Rethinking the Silicon Valley Myth.

The business world has been infatuated with Silicon Valley for at least three decades--and with reason. This is an ecosystem that generates profit out of thin air, building hugely valuable companies virtually overnight, often on the backs of completely intangible "products" and unidentifiable business models. Certainly business leaders in other regions and industries would be remiss in their duties if they didn't try to figure out what drives this kind of success and copy what they could from it. But recent events suggest that Silicon Valley's model is not magic; in fact, it may be toxic or, at the very least, simply unsustainable.

The success of Silicon Valley companies can seem like a strange kind of sorcery, not based on any of the usual elements we understand as leading to sustainable success. Often companies begin with no plan for generating profit, only a vague idea of building value in a platform or application. Twitter, for instance, unveiled its plan for making money--a fairly conventional dollars-for-eyeballs scheme--a full four years after its founding, well after it had attracted massive investment. Analysts and commentators burned acres of ink arguing about how Twitter might make money; David Smith's 2009

Harvard Business Review article includes a claim that might seem absurd in any other context, one that captures the particular alchemy of Silicon Valley: "there is a difference between not generating income and lack of a business model."

And increasingly, these companies without business models, subsisting on air (and other people's money), don't make things. Rather, they trade in what's become called "digital innovation"--services and software platforms that reside "in the cloud" and rely on ubiquitous Internet access. Their "products" are infinitely scaleable, potentially infinitely profitable.

Aside from magical business models that separate success from income generation, Silicon Valley has also given us "unicorn companies" and the venture capital industry that pursues them and made disruption a household word (and then emptied it of meaning--see my previous two columns on this topic). Clearly, this is a sorcerous phenomenon to be investigated thoroughly, and copied if possible.

It is unsurprising, then, that conventional business has come calling, seeking to resolve the mystery into a reliably repeatable innovation strategy, one that will work Silicon Valley-level magic for companies that actually make things. And there have been some successes--most recently, the adoption of Lean Startup techniques in a number of large companies to spur product and business model innovation. Eric Ries talks about how Lean Startup may be adapted for large companies in a conversation with Jim Euchner, published in RTM in 2013. Steve Blank describes some early efforts in his 2013 HBR article; Jim Euchner and Abhijit Ganguly describe Goodyear's business model innovation practice, which integrates elements of Lean Startup, in a 2014 RTM article.

Lean Startup itself borrows from both Lean manufacturing, which emerged from Japanese manufacturing processes of the 1980s and 1990s, and an earlier Silicon Valley management philosophy, Agile. Jehan Gonsal neatly captures the key difference between Agile and Lean Startup: "Agile tests the product against users. Lean Startup tests the product against the market. The key concern of Agile is to avoid creating a product that doesn't work. The key concern of Lean Startup is to avoid creating a product that people don't need." It's also important to note that Agile came out of the software industry; its creators never envisioned its application to physical products, where the costs of prototyping can be much higher and design evolutions require more than rewriting code.

Even so, manufacturing companies are finding ways to integrate Agile approaches and methodologies into their traditional, Stage-Gate product development systems. Robert Cooper, one of the inventors of Stage-Gate, described how this combination might work in a 2014 RTM article and has been charting its development, most recently in a 2017 article in RTM. (A study of companies implementing these systems, coauthored with Anita Friis Sommer, is forthcoming.)

Indeed, as Annika Steiber suggests in her string of publications focused on Silicon Valley, and Google in particular, Silicon Valley's most durable export may well be management innovations. Jeanne Harris and Allan Alter make a similar point in a 2013 HBR article. Steiber identifies six key elements of the "Silicon Valley Model": a people-centric approach, dynamic capabilities, continuous change, ambidexterity, openness, and a systems approach. It's worth noting that, although Steiber's model is quite comprehensive, all of these elements have been identified elsewhere as critical elements for organizational survival in a world of continuous change and intense competition. Soren Kaplan, in a 2013 article for Fast Co., identifies some other key Silicon Valley practices, including starting small and looking to scale, working with customers, and embedding continuous innovation and continuous disruption in the organization's DNA, among others. And there are other elements in the Silicon Valley business ethos, most notably a taste for "disruption" and an embrace of failure as a necessary step on the road to success.

But Silicon Valley's magic is not all benign. Out-of-control valuations of Silicon Valley tech companies--driven, almost certainly, by the endless search for the elusive unicorn--are widely held to be responsible for the tech bubble, and resultant stock market collapse, of the 1990s. And recent news out of Silicon Valley points to the very high human cost of that business model. Depression is rampant among founders under constant pressure to deliver on blue-sky promises and maintain the cheery optimism implied by the "fail fast" mantra. Ben Carson, in a 2015 article, reports on a study that showed that half of entrepreneurs suffer from some mental health problem and as many as a third are seriously depressed; Carson's story begins by describing a rash of suicides among Silicon Valley entrepreneurs. The pressure also fuels unethical behavior, including fraud, as detailed in an article by Erin Griffin for Fortune.

And founders are often as hard on those around them as they are on themselves; the visionary ambition that drives entrepreneurs can produce arrogance and lack of empathy. Steve Jobs may have been a genius, but he was also demanding, extremely critical and, at times, outright cruel. Travis Kalanick's behavior at Uber, and the behavior he allowed as a leader, is well-enough documented that it does not bear repeating here. Sexual harassment and discrimination, both explicit and implicit, are rampant, making it difficult for women and minorities to find their place in the ecosystem. Some leaders have acknowledged what they refer to, somewhat dismissively, as Silicon Valley's "diversity problem," but little progress has been made in addressing the fundamental issues that created that problem.

Further, the Silicon Valley model itself is grinding. A 2015 New York Times story described Amazon's atmosphere as "bruising," suggesting the company was engaged in an experiment to see just how far workers could be pushed. (Amazon is not technically a Silicon Valley company--its headquarters are in Seattle--but in its culture and approach, it is very much a member of the Silicon Valley cohort.) The demand for flawless performance, the endless cycles of test, refine, repeat, and the conflation of work and life are not unique to Amazon.

All of this matters, certainly from a human perspective, but also from a business point of view. Silicon Valley may produce a certain kind of success, but if people are a company's most valuable innovation resource, how long and how promiscuously can it burn through people before talent--and with it, innovation--becomes scarce?

As Jason Evanish points out in a detailed and insightful blog post, "it's what you do that matters. Cultures are defined by the actions (and inactions) of leaders." Silicon Valley's culture lionizes leaders for the wrong reasons, pushes people to the breaking point, adds perks to avoid addressing fundamental issues.

At some point, that failure of culture leads to business failure, and not the kind of failure Valley denizens like to refer to as a "pivot." Numerous startups have fallen to these kinds of issues, some of them in high-profile scandals; if you're tired of thinking about Uber, consider the story of once high-flying SoFi, an innovative financial services startup that fell to both fraud and sexual harassment charges.

Indeed, some commentators argue that one of the central pillars of the Silicon Valley approach--embracing failure--is part of the problem. Erika Hall, in a blog post for Wired, argues that the recharacterization of failure as a "sort of badge of honor" has actually suppressed innovation by devaluing the kind of research that entrepreneurs used to do to reduce the risk of failure. Without research, Hall argues, inventors are limited by their own imaginations of what people want or how they behave. Ideas aren't refined and many that shouldn't go to market do get there, representing real opportunity costs for the entrepreneur, for investors, and for the economy as a whole.

Venture capitalist Geoff Lewis sees a related problem in the conflation of failure as a learning experience with failure as a desirable experience in itself. In an op-ed for the Washington Post, Lewis argues that recasting failures as pivots both underestimates the real tenacity required to create a success like YouTube or Twitter and "reduces the prospect of failure to an afterthought," motivating founders to move forward without adequate preparation or thought. Rob Asghar makes a similar point in his Forbes article. (As a side note, the glorification of failure may also contribute to depression by making it impossible for failed founders to acknowledge just how devastating failure really can be.)

In any case, failure is not always an option and research is not always optional. In her 2017 article, Casey Johnston describes a series of failed biotech startups that followed the Silicon Valley model, only to be taken down by insufficient clinical research. "Move fast and break things" might work well in software, or even in AI or automation, but it's undeniably more dangerous in medical science. In some markets, for some products, you can't fail your way to success, and even the minimum viable product must meet high standards for safety and efficacy.

All of this suggests that it is perhaps time to reconsider the idolization of Silicon Valley. There are some alternatives. Jennifer Brandel and her coauthors, citing failures at Facebook, Uber, and elsewhere, argue that "developing alternative business models to the startup status quo has become a central moral challenge of our time." They offer an alternative--a zebra model in contrast to the ubiquitous unicorn. The zebra--besides, as they note wryly, actually existing--offers some other elements that make it actually sustainable, in every sense of the word: a zebra company seeks both to be profitable and to benefit society; like its namesake, it is mutualistic, seeking ways to collaborate with other organizations to create value; and it is "built with peerless stamina and capital efficiency." Zebra companies are harder to build than unicorns or high-profile flame-outs, Brandel and her colleagues acknowledge, but they are more likely to last and to deliver real value.

The zebra is the most developed of the models; Brandel and her team have clearly thought through not only the advantages of zebras but the challenges they face, and they're organizing a movement to support entrepreneurs who want to build zebra companies. But there are other discussions, as well. Eric Weiner offers Renaissance Florence, with its patronage model and drive toward synthesis, as an (undeniably productive) alternate model to Silicon Valley, one that balances intense competition with collaborative support. And venture capitalist Robert Hatta suggests that what Silicon Valley really needs is a healthy dose of Midwestern fear of failure.

Obviously, Silicon Valley has produced some long-term successes, but most of those are makers of things, as allied to conventional business as to the world of digital innovation. It may be that the new Silicon Valley model, the one that has emerged in the last 25 years, is not sustainable. Corrosive founder behaviors, real emotional costs for everyone involved, the divorce of performance from value--all point to critical flaws in the model. Conventional-economy companies should adapt what management innovations they can, but they should also be wary of importing the problems. It's time to look at Silicon Valley with a more critical eye, to see beyond the gilding to the hollow center.

DOI: 10.1080/08956308.2018.1399028

In this space, we offer a series of summaries on key topics, with pointers to important resources, to keep you informed of new developments and help expand your repertoire of tools and ideas. We welcome your contributions, in the form of suggestions for topics and of column submissions.

Article Details

Printer friendly Cite/link Email Feedback
Title Annotation:	RESOURCES
Author:	Gobble, MaryAnne M.
Publication:	Research-Technology Management
Date:	Jan 1, 2018
Words:	2079
Previous Article:	Questions and Answers from IRI's Members.
Next Article:	IN PRINT.