Martin Kenney - Understanding Silicon Valley

Understanding Silicon Valley

THE ANATOMY OF AN ENTREPRENEURIAL REGION

EDITED BY

Martin Kenney

STANFORD UNIVERSITY PRESS STANFORD, CALIFORNIA

Stanford University Press Stanford, California 2000 by the Board of Trustees of the

Leland Stanford Junior University Printed in the United States of America

Library of Congress Cataloging-in-Publication Data

Understanding Silicon Valley : the anatomy of an entrepreneurial region / edited by Martin Kenney. p. cm.

Includes bibliographical references and index.

isbn 0-8047-3733-9 (alk. paper) isbn 0-8047- 3734-7 (paper: alk. paper) 1. Santa Clara County (Calif.)Economic conditions. 2. Santa Clara County (Calif.)Social conditions. 3. High technology industries California Santa Clara County. 4. Business enterprisesCalifornia Santa Clara County. I. Kenney, Martin

HC107.C22 S3975 2000

330.97944dc2i00-034523

This book is printed on acid-free, archival-quality paper.

Original printing 2000 Last figure below indicates year of this printing: 09 08 07 06 05 04 03 02 01 00

Typeset in 10/13 Palatino

Acknowledgments

My thanks to two extremely able student assistants, Kimmy Pang and Kalela McConnell. Their cheerful assistance made the process of assembling and editing this book much easier. Laura Comay, the acquisitions editor at Stanford University Press, has been extremely helpful and supportive. Finally, I would like to thank my colleagues in the Department of Human and Community Development and at the Berkeley Roundtable on the International Economy for creating a congenial place to work.

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Contents

Foreword by John Seely-Brownix

TIMOTHY J. STURGEON

3.The Biggest "Angel" of Them All: The Military and the

Making of Silicon Valley48

STUART W. LESLIE

Part II: Institutions

4.Dealmakers and Counselors: Law Firms as Intermediaries

in the Development of Silicon Valley7

MARK C. SUCHMAN

5.Venture Capital in Silicon Valley: Fueling New Firm

Formation9

MARTIN KENNEY AND RICHARD FLORIDA

6.High-Technology Agglomeration and the Labor Market:

DAVID P. ANGEL

7.The Origins and Dynamics of Production Networks in

Silicon Valley14

ANNALEE SAXENIAN

Part III: General Explanations

8.Flexible Recycling and High-Technology Entrepreneurship 165

HOMA BAHRAMI AND STUART EVANS

9.Social Capital and Capital Gains: An Examination of

Social Capital in Silicon Valley190

STEPHEN s. COHEN AND GARY FIELDS

10. Institutions and Economies: Creating Silicon Valley218

MARTIN KENNEY AND URS VON BURG

Notes

References

Index

253 279

Foreword

JOHN SEELY-BROWN

When I first came out to the West Coast, I never imagined I would find myself writing a foreword about Silicon Valley. I was deeply suspicious of the place. My intellectual roots were in Cambridge, Massachusetts, where I had come to believe that the whole Silicon Valley thing that people were starting to talk about (the term, we learn here, was coined in 1971) was wildly overhyped, the people subject to mind rot, and the West Coast culture just a bit crazy. So my move to Silicon Valley was made with great trepidation. Indeed, my second thoughts were so strong, that to diminish cognitive dissonance between East and West and to prevent immediate retreat, I sold my home next to Harvard Square before moving. I wanted to eliminate anything that would make the return to "civilization" too easyor so I thought. That was all in the fall of 1978.

Two decades later, I realize that my career at the Xerox Palo Alto Research Center (better known as Xerox PARC) has afforded me a much wider view of civilization. In particular, it has provided me with endless opportunities to meet with visitors from all parts of the world and in turn to visit nearly all parts of the world. Everyone takes Silicon Valley seriously now. With these visits, hardly a day goes by that I don't get asked to explain the magical brew that makes up Silicon Valley. What is it? What makes it so special? Can it be copied? If not, why not? And if yes, how? And what about that famous culture? What does it feel like to work for a large East Coast company and yet be a part of the Valley? Does this give me a different perspectivehaving to bridge those two quite different cultures daily? And how are those cultures different?

These are complex questions that raise serious issues about developmentat the regional, national, and even global level. I am not sure I've ever answered them to the complete satisfaction of the people who asked. I'm pretty sure I cannot do them justice in these few short pages. But I would like to try at least to raise some of the points that seem to me most significant in trying to answer these questions.

But let me first say that I have often had the good fortune to address these questions at academic workshops. How quickly I learned (albeit the hard way) that simplistic generalizations don't cut it in the academy. Analytic precision, grounded in deep empiricism with only a speck of speculation, is the coin of the day. So it should be. And this book is an example of excellent empirical research, deep scholarship, tested and testable hypotheses, all conducted with a substantial cross- disciplinary flavor. Its deep engagement with the subject has provided evidence to support some of my theories, challenged others, and directed me to new grounds for speculation. I think it will do this for anyone prepared to read it closely.

My little contribution, however, may deviate from the high standards set in the following pages, so I feel particularly privileged to be able to get my words in first. I want to start with some of my own personal beliefs about the Valley and follow these with some speculative remarks that emerge from my long-time collaboration with Paul Duguid about the dynamics of knowledge creation and flow, both within the firm and throughout a particular region. For yes, even in today's web-based world, geography mattersperhaps even as much as in the past, but now for different reasons. Then I'll end with a couple of words on why it is so difficult to replicate the ongoing experiment that is Silicon Valley.

At the center of all questions about the Valley lies the matter of innovationfor the Valley occasionally appears like a perpetual innovation machine. I say "innovation" rather than simply "invention," because innovation, to me, means invention implemented. And I have grudgingly come to realize that invention is often the easy part of innovation. The hard part is usually the implementation. Here I was particularly interested in Stuart Leslie's well-chosen quotation from a letter of Frederick Terman. Terman was the Stanford University dean who played godfather to Hewlett Packard and so many other early start-ups in the Valley. When he left the university to work on radar during World War II, he wrote back to a colleague at Stanford, "I had never be

fore realized the amount of work required to make a device ready for manufacture after one had a good working model." It was a lesson he clearly learned well as he guided young Stanford graduates to innovative success.

Implementation, I would say, requires the three Fsfocus, focus, focus. First, one must focus on a single value proposition pertaining to the initial invention. Sounds easy, but this focus is hard because a single invention will often support many different value propositions. Deciding on the right one to pursue requires discipline, experience, and a touch of luck. After that, you must focus on assembling a dedicated team to design and develop the invention into a product, then to market that product qua its value proposition, then to create appropriate partnerships around delivering and amplifying its value, and finally, to get mindshare for it. And while doing all thiswhich is never as linear a process as the above makes it appearyou also need to focus on your competition. Indeed, you need to be permanently paranoid about the likelihood that someone else has the same idea and is moving faster than you are.