Silicon Valley Local Magazine - Issue 1

silicon valleylocalYour Silicon Valley Connection

FALL/WINTER 2011/2012

From the Birth of Silicon Valley Comes Innovation and Inspiration

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Photos Courtesy of Piero Scaruffi

24 Silicon Valley Local Fall/Winter 2011/2012

It started with a financial dilemma. Roughly 60 years ago, Stanford Univer-sity had run into a series of financial

problems. Try as they might, a solution did not appear-until the authorities at the univer-sity decided to lease part of the college’s land for a period of 99 years. The 8,000 acres that had been granted to the university by Leland Stanford were given with the provision that they never be sold-but leasing it was a way around this dilemma. The beleaguered univer-sity drew up a contract and Stanford Indus-trial Park was founded. This park was initially limited to only high tech companies that

could provide some sort of benefit to Stanford University. The lease was signed in 1951 and the first company moved in just two years later. From financial ruin a new legend had begun: that of Silicon Valley.

It was born, alright, yet without a lawfully recognized name. Before it became Silicon Valley, the area had been known under the name: the Valley of Heart’s Delight. How many of you possibly knew that? Full of orchards, yes, the area little resembled the behemoth of technology and business that

it is today. Ralph Vaerst, an entrepreneur in Central California, first coined the term Sili-con Valley. A friend of his, Don Hoefler, used the nickname in a January 1971 newspaper article of the time. The series was entitled “Silicon Valley in the USA.” Silicon was a reference to the number of computer com-panies in the area who used silicon to make semiconductors. From that newspaper issue onward, the name of Silicon Valley replaced the former appellation.

Started by a twist of fate, Silicon Valley would soon grow fast to become the equiva-lent of the tenth largest city in the US. Where once apple, plum, and cherry orchards had been, high tech firms sprung up and law firms also grew, as they were needed to address the new technology’s legal demands.

The area began initially to take shape as early as 1848 when gold seekers flooded the area. The countryside that was settled during the gold rush gradually turned into an agricul-tural community, thus all the many orchards. In 1881, Stanford University was started with a land grant from the former governor, Leland Stanford. By the end of World War II, new students began to flood the rolls of the uni-versity. Struggling to cope with the financial strain, Stanford leased out the 8,000 acres bequeathed by its founder and formed Silicon Valley. A center for ingenuity, it attracted tech-nology startups and fostered an atmosphere of collaborative effort. This tradition of collab-oration and entrepreneurial spirit set Silicon Valley up to be the world’s foremost center of cutting edge technology.

Among the first companies to spring up in the new facilities include some big names that are still recognizable today. Among others,

From the birth of Silicon Valley

comes innovation and inspiration

Started by a twist of fate, Silicon Valley would soon grow fast to become the equivalent of the tenth largest city in the US.

www.svlocalmag.com Your Silicon Valley Connection 25

Varian Associates, General Electric, Shockley Transistor Laboratory of Beck-man Instruments, Hewlett-Packard, Eastman Kodak and Preformed Line Products were the first to make their entrance into the new industrial park. The first tenant of these was Varian As-sociates, a company founded back in the 1930s with the in-tent of making radar components for the military. In time, it also provided ven-ture capital for tech-nology start-ups in the civilian sector, a taste of what was soon to come, and in a way that would swiftly transform the world.

The companies that started at the Stanford Industrial Park began with short-term, five year leases. One of the most notable of these early companies was Hewlett-Packard. Now the largest personal computer manufacturer in the world, it began its story of success with the release of the first ink jet printer in 1984. Two of the other initial companies, Eastman Kodak and General Electric, ultimately trans-formed the Stanford Industrial Park into a center of the technology sector in the 1990s.

Originally famous for the silicon semicon-ductor, Stanford Industrial Park has grown to encompass a number of businesses that have made strides with internet services and software. The rise to software prowess in Silicon Valley began with Xerox and Doug Englebart, the inventor of the mouse. In the 1970s and 1980s, Xerox was essential in the creation of Ethernet, graphical user interfaces, laser printers, PostScript, and object-oriented programming. These inventions inspired and led to the creation of 3Com and Adobe Sys-tems. Indirectly, it helped to bring about the inventions and technology of Cisco, Micro-

soft and Apple Computer. The world that we had known has almost overnight changed us forever. Our new world had been born, and technology has sprouted, like never before.

Right here in what has become Silicon Valley, we have been witness to where the past has met head on with the future, and relatively speaking, in the span of but just a few years, we clearly have left one era behind and have embarked truly into another. Many things that were, are no more ... many things that are, weren’t just a few years ago.

Indeed, perhaps it can come from one person, a special idea, as many now have, bringing forth such change, worldwide, para-digm shifts, and in what used to take perhaps ten to a hundred years to unfold ... now, but in an instant. Such has become the storied history from Silicon Valley ... and, because of this birth, all the innovation and inspiration coming with it, comes this new world.

Everyone looks here first for a reason, many very special reasons.

Important to note, for what a difference, no matter how vital the technology, it is un-likely to succeed without vital funding. Due to

The Hewlett-Packard garagePhotos courtesy of Piero Scaruffi

26 Silicon Valley Local Fall/Winter 2011/2012

this, venture capital has become the backbone of Silicon Valley. The venture capital industry began on Sand Hill Road with the devel-opment of Kleiner Perkins in 1972. The $1.3 billion IPO of Apple Computer caused the avail-ability of venture capital to explode in December 12, 1980. Famed companies of the valley such as Amazon and Google were all originally started with ven-ture capital money-Amazon and Google both took losses for the first few years of business. In the early 1970’s, a number of the computer firms, programming com-panies and semicon-ductor businesses were able to form startups using similar funding methods.

Also, other types of technology have devel-oped and come to be. From the silicon comput-er chip to the personal computer, Silicon Valley has been behind some of the top technology of the 20th century. Adobe Systems, the World Wide Web and Xerox all got their start within the valley along with a number of dot.com firms. The current trend towards nanotech and biotech has been the key factor in driving the valley’s success. Along with these new technolo-gies, the advent of green technology has found a growing market. As a leader of the drive towards green technology, Silicon Valley is well placed to take advantage of the push for greener lifestyles in the upcoming years.

The birth of Silicon Valley has created an inspiration from mega companies to individual entrepreneurs. “Fail early and fail quickly” is a

mantra often heard in Silicon Valley. The culture of failure runs strong here; failure rate of new businesses is 1 out of 20. In the case of Bill Coleman, fail-ure and taking the opportunity to learn from his mistakes taught him how to run a successful busi-ness. Coleman went through a succes-sion of two startups-Visicorp and Dest Systems-before he became successful with BEA Systems. In 2009, he sold BEA Systems to Oracle for a cool $8.5 bil-lion.

Although Bill Coleman’s story is encouraging, his tale is not the only inspi-rational one to come out of Silicon Valley.

The company, Google, went through its own share of struggles in order to create the world famous search engine and assorted programs it runs today. It started with its founders, Larry Page and Sergey Brin. They sought to create a search engine akin to the ancient Library of Alexandria in its complexity and richness. The two visionaries had met while in college and had started on the project of search engine rak-ing as part of their thesis project. As they regu-larly brought down Stanford’s internet, the buzz around their project grew. Page and Brin finally decided to take the leap and strike out in busi-ness on their own. The results were legendary. Google brought in a total of $29,321,000,000 in revenue in 2010.

Real Estate prices are also an important factor of what makes Silicon Valley tick. With a high average income, it is to be expected that the cost of houses within the valley are

Steve Wozniak (standing) and Steve Jobs

www.svlocalmag.com Your Silicon Valley Connection 27

equally high. In September, Silicon Valley real estate sales had a median price of $570,000 which brought down the $628,000 median sale price for the year to date. While prices in Silicon Valley have taken a hit since the hous-ing bubble burst, they are still selling for far higher than the national median of $177,000. From August to September, re-sales of single-family homes fell 15.3%, although year-to-date homes sales are up 0.3%. It may be a while until Silicon Valley sees a resurgence of home values, but it is still doing rather well compared to the rest of the country.

Before the real estate bubble burst, Silicon Valley went through a different kind of bubble, the internet bubble or dot-com bust. It would be assumed that any business based on a cul-ture of failure should be a warning sign for the cautious investor, but that has not always been so. For the 1995-2000 Internet bubble, investors put an inordinate amount of money into dot-com startups only to lose it after the March 10, 2000 climax of stock values. The stock mar-ket ended up having a number of over-valued stocks that did not pay out. The excess price of the stocks fueled a further stream of investment until, eventually, the market could not support it anymore and resulted in the inevitable crash. The ability of companies to receive venture capi-tal and the market confidence in companies’ ability to turn a profit all further contributed to the Internet bubble that developed.

Indeed, Silicon Valley has left more than a technological legacy for the world. Reinvent-ing itself every ten years, it has been at the forefront of the biotech, nanotech, software and green technology booms. With 33% of the United States’ venture capital funds going towards businesses in the valley, an entrepre-neurial precedent has been set. Across the world, delegates have arrived in Silicon Valley with the aim of copying the success story that

lies behind it. From the first personal comput-er to an IPod, entrepreneurs in Silicon Valley have set an example that will be a hard act for any other city or nation to follow.

Challenges certainly lay ahead. Staying at the top of its game will be a struggle for Silicon Valley in the years to come. As the technology field shifts towards the produc-tion of green technology, startups will be hard pressed to find a place. When the Stanford Industrial Park first started, a startup could be-gin with relatively little capital investment and have the prospect of becoming a household name. Regulations on green industry, elec-tricity and biofuels will make the selling and creation of products far more difficult than it has been in the past.

Insurmountable challenges, however, are all just a part of the Silicon Valley story. Look-ing to the future, the same entrepreneurial spirit and innovation will continue to raise the bar for the new generation ... for the present (that changes and is updated it seems almost daily, or by the moment) ... and who knows what the future will look like, i.e. a year or two from now, let alone 10 to 20 years from now.

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Looking to the future, the same entrepreneurial spirit and innovation will continue to raise the bar for the new generation.

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