This article was published early 2023, right before Silicon Valley Bank went bankrupt. It provides great insights into Silicon Valley's history and can be complemented by the article From capital funding to cage fights: The existential crisis of Silicon Valley, which focuses on the current challenges that the area is facing.
There is a small crisis in Silicon Valley.
Inflation has made interest rates go up, investors are holding back, and Amazon, Meta, Google and Twitter laid off tens of thousands of employees at then end of last year. And by the beginning of this year Tesla shares were sent into a free fall?
The US tech industry is in a new situation. Earlier, the tech companies in the small valley in northern California have benefited from an almost infinite faith from investors and private equity funds. And this optimism has not been unfounded:
As you may have noticed, American tech companies have for the past two decades created internet commerce, search engines, social media and basically all our streaming services. They made the electric car mainstream, and the constantly growing digital world was put into our pockets in the form of smartphones.
In exchange for these promising future visions, Silicon Valley amassed vast riches. In 2016, almost half of US venture capital was invested in Silicon Valley. If California were a country, its GDP would be the fifth largest of the world right behind Germany and before India.
This is to a large extent because Silicon Valley were trailblazers when the internet became available to everyone, but how did they do it – and is everybody else gaining on them?
”Many different, independent and – if I am being completely honest – coincidental events in history have made Silicon Valley the technology capital of the world, even long before the internet. One of the most conspicuous factors behind Silicon Valley’s success is their working culture, and that tradition emerged long before the internet,” says J.P. Allen, Professor at the University of San Francisco and former visiting professor at the Department of Digitalisation at CBS.
Problematic Nobel laureate created crazy working culture in Silicon Valley
More or less coincidental events created the Silicon Valley we know today.
First and foremost, already before the First World War, the American navy had a large base in San Francisco doing research on radio technology. Naturally, manufacturers were curious about this, however, the Californian tech industry really started to move when the Nobel laureate and inventor of the transistor, William Shockley, moved to the state and started a company that developed and manufactured semiconductors.
He convinced some of the world’s best researchers to come to California to work for his company, however, Shockley's abilities as a leader and a co-worker were not the best, and when he fell out with his employees, they left the company and started their own: Fairchild Semiconductors.
They did extremely well, and in 1960, Fairchild Semiconductors was the world's largest manufacturer of semiconductors. Two of the largest tech companies today, Intel and AMD, stem directly from Fairchild Semiconductors.
But back then, breaking with management in a company and starting your own business was unheard of, for which reason they were named ‘The Traitorous Eight’.
“This was very unusual and unprecedented in the tech industry. At that time, it was normal to work for the same company for many years and often throughout your career. But the fact that these eight employees broke out of the company to start their own decided the success of Silicon Valley. It started a culture in which it was no longer frowned on to leave companies to pursue your own ideas. On the contrary, this was idolised later on.”