This post is written by Alexander van Elsas. Alexander writes daily on his social media weblog, and is a regular contributor to the WinExtra blog by Steven Hodson.
I read an interesting article in the New York Times the other day. Clair Cain Miller interviews Judy Estrin about her new book “Closing the Innovation Gap”. In her book she discusses the problems Silicon Valley faces with respect to innovation. A quote from the article:
Ms. Estrin acknowledged that innovative ideas still appear all over Silicon Valley. But, she said, the technologies at the root of new products like Apple’s iPod or the Facebook social networking service were actually developed several decades ago. If entrepreneurs do not continue to develop groundbreaking technology, she said, the valley would be in dire straits in another decade. She compared the situation to a tree that appears to be growing well, but whose roots are rotting underground.
“In some ways, we have the problem that it looks like innovation is flourishing, but too much of it is short-term, incremental innovation,” she said.
The root cause for this lack of ground-breaking innovation, according to Judy, is that investors started focusing too much on the short term.
Ms. Estrin traces Silicon Valley’s troubles to the tech boom. She said that’s when entrepreneurs and venture capitalists started focusing more on starting companies to turn around and sell them and less on building successful companies for the long term.
She is right of course. It’s not just the innovation that halts. Silicon Valley unfortunately has become an industry. It used to be the exiting place where new things happen. Over the years the Valley has become a trap for any one willing to fall into it. The speed of innovation is dropping fast. There are thousands of startups working on great ideas, but most of them seem to be small improvements or tiny nuances of things that already exist.
This is a pretty normal phenomenon. Someone or something starts the cycle with a great idea, starts killing “old-school” market leaders. And then others jump on that same bandwagon and an industry is born. But the industry that marks Silicon Valley is different from other “Innovators dilemma’s”. There is a web 2.0 industry, but I doubt there is an equally large market for it. There are a few large players that earn some revenues, but the rest is burning up venture capital.
And the crowd hanging around this industry, that would be us tech bloggers and early adopters, are providing the necessary fuel to this industry. Every self respecting startup buys his way into TechMeme and all of the main tech blog sites. They get the early adopter crowd on board, hungry as they are to try the next cool thing. Everyone gets all crazy over the latest video, social, desktop, air, aggregator thingies. Of course after screaming Hallelujah the startup sees an enormous spike in traffic and the aura of success has been created. But after a while, when the excitement jumps to yet another great idea, the traffic that was there was simply created by that early adopter crowd. And it dies out again as the crowd moves on.
You would think that startups would learn from this and choose a different roll out strategy. But often it seems they don’t. And there seems to be a simple reason for it. Their business plan isn’t aimed at creating customer value. Their business plan is getting prepared for a take-over. It’s the only reason I can think of why venture capital is invested in business plans that aren’t aimed at customer value.
You can’t build an industry on that foundation. If a company’s sole purpose is to get investment after investment only to be sold to the highest bidder, then no real value is created, only destruction. And we already know who ends up paying for it (besides the customer). It is the old industry leaders, trying to become hip again, catching up with the Silicon Valley stars. The sucker that ends up buying that for a whole lot of money didn’t really understand this new world in the first place and ended up buying something useless for a lot of money.
I believe that startups working on great ideas (and great ideas do not necessarily have to be innovative) should try something else for a change. Why not leave the early adopter crowd in Silicon Valley for what it is and focus on your real customer instead. You don’t always need a Valley early adopter. There are people in your target market that can act like early adopters too. The good thing is that you can concentrate on creating user value, instead of trying to be the next darling of an industry that seems to have lost its sparkle. It might not be the easy way, but it has a lot of advantages too. Getting into Silicon Valley and the heart of the early adopter crowd is relatively simple. Once in, getting out again, crossing the chasm towards your target market ends up being a wall most startups can’t break through. That’s the real trap of Silicon Valley. It’s attractive, but once you are in there, you might find that you’ll never get out again.
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