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Reports of Silicon Valley’s Death Are Premature—Here’s Why

Feb. 17, 2021, 9:00 AM

Every few years, pundits and prognosticators predict the impending demise of Silicon Valley. Whenever a disaster hits California—blackouts or brownouts, droughts or fires, floods or earthquakes—the Babbitts of rival tech centers proclaim that “The End is Near!” for Silicon Valley’s unique role.

So, too, as we approach the first anniversary of the Covid-19 lockdown. Prominent publications post obituaries for the Valley. Mayors of Silicon wannabees tout the attractions of their municipalities.

Not so fast.

One cannot predict with certainty how the business world generally, or tech in particular, will emerge from the lockdown. Unquestionably, work habits will change. Businesses will rethink conventional wisdom regarding facilities, travel, and collaboration. The most enduring changes growing out of 2020 may be things that have not yet emerged. Nevertheless, here are a few thoughts as to why it might be a mistake to short Silicon Valley.

Bosses Are Not the Company

Some high-profile founders and CEO’ have moved out of Silicon Valley and announced that they are “relocating headquarters” to another state. This has been a key theme in recent “Valley is Dead” obituaries. The reality is more complex. Some of these founders and CEO’s didn’t really live in the Valley to begin with. Some are focused on personal tax and estate-planning issues. Moving the titular headquarters, however, is not the same as relocating the company itself.

For most technology firms, the principal asset is talent—thousands of engineers and innovators. It is one thing for a celebrity to declare a different domicile. It is something else to uproot the core workforce and tell them that they need to relocate to South Beach. Even when a company relocates its C-suite to a different state, the notion that the company itself will effectively become a Texas or Florida operation remains to be tested in practice.

An ingredient in the success of Silicon Valley has been the concentration of talent within a small geographic area. What are the odds that picking up a few companies will enable a rival city to assemble such a critical mass of engineers and ideas? Moreover, most regions have a dominant industry. Is Los Angeles going to demote entertainment in favor of autonomous vehicles? Is Houston going to switch from energy to semiconductors? Is Miami going to refocus from trade with South America to app development? Reshaping the core business culture of a region takes more than a famous businessman saying that he wants it to be so.

Silicon Valley’s Middle Name Is ‘Resilience’

Some of the more comic eulogies for the Valley call it “the next Detroit.” Detroit made cars. That’s it. When the auto industry entered a decades-long downturn, there was no Plan B. When cameras and film started to fade, Rochester had no backup for Kodak. By contrast, look at the history of Silicon Valley, going back to the first semiconductor companies in the late 1950s. The Valley has reinvented itself many times. Semiconductors to PCs. Disk drives to flash. Desktops to laptops. Office applications to Apps. Servers to cloud. Isolated bulletin boards to platforms.

Unlike other geographic sectors that have been dependent on one product family or market, Silicon Valley’s core strength has been its resilience. The common reaction here to disruption and innovation is to embrace it and strive for leadership, not cower in denial.

Consider the fields that are potential driving forces for the next decade and beyond: artificial intelligence; drug discoveries powered by machine learning rather than tropical dirt; autonomous cars, trucks, drones. No region has its fingers in so many of these pies as does Silicon Valley.

Worker Freedom Matters

More than any other state, California cherishes—and protect—worker mobility. This is a core value of California. It has been an essential driver of the growth and sustainability of the tech environment in Silicon Valley.

Restrictions on an employee’s ability to move to a competitor or an emerging rival rarely survive. Engineers are not permitted to take trade secrets to a new company, but they can take their brains and experience. This leads to a cross-fertilization that combats stagnation within a given firm and emboldens workers to take a chance on risky new ventures. Talent in the tech industry knows, often on a personal basis, how important this freedom can be.

Compare this to the rivals posited as displacing the Valley. A quick survey of the laws in two oft-mentioned alternatives—Texas and Florida—reveals no such aversion to “covenants not to compete.” Do those states impose some limits on employer handcuffs? Yes. Might the handcuffs nevertheless suffice to keep you in a job that you would rather leave? Probably.

Not so in California. An incumbent employer may entice you to stay with more stock options or higher pay, but the odds are nil that your current boss can preclude you from working at another company of your choice.

Are droves of talented engineers, finance executives, salespeople going to give up that freedom in order to follow their founder to the site of his or her new mansion? Perhaps. Time will tell. But the ultimate outcome may be that alternative tech centers will find that antiquated, anti-competitive labor restrictions hinder their ability to lure the critical mass of talent that values its employment freedom.

In the words of the great Mark Twain, reports of Silicon Valley’s death are greatly exaggerated. This is not to ignore the challenges that businesses in California face. Taxes are high, and regulations burdensome. Houses are expensive. Civic leaders in California should take note of the departures and address underlying causes, not ignore them.

But believers in the Valley can gain comfort by glancing at recent successful IPOs, at significant acquisitions, and at hot new startups. If plotted on a map, the pins marking each metric are crowded into the space between San Francisco and San Jose. The odds that a year of lockdown will end this decades-long record of success and innovation are low.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Boris Feldman is a partner in the Silicon Valley office of Freshfields Bruckhaus Deringer and head of its U.S. Technology Practice, specializing in securities litigation, mergers and acquisitions, and fiduciary duty and disclosure counseling. Over his three decades in Silicon Valley, he has represented dozens of the key entrepreneurs and leading companies in the tech industry.

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