The State of Innovation in Silicon Valley: 2021

April 08, 2020 / Steffen Bartschat

Are you running a corporate innovation center in Silicon Valley? Where are you working right now and what are you working on? What do you think your company’s CFO is thinking about right now?

Are you a startup founder wondering whether your planned trip to Silicon Valley later this year is still relevant?

On the corporate side, I am sure your CFO is keeping a very close eye on her cash flow.   If a memo cancelling all “non-essential” outside spending hasn’t been issued, it might soon be.  That expensive innovation outpost in far away Silicon Valley may soon become a target for scrutiny, especially as employees seem to be adjusting well to conducting business online, even attending trade-show conferences in this new format.

From a startup perspective, that long plane ride to California is becoming far less attractive, when you can join virtual pitch sessions with investors right from your home office in Kalamazoo.   And forget about relocating here with all the attendant expenses and distractions.

Does that mean Silicon Valley is dead? Not at all. It just restores its state of being to the 2009 era. At that time, it was an ecosystem of local world-class universities spawning innovative local startups, supported by knowledgeable local investors and mentors, and with the help of experienced local executives scaling into large corporations. While all that was going on, there were a ton of local networking meetings primarily designed to sharpen everyone’s hypotheses about the future.

Take away all the hype from the recent arrivals over the past decade, and Silicon Valley remains the most productive innovation system in the world.

Who is really a Silicon Valley “native”? I arrived in 1992 and of course feel like a native by now. Others arrived in 2018 and feel the same way. A running joke among the old-timers around here is, “that guy has been here x years and already thinks he’s an expert on Silicon Valley”.   Maybe the real natives are saying the same thing about me?

I’d say you’re not a native until you have experienced at least 1-2 busts in the cycle. For me it was 2001 and 2009. When a bust occurs, the recent arrivals are the first to leave. The reason is simple: their mortgages and property taxes are (obscenely) high, and economically, they can no longer make it work here. Thanks to California Proposition 13, those that have lived here the longest pay a fraction of the local taxes of the new arrivals, and the mortgages on houses purchased decades ago at far lower valuations are probably paid off. The natives are staying.

As a result of this exodus, the network that was diluted with waves of new arrivals is now getting back to its high-quality core. With looming corporate cut-backs, engineers with new-found time on their hands are dusting off some of the ideas they may have shelved over the busy past several years. It is common lore here that today’s unicorns and corporate tech behemoths were launched during a prior recession. I too have more time on my hands, by the way, so some of my energies are shifting to writing a book on corporate innovation. If I really get desperate, maybe I'll launch my own startup, ha!

The next few years will be economically hard for our area as the exodus that had already begun in 2019 will accelerate. On the other hand, the pace and quality of our innovation will improve with fewer distractions. If you’ve been reading my blog and newsletters over the past couple of years, you know that I was never a fan of those expensive outposts, positing that the bigger innovation challenge lies at home, and all you need here is a relatively inexpensive listening post staffed by a Silicon Valley veteran. That opinion has not been considered mainstream; instead global CEOs seemed to compete with each other on who could build the Silicon Valley innovation center with the coolest “on tap” amenities and the biggest VR holodeck in the basement. The tide is changing.