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Thursday, May 24, 2007

Virtual Networking Bennefits

Popular wisdom has it that if you walk down University Avenue in Palo Alto, in the heart of Silicon Valley, one in twenty of the people you walk past will be worth $3 million. It’s probably not strictly accurate – for one thing, people with that kind of money don’t need to walk anywhere – but it’s a good indication of just how many people have made it good.

What would the figure be for London? Within the Square Mile, no doubt fairly impressive - but outside the financial sector, would you encounter the same percentage of millionaires? If you assume that the official capacity of a tube carriage is about 150 – I can’t vouch for that figure, but it’s the best that a Google search can throw up – the next time you squeeze into a packed train, ask yourself how likely it is that seven and a half people in the same compartment have started to hit the big time.

The preponderance of wealthy people in Silicon Valley isn’t just an interesting statistic, it’s an important part of what makes the area’s unique entrepreneurial mix. While the wealth is badly distributed – the city of East Palo Alto, in fact, has long been plagued by crime and poverty – there are certain democratising forces at play. It’s partly a cultural thing, an expectation that those who make it big will put something back into the business community – and what they’re putting back, of course, is both money and expertise.

Lots of people have tried to put their finger on what makes Silicon Valley unique – just last Friday, in fact, it was the closing topic at a global tech conference in Palo Alto – and the answers are always complex. It’s partly the risk-taking mentality – a combination of Gold Rush legacy and the day-to-day reality of driving over bridges and working in high-rise buildings on top of a patchwork of earthquake fault lines. It’s partly the fact that the symbols of entrepreneurial success are so visible, from the garage where HP was set up to the sprawling Mountain View complex occupied by Google and the HQ of Genentech.

And it’s partly that these companies go so far out of their way to promote entrepreneurialism within their own ranks – which is why Google engineers are famously encouraged to work on their own development projects one day a week, and why at least two of Genentech’s blockbuster therapies had their roots in years of unofficial ‘underground’ research carried out by their own scientists.

But it’s also partly an engrained belief in sharing knowledge and experiences. The stereotype of the British stiff upper lip has long been diluted, but many Brits do still demonstrate a reluctance to boast about their achievements and residual embarrassment about past cock-ups, business or otherwise. The stereotypical Californian may come across as more laid back than many of their East Coast peers, but they’ve never been shy to talk about either success or failure. Failure, in fact, is still seen as a learning experience – so long as you can prove you did actually learn and won’t repeat the same kind of mistake, investors will often see it as a plus point on the road to entrepreneurial wisdom.

This knowledge sharing helps explain how Silicon Valley has evolved into a series of micro-clusters, each of them representing a community of all the different skills and services required to develop particular types of products and services. The New York Times recently reported on how Silicon Valley is effectively “a collection of remarkably local clusters based on industry niches, skills, school ties, traffic patterns, ethnic groups and even weekend sports teams”. The Times pointed out that if you’re looking to set up an IT hardware company – particularly in networking or semi-conductors – you’re best off in the south of the Valley around San Jose (home among others to Cisco Systems) and Santa Clara (where Intel is based). San Francisco in the north, meanwhile, is a hub for digital design and online advertising. If you’re a hybrid of two different disciplines – combining software engineers with consumer marketing, for example – you either need to locate yourself somewhere in the middle, set up separate operations, or be prepared to spend a disproportionate amount of your life driving along Highway 101.

Clusters tend to be self-fulfilling, attracting skilled resources in the form of both prospective employees and potential business partners, from specialist lawyers to public relations agencies. Because of the relative openness of the Valley, particularly in terms of the community’s willingness to share experiences, start-ups that are drawn to clusters of like-minded companies effectively end up operating with an in-built support mechanism.

Even if it’s not possible to recreate a business and social environment like Silicon Valley elsewhere – and many have tried but failed – many of the same positive characteristics have become evident in London in recent years, from support networks to micro-clusters. For entrepreneurs, this presents both practical and strategic opportunities. At a practical level, the cluster factor is probably a better factor to base location decisions on than proximity to your home, your favourite restaurants, or any of the other arbitrary factors that tend to come into play. At a more strategic level, everything company founders can do to suck out knowledge from people who’ve made it is going to help them. London’s culture may not yet match Silicon Valley’s in terms of the experience that successful entrepreneurs routinely put back into the business community – but there’s nothing to stop entrepreneurs seeking out knowledge themselves.

By Keith Rodgers, Webster Buchanan Research