The Secret Sauce of Silicon Valley’s Success

This year, I’ve traveled to and spent time in some of the most economically cutting-edge regions of the world.

I spent New Year’s Eve in Istanbul, Turkey, which is the capital of one of the fastest-growing economies in the world during the past 10 years; Dubai, the “gem” of the Middle East; and Singapore, arguably the most successful of the “Asian Tigers.”

Each of these places was extremely impressive in its own ways.

But none of them have had the global economic impact of Silicon Valley, the 30-mile stretch of land south of San Francisco that has been ground zero for the global technology revolution since the 1950s.

Silicon Valley: Understated Success

Unlike the breathtaking architectural wonders of Dubai or the impressive skyline of Singapore, when you go to Silicon Valley, there’s not a lot of “there,” there.

Even New York Mayor Michael Bloomberg teased Silicon Valley in a speech to Stanford University graduates this year:

“I believe that more and more Stanford graduates will find themselves moving to Silicon Alley, not only because we’re the hottest new tech scene in the country, but also because there’s more to do on a Friday night than go to the Pizza Hut in Sunnyvale. And you may even be able to find a date with a girl whose name is not Siri.” As someone who lives in a lively global capital like London, I think Bloomberg has a point.

And I’ll bet the hundreds of delegations that have visited Silicon Valley over the decades to suss out Silicon Valley’s secret sauce of success probably feel the same way.

Yet leaders of every place in the world seem to want their own versions of Silicon Valley — whether it is Cambridge University’s “Silicon Fen,” Malaysia’s MultiMedia Corridor or Bloomberg’s own “Silicon Alley.”

Russia is even sinking a whopping $15 billion into a project named Skolkovo, which will try to emulate the Valley’s success.

Indeed, tangible signs of Silicon Valley’s secret are darn elusive.

Sure, the Stanford campus has doubled in size since I studied there in the 1980s. New buildings named Hewlett, Packard, Gates, Paul Allen (Microsoft), Philip Knight (Nike), Charles Schwab, Charlie Munger (Berkshire Hathaway), Gordon Moore (Intel) and Jerry Yang (Yahoo) now dot the campus. Throw in a new stadium, and you see the benefits of the enormous wealth generated by Silicon Valley. Last year alone, Stanford raised more than $1 billion from its deep-pocketed alumni. That’s well over 50% more than my other alma mater, Harvard University.

Still, unlike in Dubai, Silicon Valley boasts no Burj Khalifa, the world’s tallest building, or Marina Bay Sands, the world’s largest casino in Singapore, to knock your socks off.

Yet, the pace of change in Silicon Valley has been remarkable and, I think, under-appreciated. Compared to today, Silicon Valley seemed almost like a cottage industry when I attended Stanford in the mid-1980s. One summer, I worked as a legal assistant at the second-largest Silicon Valley law firm. At the time, it had 11 attorneys at its office in Palo Alto Square. The largest law firm in the Valley had maybe 20.

Today, along Page Mill Road, vast corporate campuses are homes to law firms where thousands of attorneys service hundreds of companies that did not exist back then. And Sand Hill Road is now ground zero for both the local and global technology venture capital industry, all looking to profit from Silicon Valley’s magic.

Silicon Valley: Ideas That Change the World

Having lived outside of the United States for more than 20 years, and subjected to the relentless onslaught of negative media and stories of American decline, it’s easy to forget the remarkable pace of change in the United States.

But expensive wars in Iraq and Afghanistan, political gridlock in Washington, D.C., and the rise of China have not meant that the United States has slipped into terminal decline.

And that’s because Silicon Valley — and by extension the United States — is about the power of ideas. Like their hero Steve Jobs, every Silicon Valley entrepreneur is trying to “make a dent in the universe.”

And unlike the scion of an Arab sheikh or a corrupt Chinese bureaucrat with a garage full of Ferraris, they are succeeding.

Just think how much the “ideas” of Google, Apple, HP, Yahoo, Intel, Facebook and Twitter have impacted not only the lives of those working in Silicon Valley, but also those of literally billions of others from China through Egypt to Iran.

It is not a stretch to say that Silicon Valley’s innovations have literally launched revolutions.

And in that uniquely American way, all of this translates into big bucks for investors. Consider that the market capitalization of all the publicly traded companies in France — a country with a population of 65 million — is approximately $1.8 trillion. The value of two Silicon Valley companies — Apple (AAPL) and Google (GOOG) — alone adds up to almost half of that.

For all the talk of American decline, Silicon Valley represents a uniquely American self-confidence about the future.

Yes, the United States faces enormous challenges reining in government deficits, persistent unemployment and increasing regulation.

But as one hedge fund manager told me when the BRICs (Brazil, Russia, India and China) were darlings of global investors a few years ago, “The next Google won’t be coming out of Brazil.”

To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.