Silicon Valley is a juggernaut. It is in the same category as some of the world’s great civilizations that changed the course of human history, including Athens, Rome, London, and New York, by being the center for the most aggressive, intelligent, and entrepreneurial people in the universe. It is the Goliath of new-business development.
In case you missed it in my previous blogs, here are some statistics that support the fact that Silicon Valley is the center of the new-business universe:
- Between 98% and 100% of the top 50 venture capitalists in the U.S. are in Silicon Valley. The top 4% of VCs, which comes to about 50, earn about 66% of IPO profits. Nearly all of these VCs are in Silicon Valley.
- In my list of billion-dollar entrepreneurs, more than 20% are in Silicon Valley.
- Nearly all the leaders of the new emerging industries, from semiconductors to PCs, to biotech, telecommunications, and the Internet are in Silicon Valley.
- Silicon Valley companies are devastating old-line industries and the rampage is not stopping
To create great new ventures, many areas around the world are seeking their own path to success. Mainly they spend government money to fund new research labs under the mistaken assumption that research in the labs is more important than development on the streets. Or they encourage and finance venture-capital funds under the mistaken assumption that venture capital from hard-nosed financiers is more important than leadership from smart entrepreneurs to create successful ventures, and that risk capital is the ultimate new- business generator.
The reality is that you need it all and you need it in a combination better than anyone else, especially better than Silicon Valley. By all, I mean technologies, entrepreneurs, financiers, engineers, sales people, and other experts who can build great companies from scratch. And most importantly, you need to attract or develop the best in the world in order to beat the world beaters coming out of Silicon Valley. This means the other areas need to beat Silicon Valley if they are going to directly compete against it. They will not succeed because right now Silicon Valley VCs have more high-risk money to invest, more great opportunities to choose from, and most importantly, more guts to beat the meek. And Silicon Valley still attracts the best and brightest of the world. So beating Silicon Valley is a tall order.
But it is imperative that the rest of the world compete so that all the wealth in the world is not concentrated in Silicon Valley. We need this so the rest of the world is not mired in unemployment and poverty, or suffer from mass migration to Silicon Valley.
Rather than a frontal attack, I would suggest that the rest of the world develop a complementary strategy where capital is not central to success since Silicon Valley is still the greatest in capital-intensive strategies. What the rest of the world needs to develop is a capital-efficient strategy that is based on achieving more with less. The only way to do this is by developing great entrepreneurs, i.e. by placing the development of entrepreneurial leaders at the core of the strategy rather than by focusing on technologies or money.
Will this work? Yes, it has. 76% of the billion-dollar entrepreneurs in my database are outside Silicon Valley. And 91% of them did NOT use venture capital, compared with only 12% in Silicon Valley. This group is composed of great entrepreneurs and they became great leaders without any help from anyone. They developed capital-efficient strategies to build ventures without venture capital, and they did this until they reached the Aha stage. At Aha, about nine percent got venture capital to grow. The rest did not. They continued to grow, and dominated their industries – without venture capital.
MY TAKE: Silicon Valley’s strength is in capital-intensive new-venture development. The rest of the world should stop trying to beat Silicon Valley at its own game. What will work is building a complementary strategy. The most cost-effective strategy is to develop smarter, capital-efficient entrepreneurs. Help them bring their businesses to Aha without capital. Then make sure the Silicon Valley angels and VCs don’t suck them to SV like they did with Mark Zuckerberg. Keep them in your area like Bill Gates or Jeff Bezos.
Dileep Rao, Ph.D., is a clinical professor of entrepreneurship at the Department of Management and International Business of the College of Business at Florida International University. He can be reached at drao@fiu.edu. The opinions expressed in this column are the writer’s and do not necessarily reflect the views or opinions of either FIU or the College of Business.
View all articles by Dileep Rao.
This column originally appeared in Forbes on October 7, 2015.