Saturday, January 30, 2010

7 Attributes of Silicon Valley

Why do VC’s and entrepreneurs love Silicon Valley? According to the United State Department of Labor, the Information Technology industry grew at an average of 8% between 1994 and 2004.  If you are good at picking winners (Google, Amazon, Zynga), this growth rate would be even higher.  All things being equal, starting a business in a high growth industry provides the greatest potential for significant returns (10 to 1 or better). Here is my theory: If your favorite industry can behave more like Silicon Valley, your favorite industry can promote its own growth.

If I’m right (which can be debated in the comments), what are some key Silicon Valley behaviors or attributes worth emulating? Here are a few ideas:

  1. Low barriers to entry: Businesses are inexpensive to start and can be scaled over time.
  2. Many exit strategy options: Active mergers and acquisitions and the occasional IPO provide entrepreneurs and VC’s multiple opportunities to cash out.
  3. A large number competing firms with a healthy variety of company sizes: this is key since the large wealthy businesses usually acquire the innovative small businesses – without firm-size variety, an industry has a hard time generating the deals that provide the cash to start the next generation of innovative companies.
  4. Universities leveraged as “idea incubators”
  5. Young people armed with the tools, skills, and knowledge necessary to have an immediate impact on the industry’s products and services.
  6. Short inexpensive product development cycles allow companies to aggressively pursue innovative solutions knowing the costs of failure are low
  7. Low Government Regulation
To emulate Silicon Valley’s growth, your industry doesn’t have to have demonstrate all of these attributes to be growing, but it would seem logical to be pursuing them all, IMHO. Next, I would like to lay out a few ideas of how we get the Space industry to start behaving more like Silicon Valley. The fun part is, I think there may be some money to made in helping the industry transform.

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