After numerous failed attempts of replicating Silicon Valley, the temptation still remains. After decades of bafflement and frustration, the world is still struggling to figure out the trigger point and sustaining force of the chain reaction forming Silicon Valley. Why is Silicon Valley hard to replicate is still a mystery.
Finding customers for primitive Transistor priced $150 apiece appears to be the trigger point of chain reaction formation. The next challenge was to sustain the start and to scale it up, creating an economic success story. Silicon’s latent potential for supporting a long journey of making Transistor better and cheaper is the sustaining force. However, the role of profit-making competition and risk-taking entrepreneurship played a key role in exploiting Silicon’s potential. The formation of the venture capital community in offering risk capital also accelerated the process further.
In the 1950s, Silicon Valley was producing fruits and vegetables. Its iconic Stanford University did not have any strong research program in solid-state physics. However, a small city Palo Alto of the valley area was the home of a Caltech graduate. After staying two decades on the East coast, he wanted to return home to look after the aging mother. This urge to come back home started the formation of Silicon Valley, subsequently creating the challenge– Silicon Valley hard to replicate.
The invention of the Transistor and the growth of firms on the east coast
In the 1940s, AT&T’s Bell Laboratories in New Jersey were badly looking for a solid-state electrical switch to replace electromechanical telephone switches. In this pursuit, under the leadership of William Shockley, John Bardeen and Walter Brattain invented Transistor in 1947. Subsequently, this trio won Nobel Prize for its invention in 1956. Transistors opened the opportunity to replace the electrotechnical switching technology core of telephone systems, and vacuum tubes used in computers and electronics products. To exploit this commercial potential, companies started to emerge. Boston and New York took the lead being home to all four transistor companies in 1951. Still, in 1956, the U.S.’s East coast was dominating with transistor startups. However, in the absence of such targeted research for addressing practical problems, startups alone cannot replicate innovation successes.
William Shockley—a boy of Palo Alto—came back home in turning Silicon Valley hard to replicate
In 1956, Dr. Shockley felt the need to live near his mother’s house in Palo Alto, as she was aging and often ill. Upon getting financial backing from a friend Arnold Orville Beckman, who had invented the pH meter in 1934, Shockley decided to leave the East Coast’s technology hotspot. He set up Shockley Semiconductor Laboratory in a small commercial lot in nearby Mountain View in 1956. Upon failing to convince his Bell lab colleagues to join him, he recruited a team of eight young talents. They were all science and engineering graduates. Three of them had Ph.D. from MIT and another person from Caltech. The team also had Gordon Moore, known for Moore’s law. Such a start-up initiative by even the Nobel Prize-winning scientist is critical to roll out ideas in the market.
However, within less than a year, these young professionals started feeling uncomfortable with Shockley’s management practices. At last, they left him with a mission of the formation of Fairchild Semiconductor in 1957. Shockley called “the young scientists the “traitorous eight” and said they would never be successful.” However, their subsequent contribution has made Silicon Valley hard to replicate.
The U.S. Defense and Space programs—customers for $150 apiece Transistor, a critical element in making Silicon Valley hard to replicate
Fairchild Camera and Instrument, a U.S. company with considerable military contracts, backed the mission of “traitorous eight” in pursuing the journey of developing and commercializing Transistors made out of Silicon. With the design of Gordon Moore, the team came up with first the first batch of Silicon transistors in 1958—2N697. Each of the first batches of 100 Transistors was priced at $150. Of course, there were no customers for this component for innovating electronics products for the civilian market.
The first challenge was the invention of a solid-state switch, which Shockley’s team at Bell Laboratories did. Finding suitable material for mass production was the 2nd challenge. R&D effort of “traitorous eight” found Silicon as opposed to Germanium to use as a substrate. It was a far less costly option since the material costs would consist of sand and a few fine wires. In fact, the property of Silicon itself has made Silicon Valley hard to replicate.
Finding customers for primitive solutions at the early phase of the technology life cycle is a critical requirement, however, often missing in many other countries
The 3rd challenge was to find customers for the expensive, also primitive products. As usual for the U.S. tech industry, the U.S. military showed up. IBM bought all the 100 Silicon transistors of the first batch for $150 apiece in order to build the computer for the B-70 bomber. More were sold to Autonetics to build the guidance system for the Minuteman ballistic missile. Due to energy efficiency and compactness, NASA also found the Transistor suitable for Space programs. Fairchild started supplying transistor-based electronics for NASA’s space capsules to counter a big space competition unleashed by Russia’s success with Sputnik in 1957.
Within just three years, Fairchild’s annual revenues were over $20 million. By the mid-1960s, the group had invented a new product, the integrated circuit—forming multiple transistors on a single substrate. Subsequently, the annual revenue rapidly jumped to $90 million. Like the Transistor, many great technologies emerge in the primitive form. The role of defense in creating the market of primitive solutions at the early stage has been playing a critical role in creating innovation success stories in the USA.
The hidden power of Silicon—long legroom for making components better and cheaper
On the one hand, the cost of Silicon was low as it was produced from abundantly available sand. On the other hand, Silicon was highly amenable to supporting ideas of making transistors smaller, producing an increasingly larger number of transistors on a single chip, and making them of far higher quality. R & D activities started exploiting this potential for increasing chip density exponentially, giving birth to Moore’s law. As the cost of transistors was falling and quality was improving in an exponential manner, innovation opportunities started to penetrate civilian applications. Starting from the calculator to the minicomputer, numerous civilian innovations started demanding transistors. Subsequently, spin-offs and startups also started experiencing exponential growth. The passion of perfection of the highly educated “traitorous eight” and their followers played a vital role in exploiting the latent potential of initial invention.
The chain reaction of spin-offs for scaling up—subsequently turning Silicon Valley hard to replicate
The increasing possibilities, originating from making Silicon Transistor smaller, better and cheaper, started to inspire Fairchild’s employees to leave the firm to launch new spin-off businesses. Many of these firms also grew quickly, inspiring other employees still working at the company. In fact, the continued success of unlocking the underlying capability of Silicon kept fueling sustaining force stronger. “You got these guys leaving and starting companies and the companies are running, working”– a former manager of Fairchild recalled. Eventually, this chain reaction started to transfer farmland into Silicon Valley.
The eight co-founders supported a number of these new businesses. For example, Noyce served on the board of Applied Materials, a local electronics equipment manufacturer, which became a major semiconductor equipment supplier. Two other co-founders, Moore and Noyce, left Fairchild to start the computer chip firm Intel. Another of the founders of Fairchild provided the financing that helped a former employee launch AMD.
Within just 12 years of Fairchild’s formation, the “traitorous eight“ and former employees of Fairchild generated more than 30 spin-off companies and funded many more. Subsequently, by 1970, chip businesses in the San Francisco area employed a total of 12,000 people. The chain reaction continued to the formation of 2,000 companies by 2016 having links to the “traitorous eight.” These companies also employed over 800,000 people by that time. This chain reaction of the formation of firms has made Silicon Valley hard to replicate indeed. This risk-taking, profit-making culture is vital to exploit invention potential into innovation success stories. Due to its absence, the former Soviet Union could not create large-scale innovation success stories out of many groundbreaking inventions. Hence, this is an important element in making Silicon Valley hard to replicate.
Venture capital firms— a critical building block of turning Silicon Valley hard to replicate
The “traitorous eight” also reinvested their capital into a number of new local startups. With the support of four of them, Bay Area’s first venture capital firm emerged in 1961. In 1972, Kleiner, a “traitorous eight” member, co-founded the venture firm Kleiner Perkins, which provided risk capital to hundreds of companies, including Google and Symantec. During that time, a former Fairchild executive named Don Valentine launched another venture firm called Sequoia Capital. This fund also invested in several hundred companies, such as Cisco and LinkedIn. Investment firms such as Khosla Ventures, Andreessen Horowitz, Founder Collective, and 500 Startups have also been linked to this team.
The emergence of software and service out of the success of Silicon
The journey of exploiting Silicon’s potential in making smaller, cheaper, and better Transistors led to product innovation. Notable examples are Apple or Cisco pursuing products out of chips produced by Silicon. Subsequently, investment has expanded into software and service, leading to Google, Facebook, and PayPal’s formation and uprising.
To sum up, Silicon Valley is the outcome of several achievements, linked as a chain. The first one is the Nobel Prize-winning invention of the Transistor. This is followed by the relocation of inventor Dr. Shockley in Mountain view to pursue the commercial interest, and subsequent development of Silicon by “traitorous eight” as a cheaper alternative to Germanium. The demand of the U.S. Military and Space programs created the initial demand of the expensive, and also primitive, Transistor, made out of Silicon.
The latent potential of Silicon of continued progress created the possibilities of the endless virtual market of Transistor. The entrepreneurial spirit and risk-taking initiatives of this team started the chain reaction of the formation of firms and also venture capital funds, which kept forming the success of Silicon Valley. Often, it isn’t easy to have a combination of all of these requirements to keep forming in sequence. Such reality creates the impression that Silicon Valley is hard to replicate. Hence, we should keep investigating and figuring out the strategy for replicating the success of Silicon Valley of creating economic outputs from ideas.