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Silicon Valley Fails Well

Posted on Wednesday, Jun 21st 2006

I was at a keynote this afternoon with Geoffrey Moore, who was talking about models from his new book, “Dealing With Darwin”. I later realized that Geoff also has a blog where he has a recent entry called Top Ten Truths About the Digital Ecosystem, which is a good piece, especially Point No. 1.

I have always enjoyed Geoff’s books, especially “Crossing The Chasm”, which in my opinion is one of the best technology marketing books ever written.

Today, someone asked him from the audience about the future of Silicon Valley and the US. I liked his answer, and wanted to write about it in today’s blog post:

– Silicon Valley is very good at failing. Failing fast. Learning from failures. Using that learning to do new and different things. In any other place in the world, you get one chance, and if you fail, that carries a stigma for life, and you never get a second chance. Very powerful advantage.

– The US still has the best higher education system. Great universities.

– The US still has the most mature and best organized capital market.

These three, Geoff thought, could still help maintain the US lead.

On the negative side, he thought that the US has become very lazy. “We’ve had such a cushy life for so long, and during the boom years, things just became goofy.” Faced with hungrier competition, this can become the defining factor for this century.

There is a lot of discussion these days at the tech leadership circles about Silicon Valley’s chiefs starting to feel fatigued, especially in the context of the announcement of Bill Gates’ retirement from Microsoft. A friend of mine commented today: “I’ve heard some of them are taking the whole summer off.” Unheard of, when things were hot! Geoff also touched on this topic.

Well, I know I have a lot of passionate readers in Bangalore … do you think Bangalore has an answer to a Bill Gates or a Steve Jobs yet?

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Answer to Bill or Jobs. No way !!
India has to go a long way.

I have ranted some of the reasons here –

https://rajatgupta.wordpress.com/2006/06/20/risk-capital-in-india/

I am an entrepreneur and bootstrapping. I have already burnt 6 months in trying to build a startup. I have another 7-8 months before my parents will ask me to join one of those big companies where I was working before.

Damn, the culture is not at all there.

rajAT Thursday, June 22, 2006 at 1:52 AM PT

Rajat,

I thought Bangalore is THE place in India to do a startup? VCs are flocking there, a lot of expertise in various domains exists … why not?

I agree, that the US VCs are investing in later stage companies, and there is a shortage of ground floor early stage VCs, as well as entrepreneurs who know how to launch products and gauge markets.

In the last year, I have met a couple of people who are focusing on this area in India. Subrata Mitra and Ashish Gupta are focused on this agenda.

Meanwhile, keep ranting, and hopefully, more will come. I faced this problem in 1994, when I was doing DAIS. Capital markets, unfortunately, take a very long time to develop, and eventually, this will be one of the biggest hindrances to India’s startup market.

What the VCs flocking to India don’t acknowledge – is that without early-stage capital, there cannot be a pipeline for later-stage deals.

Even Sequoia’s India effort via the WestBridge acquisition, I am sure, will focus on later stage, since I know the cast of characters, and they are not early-stage investors, DNA-wise. Westbridge, however, has done very well for themselves, by investing in later stage service companies in India.
I’ve heard good things about Chrys Capital, but they are definitely not early-stage, nor IT innovation focused.

Finally, my observation is that the MNC salaries are so high in India right now, that startups are hardly attractive from an employer class point-of-view. This will also limit startup success in India, as the MNCs build up humongous capacity, and compete for the same workforce.

Sramana Mitra Thursday, June 22, 2006 at 12:01 PM PT

Just a quick question…

1> If we do not have the psyche/resource/infrastructure to generate another Gates, why all the hallabu about “IT” in India?

2> If VCs are not encouraging for start-ups (initial stage) why all the hue-and-cry about “innovative IT” and “Knowledge edge” that India can offer?

Please sugguest some further readings for understanding.

Anil Kurnool Thursday, June 22, 2006 at 1:25 PM PT

Anil,

These are two very good questions. I will try to answer them from my own perspective, but you should also ask the question of others like Rajesh Jain, Om Malik, Atanu Dey, etc. who cover India.

In my opinion, the real innovation that India will participate in, will not be in the venture-funded start-up model AT ALL. Even though we have VCs flocking to India right now (they need to flock somewhere, since the US has dried up considerably), I consider most of that enthusiasm to be Brownian motion, not productive energy.

On the other hand, MNCs that are setting up large operations in India, and moving their Indian work-force gradually up the value-chain, are developing very effective innovation organizations. They can afford to pay the highest Indian salaries, which are still 15%-25% of US salaries. They pick up the cream of the Indian IT workforce, provide stellar environments and infrastructure, access to markets worldwide through their product marketing and sales forces elsewhere.

This framework is far more conducive to innovation than a bootstrapped startup even in the best Indian location, i.e. Bangalore, with no access to Market data, limited access to the top talent pool, and meagre capital availability.

Why the hullabaloo about IT in India? Because the MNC employment generation and GDP contribution in India is very high, and for every such job, there are another 4-10 other anciliary jobs (drivers, maids, cooks, durwans, nannies) being created, and another 40-50 other mouths being fed (their families).

India, for all its hue-and-cry, is still essentially a back-office. It is, however, the world’s absolute best back-office, so this is not a positioning to pooh-pooh.
It is one to leverage.

The other reason why a Gates will not emerge right now from India or anywhere else, is that IT is a mature market. Gates had a virgin world at his disposal, and he shaped that world. Today’s IT world is a lot more shaped already.

A giant entrepreneur may emerge in another field, though, like BioTech, CleanTech, Media, Education.

Meanwhile, India, I am sure, will continue to produce Millionaires and HNWIs at a fierce speed, because so many other markets are booming in India right now – Real Estate, Retail, Construction, Automotive, Airlines, BPO Services – just to name a few. And plenty of debt financing is available for areas that have “collateral” guarantees, especially with Real Estate as collateral.

Sramana Mitra Thursday, June 22, 2006 at 2:05 PM PT

Rajat, not sure what your startup is into. but have you spoken to seed fund (seedfund.in) or mentor partners (mentor-partners.com). More about them on my blog at
https://ventureintelligence.blogspot.com/2005/12/new-seed-funds-right-time-right-place.html

Arun Natarajan Thursday, June 22, 2006 at 8:31 PM PT

Startups need early adopter customers, not just VCs. The Valley has plenty of large and mid sized established tech companies and diverse from chips to s/w companies) which provide that base. Bangalore does not yet. The Infosyses and Wipros are not diverse enough base – yet.

Also, why does Banaglore have to compare itseld to the Valley? It can create its own culture…but it is a 5 year run so far (even though both the big firms have been at it 20+ years, the rea growth has come in past 5)…the Valley has been growing for over 40…

vinnie mirchandani Friday, June 23, 2006 at 1:30 AM PT

Yes, lack of access to the market (i.e. customers) is one of the biggest issue for Bangalore.

As far as I recall, Bangalore made its name as the Silicon Valley of India, and even today, many point to Bangalore and Shanghai as alternatives to Silicon Valley.

Hence.

Also, I do agree that if you look at a longer term horizon, say a decade or two, then there may be a startup culture that will develop in Bangalore. As for the question of growth, I don’t see any shortage of that right now, and I am sure it will continue, the only hindrance that may slow down being infrastructure (traffic, power).

Sramana Mitra Friday, June 23, 2006 at 2:07 AM PT