Why My Startup Isn’t in Stockton: How to Further the Culture and Network Effects of Silicon Valley

TL;DR

1. Tech innovation is generally a good thing and should be encouraged.
2. Tech companies are better positioned to succeed if they’re in Silicon Valley, because of culture and network effects.
3. It follows from (1) and (2) that it’s good to facilitate the growth of tech companies in Silicon Valley.
4. There are three things slowing the growth of tech companies in Silicon Valley: education, immigration policy, and lack of housing.
5. The most immediately addressable impediment to innovation and growth is the lack of housing.
6. The tech community should be pushing cities in the Bay Area to do more to allow and encourage new housing, as doing so would foster innovation.

Starting Up Somewhere Else

Can you please build your startup company in Detroit or Stockton? They need the job growth there. We in Palo Alto do not!

This is a fairly common attitude among those who are opposed to any growth (residential or commercial) in Palo Alto, the city where I live and run my startup.

I know this because I’ve recently been working with my wife Elaine and several others on a new organization called Palo Alto Forward. I’ve spent some time reading about Palo Alto’s policies and plans and — warily — reading a handful of the online comments. Reading mostly anonymous online comments is at turns extraordinarily painful and surprisingly insightful, and in my generous moods I place the pseudo-quote above in the “surprisingly insightful” category. Several people asserted that startups should locate in depressed areas rather than Palo Alto, in order to help those areas grow.

I was surprised to see that sentiment, because it is completely at odds with the prevailing wisdom of Silicon Valley. My professional peers — those who live in the Bay Area and work with tech startups — are almost all here because they believe that Silicon Valley is the best place to start, grow, and work for a tech company. And nowhere else comes close.

Culture and Network Effects

In a recent blog post, HelloSign founder Joseph Walla did a good job explaining why he’s here. He cites eight reasons to locate startup is in the Bay Area and not in his home state of Minnesota. Those eight can fall into two simple categories: culture and network effects.

Silicon Valley has a great culture for building startups: we embrace risk and uncertainty, we hold entrepreneurs, engineers and product designers in high esteem, and we have a trust-based, pay-it-forward mentality that fosters good, productive behavior.

And Silicon Valley has strong network effects from its history as the center of the world of tech entrepreneurship: capital, knowledge, talent, and easier access to great people and companies.

As Joseph says in his piece, none of those things mean it’s impossible to build a great company elsewhere. It’s just a lot harder.

Moreover, because of those cultural and network advantages, founders and employees tend to learn more quickly in Silicon Valley than anywhere else in the world. If a childhood friend from my home town of Philadelphia came to me and said he wanted to spend six months learning how he could build a startup, I would very strongly recommend that he drop what he’s doing, move to Palo Alto or San Francisco, and surround himself with people who know how to build great companies.

Starting a company in Detroit or Stockton or even Philadelphia sounds like a nice idea: I could help the surrounding community and hire people from that community. But the reality isn’t so nice: I’d have to embrace a culture that is far less risk-seeking than Silicon Valley and convince investors to invest in a company they’d have much less interaction with. I’d have little surrounding talent to hire and learn from, and I’d have to convince engineers to come to a small pond with far fewer experienced colleagues and mentors.

In short, because of culture and network effects, my startup is likely to grow far more quickly in Palo Alto than it would in any of those other cities. Starting a company here is the equivalent of putting a child in a nurturing, education-focused home: it creates the best conditions for success.

Growing the Startup Ecosystem

For the reasons I laid out, most tech entrepreneurs believe that this is the best place to start a company.

If you believe that, and if you also believe the growth of new products and technologies is a generally good thing, it follows that you (like me) would seek to bring more skilled and talented people — entrepreneurs and employees — to build the next batch of great companies in Silicon Valley.

When it comes to top people, quantity is very important. As every founder will tell you, truly skilled and talented people are in short supply, even in the Bay Area. Almost all of them are trying to hire great engineers, for instance, and there simply aren’t enough to go around. That supply can be increased in three ways:

1) Education. The more educated the population is, the more skilled people can contribute to innovation and growth in Silicon Valley and elsewhere. No one refutes this as an important goal, even if its benefits won’t be seen for many years.

2) Immigration. There are many incredible entrepreneurs, engineers, and others who have been forced to leave Silicon Valley because of extremely strict immigration laws. This is a complex issue at the federal level, but there is broad consensus in Silicon Valley that immigration laws should be loosened to allow in highly skilled people.

3) Housing Supply. Silicon Valley is the best place for innovation to happen. But for all of the improvements that facilitate collaboration, nothing beats having people close to one another. And to have people working side by side, there need to be nearby places for them to live. Yet the tech community’s leaders have been surprisingly quiet about the need to increase housing supply. As a result, anti-development voices have had the upper hand, which has led to a scarcity of housing units and prices that are unaffordable even for professionals making six-figure salaries.

This is an issue we need to pay more attention to, in large part because techie/startup types can have a greater impact on the housing supply than on immigration or education. It is easier to influence local zoning/building/housing policies than it is to influence state educational policies or federal immigration policies.

Room for Growth

Palo Alto is the birthplace of Silicon Valley and has been its center for decades. It has spawned many amazing companies, from HP to Google to Facebook. But its growth as a place for people to live hasn’t kept up with its increasing economic importance: Palo Alto has just 25% more residents than it did in 1960, even as California’s population has grown by 150%. The result of that housing shortage has been astounding: the median home price has climbed above two million dollars.

Because houses cost two million dollars and supply hasn’t increased, even well-paid professionals working in Palo Alto and making six figures can’t afford to live in the city. Palo Alto’s draconian zoning policies enforce suburban-style development, ignoring the substantial demand for more dense townhouses, condos, and apartments within walking distance of services. Those policies make Palo Alto’s density just a quarter that of other top university towns located near big cities — Evanston, Berkeley, and Cambridge.

To be sure, a more dense Palo Alto would require infrastructure investments. But in a place where companies are spending billions of dollars to put together the big technologies for the next fifty years, better bus and train lines are surely not too much to ask.

Palo Alto, Ahead of the Game?

I live and work in Palo Alto largely because it’s the best place to start and grow important innovative companies. That’s great for me and my wife, and it’s a good example for our young daughters to see.

As the world changes, Palo Alto is going to change with it.

By being forward-thinking and growing intelligently, I believe Palo Alto and Silicon Valley can stay ahead of the game and continue to foster innovation.

P.S. If this resonates and you live in or near Palo Alto, please join me at Palo Alto Forward.

Mike Greenfield founded Bonafide, Circle of Moms, and Team Rankings, led LinkedIn's analytics team, and built much of PayPal's early fraud detection technology. Ping him at [first_name] at mikegreenfield.com.