A study of the characteristics of Silicon Valley entrepreneurs was revealing for the US market – and the trends are mirrored here.
How to create an entrepreneurial culture
The federal budget is looming next month and many minds will be pondering, yet again, how government can help build an entrepreneurial culture. No use reinventing the wheel. Instead have a look at a new study of entrepreneurial activity in Silicon Valley.
It studied business creation and productivity growth from 1996 to 2005 and linked it with investment in information and communication technologies to produce a blue print on how to create a highly entrepreneurial culture.
It was a period set apart by swiftly rising stock prices, lucrative stock options, venture capital deals, IPOs, and tight labour markets – conditions that are now being mirrored in Australia.
What a heady time it was. The unemployment rate was falling rapidly, wage and salary earnings were rising, employees were increasingly likely to receive stock options and recruitment bonuses and investing in the sharemarket was delivering outstanding returns.
And then, from 2000, it started to slow down as innovation, creativity and entrepreneurship began to demand a focus on genuine wealth generation rather than riding the sharemarket boom.
However Silicon Valley continued to grow at a faster rate than the rest of the nation after the dot-com boom and bust, because it actively created a positive “habitat” for start-up business activity, attracted highly mobile and educated migrants with an open, tolerant culture that supported risk-taking, innovation and entrepreneurship close to top universities and research institutes looking to the future rather than processing large numbers of graduates.
What were the major magical factors?
First, it is obvious that the acceleration in productivity growth across the nation came from a greater investment in information and communication technologies, stimulating remarkable improvements in production processes in many sectors of the economy.
Second, the open approach to immigration and attraction of skilled labour provided a further enhancement of national productivity across a range of industries.
The study found that successful residents of Silicon Valley are more likely to be immigrants and more highly educated than the rest of the USA, but are less likely to own homes and be permanent residents.
When comparing Silicon Valley with the rest of the US, it was found that immigrants have a 21% higher rate of entrepreneurship than native-born populations and that the rate of entrepreneurship rises with an older population with higher numbers of married couples.
About 39% of the Silicon Valley population had a college or graduate education compared with 25% for the nation as a whole.
An investment in post-secondary education pays dividends in generating new business and in increasing the overall level of entrepreneurship.
The underlying messages from that era provides a glimpse of the future for an Australia with high speed broadband, encouragement of R&D and an increasing recognition that the “Quarry/Farm & Tourism” economy must hastily move up the value chain.
While the sharemarket has continued to ride the back of the Chinese dragon, with the equity market riding on the back of the private investment tiger, there has been little incentive to build the high-tech infrastructure, develop our universities, provide a significant investment in higher education for our domestic students and generate the conditions necessary for a growth of an entrepreneurial culture.
* Click here for a copy of the report written by Dr Robert Fairlie of the University of California Santa Cruz, with funding from the Office of Advocacy, entitled “Entrepreneurship in Silicon Valley during the Boom and Bust”. A two-page research summary can be found here.
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Dr Colin Benjamin is chairman of independent Melbourne think-tank Marshall Place Associates and director general of Life. Be in it International.