Silicon Valley is widely regarded as the ultimate success as an incubator of start-ups and entrepreneurship. Yet most businesspeople, leaders and innovators around the world have learned the wrong lessons from it.
They focus primarily on its ingredients — its obvious assets, like venture capital, skilled workers and universities. What they have largely ignored is its recipe — the social interactions that turn those ingredients into vibrant companies. Learning the right lessons of the Valley can empower entrepreneurs, as well as cities and regions, and take them to new heights of innovation and productivity.
As crucial as Silicon Valley’s ingredients are, the recipe is what combines those ingredients together. That recipe — like a “secret” formula — is what offers so much to entrepreneurs and innovators in the Valley, and has been missing everywhere else.
I’ve lived in, worked in and studied Silicon Valley for years. I’ve also had the rare opportunity, as a consultant to institutions like the World Bank and USAID, to compare it to what happens in dozens of regions around the world.
Arguably, the most important factor in its success has been the formation of a unique culture — one that allows people with diverse skills, who often don’t know each other, to mix and match: collaborating and trusting in ways that people in other cultures don’t. It is not simply creative destruction, as many observers say. More importantly, it is a process of creative reassembly, as people join forces on temporary projects and then recirculate and recombine for other projects later.
The Silicon Valley culture is derived from the frontier spirit, which valued pragmatic cooperation: individualism tempered by the need to be part of a larger community. That spirit enabled strangers to team up to form wagon trains heading west and to entrust their lives to each other. They had no choice but to trust fast or die.
One helpful way to think of Silicon Valley is as a rainforest, which thrives because its many elements combine to create new and unexpected flora and fauna. And the rainforest model is not just an analogy. An innovation ecosystem is not merely like a biological system; it is a biological system.
Flowing through this biological system are nutrients: talent, ideas and capital. And the system becomes more productive the faster the nutrients flow. That’s where the issue of culture comes into play.
In the real world, economic systems are made of human beings, not anonymous gears. And in the real world, human nature gets in the way.
Our brains are instinctively tribal. We are designed to trust people closer to us and to distrust those farther from us. Yet scientists are discovering that innovation and human emotion are intertwined.
Human nature, with its innate prejudices, creates enormous transaction costs in society. Thus, what we think of as free markets are actually not that free. They are still constrained by transaction costs caused by invisible social barriers based on geographical distance, lack of trust, differences in language and culture and inefficient social networks.
To build rainforests and maximize business innovation, we must transform culture. And people learn culture not from top-down instruction, but through actual practice: role modeling, peer-to-peer interaction with diverse partners, feedback mechanisms that penalize bad behavior and making social contracts explicit.
Silicon Valley has created a culture that encourages people with diverse talents and backgrounds to meet, to trust each other and to take a chance together. That culture is firmly in place because crucial keystone institutions, from venture capital firms to attorneys to entrepreneurs, treat the broader community as more important than the “winning” of any individual transaction. It is a culture based on, among other things, seeking fairness, not advantage.
Silicon Valley is a state of mind much more than a location, and it’s that state of mind that is crucial to aspiring entrepreneurs. Businesspeople and leaders who seek to replicate Silicon Valley’s success should, therefore, recognize this mindset and seek to foster it. A rainforest is the best place of all to grow innovations.
Victor W. Hwang is co-author of “The Rainforest: The Secret to Building the Next Silicon Valley” (Regenwald, 2012) and managing director of T2 Venture Capital in Silicon Valley.