Sunday, May 26, 2013

Silicon Valley isn't about the's about the money

Superstar science author Steven Johnson (I'm a big fan of his book, "Where Good Ideas Come From") recently wrote a critique of claims that Silicon Valley is turning into Gilded Age America--a land of unfathomably rich oligarchs that are oblivious to the poverty around them:

Johnson points out that the Valley's love of open source and collaboration, as well as the way its political dollars go overwhelmingly to Democrats, belie the notion that the Valley is the land of free-market fundamentalists.

What's interesting is that Johnson theorizes that the reason Silicon Valley isn't about the the money:

"The defining difference between Silicon Valley companies and almost every other industry in the U.S. is the virtually universal practice among tech companies of distributing meaningful equity (usually in the form of stock options) to ordinary employees. Before companies like Fairchild and Hewlett-Packard began the practice fifty years ago, distributing stock options to anyone other than top management was virtually unheard of. But the engineering tradition that spawned Silicon Valley was much more egalitarian than traditional corporate culture.

There’s a great book on this topic, called In The Company Of Owners, that documents just how distinct the Valley is from the rest of U.S. corporate culture. The top 100 tech companies granted 19% of their total ownership to non-senior-executive employees (i.e., everyone excluding the CEO and four lieutenants.) For the rest of corporate America, that number was 2%. In other words, when it came time to share rewards with ordinary employees, the Tech 100 were ten times more generous than low-tech firms. This is actually one of the hidden strengths of the tech sector in the US: its companies are much more competitive precisely because they are much more egalitarian in how they share their wealth internally. I would be surprised if there were any new industry in the history of capitalism that distributed its economic rewards to its employees as widely as Silicon Valley has."
This is simply the logical extension of the startup model.  There are many reasons that founders work insanely long hours and are far more dedicated to their companies than the average employee.  They feel passionately about the problem they're trying to solve.  They have a strong sense of responsibility.  They enjoy the freedom of running their own business.  But the money matters, no matter how much we pretend it doesn't.

For example, almost every young founder I know worries about valuation when selecting investors.  This is dumb, for reasons I've repeatedly explained, but it's seems like an unchanging fact.  I can only conclude that either they're insecure egomaniacs that base their self-worth on a meaningless number, or that they want to make as much money as possible.

The money is necessary, but not sufficient.  Without the motivation of getting rich, Silicon Valley wouldn't exist (which is true even in a historical sense--California became California because of the 1849 gold rush).  Yet as Johnson points out, the strength of Silicon Valley is that it blends greed and equality.

By making more people owners, startups enable people to tap their passion, responsibility, and freedom to change the world.  Fictional Wall Street villain Gordon Gekko said, "Greed, for lack of a better word, is good."  He's right, but incomplete.  Wall Street itself offers greed without the other ingredients, and the results are far less beloved by the American public.

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