What made Silicon Valley possible?
Bernardo Montes de Oca
June 2, 2021
  |  

What made Silicon Valley possible?

Bernardo Montes de Oca
June 2, 2021
  |  

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We can very accurately say that this piece of land has shaped the world where we live in. This is the famous Silicon Valley. It's fast-paced, alluring, and intimidating, all at the same time.
Rent is completely insane. When we started Slidebean, we lived in an apartment for a few months. Here. And we paid $4,600/mo for a 3BD—$ 6,000 deposit. We didn’t even have furniture. 

The Google Plex was a few blocks down the road. Facebook here. Apple here.. Twitter. Cisco. Netflix. Microsoft. You’d see them all on a regular basis. 

If the state of California were a country, it’d be the 5th largest economy in the world. Bigger than India, the UK, France, and Brazil. 

But, back to Silicon Valley, how did it come to exist? Its history is much more than just computers, so let’s explore what combination of variables made it possible; welcome to company forensics. 

Company Forensics is our most popular Youtube Series, but this is not what we do for a living. At Slidebean, we help founders navigate the early stages of running a business, from coming up with a pitch deck, to financial modeling, to keeping track of their SaaS subscriptions. Head to slidebean.com to check us out.

How one man's vision set the foundation for Silicon Valley

This is Silicon Valley in the '20s and '30s. Back then, there was an occasional zeppelin, some radios, and prunes, a lot of them. It even went under a different name. This orchard region was known then as "Valley of Heart's Delight."

California, as the entire US, was navigating the Great Depression. But, in that area, in particular, there was an additional problem. People left to find jobs on the East Coast.

Frederick Terman was a professor at Stanford University's Department of Electrical Engineering. This migration troubled him, and he knew he had to do something to create jobs in the area.

So, he fought to convince companies to establish in San Francisco. To do so, he planned to use the newest technology at the time: radio.

Radio was vital because Terman's plans came when the United States Armed Forces used the coastal regions to their advantage.

Thanks to the massive areas, they were able to create zeppelin bases and extensive testing facilities. So, eventually, the demand for technical knowledge increased. The problem was the shortage of talent.

So in the mid-thirties, Terman was working hard to attract both companies and former students, and one Stanford alum did return. A guy called Bill Hewlett.

He started working on developing oscillators and improving light bulbs, and Terman hustled to get some funding from another former student and close friend of Hewlett: Dave Packard.

And they of course, founded a company in 1939, and instead of calling it BillDave, they called it Hewlett-Packard. Was that the best joke we could come up with? 

The military was also spending big bucks in the area to better test grounds. 

And, say what you want, the military is always a good customer. Baby steps, but working.

In the 40s, Terman worked to build an industrial park and Stanford Industrial Park would be different: it would only lease to high technology companies, benefitting Stanford in the process.

And Terman's vision worked. The first company to sign a lease was Varian Associates in 1951. They produced vacuum tubes, which were big back then. And many soon followed. Some names included Eastman Kodak, General Electric, Lockheed, and Shockley Transistor Laboratory. Let's talk about this last one.

A controversial but essential figure

The name might not mean anything to you. But William Shockley helped create Silicon Valley and much more. But, unlike Terman, this guy doesn't have an excellent reputation.

His views on racism and eugenics made him one of the most controversial people in science. Hell, he even suggested a sperm bank with only Nobel Prize winners. Intelligence magazine named him the second-most controversial researcher, which is a thing, apparently.

But, he's vital to our story. He first worked with Bell Laboratories, where he helped co-invent the transistor

If you don’t know what that is, just know that they used to look like this, and now your smartphone has millions of them inside. 

This landed him a Nobel Prize and a big ego. 

In 1942 Shockley left Bell to start his own business. 

Their idea was to use Silicon as the base for diodes, which is more stable than the germanium previously used. So, this was some game-changing tech, but Shockley drove his employees crazy.

He was excellent at spotting talent. But, he would demoralize the promising young engineers. He was obsessed with incessant psychological tests and even lie detectors. He also grew paranoid of his ideas and became jealous of his coworkers. His attitude and bad business decisions made him blind to his own mistakes and eventual demise.

His silicon diode idea failed. 

The work environment at Shockley was so toxic that many were unable to continue. After just one year of working with him, eight of his employees left to create another company. Shockley would call them the Traitorous Eight.

Together, these young mercenaries formed Fairchild Semiconductors. And, yes, they would work with silicon transistors and, eventually, conductors.

But Fairchild wouldn't only be a successful company. It would also shape Silicon Valley. As of 2014,  92 companies (TechCrunch) came from first or second-generation individuals with origins in Fairchild, companies like Intel, NVidia, AMD, and venture fund Kleiner Perkins. 

And Stanford wasn't far behind. The Stanford Research Institute, formed in 1946, became part of ARPANET, the very primitive first iteration of the internet.

This success spurred others. Xerox created its Palo Alto Research Center or PARC. There, it produced components such as the Graphic User Interface, essential for modern computers.

The place was no longer about prunes; it was the country's computer hub, with names such as Apple, Atari, Oracle, and others. But, it still didn't have a name.

The January 11, 1971 issue of Electronic News has an article that reads: Silicon Valley, USA.

Now, Electronic News was, what many historians called, the Bible of the technology sector. So, whatever it wrote about, had to be a big deal. One of its journalists, Don Hoefler, focused on corporate gossip, product failures, and insider details.

According to the site Computer history, over lunch with some managers, one said something about Silicon Valley. And Hoefler loved the term. So, after the meeting, he changed the article's title. On Monday, January 11, 1971, the first of three pieces called Silicon Valley, USA, came out.

Hoefler had made history. But he didn't know it. In an interview, ten years later, Hoefler said:

How was I to know that the term would quickly be adopted industry-wide and finally become generic worldwide?"

Well, it did. But, the term wasn't only about technology. It was about relentless effort and how individuals can create giants of the industry. Fairchild’s impact was obvious, but why did the place remain as the go-to destination for tech?

In the coming years the success of these companies and their employees brought a massive financial impact to the area, which came with its set of problems. 

Salaries are high, but rent is just plain insane. Rent for a 1bd apartment in 2020 was, on average, $2040. And hey, this was 22% cheaper than 2019. It has reached values of nearly $4000.

Good friends of mine that live in the area make 6-figure salaries and barely make ends meet. Making $100-$150K a year is cool, but what gives if it all goes on rent. 

People have tried workarounds like container homes or literally ditching rent to live in an RV park. Many locals have been pushed out because prices are just unaffordable if you don’t work in tech. 

The Bay Area has the third-highest rate of homelessness in the US. 

So why do these companies keep establishing themselves there:

●  Google, 1998 

●  Apple, 1976

●  HP, 1939

●  Facebook, 2004

●  Netflix, 1997

●  Adobe, 1982

●  eBay, 1995

●  Cisco, 1984

●  Yahoo, 1994

●  LinkedIn, 2003

There's a lot of debate about the other reasons why Silicon Valley is a success and why other places have failed to replicate it.

Why new companies establish in Silicon Valley

Theory 1: ALL THE MONEY IS THERE. 

Is it is just because that's where the money is? Well, yes, and no.

Theory 2: NETWORK 

The second reason is that companies choose to stay there. Fairchild spawned many enterprises but, these didn't leave. They were part of a close-knit community, going as far back as their university years. So, it made perfect sense to stay close to your contacts.

These professional networks gave way to another critical factor for Silicon Valley's success. Those around you could help you develop new products using their tech. It's great. Take the PayPal mafia for example, and if you haven’t, go watch our video about them. 

Theory 3: DIVERSITY

A third reason is diversity. There are many universities packed with highly qualified students, filled with ambition, who want to change the world. Plus, their backgrounds, nationalities, cultures, and practices are varied, making for a boiling pot of ideas.

So, it's logical that companies that invested in the Valley once are willing to do it again. It's an energetic cycle of reinvestment. 

THEORY 4: CULTURE 

A fourth theory is work culture. There’s a seriously collapsing barrier between work and life. 

Yes you have casual dress code, free office meals, remote work long before the pandemic… but everybody works—all the time. At the Valley, 40-hour workweeks are a scam. They don't exist.The perks are great, but everything is there so that you never leave. Because you have to, it's what it takes to make it there. 

I’ve done 16-hour workdays, especially in the early stages, but it’s unsustainable. It’s a valid reason, but there’s a fifth reason. A subtle, legal peculiarity that helped create this start-up paradise. And, for that, we need to go back to 1872. 

Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void. That's what the California Code-Section 16600 says, which is an updated version of an 1872 law under California's Civil Code. But, what does it mean?

Outside of California, if a company hires someone, chances are they have to sign an agreement. This document says that if they leave their employer, they can't work for competitors for a determined period, usually two years. In short, this is a Non-Compete Agreement or NCA.

Then, there's the Non-Disclosure Agreement or NDA. This document forbids any employee from revealing confidential information after leaving the company.

And yes, NCAs and NDAs both exist in California, but  California courts declare these contract clauses as legally unenforceable. They're null, even if the former employee moves to another company or starts one that directly competes with the previous employer.

In California, it's an inalienable right for a person to quit to find work in any other legally sanctioned capacity. So NDAs and NCAs cannot block this opportunity.
So, this tiny detail might be essential for creating a culture. 

Silicon Valley Culture

Silicon Valley has remained relevant through the decades. The '60s, '70s, '80s, and '90s, each was a different generation, but something ties them together. 

This intense techno-optimism links all of the generations together. They share this belief that technology will be a means by which we make the world a better place.Beyond that, these companies also love or need the hustle—survival of the fittest. Yes, you're buddies with the rest, but the rest won't feed you. At least not for free.And, to survive, and to make it in the Valley, it takes a certain someone, as well as a certain network. A certain combination of companies around you. So… can it be replicated?

One of the arguable Silicon Valleys of the world in Shenzhen, a special administration region established in China, near Hong Kong. They like to call themselves ‘another Silicon Valley,’ and they have churned out some pretty massive companies… but their potential is still limited by the stability and restrictions of their government, their currency, and their cultural barriers. 

Silicon Valley has the combination of talent, experience, capital. This capital is wealth that was created precisely by tech companies, so these are investors that are bound to invest in the same things. There’s a stable government (despite, you know… this), which makes the stability the Silicon Valley unparalleled around the world. 

As for other parts of the world, I’m Costa Rican, and in Latin America, I hear the term ‘new silicon valley’ too many times. It can’t be done. Any city or country coming up with that tagline is just being extremely naive. 

What do you think? Can it be replicated? 


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