In their book, “The Rainforest,” venture capitalists Victor Hwang and Greg Horowitt address the perennial question: “How do you build a Silicon Valley?” Despite enormous public investments globally, only a few select regions of the world have evolved into sustainable, thriving, entrepreneurial ecosystems. Why are the practical tools of governments and corporations so limited and ineffective when it comes to driving innovation?
The authors begin by using a ‘Rainforest’ as a metaphor to describe a startup ecosystem in which entrepreneurs, angel investors, venture capitalists, and other resources combine and recombine to nurture ideas that can evolve into successful companies. Communities can possess the same infrastructure or ‘hardware’--universities, research labs, corporations, incubators, professional organizations, government programs, venture firms, angel groups etc.--but produce dramatically different results.
The creative destruction of capitalism with its relatively unfettered free markets is not sufficient to create a ‘Rainforest.’ Creative assembly—the willingness of human beings to come together and collaborate to create synergy is far more important. ‘Rainforests’ are environments that actively encourage disconnected individuals and disparate groups to self-organize into higher forms of ‘biological life.’ The secret sauce of Silicon Valley and other ‘Rainforests’ is not the ‘hardware’ but the ‘software’ or culture--how players in the startup ecosystem interact with one another.
Hwang and Horowitt explain that the unique culture of Silicon Valley was forged a long time ago in the settling of the Wild West. Silicon Valley is the heir of the American frontier spirit. The frontier was settled not just by individualists but by a culture that required individuals to unite towards a common goal. They had to come together and form temporary alliances to survive. The cultural legacy of the frontier--a balance between rugged individualism and pragmatic cooperation—created a new economic paradigm. In essence, the frontier was an incubator of cooperation.
The Rainforest model can be used to explain the largely invisible mechanisms that underlie successful innovation ecosystems such as Silicon Valley as well as other regions of the world. Why does the tiny state of Israel with approximately 7 million people, surrounded by enemies, in a constant state of war since its birth, and with limited natural resources, have more high-tech startups and a larger venture capital industry per capita than any other country in the world?
According to Dan Senor and Saul Singer, authors of “Start-up Nation: The Story of Israel’s Economic Miracle,” the Israeli Defense Forces (IDF), which requires mandatory service for most young Israelis, is a critical factor in the development of Israel’s entrepreneurial ecosystem and economy. Israelis develop a deep sense of trust due to their shared experience in training and combat, belonging on teams with people of diverse backgrounds and skills, and the social connections of a tight community. In the military, you must complete your mission, and the only way to do that is as a team. Their battle cry is: “After me!” You lead by example and inspire your team to charge together. No one is left behind. Upon completion of military service, everything you need to launch a startup is just a phone call away. “Everybody knows everybody.”
During the past few years Chicago has made significant strides with the success of Groupon and the addition of more than 10 incubators and accelerators. However, the Windy City still falls far short in fostering innovation and creating successful startups on a scale comparable to Silicon Valley or Israel. We have the requisite ‘hardware’ or infrastructure--creative ideas, experienced talent, and abundant capital--but, as Hwang and Horowitt point out, our ‘software’ or culture is not up to par. It’s not the ‘ingredients’ but the mix of ‘ingredients’ that drives innovation. In the next article, I will discuss the ‘recipe’ for building a ‘Rainforest.’
