Co-written by Bill O’Connor, Head of Innovation, and Kevin Smith, Founder and CEO of The Vault

“Silicon Valley is over…”

Keen observers such as The Economist and The New York Times have been sounding the death knell of Silicon Valley as long as we’ve been here (1996 and 1987, respectively), and so far every piece on this subject has been both strangely argued and ultimately incorrect.

A recent cover story from the Economist — “Peak Valley: Why Startups Are Leaving Silicon Valley,” (August 30) — inspired us to take a fresh look at this ever-popular subject from our vantage point at the SF Vault, a full stack innovation/startup ecosystem in San Francisco.

 

 

Let’s look at a few of the most commonly cited reasons for Silicon Valley being “over”…

 

Reason #1: Silicon Valley is a Tough Place to Live

The now au courant depictions of the many problems of Silicon Valley — wildly expensive, apocalyptic traffic, crushing inequality/homelessness, techies’ arrogance, lots of people planning to move, all true — is what we might call IBNU: “Interesting But Not Useful”.

All of those things have been problems here for decades (and yes, some are getting worse, just as some are being addressed) and yet, by any reasonable measure — number of tech giants, number of unicorns, number of startups, amount of VC/angel money, and, perhaps most importantly, number of companies that, yes, change the world — the Valley continues to lead the world in innovation.

And while the number of startups moving some of their operations outside the region is on the rise, it doesn’t mean that startups and technology companies are deserting Silicon Valley or that San Francisco will cease to be the global center of technological innovation.

In short, yes, the Valley can be a tough place to live, but until those challenges have any kind of impact on all of the reasonable measures of actual innovation, they will remain at most a footnote to the greater innovation story.

Reason #2: Silicon Valley is Losing Ground to Other Places

Most of the analyses of the other cities/regions challenging Silicon Valley are, quite frankly, pretty shallow. Over the past seven years Bill has done innovation consulting with more than 200 companies from 40 countries, and through The Vault Kevin has hosted major corporations and government organizations from dozens of countries on six continents; and based on both of these types of experience, we find that executives from these places and these organizations are still generally stunned by what they see in Silicon Valley. We have seen no diminishment whatsoever in the interest and enthusiasm to come to San Francisco for immersion in the Silicon Valley experience.

The recent cover story in the Economist focused primarily on the Valley’s tangible success — all the usual stuff like tech giants, venture capitalists, cool startups, etc. — but mostly ignored its cultural mindset of fearless exploration and wild creativity, which is the source of all of that success.

Six years ago a British tech writer spent one week in each of the known tech hubs of the US, writing about the startup scene in San Francisco, Austin, Portland, Chicago, Boston and so on. None of the articles that result from these travels were more than basic reporting on current events, but the really interesting article came when he returned to London and laid out the reasons no city in the world would ever replace Silicon Valley. It all came down to the culture of risk-taking, collaboration, and openness to often outlandish ideas (aka, mindset).

While many cities may build great technical universities (MIT-Skolkovo, Dubai Institute of Design and Innovation, Hangzhou’s Westlake University) and launch huge investment funds, a culture of innovation can’t be created by fiat or funds. It takes time, energy, flexibility, tenacity, and the willingness to adopt wholly new ways of thinking, all of which are much more complicated to apply than lots of money and a vague desire for innovation.

So yes, of course there is real innovation going on all over the world; but if you look back over even the past five years and list on a whiteboard all of the candidates for the “New Silicon Valley” — Portland, Austin, New York, Tel Aviv, London, Dubai, Berlin, and Delhi all come to mind — we can see that beyond the hype, the relative amounts of innovation between the real Silicon Valley and all of those other Valley wannabes has remained basically the same.

Reason #3: Silicon Valley is a Tough Place for Young People to Live/Do Startups

This one definitely has some merit: SF/SV is extremely expensive to live and work, and that is having an effect on some founders/startups, who are either moving parts of their operation elsewhere, or even their entire companies.

But so what?

Looking at either specific anecdotes such as “startups leaving SF” or the general averages around the number of startups etc. isn’t the point. Using even a rudimentary 80/20 analysis, we know that out of 100 startups in SF, say, that most of them are going to fail, and that even the ones that “succeed” won’t do so on the kind of scale that has contributed to the Valley being the world’s innovation capital. Clearly, Silicon Valley’s start-ups play by the same rules as the rest of the world, so how does it maintain its consistent lead over time?

The real question we need to be asking is whether it has become less likely that SF/SV can produce the kind of successful startups that become unicorns, and eventually tech giants. We see no signs of that right now — and in fact, every statistic related to innovation currently shows that, if anything, the Bay Area is increasing its innovation lead over the rest of the world.

So our take on those three arguments — the Valley is a tough place to live, it’s losing ground to other places, and it’s a tough place for young people to do startups — is that even if they are somewhat true, they haven’t materially affected the level of innovation in the Valley, either objectively or relatively.

But we will concede one thing about the Valley no longer being the innovation center of the world: at some level, it’s absolutely true — if you distinguish between “Silicon Valley” as that area of land South of San Francisco, and the city of SF proper.

In the last ten years, there has been a migration northward from the likes of places like Palo Alto, Mountain View, and Sunnyvale to the hilly, foggy streets of San Francisco. As the world has become more connected, and remote/wireless/mobile capabilities have increased, it’s become easier for young techies and founders to live in SF proper, and many have chosen to do just that.

In that sense, yes, it could be argued that Silicon Valley has given up the innovation crown to San Francisco. And the numbers back that up; case in point, in terms of venture capital funding in both places, Silicon Valley companies are on-track to receive $16 billion in VC, while San Francisco — with a relatively small population of 750,000 — is on-track to receive $22 billion in VC.

So, has Silicon Valley really given up the innovation crown in recent years? Is there a “new Silicon Valley” somewhere in the world? Actually, there is, and it’s closer than you think: San Francisco is the new Silicon Valley — come and visit us sometime at the Vault to see for yourself.