Silicon Valley, the southern region of the San Francisco Bay Area, is a darling of the world. It is mysterious. It is sexy. It is rich. Every other city around the world wants to be like Silicon Valley. Everyday there is a delegation of government officials or entrepreneurs visiting Silicon Valley to understand how it works. The French president was here last year. The Swedish royals will be here next week. Most big European and Asian technology companies have outposts in Silicon Valley just so that someone can organize meetings for their executives with Stanford, Google, and Facebook. There are people who have made careers out of "innovation tourism" and telling people how to create a startup and how Silicon Valley works.
Despite many popular theories like Silicon Valley is an accident or all you need is a “lean startup” (that is, don’t spend too much money before you understand customer needs), the best way to understand how Silicon Valley works is by understanding evolution. Evolution works through the principles of replication with variation and selection with competition. Genes get replicated from one generation to the next and each copy is a little bit different than the original. Then the copies compete with each other and the best ones get to reproduce and so on.
Silicon Valley has an environment that enables evolution’s replication with variation, and selection with competition. Think of a gene as an idea that gets "hot". A lot of people jump on that idea and create startups. There are at least 50 dating startups in Silicon Valley today. Since the culture is open, people talk to each other and they pitch their ideas all the time. Each startup adjusts and creates a variance from other startups. Venture capitalists like investing in what's hot, so many variations of the same idea get funded. There were at least thirty search engine startups around when Google started. These startups compete with each other and eventually one of them succeeds in becoming the dominant player or in getting acquired by a big corporation. For example, after Google came about, Yahoo acquired Alta Vista and many search-related startups were acquired by Microsoft to be rolled into Bing.
The fate of the other startups is not as bad as for genes. A lot of startups get acquired by another startup that is getting bigger or becoming the most successful. Facebook acquired ConnectU, FriendFeed and many other social networking-related startups. Even if your startup does not get acquired, the chances of you getting a job with the successful startup are high because you have experience in the new domain. So, if you are in the right category, the risk of doing a startup is not that high.
If you are a region that wants economic growth, how do you apply this understanding of the workings of Silicon Valley? You can’t change your culture overnight. And, Silicon Valley is a hub for the world not just for the US. No other region has the scale of Silicon Valley in terms of startups and access to capital. So, it is extremely tough to create a mini-Silicon Valley.
When I worked with Swedish government agencies in the southern part of Sweden (Region Skåne), my recommendation to them was to focus on what they are good at and not try to do what Silicon Valley is doing which is mainly software. Since Region Skåne does not have the scale to do replication with variation and selection with competition in many domains, I advised them to select one domain and focus all of their resources and capital on that. Region Skåne excels at wireless communication technologies. Bluetooth and the first Smartphone came out of that region. Furthermore, the region has a history in medical innovation. The first artificial respirator and the first artificial kidney were invented in Region Skåne.
Sweden has the added benefit and competitive advantage, that one central organization, Region Skåne Public Healthcare System, is responsible for $7B in healthcare spending every year. So, the domain that makes sense for them is mobile health (mHealth) because of the local talent available in wireless communication technologies and medical technologies and the economic opportunities mHealth creates. mHealth connects wireless technologies with healthcare systems to make healthcare prevention-focused rather than cure-focused as it is today. One practical application is the data, heart-rate and calories burned from your fitness bracelet could go directly to your doctor and you would be warned by the doctor when a change in your patterns is noticed. Additionally, Silicon Valley will have a tough time excelling in this space because of the complexities of the US healthcare system.
In an effort to replicate with variation the success of Silicon Valley, you must determine what your region excels at and create competition within the domain you excel at. Good luck!
This article was originally published on Forbes.com on January 18th, 2015.