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Before the bust, almost everything flowed up in Silicon Valley. The region added more than 36,000 new jobs to its rosters annually between 1996 and 2000, with wages averaging $60,800 at the height of the dot-com craze, or about $25,000 more than the national norm. The only thing that dropped was the unemployment rate, which fluttered near 1 percent on the state index.
Before the bust, almost everyone wanted to be The Next Silicon Valley. They still do — including Silicon Valley itself.
Like many regions across the United States, the Northern California span dubbed Silicon Valley sees small tech as an engine that can help pull the nation out of a two-year stall and turbo charge its local economy in the process. Of course, willing it isn’t enough. You need special people — thinkers, doers, facilitators and financiers — working together to become a dominant region, economists say.
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Silicon Valley has all that, according to a Small Times analysis. To a lesser degree, so does its neighbor, Southern California, as well as metro Boston, the New York City/New Jersey region, the sprawling Dallas-Houston-Austin expanse and Chicago and its suburbs. From one to six, that’s how they rank. But while a handful of other areas lack the critical mass seen among the top six picks, they nonetheless are worth watching because today’s leaders aren’t necessarily going to be tomorrow’s, experts say.
“One significant event can alter the playing field,” cautioned Ross DeVol, an economist who specializes in high-tech clustering. The event could be a technical advancement, an infusion of money or a change in market demands. “In the early stages it is still very dynamic.”
Microsystems have existed for years but only recently have they made inroads as a broad-based technology, said DeVol, a director at the Milken Institute and author of a study on the emergence of small tech in the Southwest. Industry researchers agree that the technology is still experiencing growth spurts.
“If you’ve been around microsystems for a year, you see it is much different than it was a year ago,” said Steven Walsh, director of the Technological Entrepreneurship Program at the University of New Mexico and president of an international foundation that promotes the commercialization of small tech. “There’s a startup a day in the world of microsystems.”
Nanotechnology is more an infant on growth hormones, thanks to the creation of the National Nanotechnology Initiative in 2000 and last September’s federal funding of $65 million for six university-based nanotechnology centers. Lab-based nanotech startups now may outnumber nanomaterials companies formed in the ’80s and ’90s.
It will take years and possibly decades, DeVol said, for a region to emerge as small tech’s king of the valley. Quite possibly several regions will gain prominence, with each claiming fame through a specialty such as biotechnology, defense or telecommunications. And that position will constantly be challenged as the industry matures. The needs of a startup, and the factors that must be in place to meet those needs, change as the company ages.
Those factors include research centers, existing companies with small tech expertise, environments that favor innovation, venture capital and support networks, and a pool of qualified workers. But over time, other considerations take hold, such as the cost of doing business and infrastructure. These considerations, plus government incentives and the more subjective “quality-of-life” attributes could make places such as Ohio, the Research Triangle in North Carolina and Albuquerque, N.M., serious rivals over time.
“There is a technical expertise in Silicon Valley that gives them a big advantage,” DeVol said. Historically, Silicon Valley has reinvented itself numerous times, from a tech hub for defense in the ’60s to integrated circuits to personal computers to its latest boom-gone-bust, the Internet. That gives them a number of skills and competencies that can be applied to the latest technological wave.
“It will be difficult to get the upper hand, but their unique position could be overcome. The truth is, many places have closed the gap,” DeVol said.
INTELLECTUAL FUEL
Hotbeds need fuel, and institutions that support pioneering scientific and engineering research provide an abundant source w\ith their thinkers and tinkerers, economists say. The experts look for university and federal laboratories staffed with people who can generate ideas when trying to identify emerging winners.
Often their gaze focuses on Boston, whose academic pedigree includes some of the most highly rated research universities in the nation. Harvard University and the Massachusetts Institute of Technology (MIT), both in Cambridge, entice top-notch faculty and accomplished students with incentives such as Harvard’s National Science Foundation-funded nanotechnology center and MIT’s numerous small tech facilities. As an added bonus, each has a business school that provides institutional support for would-be entrepreneurs.
Many of the small tech companies in the region have roots in university labs, said John Santini Jr., president and chief scientific officer of a MEMS-based biotechnology startup in Cambridge. The short list includes Santini’s MicroCHIPS Inc., the Charles Stark Draper Laboratory Inc. and Corning IntelliSense, all with ties to MIT, and Nanosys with Harvard.
As a graduate student at MIT, Santini and two professors invented drug-releasing implantable MEMS chips and co-founded MicroCHIPS in 1999 to commercialize the technology. One professor, Robert Langer, was instrumental in getting $1.25 million from the Boston-based venture capital firm Polaris Venture Partners to start the company. They are wrapping up a second round of equity financing and expect to begin human clinical trials of the implants in about two years.
“Boston has a lot of local VC, two of the best business schools in the nation, great science and technology and entrepreneurial people who are likely to take a risk,” Santini said. “Not only do you get (VC) funding, but you get entrepreneurs who like to start companies. That’s critical.”
The U.S. Department of Energy’s national laboratories also get credit as catalysts for innovation after federal legislation was passed in 1980 to encourage researchers to test their inventions in the marketplace. The new rules allowed Richard Siegel, then a research scientist at Argonne National Laboratory in suburban Chicago, to commercialize a process he developed for making nanocrystalline materials.
The result: Nanophase Technologies Corp., a 54-employee company near Chicago.
Colleagues at Argonne and the University of Chicago, which operates the national lab, encouraged Siegel to line up funding through ARCH, a venture capital group that was affiliated with the university at the time. That support, as well as money from a now-defunct state program designed to create jobs, convinced Siegel to found the company in 1989. Nanophase went public on Nasdaq in 1997.
“It was a series of random events,” said Siegel, who is now an engineering professor at Rensselaer Polytechnic Institute in Troy, N.Y., and director of one of the six NSF-funded nanotech centers. “I had no intention of doing this as a commercial venture. It just clicked.”
BUSINESS BRAINS
Some of the best ideas are born outside the halls of academia and the cubicles of federal labs, economists say. Business is a great incubator for innovation, and the intellectual capital within a company often has dividends for the region, too.
“People think the only way to acquire knowledge is by sitting in a classroom,” said Joseph Cortright, a former chief economic development officer for the Oregon Legislature and now vice president of the consulting firm Impresa Inc. in Portland. “But business has a way of creating and deploying knowledge. … It might be as simple as better ways to sew a shirt. They’re always incrementally improving.”
Such tinkering, as Cortright calls it, gives workers an intimate knowledge of a technology. Unlike university-based research, that knowledge is retained inside the corporate walls and brains and not dispersed worldwide through publications or presentations. Businesses, and the place they call home, get a competitive advantage.
In some cases, they even get an Emmy.
In the 1980s, physicist Larry Hornbeck was thinking about making a better projector. Actually, he and his colleagues at Texas Instruments Inc. in Dallas were wrestling with the finer points: how to make and move micromirrors on a silicon chip, taking TI beyond its role as a global semiconductor corporation into the realm of what they later would call Digital Light Processing (DLP). Their goal was to make optical parts that would give a projection system eye-popping clarity and vividness.
A decade later, TI began producing DLP projectors using the team’s micromirror device. Their DLP technology won the company an Emmy Award from the Academy of Television Arts and Sciences in 1998 and is now used in business and home entertainment projectors, video wall projection systems and large-screen tabletop TVs.
“Places don’t randomly advance technologies,” Cortright said. Instead, they build off existing industrial strengths and specializations. “Once something gets started, a lot happens to reinforce it. They can draw more labor, and draw companies that are looking for that labor.”
TI now has a division devoted to DLP, where Hornbeck serves as a research fellow for technology development.
IT’S ABOUT INNOVATION
Startups don’t have the luxury of reaching into a corporation’s deep pockets to fund their research and development. For a region to be a serious player as a small tech leader, it must have venture capitalists present, economists say. Besides money, they provide guidance, entrepreneurial zeal and the daring needed to make a new enterprise successful.
“If you want to have indigenous entrepreneurship and risk taking, you have to have local VCs,” DeVol said.
VC firms generally prefer to invest in companies they can visit within two hours, either by air or land, said John Taylor, vice president of research for the National Venture Capital Association (NVCA). The trade association has more than 400 VC firms as members. The VCs want weekly and sometimes daily interaction to ensure their investments are sound, Taylor said. Members often take a board seat and help the company find top management, usually from within the region.
But VC presence alone isn’t enough. New York City holds the title as the nation’s investment capital, but lacks the entrepreneurial climate of Silicon Valley, experts say. Other regions can’t match Silicon Valley’s swashbuckling attitude, its informal networking or resilience and adaptability.
“It’s not about silicon, it’s about innovation,” said Doug Henton, author of a white paper presented last December that highlighted small tech as the new wave for the Silicon Valley region. Henton is president of Palo Alto-based Collaborative Economics, which provides strategic services to regional economic developers. Silicon Valley has a tradition of people swapping ideas and boldly exposing those notions to market forces, he said. If they fumble, they regroup and try again.
“It’s not the ingredients, but the recipe that counts. I can give you all the ingredients,” Henton said, reciting the indicators economists use to define a dominant region. “It’s the culture that matters.”
Michael Horton doesn’t consider himself the poster CEO for Silicon Valley, but he and his company, San Jose-based Crossbow Technology Inc., reflect much of the mindset that sets Silicon Valley apart from its rivals. He founded the company with his University of California, Berkeley engineering professor Richard Newton in 1995 to capitalize on MEMS chips sets for virtual reality motion tracking devices.
“We thought we had a compelling product proposition,” Horton said. But the target market — kids — showed a disdain for headsets and solo gaming. Newton, a veteran at launching startups, had hedged their bets by also partnering with Analog Devices in Massachusetts to sell MEMS sensors to industrial users.
The company posted $1 million in sales before turning to investors, who have added $12 million to the company coffers, Horton said. Crossbow now employs about 40 people and expanded its product line to include a Bluetooth-based technology for wireless sensors. The sensors are undergoing trial installations in various industries.
“We’re changing all the time,” Horton said. “You have to.”
The key to success for Silicon Valley or its rivals is people like Horton, DeVol and Henton said. Still shy of 30, Horton is likely to provide the ideas, drive, leadership and versatility that will help shape the industry for decades. His achievements will draw others to the region, deepening the pool of creative talent.
“If you can begin to maintain and attract young, talented people, it has positive feedbacks,” DeVol said. “There’s a battle for talent, young talent.”
The battleground is global, he said, and the stakes are enormous. From a national perspective, it is irrelevant if Silicon Valley or its cousins to the north, south or east capture the crown. What matters is that the cluster develops on U.S. soil, positioning the nation for the next economic boom.
After all, the last Silicon Valley contributed to a national economy that’s been pegged at $9 trillion. Before the bust, the tech-driven growth fueled one of the nation’s longest periods of prosperity, with steady increases in the Gross Domestic Product, healthy job growth and minimal inflation.
The upside of the bust is it created opportunities for a new technology to take root, according to Henton. “If you’re on a creative wave, you love it,” he said. “You can prosper at every boom.”