A “Dorm Room” Conversation between T2VC’s Victor Hwang and Rohit Shukla, CEO of Larta Institute

Rohit:  Around the world, regions, governments, entrepreneurial support groups, all look to Silicon Valley not just for inspiration, but to see HOW they can emulate it.  We’ve had all these silly Silicon monikers that people have adopted, and you almost get the feeling that by adopting them, they believe that the goddess of Silicon Valley will infuse them with her bounty. SO, my question is, do you think this works?  The title of your book suggests that they may be able to “build the next Silicon Valley.”!

Victor:  Yes, the number of Silicon Somethings out there is amazing, but not nearly as amazing as their widespread failure to generate decent results!  The title of my book is somewhat ironic, in that the answer is not about building “another” Silicon Valley at all.  The answer is in finding the underlying DNA of social networks like Silicon Valley, and then reconstructing that DNA in new places where it can blossom into its own life forms.  If we examine where Silicon Valley came from rather than what it is today – by looking at the entire historical context, the formation of sociological systems, the role of normative behavior – we see the phenomenon from an entirely different angle.  Silicon Valley is just a manifestation, not an exception.  So my question back to you is, in your work over the past several decades, how would you define that underlying “magical” DNA?

Rohit: I believe the whole “DNA” thing is too deterministic for my blood.  I agree about the magic, though. I love magic. The sheer surprise and wonder.  The many gems that are buried in the “dark unfathomed caves of ocean.”  Yes, the Valley certainly was the product of magic and burst of creativity when humble men of lofty dreams came together.  It has morphed, though, hasn’t it?  The magic born from sheer exuberance is there, yes, but mostly now it is in some ways a metaphor – for the great combination of mad money and good brains.  I would say, Victor, that the magic you speak about can likely be repeated many times over, from region to region, by looking outside the region as much as focusing on what is referred to as “regional assets.”  I’m just not sure that deconstructing and then reconstructing – taking apart the ribbons of the “DNA”  you refer to – works as well as one might think. It also gives hope that adopting certain “ingredients” will have certain results.  That said, there’s a lot to what you say – its just darned hard for most people to do, and do well.

Victor:  I agree with you that regionalism is a false god.  Cluster theory, while useful as a description, has totally failed as a prescription.  A new company, even before it is born, is a contestant in the global marketplace, fighting to create value, scrounging to sell customers, scraping for cash, wherever in the world it must.  While Silicon Valley was born as a regional phenomenon — along with Detroit’s Motor City, Wall Street, Hollywood, and countless other examples — the playing field has transformed.  The interactions that once depended on geographical proximity are now available to people far apart from each other.  The underlying DNA, however, is still about human relationships, as it has always been, and how relationships form, evolve, morph, get strained, and get reconstituted, over and over again.  That’s what I mean by DNA — not assets, but behaviors.  Culture matters.  Economists were fooled into thinking it was primarily about regionalism; all along, it was actually about the social behaviors that happened to evolve in certain places.  AnnaLee Saxenian at Berkeley nailed this back in 1994.

Rohit:  Absolutely, Victor, culture matters, immensely.  But we are now thick in the middle of a multi-polar world (without any comment on the issue of the endurance of American power), where the norms of “behavior” are changing rapidly, where there is no clear one way of achieving relevance and revenue in the marketplace, where relationships between buyers and sellers, creators and customers is morphing and evolving, that the lessons of the most successful place in history are no longer as relevant, frankly.  To your good point, that morphing, that re-formation, those changes, create a continuous asynchronous, non-linear path, something that creative people have understood well for a long time.  Hollywood, for example, is a state of mind, not necessarily of place, but it is bolstered by relationships, new, old, continuing. And we both agree that this realization has neither come into full flower in economic development, nor in the language of sociologists and economists. Too many people, too many regions, countries and practitioners believe in their own complete solutions, a danger that even those places touched by the accident of magic are guilty of indulging.  Yet, Schumpeter, for one, did have it right, before economics degenerated into a boastful mathematical maze.  To end this turgid and dense point of mine, social behaviors are important, but the norms governing those behaviors are morphing.  That is why we at Larta have developed, and sought to codify, the network centric approach to commercialization and to entrepreneurial assistance.  I liked your book’s endorsement of this approach with the identification of qualities that can and will drive transactional excellence.

What about your take on the great buzzword, “innovation?”  I know you’ve looked at it closely.  It should remind us of the blind men and the elephant. When it is used as widely and loosely as clearly is the case, it’s time for us to come up with a new name!  Any suggestions?

Victor: This is so much fun!  It reminds me of the best college dorm discussions, where good ideas flowed as easily as the bad wine!  Schumpeter was only half right.  Creative destruction is easy: a bankruptcy lawyer could disassemble a company for you in a few weeks.  The hard part is creative reassembly, putting the building blocks of a company in place, person by person.  Yes, vigorous networks are key, but it is also true that the greater the differences between people, the harder it is to forge real working relationships.  Thus, you can put a scientist and a businessperson in the same room, but that is a far cry from getting them to build an enterprise together. If networks are like arteries, then the flow of ideas, talent, and capital in those arteries is the real value. Behaviors that lower the transaction costs of company-building are what open the arteries and accelerate the flow.  Those behaviors are manifested in myriad ways, but there is a core set of basic principles that govern how people throughout history have transformed zero-sum interactions into positive-sum interactions.  The term “innovation,” therefore, is actually a distraction, because it confuses the manifestation with the underlying value of the system.  It is like counting the flowers in a field, when what really matters is the quality of the soil.  Perhaps there’s a better word in that metaphor somewhere.  Let’s call it “earthiness.”  Let’s scrap the word innovation.  Earthiness is what we want.

Rohit:  Another word I like: “earthiness”.  But no matter how many “earthy” people  one finds (and here I am recalling my earthy days in the VW bus careening through Europe with a pipe, guitar and little else!), the issue we at Larta have hit on in all the work we’ve done across the world, with innovators in different cultures, often suffering through stultifying intolerance of risk and of entrepreneurship in general, is that networks are indeed key.   Forging those “real relationships” that you speak about is now more easily done through the operation of those “vigorous networks”.  We have seen the building of a large number of such relationships, and have also seen an increase in transactional and sustainable results.  I’m not convinced that one should or codify a set of rules about human relationships, apart from the obvious and necessary codes one follows in navigating a complex global marketplace.  The norms they are a-changing, and today’s entrepreneur needs to cast a wide net, then constantly check what he  or she has in the catch, and pursue it across multiple geographies.   That said, the quality of the soil is fundamental to the creation of a good crop.  Thereby hangs a cautionary tale for policymakers in the U.S.  We take for granted the richness of our talent while we slam the door to talent from elsewhere that could enrich that soil.  We crow about the richness of our research regimes and by and large do commercialization badly, with a few startling exceptions, because we nickle and dime the activity to death.  Our scientific innovators are secure in the knowledge that they’re the world’s best, but they don’t know what IS going on elsewhere, except to bask in the glory of peer reviewed research.  All this while talent, markets, applications of technology are available in greater numbers across the world than at any time since our ascendancy, and it will make our insularity a noose around our necks. Indeed, we vigorously agree: those behaviors you speak about that cause the flow of ideas, talent, capital, are now key, and will continue to dominate our work for a while to come.

Victor:  The remote corners of the world are indeed less remote today than ever.  You are in Kazakhstan now, of all places!  It seems so quaint now to recall a time when everyone was basically “off the grid.” Now, people say that phrase when they are going on vacation, with the implication that being “on the grid” is the norm.  I remember sitting at one of the only backpacker Internet cafes in London in 1996 when Hotmail went down, and the whole café emptied out because there was really nothing else to do.  Looking back now, that moment marked the silent closing of an era, at the transition point when being “off the grid” went from being the default to the exception.  Today, of course, we measure the passing of our months in gigabytes of wireless data.  (Raise your hand if you check your email before breakfast in the morning!)  Today, the same forces that are connecting remote corners of the planet are the same forces that are lapping on the economic shores of Fortress America.  You are absolutely right: America has no monopoly on smart people, ideas, and money – not even close.  The fortress model will simply not work anymore.  Yet America has been wired since its founding to avoid “entangling alliances”, an isolationist sentiment that still echoes on the Presidential campaign trail today.  The better model for America, I believe, is a modern version of the Netherlands during the Dutch Golden Age.  In a highly interconnected world, when you cannot control markets and resources with military might, the best strategy is to serve as the central hub for flows of information, relationships, and capital.  I know this has been your vision at Larta Institute for years, and the world is finally catching up to you!  This is a testament to your leadership.  It is an exciting time to be alive.  I think our descendants will look back on us with envy to have seen what we have seen.

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