How Silicon Valley Has Become Goliath and Lost its David Advantage


Silicon Valley has become a giant of an industry and has lost its David Advantage. VCs are throwing more and more money at unproven companies and losing more money. Startups because they are so deeply funded are burning their cash at a very fast rate trying to compete with the older well-established big boys in what they offer. Even loosely spending VCs are beginning to sound the alarm and calling for some budget controls. The worse part of it is that the Silicon Valley concept has been exported worldwide and its current mistakes are being made worldwide. The frugal bootstrapping principles of the Silicon Valley model are being lost to its opulence as it has grown into a giant industry and it is losing its underdog advantages.

Malcolm Gladwell writes about how disadvantages can sometimes create greatness and that was what made the Silicon Valley model work optimally. Silicon Valley in its early days had the disadvantages of low budget and bootstrapping attitude that made startups fight hard for every scrap and survive the famine of capital by stretching their resources and opening up their imagination to overcome their disadvantages and therefore gain advantages from them. Today top companies are funded with such abundance that they can grow lazy and not be very imaginative or try hard to run up the mountain to plant its flag. Instead they are buying a helicopter and taking the easy way up the mountain because they have the money but in doing so they are sacrificing the David underdog advantage that made Silicon Valley such a great model to copy. Today a company that is worth less than a billion dollars is not even noticed—but billion dollar valuations are abnormal for startups until they are no longer a startup and many billion dollar startups are not mature at all. VCs also find gathering investors so easy that they really do not have to worry very much about some bad investments because they are replete with money. It is sad when VCs have not changed their model in vetting companies to invest on that even the great Marc Andreessen expects that 50% of their investments will automatically vaporize—there are very few industries in which a 50% failure rate (it really is much higher) is so readily accepted and perpetuated for decades.

The Silicon Valley model is bloated and needs a David Hero not to kill it, but to reform it. There are many good things that were no there in the beginning but many more bad things that need reforming. Silicon Valley needs a series of reformer Startups that challenges and improves it; taking each disadvantage of a giant and turning it into a David advantage—and through their efforts make an even better Silicon Valley model that takes advantage of all of the new technology while maintaining that struggle that is so important in innovation and often in success!

Clip to Evernote