Monday, June 18, 2012

The dark side of Silicon Valley

Silicon Valley is on a roll right now. The relatively low levels of capital needed to start a software company has meant that start up incubators and small software companies wanting to be the "next big thing" are popping up all over. Bars are crowded, San Francisco is hip and traffic is worse than L.A. All signs of a booming economy and tech infrastructure that has spawned new wealth-generators like Facebook, Zynga, Instagram and now Yammer.

And yet, this is just the face we like to present to the world. Underneath, as in any competitive society, there is a dark side.


Depression:

Ben Horowitz captured the psychological pain of the struggle of being a company founder and leader in his blog post The Struggle last week. He captures perfectly the isolation, the pain, the cold sweat of building a company which, in 99.99% of cases, does not goes smoothly. Being on the emotional roller coaster of building a new company can lead to depression. It can be hard to setp up every day and face your demons and the risk of failure while all around you seem to be succeeding (because no one talks about the failures). We saw this tragically recently in the case of the suicide of Diaspora founder Ilya Zhitomirskiy.

I try to remember that it's "not checkers; this is mutherfuckin' chess" (to quote Ben) and manage my stress with swimming. But even for me, who's lived the entrepreneur's life for 15 years, there are days...


Discrimination:

It's illegal to discriminate on age - employees over 40 are a protected class. But the new generation of companies doesn't seem to know or care. The median age of Google is 31, the median age of Facebook is 26. They are hiring a generation of new employees who know Java but not C++, who can sell ads over the phone, and who cost a great deal less than experienced employees. Contrast that with computer and communications companies like HP and JDSU who need experienced hardware engineers and have median ages of 44 and 47. At FirstRain, we need both experienced and less-experienced employees to build our solution so we have a healthy mix, but even so I am the oldest employee. Yikes.


It's illegal to discriminate on race too - and yet, as Vivek Wadhwa discovered when he reported the dearth of black and latino employees in Silicon Valley, it's a contentious issue and he found himself being dismissed by Techcrunch's Michael Arrington for highlighting the issue. As Vivek says "an elite group of power brokers, exemplified by Arrington, is totally ignorant of the hurdles faced by minority groups". But like the shortage of women, this issue starts in middle school and perpetuates into college with the shortage of graduating engineers. We are so short of good engineers in the Valley now that I don't see race or gender discrimination at the engineer level -- I see a dire shortage of qualified candidates.


Feeding the cash monster:

Companies take cash. They consume cash. Salaries, rent, insurance, computers, bandwidth, data center fees... it's never ending. And once you raise money you are a slave to the cash monster because you have investors who want growth. They want success. And that takes more cash. I watch some of the new young companies raise (too much?) cash, and then spend it on flash offices and parties (see below) and fear for them. Do they know what a down round feels like?

In the social media world, like the dot.com era, the focus is on users and eyeballs, not on profitability, which will work for the very few who ramp fast, get bought and exit. But it takes cash to do that. Consider Yammer which raised $140M to build a Facebook-like service for the enterprise and has purchased by Microsoft for $1.2B. But that's the exception. Most new companies cannot get access to that level of capital and they underestimate the cost of user-acquisition. Unless you are in the in-crowd with a runaway success you'll be feeding the cash monster with VC rounds and sleepless nights until you get profitable.


Excess:

But on the flip side of the cash monster... The dot.com boom brought with it a period of excess that hyped, and ultimately hurt the Valley. Companies celebrated raising money and launching products with wild parties - never mind that they had no idea how to make money. Then for a while the Valley sobered up. Companies got back to work, profitability became fashionable, companies talked about helping non-profits and excess was considered bad taste. Especially as the great recession hit and companies worked hard to preserve their cash.


But now, even though the rest of the world is still struggling, the Euro-zone is in crisis and 8.1% of the US workforce is without work, the excess is back in Silicon Valley. Once again companies are celebrating launches, and recruiting and, as Business Insider reports, there sure are a lot of parties going on.  Are we tone deaf to what's happening to the rest of the world? Is this, again, the result of too much money flowing in?


As Rob Cox wrote in Newsweek, in his analysis of Silicon Valley's undeserved moral exceptionalism - we are not as altruistic as we'd like the world to believe. He makes the case that "though Silicon Valley’s newest billionaires may anoint themselves the saints of American capitalism, they’re beginning to resemble something else entirely: robber barons."  For example, the flagrant disregard for privacy prevalent in the new, free apps is stunning. When I gave my TEDx talk at Gunn High School a few weeks ago I surprised many of the students as I explained how they are now the product - their every move and action is being recorded and sold in a way most of them simply do not understand.


But, in the end, these facets of Silicon Valley are capitalism at work. A lot of people work very hard, a few get very rich. Many make healthy salaries working on fun products and in exciting companies. Most will not get rich, but most will have a fun experience. But as the leaders in Silicon Valley, we need to pay attention to the dark side and not perpetuate it. We need to be aware of the stress the long hours and intense deadlines can create. We need to be circumspect about our good fortune. We need to hire the best and the brightest, no matter their age, gender or race.


And on the good days, like today, bring in ice cream for everyone!

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