There is a tech bubble, but it’s not what you think

By Chris Nicholson, Guest Contributor , written on January 20, 2014

From The News Desk

The real bubble is one we collectively inhabit. Call it a Silicon Valley state of mind, a bubble of insularity, more the result of groupthink than excessive valuations. Tech is not so much an industry as a culture, one intent on itself, separate from mainstream America. The Bureau of Labor Statistics calls the Valley a "symbiotic cluster," which is probably less fun than it sounds.

Differences between insiders and outsiders lead to persistent, mutual misunderstanding that have made a lot of headlines. Let’s talk about where those differences come from.

Risk tolerance

Twenty years ago, Analee Saxenian, a dean at Berkeley now, showed that Silicon Valley won out over other historical tech centers, like Boston's Route 128, because of its risk appetite and commercial culture. More generally, we know business owners think about risk in fundamentally different ways than employees -- sometimes they don't even think of risk as risk at all -- and up to a point they are rewarded for that.

In Silicon Valley, entrepreneurs, investors, and hackers take larger risks than anywhere but the trading desks of Wall Street. Most of them fail most of the time. Precisely because the odds are stacked against success, bankruptcy is not vilified. There are many ways to fail well, carry on, and fail better. In many other places, failure is seen as, well, failure. And those who fail are marked for life. But here, going bankrupt is a rite of passage. Think of Silicon Valley as as a sort of years long brainstorming session. Just like with brainstorming, you have to have a lot of bad ideas to get to the good ones.

When it's not okay to fail, people choose nine-to-five shifts, climbing a slow career ladder at a large firm over decades. In the best-case scenario, they're opting for security and prestige rather something bigger.

The first group of people has made a leap of faith, the second has not, and any ensuing discussion exposes a quasi-religious divide.


Now doesn’t last very long in San Francisco.

More happens at startups in a couple months than would happen at a corporation in years. Launches, pivots, hiring, churn, fundraising, outgrowing the office, outgrowing the office again.

In business, as in biology, time is linked to size. A second seems like forever to a fly, because its eyes are sending more signals per second to its brain than human eyes do. Startups are like flies; they have a faster commercial metabolism. During a single corporate sales cycle of several months, an entire subgenre of startups will have lived, mated, and died. Which means they can’t wait. They’re already moving on. (For instance, who talks about social gaming anymore?)

How many other industries have a website like ProductHunt highlighting the 10 hot products launched today? Nick O'Neill of StartupStats estimates that about 1,000 new products, features, hacks, and toys come out every 24 hours. They're not all good, or even plausible, but if we assume conservatively that only 100, or just 10, are decent, that's a whole lotta shakin' going on.

Meanwhile, places like Grand Forks, North Dakota, get excited about a new Olive Garden. There's nothing wrong with that, but it should give us pause.


If you work in finance, New York, London, or Hong Kong would all do the trick, and there are many secondary capitals. If you work in healthcare, take your pick of cities. But everyone knows the capital of tech, and everyone makes their pilgrimage to Sand Hill Road eventually. The VCs are here, and so are the coders. The Bay exerts an inevitable gravity.

While America has many vibrant tech communities, its most important axis stretches from San Francisco’s South of Market neighborhood down a narrow peninsula through Menlo Park, Palo Alto, Mountain View, and Cupertino to Santa Clara County. That gives the industry the feel of a small town, and in small towns, everything gets back to you.

That geographic concentration means that most of tech does not feel the rest of America's pain, simply because tech does not see it much. The polar vortex was a good example what the country lived and we missed.

It cuts both ways. After the tech bubble burst in 2001, Silicon Valley lost about a quarter of its high-tech jobs over three years, and hadn't recovered by the time the financial crisis hit in 2008. All that dot-com suffering barely hit the rest of America, which only really crashed with Lehman.


Conservatives worry that Spanish will take over America. They shouldn’t. The language of the future is code.

There are about 1.5 million software developers and programmers in this country (about one half of one percent of the population), and they are disproportionately represented in five counties around the Bay. In Santa Clara County in 2011, almost 29 percent of all jobs were in tech.

You meet people here, no kidding, who start sentences with “else,” which is the coder equivalent of “or.” No matter what flavor of code you learn, it’s all a mix of math and English, and like any other language, it shapes how you think. The thought paths of code are Boolean.

In the Middle Ages, monasteries were islands of scholarship in a sea of illiteracy. The monks lived off a parallel economy of alms and tithing, in a rarified space apart from the worldly concerns of feudalism, thinking in dead languages no one else could read. Tech is kind of like that. A parallel economy, a rarified space, a culture lost in translation.

Linguistic divides imply class distinctions. If you can program, you’re almost guaranteed work somewhere. There’s a revolving door among tech companies that makes everyone your once and future co-worker. It’s a kind of job security most people can only dream of (see Money).

Knowing a computer language is essentially putting yourself in the machines’ camp and hoping you will share in the victory of the robot army. Tyler Cowan painted a picture of our future divided by code in his recent book, "Average Is Over." Since the tech industry reached its nadir in 2004, high-tech jobs have grown three times as fast as the rest of the private sector. Who owns the future?


If you look at California from above, mapping unemployment, you'll see that Marin, San Francisco and San Mateo counties are two or three shades lighter than the rest of the state, which has one of the highest jobless rates in America.

As of November, the most recent period reported by the Bureau of Labor Statistics, those three tech-dependent counties had unemployment rates of 4.6, 5.2 and 5.0 percent, respectively: almost half that of the hardest-hit California regions.

Capital is not the scarce resource here (in 2013, about $30 billion was invested in startups by VCs): Talent and execution are. In Silicon Valley, most seed investors are just a couple phone calls away from handing you $500,000 -- they just have to be good phone calls.

A lot of that money goes to hiring and keeping people. The average software engineer earns at least six figures, according to data from the tech recruiter Dice, and that's not counting equity. Compare that to the $66,000 average annual salary in the Bay last year, and America's mean annual salary of less than $50,000. Imagine the effect that has on expectations here.

All this has lead to a feeling of economic exceptionalism, which almost always creates a sense of entitlement. The new tech money doesn't know how long it will last, so it wants more: Tech moguls roll their windfalls back into tech or invest in friends’ projects (meanwhile, the major charities of San Francisco survive off handouts from money so old it was made off of railroads).

People solve the problems they see everyday. Even with the million amazing projects getting invented in San Francisco, the tech bubble encourages a monoculture in what tech produces -- apps that help create more apps -- and how it thinks.

Monocultures are not just fragile and uninteresting; they’re inefficient. The biggest opportunities are out there beyond the Valley.

Many young founders' time would be better spent in a bar in Waco or doing counter intel in an old, hidebound industry than getting resume wins in San Francisco. By the same token, mainstream America needs to understand what’s happening here, because tech is where the action is, and where it will be for a long time to come.

Image via Wikimedia.