How the West Kicked Butt

Because they still have the greatest concentration of talent, capital, and startup know-how, Silicon Valley and Northern California lead the nation by a wide margin. Several years ago, Forbes ran an article saying that "if you want to find the new entrepreneurial company, look where the big corporations are located.' Big companies spin off little ones. There are more than 20 billion-dollar companies in the Bay Area feeding the spin-off culture. In the early '80s there were fewer than 10.

Most areas, other than the valley, do not have all the criteria needed for a successful fermentation process. To wit: Great geographic location: In Silicon Valley, it's easy to meet and share information, as opposed to, say, Route 128 in Boston, which stretches on for miles and miles. People from Hewlett-Packard, Oracle, Intel, Netscape, Cisco, and Novell can all meet for lunch and travel only 15 minutes.

Broad technology base: The valley has it all from medical and biotech to software and silicon, telecommunications, aerospace, chemical, satellites, optical, lasers, electronic instrumentation, sensors, fluidics, mainframes. Capital: There are more venture capitalists and angels per entrepreneur than any other area in the world.

Open systems: Silicon Valley has an open environment; it is quite easy to access people and businesses to build relationships and to learn. When Steve Jobs first started Apple, he called on Dave Packard, Bob Noyce, Jerry Sanders, and others for advice.

Start-a-company culture: This is a place where everyone thinks and talks about starting a company. You can take a course on it at the University of California at Berkeley or Stanford University.

I have often said that "Silicon Valley is a state of mind.' But it requires many years of infrastructure development -- venture capital, banks, patent attorneys, IPO experts, advertising agencies, and a talent pool of people willing to work part time or full time, seven days a week. I suspect that Microsoft is spinning that sort of culture in the Seattle area. Also Compaq in Houston and a number of companies in the Austin area. However, I don't get the same sort of "rush" when I visit other areas of the country. Most visitors to Silicon Valley tell me the same thing. Yes, there are good and successful startups in all these other areas, but as yet they are the exception and not the rule.

"In the information technologies Northern California is untouchable" -- Gordon Bell, former vice president of research and development, Digital Equipment; resides in Los Altos, California

Northern California is untouchable in the current information technologies. The region draws on talent from several first-rate universities, and the role of faculty in starting companies is key. Research funding has to result in faculty-based startup companies that utilize the results of the research. Although Stanford and Berkeley receive roughly the same federal research funding as the Massachusetts Institute of Technology and Harvard, the number of startups that have come directly from faculty is much higher in Northern California.

I can recall only three small spin-offs by MIT faculty members. Also, a region needs availability of experienced engineers and marketers from larger companies who've done it before and can make the company happen. Finally, there is little stigma attached to past results in Northern California. This promotes do it again" entrepreneurs versus the "one strike and you're out" kind in the Boston area.

"In Silicon Valley, talent chases small companies. Startups are King" -- Mark Jensen, managing partner at the consulting firm Arthur Andersen, San Jose, California

Everyone wants to be like Silicon Valley, but there is no place like it. Other regions don't have the ability to go down the street and hire 50 or 60 engineers. The banks in Northern California are eager to work with companies. They want to open checking accounts and make loans. In other parts of the country, there is more of a wait-and-see approach. In the valley, talent chases small companies. Startups are king.

"Silicon Valley is the best, even though housing prices are ridiculous" -- Mark Kvamme, CEO of the advertising company CKS Group, Cupertino, California

"California will soon be eating dust" -- Jeff Eisenach, president of the think tank The Progress & Freedom Foundation, Washington, D.C.

The New South is number one. Take great universities, modern infrastructure, reasonable taxes and regulation, and some of the world's most innovative financial institutions. Throw in massive immigration, mostly from inside the U.S., and add a word -- hungry. The result: Atlanta, Charlotte, and the rest of the New South circa 1997. Much the same can be said for Arizona, Texas, and Northern Virginia. California may be looking over its shoulders (or down its nose) at these "redneck" upstarts, but it'll soon be eating dust. The lesson: You can't tax and regulate your way to victory in the digital age.

"There is an innate sense of loyalty in Boston" -- Patrick J. McGovern, chairman of the media company International Data Group, Boston, Massachusetts

I see Northern California as the number-one high tech region in the country, followed by the Boston and Route 128 circle. In the Boston area, there is an innate sense of loyalty to the enterprise. It takes extra time and persuasion to get people to leave a company and join another. As a consequence, enterprises are more stable, and personnel turnover in high tech companies tends to be under 10% a year. In contrast, in Northern California people are almost embarrassed to say they have been working for the same company for more than three years. In Silicon Valley, leaving to form a new company is considered heroic, rather than disloyal, and personnel turnover rates are often in excess of 20% a year. To acquire greater personnel stability is one of the reasons companies founded in Northern California expand operations to Texas, the Mountain Region, the Northwest, and Boston.

"On the hot list, Boston is decreasing" -- Jeff Christian, headhunter, CEO of Christian and Timbers, Cleveland, Ohio

Boston is decreasing on the hot list. Our firm anticipates that it will decline from number two to the three or four spot. Although Boston is a town with a lot of fast-growth companies, it is still in the Northeast. Our aging baby boomers want the sun.

"Boston is definitely moving down" -- Ruthann Quindlen, venture capitalist, Institutional Venture Partners, Menlo Park, California

If you look at the numbers, Silicon Valley is outstripping Boston. The center of gravity is moving increasingly to Silicon Valley. It's shocking, the amount of deals done here as compared to there. Boston is definitely moving down.

"Significant growth opportunities are in the Northwest" -- Pam Alexander, president of the public relations company Alexander Communications, San Francisco, California

We think the Northwest (Seattle, Portland) has significant growth opportunities, especially since many ex-execs at Microsoft have become "angel" investors. Also, venture capital firms are budding there--taking advantage of Japanese business in the area.

"The Northwest is the darling of the reporter caste; it's the ultimate wet dream" -- Joel Kotkin, fellow at the Institute for Public Policy at Pepperdine University, Malibu, California

The Northwest is the darling of the reporter caste, perhaps because it's the ultimate wet dream of the white race. Liberals love places like Redmond -- where you can be sympathetic to "people of color" because there are so few of them. The area has a nascent venture capital industry and strong tech sector, but it's very small compared to Northern California, L.A., and New England, according to surveys by publisher CorpTech. It's a case of a smallish area with middling industry, so it looks bigger than it is. University-wise, it's very second-rate, particularly compared to L.A., Boston, and even New York City.

Nevertheless, the Northwest has many good support systems for entrepreneurs. The newspapers are essentially recyclers of press releases for the all-powerful "BMW" interests -- Boeing, Microsoft, Weyerhaeuser. But the supportive culture encourages people. It seems particularly good for people who want to work for a big company -- not the kind of "rip out your throat" environment you find in Silicon Valley, Hollywood, or Manhattan. Paul Allen and Bill Gates may be all the venture capital this area will ever need.

"Oregon and Washington are mild and wild" -- Philip M. Burgess, columnist and president of the think tank Center for the New West, Denver, Colorado

With companies such as Intel, Microsoft, and Boeing, Oregon and Washington are information age front-runners. Each also provides a "mild and wild" lifestyle that is appealing to the knowledge workers who make the new economy work. Both have an excellent climate for entrepreneurs and have the capital and intellectual resources to drive future growth.

"Resources aren't as overburdened in Southern California" -- Pam Alexander

In Southern California, the convergence of entertainment and technology opens up funding opportunities from the entertainment industry. We see this happening with Spielberg and others like him. Plus, resources -- office space, living space -- aren't as overburdened as they are in Northern California. Incubators such as Idealab are hiring graduates from universities such as California Institute of Technology. By the end of 1997, Idealab will have launched 28-plus companies, with the majority of them based in Southern California. Also, San Diego is very supportive of the technology community. Lee Stein, CEO of First Virtual Holdings, an online commerce company, was named a finalist for San Diego's entrepreneur of the year.

"Los Angeles is the world's premier global City" -- Philip M. Burgess

While some people are still wondering about the California "recovery," it is clear that Southern California has not only recovered, it has transformed itself. Southern California is now the nation's 800-pound gorilla. The economic downturn earlier in this decade only camouflaged a transformation of a defense-oriented aerospace economy into the world's leading 21st-century economy, fed by computers, software, multimedia, and entertainment. Southern California has it all: money, people, talent, networks, a culture of "project management," virtual organizations in the moviemaking business, and connections to global markets -- the whole nine yards. Los Angeles will be to the 21st century what Amsterdam was to the 17th, Paris to the 18th, London to the 19th, and New York to the 20th: the world's premier global city.

"Southern California is going nowhere" -- Sandy Robertson, venture capitalist, chairman, Robertson, Stephens & Company, San Francisco, California

"Reporters hate L.A. It's enough to make you appreciate the Hollywood toupee set" -- Joel Kotkin

Southern California is the most underrated region in the country. Irvine, in particular, is a super high tech hotbed. The L.A. area has one of the highest startup rates of any of the major cities. San Diego and Orange County are even higher and have fewer problems. The most recent survey by the Carronade Group, the Internet and book publishing arm of the San Francisco consulting firm Liquid Mercury, shows that the L.A. area has almost the same number of interactive companies as Northern California. It also has more than New York. So, at best it's a wash between the two California regions. But L.A. is hardly the digital desert that most Bay Areans think it is. The convergence between the "hard" side of high tech and the culturally oriented "soft" side is taking place here more than anywhere else. L.A. thrives by being oblivious. Reporters, investment bankers, McKinsey types hate the place. Maybe that's one of the nicest things you can say about an area. It's enough to make you appreciate the Hollywood toupee set.

"Most of Southern California's talent has migrated to the New South" -- Pam Alexander

The New South (Atlanta, Raleigh, Durham, Chapel Hill, Charlotte) is on our agency's list because a recent Price Waterhouse survey reported that in the third quarter of 1996 the Southeast was second only to Silicon Valley in terms of venture capital invested. It's where most of Southern California's talent has migrated. Why? Thriving economies, low cost of living, and plenty of investment from larger corporations. Also, a new study by the American Electronics Association found that Florida, Virginia, Georgia, and North Carolina are among the nation's top 15 states in high tech jobs. Coopers & Lybrand ranked Florida third in communication deals and Georgia fourth in software deals in 1996.

"Raleigh-Durham is a wannabe" -- Joel Kotkin

The New South is a huge area. Atlanta has the most high tech by numbers, but concentrations are more intense in Raleigh-Durham. Raleigh-Durham is a classic Silicon Valley wannabe. It has fewer high tech workers or companies than much-ignored Orange County. Nevertheless, the region is making a conscious shift from a high tech branch office to something more entrepreneurial. Watch out for companies like Haht Software to emerge, along with already large local firms such as Quintiles Transnational and SAS Institute. Big factor: huge emigration of Northeastern companies, particularly from upstate New York. They call the city of Cary, the area in the heart of the high tech triangle, "Containment Area for Relocated Yankees."

"At the top of my list is Texas" -- Mark Tebbe, president of the management consulting firm Lante Corporation, Chicago, Illinois

Texas (Houston, Dallas, Austin) is at the top of my list because its resources in higher education and infrastructure have been underrated. Austin is really booming again, thanks to the banks, financial backing, and great feedback from the universities.

"The real high tech cluster is in Dallas, but Austin is the media darlin'" -- Joel Kotkin

Texans will no doubt give Golden Staters the strongest run for their money. The state has a growing, local venture community, good business climate, and improving universities. Austin is the media darlin', but the real high tech cluster is in the Dallas area. It's not much of a factor in multimedia -- more engineering oriented. But some Texas multimedia companies are writing code for California, such as 7th Level. In 1996 a Vermont marketing company ranked Dallas and Houston as having some of the highest startup rates of major U.S. cities.

"Moving up fast is the West & Midwest" -- Philip M. Burgess

The West/Midwest (Chicago, Minneapolis, Kansas City, Omaha) is moving up fast. Exciting activity is happening in a region that some were too quick to write off several years ago. This is a region with several outstanding universities, some of the best transportation and communications infrastructures, and some strong computer and software companies, especially in areas of the Great Plains like Minneapolis, Omaha, Sioux Falls, South Dakota, and Grand Forks, North Dakota -- the location of the world-class Center for Aerospace Sciences.

"Minneapolis has some appeal, but how many people want to move to a place that's sub-zero?" -- Joel Kotkin

Chicago, according to economic consulting firm Regional Financial Associates, is the fourth-largest high tech job center in the country. Like L.A., the high tech sector gets lost because the economy is so big and diverse. The region has a growing venture capital presence and some good engineering talent from local universities, which are not appealing to those snot-nosed Ivy League/ Stanford types -- but who cares. Minneapolis has some appeal, but let's face it, even with zero unemployment, how many people want to move to a place that's sub-zero half the time? Ditto Omaha.

"The headquarters of the nation's telecom and cable TV giants is in the Mountain Region" -- Philip M. Burgess

From a technology growth perspective, the Mountain Region (Denver, Salt Lake City/Ogden/Provo, Boise) continues to outshine all other regions. With high marks for technology-based entrepreneurism in computers, storage devices, and medical and environmental technology, this region's growing economic diversity and high quality of life, a magnet for talent, bode well for the future. The region is also headquarters to some of the nation's telecom and cable TV giants such as U S West, TCI, and Jones International. Utah's Wasatch Front region is about to benefit from an investment boom in telecom and other infrastructure as it prepares to host the 2002 Winter Olympic Games, the first ever in the American Rockies.

"Utah has the perfect pod people culture" -- Joel Kotkin

The Mountain Region is mostly about small packages that look big because the populations are so small. There's not much in the way of multimedia companies, but there are a lot of branch operations. Utah makes the most absurd claims of having the second-largest concentration of software after Silicon Valley when, by analyzing the census data, you find out it's smaller than Orange County. But then again, Utah has the perfect "pod people" culture -- people all seem to be reading from the same script. Nevertheless, the area has strengths in lifestyle attractiveness. Places like Boulder seem likely to keep creating companies.

"The federal labs assure that biotech will be very strong in Greater Washington, D.C." -- Joel Kotkin

Greater Washington, D.C. (Dulles Corridor and Maryland), is the next hot area in the East. Virginia is becoming a major producer of growth companies and is luring firms from the Northeast. Beltway connections can help these firms, and the lovely Virginia countryside has appeal. This is probably not the most intense area, but it has a good central location. It appeals to Easterners by appearing less redneck than the rest of the South. The federal labs assure that biotech will be very strong in the future.

"Greater Washington, D.C., Seems Stagnant" -- Philip M. Burgess

Greater Washington, D.C., could go either way. But at the moment it seems stagnant. Despite the condition of D.C. itself, the surrounding area is strong, especially Northern Virginia. It has an excellent base of information age talent, but it lacks strong entrepreneurial attitudes. Rather than building on the considerable economic and technological strengths that exist in the region, the area's business and civic leaders are more oriented to "smokestack chasing" (finding the next footloose company that wants to abandon the New York area). The old aphorism -- to build on your strengths, stick to your knitting, and add value to existing activities -- has been lost on the economic development leadership in both the public and private sectors.

"Technological resources have improved greatly in Phoenix and Tucson" -- Philip M. Burgess

Entrepreneurial energy is strong and new-business job growth continues to increase in Phoenix and Tucson. In the last several years, technological resources have improved greatly, and entrepreneurism remains strong. Access to capital is improving, and many information-related companies are located here, including OEMs such as Gilbert Engineering and the Small Business Market Group for U S West.

"Phoenix and Tucson are still a branch office. In education, they are very mediocre" -- Joel Kotkin

Phoenix and Tucson are still a branch office that has fed off of California's excesses and Easterners looking for some sunshine. They are very mediocre in education and have a real-estate-dominated political culture. Nevertheless, the area will grow as a secondary spot for high tech, aided by Motorola's presence.

"The up-and-coming region for entrepreneurs is New York" -- Ann Winblad, venture capitalist, Hummer Winblad Venture Partners, San Francisco, California

With digital media being propelled by the Internet, the greater New York area (including 516, 203, 914, and 201 area codes) is an up-and-coming region for entrepreneurs. The talent pool of editors, writers, and designers at the major media companies is finally taking risks to become entrepreneurs. Also, big strategic partners are within walking distance.

"Content is king in New York City. Content is Silicon Alley" -- Richard Saul Wurman, chairman of the TED technology conferences, Newport, Rhode Island

In technology, the next phase is content, and content is king in New York City. Content is Silicon Alley. The Nynex merger with Bell Atlantic will solidify the area.

"Greater New York City is where Hype hits hysteria" -- Joel Kotkin

Despite a larger population, the greater New York City area has only about 200,000 people in emerging tech firms -- well below the numbers for Southern California and New England. And its share has been declining for a decade. Greater New York City is where hype hits hysteria. Most of the high tech activity seems to be in the suburbs, as is usually the case. Spin-offs of IBM and other large firms, particularly in Westchester, could do well, but may end up moving to New Jersey or Connecticut to get lower taxes and costs. That's good news for the 201 and 203 area codes but not so good for the rest. Overall, the area has some good university resources, but it is not really competitive with either California or New England on the high end. Biotechnology could be world class, but lack of engineering/sciences limits possibilities.

Of course, New York City now hypes itself as a "cybercity," and the dutiful national media, concentrated in, guess where, lap it up like kittens drinking warm milk. Actually, New York does have an impressive multimedia industry, but it's still about half L.A.'s and probably smaller than Northern California. In the high tech entertainment field, New York City lacks the digital artists and production talents of L.A. and the pure high tech power of Northern California or Boston. Watch where the successful games and educational products are being made -- primarily L.A., Irvine, Seattle, Northern California.

I would expect a significant, if not earth-shattering, multimedia industry tied to New York's real strengths -- high culture, book publishing, advertising, high-end business services -- to emerge. The question is, will this city of egomaniacal elitists (I am a native, by the way) accept being third or fourth in a new industry? Tune in next week.