What it takes to replicate Silicon Valley

A thriving startup ecosystem requires special attention to graduate schools

How to replicate Silicon Valley? This question is relevant in many ways. It’s interesting for politicians who would like to have a thriving startup culture in their backyard. For example New York and London suffer from the lack of “startup cool”. They are cultural centers but they don’t have what it takes to attract and nurture technology companies. Similarly, Asian economic planners are sitting on an army of engineers but they don’t have the startup culture that makes entrepreneurs out of those engineers. Take another example. Switzerland. The country has some of the best universities, it’s got a world class tax system, no corruption and cheap capital. But entrepreneurs are rare and usually leave the g once first sing of success appear. Why is that? How can you replicate Silicon Valley and bring “startup cool” to your backyard?

The answer to this question starts back at school. Successful startups start in graduate school. Graduate schools are the nurturing ground for ideas which end up in successful businesses. Examples are Silicon Graphics, Netscape, Cisco or Google. The list goes on and on. Today the lines are blurred because some of the large technology companies like Google and Facebook have taken over the roles of graduate schools and created some of the nurturing ground themselves. But the basic idea is still the same. In order to create an important business you have to solve an important problem. Important problems are typically at the crossroads of science and technology. It’s where experimentation , theory and design meet. That’s where typically great businesses are born.

Now, the reason you don’t find startups in most places of the world is because universities around the world are typically not built to promote business creation at the graduate level. Universities typically fulfill three function. First, they grow an elite to become the next generation of political and business leaders. This is the old Anglo Saxon model still prevalent in England and the North East of the US. Second, they are meant to build an army of educated engineers to run business and government. This started in France and Germany in the 19th century and is now also widely used in India, China and other Asian countries. Third, they can be used as breading ground for hard problems to be solved. This is the Silicon Valley approach.

Stanford is the clear leader in this area. UC Berkley and other UC system institutions are close. Other West Coast Universities such as Washington in Seattle or schools in Texas and Colorado are catching up.

It sounds easier than done. Universities cannot just decide to be more graduate school driven and promote businesses. For example, the polytech in Zurich is very good at educating engineers. But the university has a mission to educate as many students as possible and also retain knowledge within the system. The latter comes from the fact that the university is financed by the government. If the government pays, it wants ownership of IP. You can’t piggy back on the tax payer and then reap the gains privately. That is perceived unfair. Hence, the polytech in Zurich mints engineers with broad knowledge but no entrepreneurial DNA.

Graduate schools have to be designed in a way so people can work on problems, scale them and eventually reach out to private capital to grow the business. Take Apache Spark and the resulting company Databricks.

Apache Spark is an open source project to use distributed computing to do real time data analytics. Databricks is a company which came out of UC Berkley. The founders where working on the problem in graduate school and grew their effort into a business. They got funded by outside venture capital. The transition from graduate work to private business was gradual and painless. This is the kind of transition wich is necessary to build big technology businesses.

Here are typical steps in business creation at the graduate school level:

Step 1.

A problem is identified in academia and a graduate team is working on a thesis to solve the problem.

Step 2

The team receives resources from the university or government grants but also has access to outside capital. The outside capital typically helps form a business team and lays the ground for a commercial startup

Step 3

The team forms a company and formally branches out to scale the business. Functions such as sales, marketing and support are added to the core technology product so the business can grow a customer base

Step 4

The business continues as a standalone entity. Key members of the founding team still work in academia and sometimes even leave the business when professional managers take over. Sometimes the founders stay and grow the business.

This process is key when building a startup culture. It starts at the university level. Only there people are free enough to think academically and technically at the same time. Only there the freedom is such that big problems can be worked on in a systematic way. Graduate schools need to have the flexibility to support such teams with resources but also let them branch out when needed. For example, universities need to understand when a graduate team crosses the line of research and enters the realm of business when functions such as sales, marketing or support need to be added. This is the key to a successful startup culture.

There are other institutional ingredients necessary for a successful startup culture such as

  • free access to capital and talent
  • patent law
  • culture of accepting failure
  • flexible capital markets
  • rule of law
  • supportive tax system

But the key is a graduate school environment that recognizes the need to nurture teams at graduate school level and let those teams develop into businesses.

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