- I'm from Ecuador, and my professional career happened in Silicon Valley. Nothing would make me happier than seeing Ecuador prosper with technology. Here are some suggestions.
I am originally from Ecuador, and my professional career happened in Silicon Valley. Nothing would make me happier than seeing Ecuador prosper with technology.
This article breaks down the key factors that sustain Silicon Valley’s culture. It also goes into detail about the successes and failures at Ecuador’s Yachay Tech University. In a Silicon Valley kind of way, I focus on what works and suggest a scalable model.
Understanding Silicon Valley
Silicon Valley was built upon a Gold Rush mentality, and software innovation is the new gold. According to Pitchbook, in 2005, 34% of VC in the United States went to firms in Silicon Valley. By 2014, that figure jumped to 44%. Silicon Valley currently has $4,433 per capita in VC, outstripping the nation’s $206 per capita 21-to-1.
Unlike the California Goldrush of 1849, anyone has a chance to develop software nowadays. The riches are not limited to geographical location. This opportunity ignites people’s imagination from all over the world.
Engineers don’t have to move to Silicon Valley to make a fortune anymore. Chile, Brazil, Argentina, Colombia, Canada, Germany, and a long list of countries are actively trying to clone Silicon Valley. The same is happening in cities throughout the United States, such as Los Angeles, New York, Miami, Chicago, etc.
Foster An Implicit Permission to Innovate
Silicon Valley continues to fascinate entrepreneurs and governments from around the world; however, it remains difficult for many regions to create a similar environment to Silicon Valley. Early attempts at replicating Silicon Valley focused on UI rather than backend.
The key is to foster a culture in which failure is celebrated and entrepreneurs don’t need permission to innovate.
Marc Andreesen, the co-founder of Netscape and Andreesen-Horowitz argues the value of Silicon Valley depends mostly on its culture and how it supports innovation.
“…the freedom to create new technologies without having to ask the powers that be for their blessing. Entrepreneurs can take advantage of the difference between opportunities in different regions, where innovation in a particular domain of interest may be restricted in one region, allowed and encouraged in another, or completely legal in still another. For example, the laws and guidelines for using drones or taxing bitcoin already vary widely across the globe, just as they do for ride-sharing services across different cities in the U.S.”Marc Andreesen
Liberal regulations in the United States reduce the hurdles of starting a company. As a result, Silicon Valley is enabled to spread its influences across the world. Thus, making its way to Ecuador as well.
Analyzing Yachay Tech University
Just how did replicating Silicon Valley fair in Yachay, Ecuador? The plan certainly looked promising on the surface. “In 2013, Ecuador’s former president, Rafael Correa, launched the institution [a university] in part of a bid to transform the nation’s economy from one reliant on exports of oil and other commodities to one that generates its own innovations.”
This is Ecuador’s attempt to leapfrog into the next economic frontier. The government began erecting a sprawling campus in Yachay, coined the “City of Knowledge.” At its launch, Correa boldly predicted that Yachay Tech University would become Latin America’s Silicon Valley.”
Fast forward four years to today, we can see that economic and political pressures unraveled Correa’s dream of a technological frontier. In other words, Ecuador’s plans to replicate Silicon Valley lacked a foundation.
Considering that innovation is a mindset, it’s important to know that building an environment that supports innovation extends beyond university learnings.
Ecuador’s struggling economy and plummeting oil prices led to a shift in national priorities in the ongoing years. An austerity plan was initiated, cutting $2 million in university expenses. Similarly, surrounding public companies capped employment opportunities for the students. Leading scientists who were previously hired were quickly let go and/or poached by neighboring universities.
Innovation in Silicon Valley is largely due to the area’s culture and governmental support. In order for this to work in any location, there needs to be a cultural shift and government approval to incentivize, not punish new businesses. The opportunity for Ecuador is reliant on deregulation and specialization of resources available within the country.
Lessons for Emerging Markets
How can other emerging countries make the Silicon Valley vision a reality? Start by systematically considering and creating the area’s regulatory, competitive advantage.
Here are some suggestions that can help make this happen:
Get the Infrastructure Right
Hector Rodriguez, the current General Manager of Yachay Tech University, understands that a new city should include a robust university with comfortable amenities such as stores, health clinics, schools, child care centers, transportation and other basic infrastructure that will attract and foster a vibrant community.
Though the vision is lofty, it is sound and comparable to other ideas set forth by folks like Peter Thiel and the Island Nation project he supports.
Foster Culture, Celebrate Failure
Yachay is located two hours from Quito, the capital of Ecuador. The best parallel is Palo Alto which is located in between two major US cities: San Jose and San Francisco. This small city, Palo Alto, CA, became the capital of the world for startups. So shouldn’t Yachay fair just as well? Not in the slightest. Yachay’s disadvantage is twofold. First, its culture became homogeneous rather quickly given immigration limitations.
And second, support for disruptive technologies and business plans was absent. If you have a mix of people with diverse backgrounds and experiences, it helps to build a creative culture.
According to Vivek Wadhwa in an article titled “Why Silicon Valley Can’t Be Copied” explains the success of Silicon Valley and attributes it to culture malleability.
“The reasons were, at their root, cultural. It was Silicon Valley’s high rates of job-hopping and company formation, its professional networks and easy information exchange, that lent the advantage. Valley firms understood that collaborating and competing at the same time led to success—an idea even reflected in California’s unusual rule barring non-compete agreements. The ecosystem supported experimentation, risk-taking, and sharing the lessons of success and failure. In other words, Silicon Valley was an open system—a giant, real-world social network that existed long before Facebook.”
Liberal Regulation Fosters Innovation
Here’s a side by side comparison of what works in Silicon Valley when starting a company. The second column contains suggestions to move things forward.
|Silicon Valley Policy and Culture||Current Ecuadorian Policy and Culture|
|Starting a company takes a few minutes, and it can be done online for a minimal fee.||Starting a company can take many weeks to months, after following many complicated steps. Many fees and taxes are required, and you have to prove a dollar value of the company before it has even been formed. You must have money in the bank to show you can support the company.|
|Hiring people is easy. There’s no red tape or any strict regulation. If you pay your taxes, you are in good standing, and the government will not interfere.||There are many governmental protections for workers, making it difficult to have a trial period for employees and making it difficult to fire employees. Firing employees can be cost-prohibitive for a small company. Long-term contractors are prohibited and must become employees of the company.|
|Investors and companies understand that traction trumps profits in the short term. Highly valued companies such as Google, Facebook, Pinterest, Twitter reported losses and took many years to figure out how they would be profitable. (Some companies are still figuring it out.)||The government shuts down companies that report losses for more than 5 years.|
|Business processes such as hiring, paying taxes, accounting, and banking are highly efficient and can be automated to a large extent.||Many transactions happen in person instead of online. The entrepreneur is often concerned about obscure regulations that can shut down the business from one day to the next.|
|Credit is easily accessible||Interest rates are high, and it can be tough to obtain loans. There are even many obstacles in simply opening up a savings account.|
|Equipment is readily available and fixable, and anyone can get computers and software quickly and efficiently. For example, if I am starting a software company, I don’t have to worry about my laptop failing and having to wait months to get a new one or pay a government-driven protectionist tax on foreign goods.||If computer equipment fails, people often must wait months to get replacements, before which they must pay high tariffs or government-driven protectionist taxes on foreign goods. The latest technology is not readily available.|
|Unless you are completely careless, the government will not shut down your business. The IRS wants the income from your business and does not want to shut you down.||In South America, government officials are keen on “catching” non-compliant businesses and then shutting them down.|
|The entrepreneurial culture of the Valley gives entrepreneurs a ready-to-go support network where people help each other while at the same time competing against each other.||Entrepreneurism is lonely and isolating, and there is no vibrant community of support.|