Trillicorns and U.S.'s Startup Culture Will Help America Outlive the Average Age of Empires
The recent bull market in stocks has been driven primarily by seven firms: Microsoft, Apple, Amazon, Google, Nvidia, Facebook, and Tesla. What do they have in common? They are “trillicorns,” relatively young companies, founded on disruptive technological innovations and now worth a staggering $10.8 trillion. Their combined valuation, which would rank as the third largest economy in the world, represents the most successful and visible startups from two innovative clusters of the U.S.: Silicon Valley and Seattle, WA.
The rise of these seven companies, along with the thousands of other startups, demonstrate how the U.S. enabled more wealth creation during the past 25 years than at any comparable historical period.
Why is the U.S. such a petri-dish for startups? Why do such startups arise in just a few regions? Can other regions of the world mimic this success? Will this success last?
The reason for the success of Silicon Valley is not merely the domestic presence of universities, infrastructure, or financial networks. Numerous regions of the U.S. and the world are similarly blessed. And in today’s financial system, funds are easily movable around the world. It’s also not merely due to the advantage of social networks. With phone, email, and social media, such networks can cross physical boundaries.
The primary reason for the success of these regions of the U.S. is their unique startup culture. This culture encourages bold risks, embraces failure, and learns from it. Merely slapping the name “Silicon” on a region does little to spur innovation; instead, other regions and countries should take note of what makes the U.S. West such a haven for new successful businesses.
In most parts of the world, failure is shunned. A failed entrepreneur cannot raise funds again. In some cultures, failure results in shame - a failed entrepreneur may not even get another job. Not so in Seattle and Silicon Valley. Here, venture capitalists are willing to bet on smart losers. These venture capitalists made their fortunes on billion-dollar startups. Theirs is the new money that trumps the old money of conservative investors. The new money recognizes the importance of risk and the high probability of failure to learn the path to success. That’s why, in Silicon Valley, failure is a badge of honor.
The legal environment also plays a critical role. Most countries of the world, including most U.S. states, honor non-compete contracts. Such laws forbid employees from joining or starting a firm that competes with their current employer. This law kills innovation and startups. California does not honor non-compete contracts. The result is an explosion of startups as innovators quit incumbents unwilling to embrace their ideas, to launch new startups willing to take a risk. This is the culture of Silicon. The success of Silicon Valley alone has triggered over eightycopycats around the world, many named “Silicon ---” but they have not come close to replicating its culture and success.
A third factor is immigration. The U.S. is a land of immigrants. A large proportion of these immigrants are educated youth coming for higher studies. Others, less fortunate, get their lucky break from the U.S. lottery system of assigning visas. Still others are poor immigrants who cross the border illegally, fleeing hunger, poverty, and crime. Their children become legal if born in the U.S., enriching the nation’s human capital. All these immigrants contribute to the pool of potential risk takers and budding entrepreneurs.
Indeed, research suggests that a huge 55% of billion-dollar startups in the U.S. are founded by immigrants. When one includes co-founders and children of immigrants, that proportion rises to a massive 65%. The collective value of the over 300 immigrant-cofounded U.S. startups is $1.2 trillion. Why are immigrants more likely to launch a startup than work for incumbent firms? They have little to lose. They lack ties, secure jobs, or old money. They’ll take a chance.
Of course, even powerful trillicorns can fail to recognize the next great innovation and fall victim to the “Incumbent’s Curse.” When founder and CEO of Amazon, Jeff Bezos, was once asked about the company’s future, he laughed and replied, “Amazon will die one day.“ Innovation clusters in the U.S. enable a culture of churn in which an incumbent’s missed opportunities can spawn new billion-dollar startups. This culture of creative destruction is the essence of the U.S.’ vibrant economy and why the world trades in dollars. It’s also precisely why the U.S. will further debunk the myth that empires only survive for 250 years.
Youth today yearn for sustainability, diversity, and social justice. They want to serve the little guy, the micro-entrepreneur, not giant corporates. Ironically, trillicorns innovative technologies have helped poor villagers, farmers, fisherfolk, and micro entrepreneurs, all over the world, through better communication, pricing, money transfer, and education. So, the wealth of these trillicorns has come, not at the expense of the little guy. Their wealth has arisen precisely because their radical innovations have transformed the world of the little guy.
Gerard J. Tellis is the Neely Chaired Professor of American Enterprise, Director of the Institute for Outlier Research in Business (iORB), and Founding Director of the Center for Global Innovation, at the USC Marshall School of Business.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.