Stepan ParunashviliTwitterBooks

Becoming Silicon Valley

From the invention of the steam engine, to incandescent light, to radio, computation, and the internet, a familiar story unfolds:

In a small pocket of the world, a group of people produce immense innovation, changing the world as we know it.

Different times, different places, same story. If anything, “changing the world as we know it” is an understatement. It might be fairer to say that the majority of the wealth and security that we enjoy today, comes from these little pockets.

Without the steam engine, or electricity, or computers, our world would be different in kind. Many more people would be burdened by toil, many an idea would be impossible, and many a person would be dead from disease. It boggles the mind to think that these innovations took place in areas no larger than a few neighborhood blocks.

The latest place, of course, was Silicon Valley. From Intel, to Apple, to Microsoft, to Netscape, to Amazon, to Google, technology invented here continues to ripple around the world.

But, we’re facing some dangerous headwinds.

The ingredients that made Silicon Valley prosperous are beginning to disappear. For the young and ambitious hacker, it’s unaffordable to live there, and the cultural atmosphere has become stifling.

Yet our need for innovation has never been greater. From centralization to addiction, Big Tech itself has produced second order-consequences. We need solutions that protect the future of our society. And this pales in comparison to the largest problem at hand: we still have billions of people below the poverty line. There is no way for everyone to enjoy the standard of living that western people enjoy, without massive changes in technology.

This is both daunting, and thrilling. We have big problems ahead, but humanity has managed to solve them time and time again. What are we going to do now?

One way, is to proliferate the ideas that made these areas of innovation so special. Can we reverse the trend in Silicon Valley? Even better, what if we had one thousand more Silicon Valleys of 2003, or Pittsburgs of the 1880s, or the Londons and Paris’ of the 1700s?

Throughout my life I’ve lived in about 5 cities across 3 continents, with at least 4 starkly different societal structures. Most recently I spent 6 years in Silicon Valley, where I was lucky enough to experience some of what made this place so special.

When I reflect, there are certainly ingredients I’ve noticed that made Silicon Valley stand apart from any other place I’ve lived in. I want to share them with you.

Risk Appetite

The most important ingredient I noticed was risk appetite, and a love for risk takers.

It’s surprising this isn’t a standard thing. Don’t we all respect Elon Musk? Sort of. We respect the successes, but our revealed preferences show something different.

Here’s how you can tell: Pick a city, and ask the average student what they want to do after they graduate.

Most will say they want a prestigious job at a big company. In some even more unfortunate places, it’s that they want a prestigious and cushy job…in politics.

This doesn’t bode well for their risk appetite. But can you blame them? Imagine if the same undergraduate student has a love interest. What would the grandma say if they found out that the suitor wants to “make a rocket that flies to the moon?”. How would this suitor compare to the “deputy director of X bank”?

This attitude is shared across continents and cultures, revealing a generally conservative cultural attitude towards risk.

Now, it does vary. Being different is bad but not terrible in Germany, while it’s unbearable in Japan. Yet, by and large most places are on the “still bad” side of the spectrum.

Why does it happen this way? There may be good cultural reasons. For most of our history there was little variation in productivity. Being different didn’t get you much, outside of potential exile.

But things have changed. Technology brings extreme variation in productivity. Innovation necessarily lies in doing what hasn’t been done before. And there’s a reason why many good things haven’t been done before: either they look dumb, foolish, or impossible.

To exploit those opportunities, you need talented people “foolish” enough to try to build on these opportunities, and capitalists “foolish” enough to invest money in them.

Conservative risk outlooks make this impossible. It’s frustrating to see. Outside of the stigma, there isn’t much downside for the talented undergraduate student — they don’t have kids to support. And likewise for the capitalist — the amount to invest is insignificant. Just when life is the least risky for both, stigma prevents their action.

This is not the case in Silicon Valley. Starting a startup, even failing, only makes you a better engineer and a better candidate for greater things here. And there’s no shortage of angel investors who are ready to make a bet and write it off completely, if they believe in the slightest chance of upside.

Why? Because ambition is lauded here.

When you say you want to get to the moon, people take you seriously. An environment like that nourishes the adventurer in a person’s soul.

So, what do we do? How do we bring this kind of risk loving attitude to different cultures?

I think it’s going to be hard, but it’s not impossible. Ideas tend to spread non-linearly.

What kind of content is available in your society? Are there gripping case studies that you can share? Can you build up small pockets of like-minded people? How can you make an ambitious outlook virtuous and laudable?

Whichever city can solve for these questions, has a gold-mine on their hands.

Freedom

Risk appetite, however, has a necessary side effect.

Innovation requires thinking up unintuitive ideas. You have to question the status quo. A common question you need ask is: why does X really have to be this way?

Well, ask this questions enough times, and you’ll discover an idea that’s unpopular in whatever zeitgeist you live in. What do you do if you have an idea like that?

In some places, the penalty is so severe, that it’s dangerous to even think of an idea like this, let alone say it.

And this becomes tragic, because when you silence dissenting ideas, you stop innovation too. There is no way to follow innovative reasoning without some dissenting ideas popping up.

When you realize this, it’s no surprise that most pockets of innovation tended to stem from western cultures. Freedom of speech, common law courts, and liberty from oppression gives a person the necessary space to think.

One kicker is, that space is unbelievably attractive to a thinker: to let your mind roam is thrilling. This means that spaces like this build on themselves: people want to move there.

So, you need civil freedoms. But you can’t stop there. You need freedom to think, but you also need freedom to build.

This requires an open regulatory environment. If regulation is too restrictive, it selects for the kind of company that can make it through legal hurdles: large, bureaucratic, and lawyered up. Small, innovative startups that are likely to fail will die at birth.

How do you know if your city has an enough regulatory environment? Here’s how you can tell.

Just answer these questions: How quickly can you incorporate a business? Can you hire and fire someone easily? Can you accept payments easily? What kind of permits do you need to work on crypto, autonomous driving, or drones?

If you answered in the negative, this is a bottleneck for forming a pocket of innovation in your city. Each question you answer in the positive improves your city’s chances by a magnitude. If you answer entirely in the positive, you have a city that looks incredibly attractive to great thinkers and great doers.

Talent

The most critical remaining ingredient is talent. Technology is the medium of innovation, and it requires deep expertise. So how do you get these experts? Let’s put ourselves in the mind of these experts.

One immediate upside they’ll see already, is that your city has an environment where they can think freely, and it’s possible for them to try ambitious ideas without stigma. That’s already an unbelievably attractive proposition.

But this itself isn’t enough for talent to flourish. Talent looks for other talent. Great thinkers want to be around other great thinkers. From Princeton to Bell Labs to Palo Alto, innovators clump together. So, you need to manufacture such a clump. How could you do it?

Traditionally, the solution is to nurture a great technical university. Build a place where the smartest people can gather and work on ambitious ideas. If you have that, you have a prime ingredient.

Is there anything special you need to do with this university, outside of just making admission selective? I think so. The place has to be livable enough for the professors, and fun enough for the students to stick around after.

One heuristic to know you have a city that’s livable enough, is to answer this question: Do you have any areas where folks don’t need to use cars? If you have a walkable pocket in your city, you have a place where thinkers will thrive.

Aside from investing in a good technical University, and a walkable area, what else can you do?

The most exciting development, is to turn your city into a kind of startup itself. Choose a group of technical thinkers that other hackers look up too. These are now your customers. The goal is to get them to move to your city. If you can do that, others will follow.

How do you get them to move? Well, these folks are not used to friendly governments, and are accessible on twitter. Reach out, offer to help, do the schlep work, and a movement can start. Mayor Suarez kicked this offw and has shown what’s possible. If I was a Mayor of any other city, I’d be studying this thoroughly.

If you can get a clump to form, now you have tinder. All you need to do is to add spark.

Capital

That spark is capital. I put this last, because if you have all of the above, capital will flock to you. In todays world, money is starving for assets. Many an angel investor dreams of finding a secluded pocket of geniuses, working on unintuitive problems.

One requirement, however, is that it needs to be easy for an investor to send money to a company in your city, and it needs to be easy for contracts to be enforced, in the case of disputes.

Make sure this can happen, and you’ve formed a flame: capital will flock, companies will be created, the successes will produce more investors, and the recursive loop will go on

Fin

And that’s it. Easier said than done, but I really think it boils down to these 4 ingredients. Shift your culture to laud ambitious outlooks, clean up regulation, attract talent, capital will flock, and you’ve got innovation on your hands.

What would happen if more cities took this to heart? Would we have a 1000 Silicon Valleys?

I’d bet that power laws will still pervade. There will be some cities that have 10 times the clump of talent than other cities. But, there’s enough talent in the world to massively increase the number of clumps. If we had a thousand cities doing this, and graphed the productive output, I’d bet that all of the productivity of Silicon Valley today would represent some dot on the lower end of that graph.

The world continues to face immense challenges, and I believe these represent immense opportunities. Never-mind 1000 Silicon Valleys, if just had 5 or more, I can’t imagine what would happen.


I have been heavily inspired by Marc Andreessen and Paul Graham in my career, and they themselves have essays on how to make the next Silicon Valley (1, 2, 3, 4, 5) — I highly suggest reading them too.

Thanks to Daniel Woelfel, Ian Sinnott, for reviewing drafts of this essay


Thoughts? Reach out to me via twitter or email : )