Thursday, August 30, 2012

The OS for Silicon Valley is Trust (and we have to protect it)

There have been a lot of words spilled recently about a specific individual in Silicon Valley who appears to have fabricated data to appear well-connected and influential.

Since the discussion has descended into flame wars about that individual and the media outlets who covered the story, I'm deliberately not linking to any of that content.

What I am concerned about is the number of Hacker News commenters who simply spun some variation on "everyone in Silicon Valley is full of BS." Ultimately, this kind of cynical and suspicious attitude harms the entire ecosystem, even when it is justified.

Andy Grove is famous for saying that "only the paranoid survive," but it is probably also true to say that trust is the OS of Silicon Valley.

Back when I was in business school in Boston, I started my first company. I ended up raising capital and building the team in Silicon Valley, even though that meant weekly transcontinental redeye flights (I was still in school at the time, and my school had a no absence policy). The reason is that Silicon Valley is far more open to trying things. I believe that much of that openness comes from the underlying trust we extend here in the Valley.

In theory, investors ought to insist on a full due-diligence package that includes all corporate documents, copies of every contract ever signed, and the full HR files of every employee. But that kind of scrutiny would kill almost any startup with paperwork. Early-stage investing would grind to a halt.

In practice, guys like Andy Bechtolsheim write $100,000 checks to two brilliant guys with an cool prototype. Sometimes, the investors lose their shirts. But in Andy's case, he backed Google--his third billion-dollar company.

Silicon Valley isn't full of risk-takers because we're insane (no matter what some other hubs might claim). It's because we trust each other. Maybe not completely, but more than most other industries. Certainly more than Wall Street.

Classic management theory states that companies exist because of the overhead cost of arms-length transactions. With trust, you can move faster.

In some sense, all of Silicon Valley is like a single mega-firm, thanks to the level of (perhaps irrational) trust we feel.

That trust helps make us special. And it's worth protecting.

5 comments:

Alex Gourley said...

Well said.

Dave said...

But is it trust of each other or simply trust in the SV ethos and seemingly neverending fountain of success? I don't think it is nearly as much about people anymore as it is a belief that things will always work out, which makes risk more acceptable, but also allows for BS artists to get by more easily.

Joe Mellin said...

It is amazing how true that is. I have completed a few very large transactions based on trust. It is amazing how much easier it makes life when you know that no one with any interest in staying in the industry would break trust.

Also, it seems that most people in SV value their life too much to get involved with law suits, as they just eat up your life.

rohit said...

this is our form of keiretsu at work - it is the fabric that permits failures and fosters the first few truthful trust based exchanges that are the beginnings of big companies.

ranndino said...

Well said. As in any place there will be people who take advantage, especially when lots of $ signs are involved, but that doesn't mean that everyone is an unscrupulous bastard.