Is Silicon Valley Sinking And How Can You Benefit? – Forbes

Is Silicon Valley Sinking?

The founder of Silicon Valley is leaving the hallowed ground and departing for Texas. Is this the first nail in the coffin?

We have been hearing about high-profile moves out of Silicon Valley. HPE was the first major company to announce a move to Texas, noteworthy because HP was the first unicorn in SV. Other major departures that have been announced include Oracle and Palantir Technologies, and venture capitalists Peter Thiel and Keith Rabois who are also leaving Silicon Valley for a better political fit.

Silicon Valley has dominated the world of unicorns from the 1960s with the emergence of Intel in semiconductors (HP was influential but did not start the trend) to PCs and biotech in the 1970s, telecom in the 1980s, Internet 1.0 in the 1990s, Internet 2.0 in the 00s, and Internet 3.0 in the 10s. So it is noteworthy when there is movement out of Silicon Valley. Is this the start of a trend or an aberration?

So far, the moves seem to be of three kinds.

1. Business Stage & Financial Moves

HPEs move is normal from a business and financial perspective. From the 1970s to the 1990s, a number of manufacturing plants moved out of urban areas for a simple reason survival. Urban costs were growing. Urban labor was unionized and expensive. Combined, these factors made it difficult for most midsized, and some large, manufacturers to find the right employees and to compete with national and global competitors. So they moved to small towns where they were the primary employer and had the pick of the best employees at a competitive rate.

HPE's move follows this pattern. Given that SV has matured and costs there have gone through the roof, it is not surprising that companies like HPE are moving. What is surprising in this case is that HPE did not retain its headquarters in SV and move just its plants to Texas for lower-cost labor. But when you consider the fact that the senior executives can enjoy a higher net pay in Texas which has no income tax, it is not surprising that the whole company is moving.

Musks personal move also follows the same plan. With his massive paydays, the allure of Texas is too great when you can add a few billion more. So, hello Texas.

2. Political Moves

Some of the moves seem to be political with conservatives moving from the hotbed of liberalism having taken advantage of the Silicon Valley culture of fearless venture development in emerging industries. Will these moves start a trend and reduce SV's dominance?

3. Technology-Enabled Moves: The Hollowing of the Corporate Headquarters.

Oracles move seems to be a combination of the above. Since the pandemic has forced employees to work out of their homes, they have started moving out of Silicon Valley, some to lower-cost areas. This allows mature companies to reduce costs and taxes by moving the hollowed-out headquarters to a lower-cost state as they can now recruit their talent from anywhere.

Is this the Harbinger of Permanent Change: Is Silicon Valleys Heyday Over?

The business stage and financial moves seem to follow the normal course of business development. When they start ventures, entrepreneurs want to locate their ventures in areas that can help them take-off and grow. When they get rich, reducing their taxes and preserving net worth becomes important. The political moves are not likely to harm Silicon Valley.

Technology-Enabled Moves: Can Silicon Valley Attract the Best of the Tech?

The technology-enabled moves are more important and could cause Silicon Valley to lose its current lead unless Silicon Valley finds a way to keep attracting the best of tech. The fact that the Internet has allowed employees to work out of anywhere means that many young, aggressive, talented, trained and skilled tech entrepreneurs our future Kalanicks and Cheskys may not be in SV eager to start their venture. The techies will be in Texas or Arizona or Florida or North Dakota wherever talent can be trained and nourished. That is where the future Amazons can be. Smart economic developers and politicians of those states will take advantage of this move and build future unicorns there.

Even Rome fell. So will Silicon Valley. But when? How? To whom? That remains to be seen.

MY TAKE: Economic developers outside Silicon Valley, wear your track shoes, build your unicorn-infrastructure, and get going. You will not get a better chance. Most unicorn entrepreneurs make their fortune by jumping on an emerging trend. That is how most states will succeed also.

As for Silicon Valley, its zeitgeist was to be fearless in emerging industries. Other areas, such as Minnesota (which was #3 in venture development in the 1970s ancient history, I know) have been more cautious, and have paid the price. If Silicon Valley stays fearless, it will do fine. If it does not, watch out below.

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Is Silicon Valley Sinking And How Can You Benefit? - Forbes