BC v. Silicon Valley, Pt. III
I’ve been taking more breaks from writing lately, but a particularly invigorating discussion with Perry Atwal (one of my colleagues from the Sauder MBA Program, and currently the school’s Director of Special Projects) and a separate thoughtful conversation with Kevin Cheng (my former SFU Engineering Science colleague and housemate) reminded me that I needed to revisit the “BC versus Silicon Valley” thread. I’ve already examined the benefits that population density and a networking-addicted community bestow on Silicon Valley – it seems logical now to turn to one of the results of those two elements: a propensity for thinking big.
When I lived in Ireland during 2000, I went to a lot of First Tuesday meetings to watch how people were trying to take advantage of the ‘Celtic tiger’ to make their fortunes. Unfortunately, a lot of the ideas I saw being pitched were wholesale replicas of existing (and very successful, mind you) online businesses in Silicon Valley, such as eBay. In and of itself, that’s not a bad thing – taking an idea and refining it for the local market is a valid strategy. However, the lack of barriers to entry into the Irish market for an existing Silicon Valley online business, coupled with the relatively small Irish market, doomed many of these businesses to failure. Many of these entrepreneurs just weren’t thinking very big.
For example, at one meeting I talked to one bunch of bright-eyed young entrepreneurs who were pitching a video game based on hurling. Hurling is a notoriously brutal sport that is best described as a cross between field-hockey and lacrosse – the sport is indigenous to Ireland. When I asked the students if it had crossed their mind that perhaps they were limiting themselves by choosing a game with such limited appeal, they balked, exclaiming, “Everyone loves hurling! Everybody in Ireland loves it, and nearly everyone in Ireland plays video games! Everyone in Ireland will buy our game!” Wow – everyone in Ireland? Even if they were right and everyone in Ireland did buy their game, they would still have one major problem: Ireland has a population of less than 5 million people. Once they sold the game to everyone in Ireland, they’d have no place to go.
Then again, maybe that’s all they wanted to do. They wanted to sell their 5 million units, take their money off the table, and retire. And there’s nothing wrong with that – it’s a perfectly reasonable thing for an individual entrepreneur to want to do. It’s when an entire society of entrepreneurs do the same thing that one has to be concerned.
The entrepreneurial environment in Vancouver doesn’t differ significantly from Ireland – it thinks small. It’s rare to see an entrepreneur in BC stand up and say, “Screw you world! I’m going to own this market!” Just look at Crystal Decisions – they were one of the leaders in the business intelligence space, but when Business Objects made them an offer, they rolled over, took the money, and retired. BC’s entrepreneurs are very good at taking their money off the table, quickly and permanently, and retiring in Whistler.
While cashing out is every entrepreneur’s dream, the difference between Silicon Valley and BC is that in Silicon Valley, the entrepreneur doesn’t stay out of the game very long. They dive back in, onto the next big thing, the next market to be chased. Sure, they’re in the game for the money, but they’re also there for the adventure. Adventure implies risk – big payoffs are balanced against headfirst failures. Unfortunately, BC has an overly-conservative attitude to risk and is fond of neither the possibility of big failures nor, as a result of this aversion, big payoffs. This conservative attitude immunizes it against most of the elements required to foster the ecosystem that sustains good entrepreneurs. This is a real shame because BC has otherwise a lot of characteristics that could make it a world leader in many areas – it just needs a cultural shift to make it possible. Regrettably, cultural shifts are the hardest to achieve.
Next time: Recognizing Success
You are not wrong. I think part of what you’ve put your finger on is consistent with the general difference in entrepreneurial disposition experienced North vs South of the 49th; it is, to a certain extent, simply a Canadian vs. American thing.
I would be inclinded to bring it all back to an ecosystem model: up here (in YVR), private equity finance is more conservative and less available, thought leaders are harder to find, success stories are hard to keep around, strong entrepreneurial “middle managers” that get tech are rare, and it all fails to properly self support. It’s like the tropical rainforest (the Valley), which is so tremendously rich in flora and fauna, versus a biodome project that hasn’t yet received the right combination of light and water to support kickass entrepreneurial life.
Finally, I wonder if emerging (and increasingly booming) technology centers like Bangalore India might not be interesting case studies; I’m hearing more and more about Indian financed, Indian originated startups that aren’t setup exculusively as outsourced dev shops.
Brendon, your argument makes a few assumptions.
First you assume that thinking big produces greater returns, to the entrepreneur, the local community, or society as a whole, than thinking small. In other words, you assume developing a product with a huge potential market has a higher expected value. Is this necessarily true? On the surface it seems larger is better however it is also true that many innovations happen in niche markets first.
Second you assume BC tech companies sell out more than those in Silcon Valley. Here one needs to compare the relative size of the entrepreneurial talent pool to the number of buyouts, bankruptcies, and successes (ROE, ROI, ROIC or whatever your measurement choice). ROIC is important here since it may be that Valley startups receive better funding.
Third you assume techies in BC are overly-conservative. This may be true but is likely a symptom rather than the problem. Why are people in BC more conservative: is it because the average salary of a startup is too low, there is not enough investment capital for startups, the perceived success rate is too low, Canada’s tight immigration laws, or something else?
Anyways, I’ll surely know more after I finish coding my online curling game.
This is true only under certain conditions. Having a head-start on one’s competition or a significant differentiator in the marketplace is required, for example. Digging deeper into the leviathans of modern technology you will find their beginnings are almost always humble. I think we agree the point is that successful and sustainable companies have long-term visions of grandeur, something that might be absent in most BC tech companies. Though from first-hand experience a vision is by no means a measure of success.
I think we are arguing semantics. One’s reaction to risk is caused by externalities. The economist in me likes to think conservative behaviour is caused by a high risk-reward ratio, and possibly also a base-pay issue (though I don’t have data to back this up).
I’m unsure that Gladwell should be called into this discussion, but here goes anyway: the technology community in BC hasn’t yet tipped. Taking a look at all of the ingredients, from entrepreneurial attitudes, to education, to the availability of seed stage capital and world class post secondary institutions — it takes all of these elements and some magic catalyst to kick a sub economy into a self sustaining growth mode.
I also think that “big bang” events are tremendously valuable to help push an economy from one energy state into a meaningfully higher one (not that I’m trying to force analogies with quantum and astrophysics into this argument) — however, in the case of YVR and environs, no such event has taken place for some time. Exit events like those to which you allude (Brendon), are like mini bangs, but the energy (capital) created bleeds off into the night (elsewhere like the Valley).
True, I do make that assumption. BC does have an advantage within Canada that it produces more innovation for less money – more patents per research dollar. However, there are certain fixed costs that need to be overcome to allow niche companies to sustain and grow their businesses. Selling to a large market and sustaining your business is a lot easier than selling to a small market. That’s not to say it can’t be done, just that the laws of probability suggest it’s extremely difficult.
I’m not so much concerned about whether or not that they sell out more often; I’m more concerned about to whom they sell. Flickr – bought by Yahoo (US); Crystal Decisions – bought by Business Objects (France); NxtPhase – bought by Beacon Power (US); Trillium – bought by Intel (US). On the one hand, it brings resources to BC companies and might help them expand into new markets; on the other hand, it may simply siphon profits, talent, and other resources back to the mother company. In extreme cases, these companies get bought merely as a competitive take-out (something that I believe happened to Trillium – first, Intel killed most of their Trillium’s IP, then it gutted the company, and finally it sold the remnants for pennies on the dollar). The latter scenario doesn’t help BC in any way.
Actually, I would argue that British Columbians in general are overly-conservative, and that this is both a symptom and a cause of the problem. Sure, maybe the entrepreneurs are overly conservative in their goals because of a lack of capital to support their big dreams. But why is there a lack of capital to invest in start-ups? Perhaps it’s because there’s a lack of abundance of proven serial entrepreneurs to justify allocation of funds; or a lack of past successes to fund future rounds of financing for new companies. And around and around it goes. That’s what makes the problem so difficult to solve – someone has to take the leap first. Something in the environment has to jolt in order to give it a jumpstart.
Talking to Donald Knuth when I first arrived here, he explained one of the early ‘jolts’ that Silicon Valley experienced: a set of professors at Stanford early in the century that encouraged their grad students to focus on commercialization. That was about seventy years ago. That first round of innovation fueled an attitude that’s persisted despite several slumps (aerospace crash, semiconductors crash, Internet crash).
What will be the jolt that gives the BC environment the critical push to drive the shift in practice and attitude?