How Startups Shaped Silicon Valley | Sidebean

0:00We can very accurately say that this piece of land has shaped the world where we live in. This is the famous Silicon Valley. It's fast-paced, alluring, and intimidating all at the same time. When we started SlightBeat, we used to live in an apartment somewhere around here. And the Google Flex, the Office of Google, were here. This is Microsoft, this is Cisco over here, Apple over here, and Facebook over here. So why did all these tech companies decide to settle around the same place? If the state of California were a country, it'd be the fifth largest economy in the world, bigger than India and the UK and France and Brazil. California generates more than $2 trillion in technology. California's economy is now the fifth biggest in the world. Back to Silicon Valley, how did this place come to exist? The story is really more than just computers.

1:01So let's explore the coincidences that made this cradle of innovation possible. Welcome to Company Forensics. Company Forensics is our most popular YouTube series, but this is not what we do for a living. At SlightBeat, we help founders navigate the early stages of running a business from coming up with a pitch deck to financial modeling to keeping track of their SaaS subscriptions. Head to SlightBeat.com to check us out. This is Silicon Valley in the 20s and 30s. And back then, there was the occasional zeppelin, some radios and prunes. It even went under a different name. The orchard region was known as the Valley of Hearts Delight. California, as the entire US, was navigating the Great Depression back then. But in this area in particular, there was an additional problem. People were fleeing. They were all leaving to find jobs in the East Coast. Frederick Turman was a professor at Stanford University's Department of Electrical Engineering.

2:04And this migration really troubled him. And he knew that he had to do something about it. He knew that he had to do something to create jobs in the area. So he fought to convince companies to establish in San Francisco. And to do so, he planned to use the newest technology at the time. Radio. Radio brings endless hours of entertainment information. Radio and Cheers. Center of the Universe. Radio was vital because Turman's plans came when the United States on forces were using the coastal regions to their advantage. Thanks to the massive areas, they were able to create zeppelin basis and extensive testing facilities. So eventually, the demand for technical knowledge increased. And the problem was the shortage of talent. So in the mid-30s, Turman was working hard to attract both companies and former students. And one Stanford alum did return, a guy named Bill Hewlett. He started working on developing oscillators and improving light bulbs. And Turman huzzled to get some funding for him. And he found another former student and a close friend of Hewlett, Dave Packard.

3:09And they, of course, founded a company in 1939. And instead of calling it Bill Dave, they called it Hewlett Packard. Was that the best job we could come up with? The military was also spending big bucks in the area to better their test grounds. And say what you will about the military, they're always a good customer. Now, in the 40s, Turman worked to build the Stanford industrial park. And it was different from other parks because it only leased to high technology companies, benefiting Stanford into process. And Turman's vision worked. The first company to sign a lease was variant associates in 1959. And they produced vacuum tubes, which were a big thing back then. And many other companies soon followed. Some names included Eastman, Codec, General Electric, Lockheed, and Shockley, Transistered Laboratory. And we have to talk about that one. The name might not mean anything to you these days, but William Shockley helped create Silicon Valley and much more. But unlike Turman, this guy doesn't have a great reputation.

4:10This map says, this is Brian Shockley, a very clever transcript of the late 1939 or early 19th course. One must learn from these failures and not be stopped by. Then he will be so conservative that I don't take you for it. These on racism and eugenics made him one of the most controversial people in science. Help, one point he suggested, creating a sperm bank only with Nobel Prize winners. Intelligence magazine named him the second most controversial researcher, which was a thing. But he is vital to the Silicon Valley story. He first worked with Bell Laboratories where he helped co-invent the transistor. These tiny transistors are destined to play a big part in our electronic eight different types for different purposes. And if you don't know what a transistor is, just know that they used to look like this. And now your smartphone has millions of them inside. This landed him a Nobel Prize. And of course a big ego. In 42, Shockley left Bell to start his own business. And his plan was to use Silicon as the base for diodes, which is more stable than germanium, which was previously used.

5:12So this was some game-changing tech. But Shockley was driving his employees crazy. He was excellent at spotting talent, but he would demoralize the promising young engineers. He was obsessed with incessant psychological tests and even lie detectors. He also grew paranoid of his ideas and became jealous of his co-workers. His attitude and bad business decisions made him blind to his own mistakes and his eventual demise. His Silicon diet idea failed. And the work environment at Shockley was so toxic that many were just unable to continue. After just one year of working with him, eight of his employees left to create another company. And Shockley would call them the traitorous eight. Together, these young mercenaries formed Fairchild Semiconductors. And yes, they would work with silicon transistors and eventually conductors. But Fairchild wouldn't only be a successful company. It would also shape Silicon Valley. As of 2014, 92 companies came from first or second generation individuals

6:15with origins in Fairchild, companies like Intel and Nvidia, AMD, and venture funds like Cleaner Perkins. And Stanford wasn't far behind. The Stanford Research Institute, which was formed in 1946, became part of Arpanet, the very primitive first iteration of the internet. Computer mouse, watched HD television, were invented here at Seraat. Their success spurred others. Cerex created its Palo Alto Research Center or Park. There it produced components such as the graphic user interface, essential for modern computers. And the place was no longer about prunes. It was the country's computer hub with names such as Apple and Atari, Oracle, and others. But it still didn't have a name. This is the January 11th, 1971 issue of Electronic News. And it has an article that reads Silicon Valley, USA. Now, electronic news was what many historians called the Bible of the Technology Center. So whatever it wrote about, it had to be a big deal. And one of its journalists, Don Houghler,

7:17focused on corporate gossip, product failures, and insider details. Kind of like us. According to the science computer history, over lunch with some managers, one of them said something about Silicon Valley. And Houghler loved the term. So after the meeting, he changed the article's title. On Monday, January 11th, 1971, the first three pieces called Silicon Valley, USA, came out. Houghler had made history. But he didn't know it. In an interview, 10 years later, Houghler said, how was I to know that the term would quickly be adopted, industry-wide, and finally become generic worldwide? Well, it did. But the term wasn't only about technology, it was about relentless effort, and how individuals can create giants of the industry. Fairchild's impact was obvious, but why did the place remain as the go-to destination for tech, even after all those years? In the coming years, the success of these companies and their employees brought a massive financial impact to the area, which came with its own set of problems.

8:19We're getting tonight in San Jose, where the city's homeless problem is becoming a PR problem. Take a look at this. People living in RVs park along major streets. He has to move, and being a Google employee doesn't guarantee a place to stay in Mountain View. Salaries are high, but rent is just plain insane. Rent for a one-bedroom apartment in 2020 was, on average, $2,040. And hey, this was cheaper than 2019. It has reached values of $4,000. Good friends of mine that live in the area make six figure salaries and barely make ends meet. Making 100 to 150K a year is cool, but what gives if all of that goes to rent? People have tried to work around, like container homes, or literally ditching rent to live in an RV park. Many locals have been pushed out because prices are just unaffordable if you don't work in tech. And the Bay Area, of course, has the third highest rates of homelessness in the US. So why do these companies keep establishing themselves in Silicon Valley? There's a lot of debate about the other reasons

9:19why Silicon Valley is as a success, and especially why other places haven't been able to replicate it. And one theory is that all the money is there. Yes, the acquisitions and the previous exits, all the money is there, and that's why all the companies keep spawning there. Well, yes and no. Second reason is that companies are choosing to stay in Silicon Valley. Fairchild spawned many enterprises, but they didn't leave. They were part of this close knit network, this community then went far back as university years. So it made perfect sense to stay close to these contacts that you had created. These professional networks gave way to another critical factor for Silicon Valley's success. Those around you could help you develop new product using their own technology. It's great. It's the papal mafia story, actually. And if you haven't, go watch our video about it. A third reason is diversity. There are many universities packed with highly qualified students. They're filled with ambition. Wanna change the world.

10:21Plus, they're backgrounds. They come from different nationalities, cultures, and practices. They make up for this boiling part of ideas. So it's logical that companies that invested in the Valley once are willing to do it again. It's this energetic cycle of reinvestment. A fourth theory is work culture. Because there's a seriously collapsing barrier between work and life, especially in Silicon Valley. Yes, you have the casual dress code, the free office meals, remote work, long before the pandemic. Everybody works all the time. In the Valley, 40 hour work weeks are a scam. They don't exist. The perks are great, but everything is there so that you never leave because you have to. It's what it takes to make it there. I've done it. We did the 16 hour workday when we lived over there in the early stages of the company, but it's unsustainable. This is a valid theory, but there's a fifth reason. It's a subtle and legal peculiary that helped create this start of paradise. But for that, we need to go back to 1872.

11:33Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extend void. That's what the California Code Section 166-00 says, which is an updated version of an 1872 law under California's civil code. What does it mean? Outside of California, if a company hires someone, chances are they have to sign an agreement. This document says that if they leave, they're employer, they can't work for competitors, for a determined period of time, usually about two years. So in short, this is a non-compete agreement or NCA. Then there's non-disclosure agreements or NDAs. This document forbids any employee from revealing confidential information about the company. NDS, NCAs, and NDAs both exist in California, but California courts declare these contract clauses as legally unenforceable. They are null, even if the former employee moves

12:35to another company or even starts a company that directly competes with the former employer. So in California, it's an inalienable right for a person to quit, to find work in any other legally sanctioned capacity. So NDAs and NCAs cannot block this opportunity. So it's this tiny detail that might be essential for creating Silicon Valley's culture. Silicon Valley is not just a region in California. Connections happen, say, in your luck. The culture of Silicon Valley can be fascinating for the outsider. Silicon Valley has remained relevant through the decades. The 60s, 70s, 80s, and 90s. Each was a different generation, but something ties them together. This intense techno optimism links all the generations together. They share this belief that technology will be a means by which we make the world a better place. Beyond that, these companies also love or need the hustle, survival of the fittest. Yes, your body's with the rest, but the rest won't feed you, at least not for free,

13:37and to survive and to make it in the valley. It takes a certain someone, as well as a certain network, a certain combination of companies around you. So can it be replicated? One of the arguable Silicon Valley's of the world is Shenzhen, a special administration region established in China, New Hong Kong. They like to call themselves another Silicon Valley, and they have churned out some pretty massive companies, but their potential is still limited by the stability and restrictions of their government, their currency and their cultural barriers. Economics explains that a fantastic video on this, by the way. Silicon Valley has the combination of talent, experience, and capital. This capital is wealth that was created precisely by tech companies. So these are investors that are bound to invest in the same things. There's a stable government, despite this, which makes the stability of Silicon Valley pretty unparalleled around the world. As for other parts of the world, I'm Costa Rican, and in Latin America,

14:38I hear the term New Silicon Valley way too many times. It can't be done any city or country coming up with that tagline is just being extremely naive. But what do you think? Can it be replicated? There's no one in the comments. Hope you enjoyed this video. As always, do the thing, the subscribe, the like, the comments we appreciate it, and we'll see you next week.