What Made Silicon Valley Special?

I was recently asked by an E-mail correspondent whether I had written anything about what caused “Silicon Valley”—the Santa Clara valley of California around San Jose—to become a technology hub and hotbed of innovation. I can’t recall ever writing at length on the topic, so I put together this reply. I thought it might be interesting to the audience here, so I’m posting it, slightly modified with a few warts removed.


I believe (and this is not a unique view, but one I first encountered in an op-ed in the Wall Street Journal in the late 1980s) that a major contributor to the Santa Clara valley’s emergence as a technology hub is its proximity to two world-class research universities (Stanford and UC Berkeley) with strong science and engineering departments. In fact, if you look at technology hubs around the world, I think you’ll find that every single one is located within 60 km of one or more top research universities.

In addition, Stanford had a tradition of allowing its professors to start and work in spin-off companies that employed their students, which provided a path directly from research at the university to commercial applications (which often enriched Stanford from patent licenses on the technologies they used).

When I started working in the Santa Clara valley in 1974, there was still a substantial amount of open land (there were orchards between the building where I worked and Intel headquarters). This meant that, compared to the San Francisco and Oakland areas, land was comparatively cheap, allowing companies to locate there and their workers to find housing nearby. (This is now history, and the area is prohibitively expensive.)

Once you seed an area with technology companies, including many that spun off from previously-established ones such as Fairchild, Hewlett-Packard, and National Semiconductor, you have a large pool of people from whom a start-up can recruit their founders and early employees, rewarding those willing to take the risk with equity in the company.

Before long, this prosperity attracts the support infrastructure such as venture capitalists and technology-focused lawyers that fund the companies and keep them out of trouble.

Once again, it’s the “network effect”: having everything there attracts others to come there and the process builds upon itself.

That was then. Today, Silicon Valley is a sad parody of what it once was and only a fool would found or keep a company in that toxic environment.

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And Clarkson had a tradition of demanding that its professors not start and work in spin-off companies. That’s not the only reason Potsdam was not surrounded by start-ups. Not being close to an Interstate and hitting lows of -20F during the winter were also problems.

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You make me smile!

That is one reason so many tech companies are moving to Texas. One thing about Texas is that if they lack a world-class research university in close proximity to where they want a tech hub, they build one there. An example would be UT-Dallas (which is in Richardson). The Telecom Corridor companies in the northern suburbs (along US-75) needed a research university. So they funded upgrades to a satellite UT campus in hopes of growing into to Texas’s Cal Tech. This was in the 1980s and 1990s. Don’t know what Woke has done to the campus over the last ten years, but over the first decade of this century they had largely achieved that vision.

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Internet has disrupted universities: the best scholarship is now done online, not at universities. I wonder if it’s not better to lean into this versus replicating an old model. The new physical university can be established easily at a point when a sanctuary is needed for the distributed community of scholars.

On this note, Epicurus has inspired monasteries, universities as well as Karl Marx. Here’s a short popular intro to his work:

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And then the long slow slide into yesterday’s news begins!

It is interesting that physical proximity to a community of people who are trying to accomplish things in closely related fields seems to have been a factor in the case of Silicon Valley. If we turn back the clock, that proximity was clearly essential to the former blooming of Detroit – not only access to essential raw materials, but also access to hundreds of little machine shops. Or the English Midlands in the later 18th Century. To turn the clock forwards, during China’s great growth phase, it seems that one city would focus on shoes, another on clothes.

But did attracting lawyers ever aid an area to prosper? There is room for different views on that!

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Though not much room.

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I believe that during the period in which Silicon Valley was establishing itself as a hotbed of technological innovation and start-up companies the contributions of some of the lawyers in the area were substantial. They helped define the employee and executive compensation plans that created the incentives start-ups used to attract talent away from secure lifetime jobs at big companies into high-risk, high-reward start-ups, then thread those packages through the regulatory and tax minefields set up to thwart them. Law firms with experience in representing small entrepreneurial companies in acquisition or technology licensing negotiations with companies hundreds or thousands of times their size played a part in many of the success stories in the Valley. And in the semiconductor business, intellectual property lawyers both kept innovative start-ups from being crushed by far larger competitors and facilitated licensing deals mutually beneficial to the innovators and licensees.

Now, you can say, and this flaming libertarian would largely concur, that these lawyers were mostly clearing minefields laid by other lawyers in politics, regulatory, and tax agencies, but given the landscape in which these companies were operating at the time, I believe the contribution of some of the law firms in the Valley in the 1970s through around 2000 were easily net positive.

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But the relative ratios were extremely against the techno nerds. Lawyers may have some use, but among those is being targets.

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Reminds me of that old story about the solitary lawyer struggling to stay afloat in a little Texas town. He was having a hard time finding enough business, even though he was the only lawyer in his area. Then a second lawyer opened an office in that legal desert. Now both are wealthy!

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The law firms that see success for one client become a magnet for other clients.

Many law firms tried to get into the hot IPO business of the late 1990s. The response often was: “I don’t care that you can do just as good legal work as BigNameFirm at a 20% discount. If people see BigNameFirm is handling our IPO, that gives us the prestige to clear at a $10 billion valuation. With you representing us, we’d be lucky to clear $1 billion.”

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Betteridge’s Law of Headlines applies.