In this segment of “Office Optional with Larry English,” he talks about the future of remote work, startups and the role of the physical office in technology innovation.
As of May 2020, Silicon Valley was home to 2,000 tech companies — the greatest concentration anywhere in the world. Between 2011 and 2019, Silicon Valley startups received more than $113 billion of funding. Add in an incredible concentration of talent generating and building on innovative ideas plus top tech corporations hungry to gobble up new companies, and it’s been an environment impossible to emulate anywhere else in the world.
But times are changing, and Silicon Valley’s reign as an epicenter of technology innovation is coming to an end. In 2019, startups in the Bay Area saw a decrease in new funding, from $63.6 billion to $45.9 billion, while funding deals outside of Silicon Valley have been slowly increasing in recent years.
Pam Springer, an Ohio-based serial entrepreneur, startup advisor and investor, says there are clear signs that the startup ecosystem is becoming more geographically diverse. “Mass attracts mass, and Silicon Valley no longer has a corner on it,” she says. “When you start to have success, it causes the ecosystem to become denser, and suddenly, others outside of Silicon Valley are invited to the conversation.”
Startups Will Have No ZIP Code
Historically speaking, a frenzy of innovation never settles forever on a single location — think of Detroit in the late 1950s, Italy during the Renaissance and ancient Greece as philosophers laid the groundwork for modern democracy. It takes the right environment to make innovation blossom.
Silicon Valley’s environment is no longer ideal, in part because of the massive inflation in the cost of living over the past decade — the median home price is upward of $1 million, and even a six-figure salary isn’t necessarily enough to put you out of the low-income bracket. People started fleeing the area a few years ago in search of more affordable living, a trend that’s only accelerated with the massive shift to remote work during COVID-19.
So where’s the next hotspot? Experts have thrown in their vote for a wide range of places: Beijing, Shanghai, London, Paris, Berlin, Tel Aviv, Toronto and even Philadelphia, to offer a shortlist. Likely, it’s none of those places. In fact, I’d bet the next Silicon Valley is nowhere at all — it’s in the cloud.
Rich Langdale, managing partner of Midwest-based NCT Ventures and a partner in Silicon Valley venture fund Health2047 Capital, agrees. “There is a digitalization of everything, which means startups can now be successful outside of a Bay Area ZIP code,” he says.
The cloud gives companies several benefits, including the ability to easily scale and build geographically dispersed teams that can develop products virtually. “Companies founded today that are digital have a significant leg up — their cost structure is better and they can get the best talent anywhere to build digital solutions,” notes Springer. “The demographics of customers are also increasingly digital, leading to alignment between customers and the virtual startups solving business problems.”
When the epicenter of tech innovation becomes the cloud, implications for startups include:
- Success will no longer be dictated by location. Venture capitalists used to demand startups come to Silicon Valley, because that’s where all the supporting infrastructure was located. With services increasingly digitalized, however, startups can get the support they need from anywhere. “If a Midwest startup wanted to be funded five years ago, they would be asked to move to Silicon Valley, and this is no longer the expectation,” Langdale says. Increasingly sophisticated collaboration tools have also done away with the need for tech talent to be in the same location, further loosening Silicon Valley’s corner on the innovation market. “This has put every startup on the same playing field,” Langdale adds.
- Most startups will be entirely or partially remote. For many companies, the pandemic proved the efficacy of operating virtually, leading to a drastic rise in the acceptance of a virtual model. For startups, the lower costs of running virtually combined with the ability to scout out the best talent anywhere in the world offer significant competitive benefits. Plus, companies are constantly honing remote operations. They’re learning to build flexible structures and scale quickly with little infrastructure investment, evolving into what renowned innovator Peter Diamandis calls “exponential organizations,” or companies able to quickly spin up and outsource all functions to anywhere the best people are.
- Startups will need to learn to build culture virtually. Moving innovation into a virtual space requires much more than letting teams work from home. Leaders must also figure out how to build cohesive teams and a culture that promotes innovation when everyone is geographically dispersed. “The key to a great virtual startup is having a strong culture — it’s the underlying safety net when it comes to excelling virtually,” Springer says. “A lot of people have great ideas, but that doesn’t count if you can’t execute, which is made possible through culture.”
Although Silicon Valley is still recognized as the beating heart of tech innovation, the shift is already on its way. Startups that learn to develop technology virtually and build strong virtual cultures will be better positioned to thrive as the cloud becomes the next innovation hotspot.
