Understanding the unique entrepreneurial spirit of the Silicon Valley...
Updated: Jun 26
Anyone who is interested in understanding what entrepreneurship and innovation is really about should visit the state of California at least once in their lives. Here are my observations and insights on the unique entrepreneurial spirit of the Silicon Valley based on my experience at one of the world’s leading startup accelerators and innovation hubs in Berkeley.
Silicon Valley has been consistently ranked as one of the world’s top innovation and startup ecosystem hubs, with high rates of entrepreneurial activity. It is the third most innovative region in the world and the number one global startup ecosystem, consisting of approximately 12,700-15,600 active startups and 2 million tech workers, according to the Global Startup Ecosystem Report 2019. It is a chicken and egg situation whether it is this entrepreneurial climate that makes the Silicon Valley the most attractive place for the venture capitals, or it is the abundance of venture capital in Silicon Valley that encourages individuals to start their own businesses here. Nevertheless, in 2019 California attracted the highest value of venture capital investment in the US, amounting to approximately $65.6 billion which means that more than half of the venture capital dollars invested in small businesses and startups went straight into California.
San Francisco and Silicon Valley are the epicenter of entrepreneurship, home to 13.5% of all global startup deals. The numerical reality is that startup financing especially in the technology sector continues to flood into San Francisco, making the city the de-facto tech startup capitol of the Western Hemisphere. In fact, the value of the city’s residential real estate can give us an idea about the value of the city itself: The area's total residential real estate value hit an astonishing $1.3 trillion and it's outranked only by the Los Angeles and New York metro areas.
As these numbers clearly show, Silicon Valley is a fertile ground for startups and entrepreneurship is deeply ingrained in the fabric of the region. That does not mean that the start-ups have a high success rate though. It can be hard to believe, but about 90% of the startups fail in the US. Failure is most common for startups during years two through five, with 70% falling into this category and the most common reason for the failure is that there is not enough demand in the market for the good/service produced. That being said, another thing that makes Silicon Valley unique is its approach towards failures. Going beyond the classical acknowledgement of “failing better”, there is a high level of tolerance for the things that do not go right, especially in the tech sector. Losing your job and going to a new one is considered very normal. Similarly, it is fine to develop a product that no one buys, and then to go and create a new one. You would still be encouraged to start another business after failing four or five times. According to Mark Searle, Managing Director at Innovation Acceleration Group, UC Berkeley: “Silicon Valley, and Berkeley in particular, have the culture of viewing these “downs” as experience, and they are considered a very valuable experience. That mindset that it is ok to fail is culturally accepted, and to a big degree is the Silicon Valley’s success factor.”
This culture of failure is also closely related to risk taking. Compared to their American counterparts, for instance, European startups tend to be more risk-averse, and they tend to spend a lot of time perfecting the product. On the other hand, startups in the Silicon Valley are very quick to release and validate the product. If it does not work, they move on to the next one. Simply put, failure is not something to be afraid of in the Silicon Valley as long as it involves testing bold ideas.
Complementing this idea of “failure culture”, various studies conducted in the fields of cognitive science, psychology, sociology and business have shown that entrepreneurship requires certain personality traits. According to venture financiers, entrepreneurs’ personal characteristics are the most important factors for business success – even more important than the business idea or industry setting. In general, the research shows that entrepreneurial orientation is characterized by autonomy, self-reliance, innovativeness, risk taking, competitive aggressiveness, and proactivity. In this regard, considering taking initiative and individualism are among the core values of the American culture, it is not surprising that the US is home to a great number of entrepreneurs and start-up founders.
According to the CEOWORLD Magazine Entrepreneurship Index of 2019, the US is the most entrepreneurial and the 9th most innovative country in the world. For the most part, Silicon Valley and New York are the two poles that account for this remarkable record. The two regions, particularly Manhattan and San Francisco, are not only the most trendsetting places at a global scale, but they are also the hubs where the “American Dream” begins for the many. Business opportunities live side by side with challenges though. In both regions, at the economic level, the living expenses and real estate values are as high as they have never been before. At the public level, the infrastructure has been overstressed for a long time already. At the societal level, there is a widespread and deep sense of loneliness caused by the fast pace and intensity of business life, and living in a consumption and profit-driven capitalist society. It is yet to be seen how these problems will be addressed so that the opportunities created by the entrepreneurial and innovative spirit in these cities will be available to everyone.
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