The Reality of Silicon Valley

As an investor I get to travel to many technology and innovation conferences around the world, and one of the most common phrases I hear from the leaders of those cities and regions is that, ‘we want to create our own Silicon Valley…

Ostensibly, this seems like a fair statement.  The San Francisco Bay Area (more commonly known as Silicon Valley) has a GDP of $840 billion, to put it another way – if this region was a country, it would be the 18th largest global economy, larger than the Netherlands, Saudi Arabia and Switzerland, and only a little smaller than Turkey and Indonesia.  It is perhaps with eyes on this prize that so many leaders therefore divert civic investment and incentivisation into the growth of technology companies.

Rapid technological change, particularly during the internet age, has brought immense benefits to our civilisation – it’s undeniable, but we must also be mindful and aware that this kind of growth does not come without costs – to our wellbeing, to our democratic processes, our communities, businesses and culture.

To learn more about the reality of Silicon Valley, I spoke to three world experts.  Kara Swisher (Co-Founder of Recode & NYT columnist), Nicholas Thompson (Editor in Chief of WIRED), John Carreyrou (Pulitzer Prize Winning Journalist & Author of Bad Blood: Secrets and Lies in a Silicon Valley Startup) and Cary Mcclelland (award-winning writer, filmmaker and human rights lawyer who is the author of Silicon City: San Francisco in the Long Shadow of the Valley).

Q:  What is the biggest myth surrounding Silicon Valley founders?

[Kara Swisher]: People think these founders are all brilliant and can’t make mistakes, we’ve found that; there’s a sense that they can fix everything or have the answers for everything… they don’t, and they can’t.

There’s a cult of personality; but that’s not unusual.  Whether it’s Bezos, the Google guys or Zuckerberg, these are the founders and creators of the businesses- they’re living and running these companies, and so will naturally get a level of attention that any old executive might not get.

[Nicholas Thompson] In Silicon Valley there’s a sense that there are 30 individuals who are 10x more capable than most people, it’s like a power law scaling of talent.  If a founder has really succeeded and thrived, people think it’s because of their brilliance and because they’re at this super far-end of the spectrum.  As a result, founders get immense leeway, capital rushes toward them and in some ways that’s good.  People who win the founder lottery have the capacity to make decisions and innovate but it also creates biases and situations where founders have more power than they should in their company, notably people like Elon Musk.  However, to Elon’s credit – he’s done things that no human has done or thought possible before; he’s cracked the automobile industry with sheer force of brilliance… he’s made a rocket that can fly to space and land back in a precise position – an engineering challenge people didn’t think could be solved before.  Elon has been given the money and freedom by investors, but now? there’s nobody who can put a check on him…

Q:  What is the reality of life in Silicon Valley?

[Nicholas Thompson] People think that life inside Silicon Valley firms is like life under an orange tree, where you suck on the oranges and everyone treats each other perfectly – but that’s not quite right… people are ruthless, competitive… human.   In some companies like Tesla, there’s extreme chaos.

Prior to around 2016, one of the things you got from working in a Silicon Valley firm was the infinite respect of your peers and family; you’d go home for Thanksgiving and say that you worked at Facebook, Google or Tesla and it would be this badge of honour.  Since 2016, the role of these companies has been called into question – there are concerns they’ve broken US and British democracy! Suddenly the social benefits of working at these firms declined – they were no longer considered a magical place to work, and of course that changes how it feels to work there.

[Cary McClelland]: We’ve gone past the period where startups are the source of the ubiquitous energy of the Bay Area.  It’s now multi-billion dollar businesses.

Working at these companies no longer makes you feel like you’re part of an innovation engine but rather as part of a lumbering corporation that gobbles up smaller companies.., in fact, a lot of acquisitions of small startups by these big companies is more about talent than IP.

The mythology tells us that you come to the valley and forge your own path, but in reality young people come here and are asked to essentially create careers that are a daisy chain of gigs on mini-innovation projects within large corporations.  If you are a virtual reality engineer, you might begin doing that at Google, before working on a project at Facebook, and then maybe at some other company… you might even evolve to having your own company, but that’s a rare outcome.   If you don’t know where you’re going to be working in the next few years, your connection to the region, to your neighbourhood, to your neighbours is more temporary and unstable.

Alongside the experience of workers however, it’s important to look at the consequences that this change brings to the fabric of society outside these companies.  What does it mean for the residents of the community who aren’t involved in tech? what about service workers inside those companies? What about all the suburban and middle-class jobs that were once part of a diverse economy? Those people working inside the bubble often get their rent subsidised, get private healthcare, get on-site services like cleaning and catering, and get a host of other benefits – but for everyone outside the bubble, life can get a whole lot more difficult.

Capital has poured into San Francisco and the Bay Area but the growth hasn’t distributed itself beyond the top percentile of the community.  If you are in one of these companies, you may have a stable and survivable life in the Bay Area, but if you’re not? You’re going to have to make some incredible trade-offs as standards of living and rents have decoupled from income to an incredible degree.  We’ve also seen immense growth without investment in public infrastructure- not just roads and rail, but schools too.

We have a situation where parents even with corporate salaries are barely getting by, or are making huge sacrifices to send their kids to private school because the public schools are broken, and it really doesn’t need to be that way.

Q: How did Theranos happen?

[Nicholas Thompson] Theranos is a case that Silicon Valley will ponder for years, but as for why it happened? I think the cult of the founder played a big role – Elizabeth Holmes sold a myth that Silicon Valley loves to buy… she was a dropout, charismatic and had a big idea…. The great mystery is why so many people who worked-at and partnered with the company, who knew it was a fraud, didn’t say anything sooner.  Journalists didn’t figure it out, watchdogs didn’t, investors didn’t and word didn’t get out until they’d already done a lot of harm.  Theranos marked a tragic moment in Silicon Valley.

What Silicon Valley needs right now is some realism.  It needs people who are watching-out and identifying what’s real and what’s myth.  There’s a lot of genius and brilliance here, but also a lot of salesmanship. Because of the money that’s at stake, Silicon Valley has a lot of people who are very good at making things look real, even if they are fake.

Q:  Why did it take so long for Theranos to be found-out?

[John Carreyrou] Theranos was created in late 2003, and I essentially started to expose them in 2015; that’s 12 years – a long time – and a lot of people have expressed surprise and bewilderment at why it took so long for the story to come out.

However… Theranos was in R&D mode until 2013, and that’s when it really became a massive fraud as Elizabeth and her team commercialised faulty blood-tests which weren’t, for the most part, even performed with proprietary technology.  The company then used this initial commercialisation to bring in more than $730 million in new funding, money which was obtained fraudulently based on lies and misrepresentations.  That is when Elizabeth and her boyfriend, Sunny Balwani (essentially the second in command at Theranos), crossed the red line.   They went live with technology that was bogus, faulty and put patients in harm’s way.  The bulk of the billion dollars they raised over the lifespan of the business was raised based on lies after 2013.

So, from the moment Theranos became a massive scandal to the moment I exposed it, it was  really only 2 years.

Q: Was Theranos a one-off?

[John Carreyrou] I do think Theranos was an extreme outlier, at least I hope so.  I’d like to think that faced with the decision of going live with medical technology that was bogus, most entrepreneurs would stop at the edge of the precipice and retreat.

At the same time, Elizabeth Holmes is the product of a culture that has brought up young entrepreneurs to say, and believe, that ‘moving fast and breaking things’ is cool, that disrupting now and worrying about the consequences later is fine and that breaking laws and regulations is something to be proud of.

Silicon Valley is, at its root, the computer industry. The ‘Valley’ gets its name from the computer chips that were pioneered there in the 1950’s and 60’s. That was followed by the personal computer revolution and then, in the 1990’s, by the internet boom. Today it’s the mobile revolution, with smartphones and apps that you can build businesses around; but it’s still, at its core, computer hardware and software.

The culture of the software industry is such that it has long been considered okay to ship and commercialise software that’s not quite ready to go to market… to beta test and iterate…. One of the early investors in Theranos was Larry Ellison, who famously- in the early days of Oracle- shipped database software that was crawling with bugs… it barely worked, and was so bad that early clients (like the CIA) would call up his programmers and work with them to debug the Oracle software.   He was the ultimate practitioner of ‘fake it till you make it…’ and was unfortunately a big influence on Elizabeth Holmes in the early days of Theranos.   She [Elizabeth] also idolised Steve Jobs- who had various moments in his career where he too faked it until he made it.  Even Bill Gates followed this pattern early in his career. I was reminded of that when I read the obituary of Paul Allen last fall in the New York Times. There was a paragraph about how Paul and Bill reached a deal with IBM in 1979 to provide the operating system for the IBM PC, even though they didn’t have it at the time. They made the deal, and then bought a rudimentary PC operating system from another programmer in Seattle, and worked to improve it over the ensuing months. That became MS-DOS, the foundation of Microsoft’s subsequent success.

Elizabeth Holmes saw these guys, Ellison, Gates and Jobs, and idolised them… she wanted to become as successful as they were, and saw that they had- to some extent- faked it until they made and, in the process, become the richest people in the world.  She channelled that culture, and felt entitled to do the same thing – only her device wasn’t a computer, or software, it was a medical device that patients and doctors relied on to make important health decisions, some of them life-or-death decisions. With medicine, you simply can’t fake it till you make it. Otherwise, you jeopardize lives.

Q:  Has social media changed the relationship of founders with their audience?

[Kara Swisher]:  Elon Musk is unusually communicative, but whether it’s Donald Trump, Jeff Bezos or so many more- we’re seeing people using social media to communicate directly to fans, bypassing the press.

Steve Jobs was kind-of a pioneer at this, he was always manipulating the press and getting the attention he wanted through events and other methods- directly with his audience.

Founders have often bypassed the press and gone direct to their audience, it’s just that today we have more tools available in order to reach people.  What Steve was doing many years ago was not unlike what Elon is doing today.

Q:  Do technology entrepreneurs give enough consideration to ethics?

[Kara Swisher]: It’s really important for these people to think of the ethical considerations of what they’re doing, more than they currently do.  Most founders don’t have the backgrounds in ethics of the humanities yet the things they’re creating often have huge societal implications and they’re often ill-equipped to deal with that.

People in Silicon Valley tend to be more optimistic; I guess that’s a kind way of saying that they’re clueless about the implications of their inventions.  I always joke that tech founders should imagine what the Black Mirror episode of their product should be to see how it will really impact our world…..

Q:  How does the cult of founders play a role in the ethics of technology design? 

[Nicholas Thompson] There are endless discussions around ethics in Silicon Valley, every company is thinking and working around this topic.  Google is shaping the way AI develops more than any company in the world, and has numerous working groups looking at ethical issues, explainability issues, bias…. The way I look at it is this…. It’s interesting and complicated that profound choices about how humanity develops will depend on the choices we make now about AI, and a lot of those choices are being made by engineers and product designers at Google.  On the other hand, Google is acting responsibility and thinking seriously.  If we’re going to offload decisions about the future of humanity to a single company – I would prefer it to be Google than many others…

[Cary McClelland]: Very few people in the industry have an expertise in policy, the liberal arts, and any of the disciplines that give you the emotional feeling of community, and the tools to diagnose and direct societal problems.  There is a lot of technical expertise as you’d imagine, but that’s very different to the skills required to understand questions of government, or social good.

Mark Zuckerberg and his team have created a social platform which is global and is almost a nation.  And like any society, it needs to be governed; and yet many of these companies have been allergic to the question of governance for a really long time.  The strategy has historically been conceal, get caught and then apologise instead of developing policies that might require the company to exercise some restraints and sacrifice some bottom line for the long term health of the platform and society.

I was once part of a global human rights organisation that was asked, by Google, to do a big review of the risks posed to human rights advocates and protestors by posting their citizen activism videos online, and how digital technologies were being used by governments to suss out opposition voices.  Here’s the thing, there’s lots of good-will to perform such reviews but very little to create the change needed.

Q:  How serious are Silicon Valley businesses about fixing gender and racial imbalances?

[Kara Swisher]:  I’ve not seen any serious work by these companies- they would have had results otherwise! Come on, these are smart people, they know there are ways to improve diversity, they just don’t have the will to do it, that’s all.  They’ll make up all kinds of reasons why they’re not doing it, but they’re some of the smartest people on the planet – if they wanted to do it, they could figure out how.

There are a lot surveys and research that show that diverse companies are better, but I think they’re just biased in terms of who they hire, and who they think is qualified.  They’re biased, it’s as simple as that.

[Nicholas Thompson] The culture of Silicon Valley is profoundly different now to even 6 months ago, and even more different than a couple of years ago.  We’ve got a long way to go before it has true racial and gender equality through employment, board and so-forth – but to the extent that it wasn’t a topic before, things have dramatically changed.

Progress takes time, but it’s no question that diversity is a major conversation inside all of these companies.

It’s taken some particular incidents where issues of gender and racial bias have come out in the open from people and algorithms for us to see how people have behaved.  That’s created healthy conversations, and healthy changes.

Q:  What are your views on the philanthropic endeavours of Silicon Valley founders?

[Kara Swisher]:  A lot of these founders are just egomaniacs, honestly.  For many, their philanthropy is not about giving away money, it’s about drawing attention to themselves.

Look, I’m for any rich person handing over their dough- that’s a good thing; but these founders tend to over-inject themselves when they’re giving away money, it’s all about them versus the people they’re giving money to.  They spend a lot of time discussing what they think, I just wish they’d give away money and shut up!

You know… Rockefeller was like that.  Rockefeller Foundation, Rockefeller Library, and it goes on….  Rich people can’t stop praising themselves.

Whatever… here’s the thing, as long as they give away their money I don’t care if they want to kiss their own asses.  It’d be nice for one of them to have some sort of lack of ego but that’s not how they got where they got.

[Cary McClelland]:  Philanthropy takes place within private consortia, foundations and organizations rather than in the democratic, public space where people consent to a solution.  Philanthropy is designed to fund those things at the margins that governments can’t take on, or to operate at scale, but not in reverse…. And that’s exactly what we’re seeing; philanthropy operating as a substitute for government.

Q:  Are there any common traits you see with extraordinary Silicon Valley founders? 

[Kara Swisher]: Let’s be honest, most of these founders seem more extraordinary after they become famous right? …If I was going to pick however, I do see that most of them are very persistent in the face of no.  They’re very certain – frequently wrong, but never in doubt.  Describing these founders as extraordinary is a bit of a misnomer, I think we’d agree that anyone can become more interesting once they’re a billionaire….

[Vikas: Was it the same with people like Steve Jobs?]

Steve Jobs was a truly remarkable person, he was different.  He deserved his halo.  He did a lot of really incredible things.  He wasn’t the sweetest guy in the world, but I don’t expect people like him to be. I thought he was very understanding; and like any human, had upsides and downsides.

Steve was a very inspiring individual, and that’s why people still talk about him today.  He wasn’t a technologist… he had people around him who were… but he really understood technology in a way that could communicate to the masses, and that was his skill more than anything else.  In many ways, I think Jeff Bezos is the same; not a technologist per-say, but an ideas person that has knitted together really important ideas and technologies to change the world.  But even with Jeff, he looks more special the more successful he gets right? Being the richest man in the world and having 164 billion dollars de-facto makes you special right? It doesn’t mean he’s any different to you and I, it’s just the money.

Q: What are your views on the investment environment in Silicon Valley?

[Kara Swisher]: The dysfunction is not whether or not people get funded but who gets funded.  It’s the same 26 white guys, who are all within about 6 blocks of venture capitalists.  There’s talent everywhere, people of colour, women, so many groups, but investors tend to invest in their own- in people who look and sound like them.   That’s not unusual for life, people affiliate with people that look like them unfortunately.

[Nicholas Thompson] There’s huge amounts of money going into Silicon Valley firms, a lot of it will be lost, a lot will be allocated inefficiently… the venture capital market appears to be one where there are relatively small winners versus losers.  However, the venture capital market in Silicon Valley is unquestionably one of the reasons why there is so much innovation.  The ability to get lots of money behind your crazy idea, enabling you to hire people and take risks, it’s a beautiful thing! It does mean that time can be wasted – but it also leads to the development of SLACK which is brilliant.

My concern is that in the venture capital industry has a sense that there will be one winner in every industry.  It’s a self-perpetuating myth…. And means that when you do get ahead, you’re given all the capital, enabling you to get even further ahead…. Leading to less competition than would be optimal for innovation.]

Q: Is the culture of Silicon Valley complicit in creating cases like Theranos?

[John Carreyrou] I don’t want to paint with too broad a brush and say that every Silicon Valley startup has a toxic culture, but Theranos did have a very toxic culture of paranoia and fear, where the threat of litigation was always in the air.  Sunny Balwani was the enforcer of this culture of fear. Again, I’d like to think that Theranos was an outlier in how far it went.

That said, there are a lot of nondisclosure agreements in the Valley, and a lot of companies who think nothing of having their employees to work 14 hour days.  There have also been a lot of other scandals coming out of the Valley; such as Uber, a company dealing with its own workplace culture issues. And Silicon Valley still remains largely a man’s world.

Silicon Valley has a lot of lessons to draw from this debacle.

Q: Has Silicon Valley learned a lesson from Theranos?

[John Carreyrou] I would like to think the Theranos case has changed things in Silicon Valley, but I’m not convinced. I’ve heard some people say that Theranos was not representative of Silicon Valley because the investors who accounted for most of the money invested in the company were billionaires, not sophisticated venture funds. That’s true, but it ignores the culture that made it possible for someone like Elizabeth Holmes to exist and thrive.

For instance, in Silicon Valley, a lot of people believe in the myth of the brilliant startup founder who can see around corners.  This myth was popularized by Steve Jobs.  Now, there is a popular notion that you can have other Steve Jobs-like figures, who are all-knowing geniuses who never make mistakes… even though, half the time, they’re dropouts without a proper college education.  One current example is Elon Musk – his supporters think that he walks on water and can do no wrong, and whilst Tesla is clearly not Theranos (it has actually put cars on the road that work) it still has a lot of issues that stem- in large part- from Elon’s attitude and ego.

As we sit here today, I think there are still a lot of people in Silicon Valley who think the way Elon Musk behaves is totally fine, and who sort of cheer him on, and Elizabeth Holmes was a product of that very same culture.

Q: Where could displace Silicon Valley?

[Kara Swisher]: China could really challenge the hegemony of Silicon Valley; arguably, there’s no real hegemony, it’s just that now we have action elsewhere which could challenge what’s happening in the valley.  The real question is whether you want an internet age dominated by the Chinese? …..not me, but especially because they have a surveillance economy- there’s no other way to put it.  No doubt they have innovative companies, especially in commerce, but it’s just a question of whether we want China to be guiding our next era.

We can’t forget that it’s the government in these countries, much like it was in ours, that advances companies.  The government created the internet right?! We need to be asking where the real commitment is by government to find this amazing talent across our country and across the world; that’s a concern.

[Nicholas Thompson] I don’t think anyone will displace Silicon Valley or be the new Silicon Valley but there are certainly tech hubs that are growing rapidly, perhaps faster than Silicon Valley.  On the other hand, Silicon Valley has a very established venture capital industry, universities like Stanford and Berkeley, very established companies and therefore employment pools and communities…. These factors will no doubt keep Silicon Valley as the pre-eminent place for tech innovation in the world.

[Cary McClelland]:  Amazon recently conducted a nationwide ‘beauty pageant’ to decide where to site its new headquarters.  Many smaller cities hoped this was the moment they could begin to build their own technology hubs, but of course Amazon chose Richmond, which is right outside of DC- the national capital… and then the community in Queens, right across from Manhattan (perhaps because NY offered $3 billion in tax incentives to make it happen).  What has been incredible is to see grass-roots pressure from the community of Queens on government, and on Amazon, which has caused the withdrawal of the company.  The community wanted to make sure that the headquarters were integrated into the community, on the community’s terms- and that whatever tax incentive was offered would result in reinvestment at the local level.  I grew up in New York, and I understand the significance it really means for the city to turn down $27 billion in economic activity because people don’t genuinely believe that the economic benefit will make a difference to the lives of the average person working in the city.

As a nation, we have to realise that it is this kind of local action that will help us right the kind of wealth disturbances and disparities which we are seeing; which are unsustainable.  The trade-offs are become greater, and people are becoming more educated and more skilled at advocating from home, and a new generation of leaders like Alexandria Ocasio-Cortez are ensuring that these issues are not going unchallenged at a government level.

It’s really important to state that this is not about being anti-innovation, it’s about realising that technologies have real social costs.  We’ve made tremendous advances in how we communicate together, collaborate, and express ourselves.  Technology has done wonders for parts of economy and society, and that’s worth celebrating; but we live in a society together and innovation isn’t the only social good.

We also don’t have a good method for quantifying social good in a way that fits with our assessment of society economically. We don’t have the metrics for it, we can’t quantify the delta between a recent Stanford graduate starting their public interest career and an individual who has been an advocate for their community for a decade. We don’t have the language for the invisible value of public sector expertise. So we risk ignoring invaluable people who are on the front lines doing the most good.

We have to make sure that we don’t slow down innovation, but rather make sure that the good it creates is shared more fairly and equitably across society.

Thought Economics

About the Author

Vikas Shah MBE DL is an entrepreneur, investor & philanthropist. He is CEO of Swiscot Group alongside being a venture-investor in a number of businesses internationally. He is a Non-Executive Board Member of the UK Government’s Department for Business, Energy & Industrial Strategy and a Non-Executive Director of the Solicitors Regulation Authority. Vikas was awarded an MBE for Services to Business and the Economy in Her Majesty the Queen’s 2018 New Year’s Honours List and in 2021 became a Deputy Lieutenant of the Greater Manchester Lieutenancy. He is an Honorary Professor of Business at The Alliance Business School, University of Manchester and Visiting Professors at the MIT Sloan Lisbon MBA.