knowledge to set up an interoperability program and show people how it helped us move more quickly with fewer Engineering resources required for the task--that's what mattered.
I've been quite deliberate in embracing new ways of working (hello, Agile!), new technologies (too many to mention) and most importantly new methods of decision-making (ask me about split tests). I've been careful not to start sentences with "Back in my day…" But I've also been amazed when I realized that some of what I thought "everyone" knew was not nearly so widely known. Ask me about regulatory testing, hardware/software lineups, feature prioritization or user interface design.
So if it feels like a brave new world, maybe that's because it is… again. You can question what values today's startups are embracing. Or you can go out and show them what values will be needed to succeed. Which choice will you make?