from the Valley
Learning From Silicon Valley Without Becoming It
(Bethesda, MD -- May
17, 2000) It was going to be
Austin, Texas, then Chicago, then the Research Triangle in North
Carolina. In fact, it
seems like almost every city was pitched at one time or another as the
next Silicon Valley, with each city's boosters adopting some form of
Silicon-based appellation. Silicon
Valley is still the unchallenged Mecca of technology entrepreneurship
despite all conscious efforts to displace or copy it.
According to Matthew
Haley, former entrepreneur and now Executive at Andersen
Consulting, "People tried to emulate the Valley instead of
trying to figure out which things that we do in the Valley are right,
which ones you can only do
in the Valley, and which things we do in the Valley that suck, but
that we tolerate."
Haley was part of a
panel of bi-coastals at this morning's Morino Institute Netpreneur.org
Coffee & DoughNets meeting which examined the differences and
similarities between the Valley's entrepreneurial environment and that
in the Greater Washington region.
He was joined by investor Ginger Lew, CEO of The
Telecommunications Development Fund; and attorneys Nancy Spangler,
Partner in Charge at Piper
Marbury Rudnick & Wolfe; and David Sylvester, Partner in
Charge at Hale and Dorr.
All of the panelists have spent considerable time immersed in
the entrepreneurial communities of both regions.
Silicon Valley maybe
be king, but there's no denying that Greater Washington's
entrepreneurs are coming on strong.
The region is no longer a high-tech secret, as evidenced by the
ever-growing number of new startups and the amount of money flowing
into them. According to
Survey, venture capital flow into the region breaks a new regional
record every quarter, with over $842 million coming into the area in
Q1 2000 alone. But if
DC's entrepreneurs aren't bucking to become another Silicon Valley,
that doesn't mean they won't study their elder siblings.
The purpose of this morning's discussion wasn't to pull out a
yardstick and measure one coast against the other.
Instead, according to Netpreneur.org VP Fran Witzel, it was to
see what netpreneurs in Greater Washington can learn from what goes on
in Silicon Valley—and to do so while optimizing our own strengths,
not least of which is a better balance between work and family life,
according to Haley.
"One of the
things that is important for us to recognize," said moderator
Spangler, "is that for many, many reasons, we are not Silicon
Valley—from a geographical standpoint and from a demographic
One of the biggest
differences between the two regions is their areas of strength.
Where the Valley is focused on "deep" technology,
including hardware and semiconductors, the DC region is focused on
technology applications, including special strengths in
telecommunications, services and biotech.
Another difference is that while the Valley has Stanford
University, an R&D object of envy for many regions, DC has perhaps
the granddaddy of all R&D sources, the federal government.
That's a strength for the area that all of the panelists agreed
has barely been tapped to the degree that the Valley has tapped
people here raping NSA for smart people?" asked Haley.
"You have this huge mass of not-very-public people who are
brilliant." In the
Valley, he said, "We took people out of Lockheed and changed
their mindset." Haley said that the question entrepreneurs need to ask
themselves is, "Where is the skill set I want?
How do I steal it and let the government go train somebody else
to be a GS-11?" Spangler
pointed out from a recent series of articles in the Washington
Post, the average government worker in the region is getting ready
to retire from public service, and many will be looking for new
Sylvester, the biggest difference between the two regions is that over
the years, the Valley has come to embrace risk.
Entrepreneurial failures can be a badge of honor in the Valley,
although you don't want too many of them.
Here, on the other hand, the political proximity has a more
conservative effect—for example, we're very cognizant of what
happens to politicians when they fail, noted Spangler.
DC's culture is definitely changing, but continuing to
cultivate risk tolerance among local would-be entrepreneurs, funders
and service providers can only help the community.
The thing to remember, said Sylvester, is that the Valley's
daredevil outlook wasn't always there.
In the early 80s, he said, "People were debating whether
or not this whole concept of new technology was going to work and how
long it was going to last. [In
DC] we are really quite far along in our development compared to where
the Valley was in their early development.
The Valley has changed. It's
an evolutionary process."
And on that score,
according to Lew, recent activity in the stock market, especially the
Nasdaq, may be bringing the rest of the world closer to DC's ways than
Silicon Valley's. One
thing about the Valley is that finding willing investors is much
easier; they give higher valuations and the process is much quicker.
According to Witzel, who cited a note from Joel Brodie, an
entrepreneur who has started companies in both regions, on the West
Coast an idea on a cocktail napkin can get you a million dollars after
just one week of meetings; in regions like DC it can take four months
to get even a meeting. While
private investors remain extremely bullish on Internet and start-up
investments, Lew expects to see some of the go-go slow down a bit, at
least in regards to the amount of due diligence VCs do and the
valuations they give to Net-companies.
That will bring them more in line with DC where funders want to
get to know a management team before investing.
On the flip side of the equation, Atlantic coast funders are
learning to make deals more quickly themselves.
One reason it is
easier to get funding in Silicon Valley is that the community is
heavily networked and runs like a "well-oiled machine,"
according to Haley. Because
there are so many "serial entrepreneurs" who have been with
multiple start-ups, the focus is on people instead of companies.
There, he said, you don't ask for a recommendation of a law
firm, you find out which particular person at a firm might be able to help you based on his
or her unique interests, knowledge or experience.
That just may be the
bottom-line difference between Silicon Valley and every other
entrepreneurial region, including Greater Washington—the Valley is
in its sixth generation of technology start-ups, while DC is barely
into its second. Spangler
and Sylvester were quick to point out that DC has its share of serial
entrepreneurs, which is growing both in numbers and experience.
Haley responded that it's not just the entrepreneurs
themselves, but, in Silicon Valley, so many of the line engineers,
programmers, lawyers, accountants, marketers and others have been
through four, five or six start-ups.
They know each other and have seen many of the pitfalls.
Service providers know the drill and, in Haley's words,
"paper follows actions."
That means you don't have to go through snail-mailing forms and
contracts to get things done. "We
have to be able to shake hands and trust each other," said Haley.
"Paper it up, but if you can't shake hands and trust very
quickly, then it doesn't matter what the paper says."
That may be a hard
concept for political Washington to adjust to, but as more successful
entrepreneurs spinout from AOL, MCI and, yes, the feds, DC netpreneurs
are catching up. Just as
Silicon Valley had to grow into its leadership position, so will DC.
Take, for example, The
Fairchild Corporation, considered by most to be the original fount
of Valley entrepreneurship. Said
Haley, "If you go back to 1980, Fairchild here in Maryland was
bigger than Fairchild was in the Valley."
Things change. It
just takes time and experience.
Copyright 2000, Morino Institute. All rights reserved.