The region isn’t perfect — in particular, the high cost of living that may give some entrepreneurs pause — but most experts agree that it’s still one of the best places on earth to start a company.
Silicon Valley’s economy is continually a top performer. Although COVID-19 took an economic toll there as well as everywhere else, in 2019, the region’s GDP grew some 5% year-over-year. This amounted to an additional $17 billion and an estimated value added per employee of $241,000 in 2019, according to Joint Venture Silicon Valley. Moreover, inflation-adjusted labor productivity has increased by 53%, and the number of patents registered to Silicon Valley inventors has more than doubled each year since 2001. And although venture capital investments fell off somewhat in 2019, the region still enjoys a very high level of investment that most other areas of the country can only dream of — particularly in software, internet, and mobile/telecommunications.
Joint Venture Silicon Valley further says that innovation is a driving force behind the region’s economy, providing a clear competitive advantage. “Entrepreneurship is an important element of Silicon Valley’s innovation system,” it says. “Entrepreneurs are the creative risk takers who create new value and new markets through the commercialization of novel and existing technology, products, and services. A region with a thriving innovation habitat supports a vibrant ecosystem to start and grow businesses.”
Synergies Between the Government, Private Sector, and Academia
Arguably nowhere else in the US features such a wide variety of federal government agencies, private-sector companies and investors, and academic institutions. Stanford University, Berkeley, and smaller colleges and universities are located in the Bay Area, as are the Pentagon, the US Department of Commerce, and other government entities. And then, of course, there’s a huge list of private companies, big and small, with more coming in every year. All of this creates synergies that produce a fertile environment for startups unlike any other in the world.
“What results is a steady stream of well-trained engineers, business people, marketers, researchers; a vibrant venture capital community; a highly available stock market appetite for stock flotations; and people with experience in business, including how and why business failures happen,” Vint Cerf, chief internet evangelist at Google, told The Balance Small Business.
A Critical Mass of Like-Minded Companies
The fact that so many companies can be found here, particularly in the technology space, brings its own type of synergy. No matter what sort of information or support you need for your business, you’re bound to find someone who can provide it. That could be through a seminar, workshop, product fair, or simply a one-on-one meeting with someone who has been down the road you’re planning to travel. Because so many startups are founded by people who used to work for big companies and may have even gone to school together, experts with decades of experience are easy to find for budding entrepreneurs.
Another advantage of having so many industries in close proximity is that they can collectively lobby the government agencies in Silicon Valley for policies conducive to business, such as a higher cap on visas for foreign employees and more investment in public transportation. Companies can also use the same service providers for their employees and provide donations to the same charities, which increases exposure and promotes goodwill.
Plenty of Money for Funding Startups
Thousands of millionaires and billionaires crowd Silicon Valley in the Bay area, waiting to pour their money into promising ventures as angel investors and venture capitalists. These people know that most startups fail, but they’re willing to take risks for a potentially huge payout if a company they invest in makes it big. And because failure is part of the culture of Silicon Valley, there’s little hand-wringing when a business venture doesn’t pay off; investors simply move on to the next one.
All of this means that it’s easier for startups to secure funding here than just about anywhere else in the US; if one investor says no, there are always more who might bite. It’s little wonder that in 2019, Silicon Valley startups raised more than $15.4 billion. What’s more, investors and venture capital firms are often quite willing to offer promising startups guidance, connections, and other forms of support beyond just funding.
Great Amenities, Customer Base, and Business Climate
Silicon Valley offers lots of amenities to businesses large and small, including excellent hotels, lots of convention and conference space, and great restaurants and sporting events where you can entertain potential investors, customers, or clients. The area also features well-heeled consumers who are willing to try new products and services of all sorts. Plus, it’s very culturally diverse — so much so that between 1995 and 2005, immigrants founded 52% of Silicon Valley startups.
When it comes to the business climate, Silicon Valley firms enjoy business-friendly local laws and regulations, as well as politicians who value the business community. For example, laws provide strong protections for intellectual property and business interests, and California law protects workers from non-compete agreements.
Acceptance of Failure
Let’s face it: most startups fail. No one knows that better than the companies and investors in Silicon Valley. In fact, failure is not only ingrained in the culture of the Valley — it’s in some ways seen as a badge of honor. The determination to succeed, to push on despite failures and obstacles, makes this area especially welcoming to startups.
To learn more about what makes Silicon Valley tick, the Harvard Business Review met with more than 50 entrepreneurs in the area, including some from startups. “We found people at all levels to be especially level-headed about failure and comfortable with the inherent messiness of experimentation,” the publication said. “The magic for them is not something’s initial lightbulb moment but the commitment to assessing, refining, and reintroducing the systems that will make the thing work.” This commitment to doing whatever it takes to produce a successful product or service, despite myriad failures along the way, is a key factor in driving the success of Silicon Valley firms.
About the Author
An analyst of global affairs, Adriaan has an MSC from Oxford, with diverse interests in the digital economy, entertainment, and business. He is a specialist trainer in advanced analytics and media.