“X is the next Silicon Valley” is nonsense, so why do people continue talking about it?

Dmitri Lisitski, Influ2 I came across a lecture by Sam Altman and Reid Hoffman in which they talk about the scaling up of high-tech companies. Essential elements of growth are discussed, such as network effects, hiring the right people, and company culture — definitely worth watching: “From Startup to Scaleup | Sam Altman and Reid Hoffman”

They begin the conversion with a short reflection on why Silicon Valley is such fertile soil where startups can flourish. It’s interesting to compare what an insider, such as Reid Hoffman, says on this topic as compared to the ideas of those outside Silicon Valley.

There are many articles and public speeches explaining how Silicon Valley became so successful building large high-tech companies, and how to replicate this success in place X. The farther you go from the Bay Area, the more interesting theories you hear, and once you cross the Atlantic, the imaginary world of “X is the next Silicon Valley” can override common sense.

Stanford University and the ecosystem around it are probably the most frequently mentioned explanations for Silicon Valley’s success. Proponents of this concept conclude that because strong technical universities exist in their area (which is in many cases true), it’s enough to build an ecosystem of incubators, technology transfer bodies, etc. to see the next Facebook coming from X very soon.

After a tour of Silicon Valley, many people have the mistaken idea that it’s enough to build an “insanely great” campus, like Apple’s Spaceship, and you’ll get a Silicon Valley 2.0. However, if you look at the data points, it’s easy to see there’s a weird reverse correlation between the quality of infrastructure and the prospects of a startup. Hewlett-Packard, Apple, Microsoft, Amazon, and Google started in garages. Well, this isn’t a fact to worry about: some incubators have even included the word “garage” in their name to take advantage of this fact.

People involved in lobbying explain that the key to success is an amazing regulatory environment. However, they don’t say how Northern California is dramatically different from other parts of the US in terms of regulations. From another perspective, there are plenty of tax heaven countries that haven’t produced a single unicorn in high-tech.

I’ve even heard a theory coming from very respectable people that Silicon Valley emerged in the Bay Area simply because of better climate conditions. There, people don’t suffer from the hot weather in summer, as they might in Texas, or from the extremely cold winter they have in a place like Siberia. If this was true, Greek and Italian IT companies would rule the world by now.

Finally, many refer to great entrepreneurial culture as the foundation of Silicon Valley’s success. This explanation gets the closest to Reid Hoffman’s point. Entrepreneurship is the core element of the network effect — the key trait of Silicon Valley and the foundation of any large high-tech business. It enables companies to scale fast and retain lavish operational margins. Without the network effect, the venture capital model would look more like a traditional private equity.

This is a powerful explanation, and I believe it’s quite obvious to anyone familiar with high-tech business. But, it also reveals a harsh truth: there’s no way anyone can replicate Silicon Valley — simply because it already exists!

Just like you can’t build a new Google or Facebook, unless you create a unique product that addresses users’ needs in a completely new way, you just can’t replicate Silicon Valley, except if you switch to an entirely new domain outside of high-tech.

Strong network effects are the guardians protecting Google and Facebook from newcomers. And the same time, strong network effects are not just the fundamental explanation of how Silicon Valley helps its companies succeed, but also a barrier that prevents any new place from emerging as the next Silicon Valley.

I think this truth is incredibly unfair. We can live with the fact that some countries are rich in oil, gas, or other resources. It’s acceptable that some places have a better climate or land than others. But the network effect could have emerged almost anywhere with core ingredients in place: IT-educated people, entrepreneurial business culture, and access to large markets.

But since Silicon Valley has emerged in the Bay Area, it won’t appear anywhere else in the future. And this fact feels so unfair that people, rather than accepting it, prefer to fool themselves with ideas about how Silicon Valley could be replicated in other places.

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