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Two determinants to be a Silicon Valley: Finances and workforce May 30, 2006

Posted by Tom in Community, Economic Development, Education, Technology, Workforce.

Kudos to Tory Gattis at Houston Strategies, who referenced the Kauffman Foundation Study on Entrepreneurial Activity in America (which is worthy of its own analysis by someone more informed than I…).  In Tory's post, he took the discussion of entrepreneurship further when he referenced Paul Graham:

On a related note, Paul Graham, who writes amazingly insightful essays on technology among other topics, recently released one titled "How to be Silicon Valley." It's his thoughts on what it takes to be a tech startup hotbed.

I think you only need two kinds of people to create a technology hub: rich people and nerds. They're the limiting reagents in the reaction that produces startups, because they're the only ones present when startups get started. Everyone else will move.

The rich people are for venture capital, of course. And Houston has plenty of rich people (although much weaker on formal VC). But we're a little weaker on the young college nerds – Rice is too small, and UH is still trying to get to Tier 1 status. Austin and Seattle seemed to do just fine without that many rich people (at least when they started), and Chicago hasn't done all that well with plenty of rich people and nerds (Northwestern, U.Chicago), so the theory's got some weaknesses.

He goes on to discuss the elements needed in several sections:

  • not bureaucrats (government programs)
  • not buildings (tech office parks)
  • top universities (purchasable for a mere half-billion)
  • personality (attractive to the creative class)
  • nerds (how they're a distinct subset of the creative class)
  • youth (inc. tolerance/liberalism and an "intact center"/core)
  • time for it all to ferment

I suppose the financial part is intuitive – you can't start a company without startup cash or a viable venture capital network to get you over the initial hump.  But the workforce side is counter-intuitive for some who think that location, infrastructure and cash incentives are all that it takes.  Graham (followed by Gattis in his own analysis) suggests that not only is the question that of building a workforce via a potent educational infrastructure but also that of creating a community that will foster a vibrant workforce.  Graham basically is channelling Richard Florida's creative class theories. 

Coming back around to the Kauffman studies, the study shows that the six traditional Great Lakes states (Illinois, Indiana, Michigan, Ohio Pennsylvania and Wisconsin) are all in the bottom half of the study in terms of entrepreneurial activity in 2005.  They're all strong higher education states, but they have had a devil of a time with brain drain to other regions.  Bright young people start companies.  Some of them are our bright young people.  Problem is, they largely aren't starting those companies here in the old Rust Belt.  

One of the most pressing issues for these states to tackle is the exporting of their top human capital.  That's what makes Indiana Governor Mitch Daniels' "Hoosier Comeback Tour" – part of the Indiana Economic Development Corporation's new strategic plan – such a fascinating concept to observe.  Indiana has realized that its future depends in part on the success of far-fetched concepts like this. 



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