Silicon Valley: the fabled “Shangri-La” for budding entrepreneurs. In the 1990s the name brought to mind high-spirited 20 and 30- somethings working day and night on exciting new ideas. The world of Silicon Valley was seemingly open to all those with an idea and the cajones to “go for it.”
Flash forward a decade, and California and Silicon Valley seem slightly different. Silicon Valley is still very much a haven for startups and new tech related firms to call home, however the shape, form, and size has seemingly shifted. Many companies in the initial incubators of the 90s were wiped out at the burst of the bubble, while others have risen and grown into the dominant players in the industry.
The reality is that these days, startups are becoming one of the natural ways to survive and thrive in this economy. Along with the many fresh new minds entering the job market, there are many others who have been out of work, and now have fewer excuses keeping them from trying out their new idea or service. Interest rates have been cut to all-time lows in order to spur economic growth, and capital is stock-piled due to uneasiness and fiscal conservatism, the aftermath of the recession and Wall Street Collapse, making today a very exciting time to start a business.
Currently the private markets are flooded with capital and no solid investments to make. Many investment groups, particularly those who are fund based, are obligated to invest via a “use it or lose it” model. Many high net worth individuals that were not adversely affected by the downturn, are looking for solid investments in which to place their money.
One would think that the logical conclusion of the aforementioned points should mean that Silicon Valley must be abuzz with life. That is not 100% accurate, either.
Silicon Valley, and its counterparts (San Francisco and the Bay Area), have historically benefited from the perks of being located in a place where a startup has access to smart and talented people who are already used to the stress of a startup. They also have access to relevant networks and venture minded investors.
The question one generally must ask oneself when considering Silicon Valley or California is “Can you hire the talent you'll need in the next 5 years?” It is obviously difficult if not impossible to really know what's going to be needed 5 years on, but talent and money are always safe bets. Therefore startup location becomes a consideration. The question then becomes “Where can you find talented people who like to work at startups?” and “Where can you find investors to back startups?” Historically, the answer to the question has almost unquestionably been Silicon Valley, although it is no longer the only location of its type. Silicon Valley provides access to top talent pools as well as to investors that can support the growth of a business from inception to expansion.
However, in the present day, the answer to that question no longer remains the same. Not only has the advent of the internet transformed the capabilities and landscape of the startup environment, but new growth in the Software as a Service (SaaS) and internet space has frankly changed key factors that made California so attractive.
The world has changed dramatically. No longer does a startup team need to be in one place. With the advent of teleconferencing, cloud based file sharing, and virtual groups, the nature of the startup itself has changed. Talented teams can literally obtain resources via global reach, and coordinate amidst various parts of the globe. The internet has granted access to products and services previously not as readily available to the average person. Heavy outsourcing has gone to countries such as India, particularly if it relates to technology and programming services. Software as a Service technology has also been growing, along with social media which requires relatively little overhead initially, making the internet and technology of fantastic use to them.
Trends in crowd sourcing, social media and the internet at large now allow efficient exchange of skill sets virtually. Why undergo the immediate cost of relocating and pouring capital into establishing a firm in California at a premature stage, when the majority of proof of concept and even product development can be orchestrated virtually? Suddenly Silicon Valley doesn’t seem as necessary as it once did. However, California still has its uses.
Many firms in the initial stages of starting up, particularly those with intellectual property considerations and patent development, may have a particularly important need to do their manufacturing “in house.” Silicon Valley still provides access to great minds, local warehouses and sources of inputs which are very attractive to that type of business. However, I think the relocation, sans the aforementioned need, will primarily happen with more established startups which have proven their concept remotely, and relocated, or those who still would like immediate access to the resources Silicon Valley provides.
It has never been easier to start a business than in today’s environment, and I believe we are seeing that all around us. Entrepreneurs have access to sufficient knowledge, resources, and tools to start their own firms, from wherever they are, and many are taking advantage of that fact. The question may not be “has California lost its luster” as much as “Has advent technology made other locations more attractive?”
In the startups in which I was involved, a great deal of the immediate considerations for where and how to grow the business, were based on resources and location. Two were based in Silicon Valley, but of those two, one was established there over a decade ago, with the production needs mentioned earlier, while the other was already situated in the Valley. The others in which I was involved were founded purely based on location, and to a decent degree, on access to target markets.
California as a startup locale retains many if not all of the benefits that it always had; however, I believe today’s market needs have shifted. Many new companies, such as Facebook and Groupon did not actually need to be located in Silicon Valley initially, though benefits of Silicon Valley remain attractive enough to warrant an eventual relocation. California is still shining brightly, and though the environment might no longer be as conducive to startups as in the 1990s, it still provides incomparable benefits to entrepreneurs who are seeking to grow rapidly.
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