A look at the factors that make the United States the world’s leading start-up ecosystem.
Apple, Google, Facebook, Twitter, Uber and Airbnb. All are American companies that revolutionized, and sometimes invented, entire industries. They all share something else too—they started as unorthodox ideas in the minds of would-be entrepreneurs in or near a Northern California region, known worldwide as Silicon Valley.
The popular history of Silicon Valley often begins with an account of the giant computer company Hewlett-Packard, which was started in 1938 in a small garage by two friends, William Redington Hewlett and David Packard, who flipped a coin to decide whose name would go first in the company’s name. However, entrepreneurial activity began percolating in the area more than a century ago.
“The real start of Silicon Valley was in 1909 when a Stanford University graduate founded the first major technology company, Federal Telegraph,” says William F. Miller, emeritus professor of public and private management at Stanford University.
“There was an entrepreneurial spirit at Stanford that quickly spread to the Valley,” he says. “Stanford was founded in 1885, and this area was still regarded as the ‘Wild West.’ Pioneers came here. Now, pioneers have to be courageous and willing to take risks, but they’re also community builders because you can’t live on your own in the ‘Wild West.’ So, the people who started companies also worked within the political system and helped develop the infrastructure that’s part of what makes the Valley what it is today.”
Miller, a Silicon Valley veteran who has written extensively on start-ups, says entrepreneurial activities converge in regions with hospitable business environments. These have favorable regulatory regimes, advanced research universities and institutes that are well-connected to industry, a flexible and mobile workforce, mechanisms for maintaining global linkages, and formal associations and informal mechanisms that foster collective learning for the whole cluster.
Such regions are found throughout the United States, partially because they have built on prior start-up successes and partially because their institutions encourage entrepreneurship. A 2015 study by Startup Genome, a San Francisco-based research organization, ranked six U.S. cities among the top 10 start-up ecosystems in the world. While all six—Silicon Valley, New York City, Los Angeles, Boston, Chicago and Seattle—share the factors that Miller mentions, they are also home to something perhaps even more important—people who are willing, and even eager, to take big risks.
“Looking at different countries, one key piece is what kind of ambitions a person has,” says Marc Penzel, co-author of Startup Genome’s “Global Startup Ecosystem Report” series. “In many countries, the main goal of an individual is to join a big company, stay there for decades and build a successful career. In the U.S., it’s the other way round. People ask, ‘Why don’t you start your own company and create the change you want to see in the world?’ People have a lot of freedom growing up here, and that translates into self-confidence.”
This can-do attitude has led to the ongoing creation of small businesses, a vital component of the U.S. economy that accounts for 54 percent of all sales in the country, 55 percent of all jobs and 66 percent of all net new jobs since the 1970’s, according to the U.S. Small Business Administration.
But start-ups are as likely to fail as they are to succeed—fewer than half of new companies survive past their first five years, according to the Small Business Administration. In the United States, however, it’s acceptable for people to fail.
Miller says: “Bill [William] Hewlett told me, ‘In Silicon Valley, it’s OK to change your job—people learn as they move from job to job. It’s OK to talk to your competitors—you don’t give away trade secrets but you talk, and that creates a collective mind. It’s also OK to fail. Not too often, but you can fail in public and start over here in Silicon Valley.’ Many students who have come to Stanford from India have told me that it was here they learned that it’s OK to try something, and if you fail, learn from it and then start over.”
The acceptance of failure extends to another element critical to start-ups—investors. Many provide funding to new companies knowing that while many will fail, some will prove to be huge successes.
“It’s important to have adventurous people who are willing to take risks to start companies, but it’s also important to have investors who are willing to take a risk on a company,” says Miller, who helped establish Silicon Valley’s renowned venture capital industry in the 1960’s. “You need both.”
For start-ups, the key ingredients for success, including ready access to funding, talented employees, business infrastructure, experienced management, marketing and distribution, are almost always found in major U.S. cities. Although the United States has long led the way in encouraging start-ups, the ways in which its cities can help companies succeed in today’s globally-interconnected and digital economy remain the subject of intense study. A 2016 U.S. Chamber of Commerce Foundation report, “Innovation That Matters,” provides recommendations to U.S. cities on how to help new companies succeed.
“Today’s start-ups are effectively ‘micro-multinationals,’” says Michael Hendrix, director for emerging issues at the foundation and researcher on the report. “The successful ones are both hyper-local and hyper-global. In many ways, what makes start-ups successful can be expressed in a single word: community. The degree to which start-ups can accelerate and succeed is the degree to which a community—its government, universities, existing businesses, nonprofits, overall environment—are primed for success in the future.”
Steve Fox is a freelance writer, former newspaper publisher and reporter based in Ventura, California.
Innovation and Entrepreneurship
Ambassador Richard R. Verma at the Global Entrepreneurship Week 2016 in New Delhi said: “India, too, has a rich tradition of entrepreneurship. In recent years, Indian American innovators have contributed to the success of Silicon Valley and its start-up culture, and there are strong ties between Silicon Valley and such Indian tech hubs as Bengaluru and Hyderabad. And that same strain of innovation and entrepreneurship is manifest in the growing wave of start-ups in India: in health technology, mobile apps, e-commerce and so much more.
“Entrepreneurship and innovation are central to Prime Minister [Narendra] Modi’s vision for transforming India. When the Prime Minister visited Silicon Valley last fall, I heard him speak about the need to bring together the best minds in India and the United States to solve our two countries’—and the world’s—biggest challenges. He encouraged all of us to look at ways to harness our great networks of entrepreneurs and innovators to improve the lives of ordinary people.”