I’m moving to Baltimore in less than a week. There’ll be a lot to say about that in the future, and on the whole, I’m pretty excited about the move. Right now, Baltimore’s not known as a technology hub. Relative to the Valley, New York, and Austin, it’s not even on the map (yet). I think that is likely to change. I’m not going to call Baltimore a hands-down sure winner– it isn’t– but it’s a strong bet for the medium term (~10 years). I’ll get to why, in a little bit.
For my part, I don’t think any city is actually going to become “the next Silicon Valley” because I don’t think, in the near future, we’ll see that lopsided a distribution of high-talent activity. Up-and-coming cities like Austin, Boulder and Baltimore will grow, but no city will enjoy the utter dominance that Silicon Valley once had (and still has, to a lesser degree) in technology. The only people who win when it’s like that, really, are the landlords. The future, I think, is much more likely to be location-agnostic and better spread about. In 2009, “number-8 startup hub” was functionally equivalent to “in the sticks” because there were only three to five such places (in the U.S.) worth mention. I’d bet on that changing; I think the distribution of high-talent activity will be much more even in the next 15 years. I’m not going to prognosticate on the winner because I think there will be several. Austin is pretty much a sure bet; Philly and Baltimore have good odds, and the old contenders (e.g. Seattle, Boston) will still be strong. San Francisco will be formidable and probably a leader for a decade, although the rest of the Valley doesn’t have much going for it among the younger generation.
Before I talk about why I’m bullish on Baltimore of all places, let me first get into what built Silicon Valley. It’s fairly well-established that the defense industry played a role and, as the folk legend goes, all of that government money fueled a few decades of innovation. That’s sort-of true. However, money isn’t some magic powder that one can sprinkle on peoples’ heads and make innovation happen. It’s the autonomy that comes with the money that leads to innovation. When smart people call the shots over their own work, they get things done that move the world forward at fifty times the rate, with a thousand times the quality, as they would if they were traditionally managed.
Not all of the innovation in Silicon Valley came from defense contractors. In fact, I’d argue that much of it didn’t come directly from that industry at all. Those cushy, well-paid basic research jobs in the public sector certainly contributed some of the Valley’s innovations, but far from all of it. An equally large contribution came from private players in competition (on worker autonomy) with those cushy public jobs. When the average technically-literate college graduate could grab what would now be (adjusted for inflation and localized housing costs) a six-figure job that had total job security and full autonomy over his work, private companies also had to step up their game and create high-autonomy jobs on their end. A company that was private and therefore personally riskier had to make the work interesting and creative. (Capitalism, though it can excel in this regard, isn’t innately innovative. It needs to have the right conditions, and a refusal of top-talent to work on bland rent-seeking activity– because it has better options– is one such condition.) Hewlett-Packard, in its heyday, was a primary example of a good private-sector citizen. When business when bad, instead of laying people off, pay was cut across the board but compensated with proportional time off. What’s now a cargo cult of foosball tables and “unlimited” vacation (meaning, no year-end reimbursement for unused days while your boss decides your vacation allotment) was originally born in a time when companies had to compete, on interesting work and autonomy and working culture, with an extremely generous ecosystem comprised of the public sector and government contractors.
This arms race doesn’t really exist in Silicon Valley anymore, and that might be why, culturally, that ecosystem is losing wind. Startups compete with each other a bit, but that competition is only meaningful over the small percentage of engineers (and a larger percentage of product executives) who come out on top of the celebrity culture that exists there. For the underclass, who don’t know any top-tier venture capitalists and haven’t completed an exit, they take what they’re given, and they don’t have any more autonomy than they would at a company like Microsoft or IBM. Sure, it’s a little bit pricey to hire a talented engineer– at 15 years of experience, she’s probably making $175,000 per year– but that has more to do with the local cost-of-living than anything else, and that’s not a large sum of money for a corporate to spend on someone whose productive capability is worth 10 to 25 times that. It’s expensive to hire her, relatively speaking, but not competitive. If she doesn’t want the job, someone else will take it.
So, in sum, what is it that built Silicon Valley and is no longer there? Cheap real estate was a big part of that, in large part for the freedom and sense of ownership that exists in a place where normal people can buy land (as they once could, in Northern California). But the much bigger factor was an economy that forced technology companies to compete on worker autonomy, career coherency, and interesting work with a public-funded sphere that, while bureaucratic issues existed and much of the work couldn’t be shared with the public, gave technologists lifelong job security, opportunities for basic research, and extremely high levels of autonomy by private-sector standards. The result of this competition was that startups with shitty ideas never got off the ground (would that were true now!) because no technically capable person would work at one. The west coast didn’t have all the technology companies, of course; but this competition on worker autonomy and interesting projects forced it to produce the best ones.
The VC-funded startup world is trying to replicate this former decades-long period of success. It will fail. Why? Well, it brings one ingredient, which is money. It has lots of that. It doesn’t deliver on engineer autonomy, though. Venture capitalists can’t judge technical talent at the high end– people who can reliably judge talent at that level are even rarer than the small set of people who have it– so they give money based on social network effects and “track record”, which ultimately means that the people who get funded are those who are good at raising money. Some of those people are highly intelligent, but they’re rarely creators or innovators, and the latter tend to lose when they have to compete on social polish with salesmen. When the money’s granted, it happens is a top-down way with founders ending up with astronomically more power than the people working with them. The result of this is the generation of scads of non-technical companies that happen to be involved in technology. It creates something bland and unsatisfying, just like the VC-funded ecosystem of today.
One way to think about this is to look at foreign aid to impoverished countries. If it’s given in a raw cash form, it often fails to achieve humanitarian progress, because the corrupt government captures all of it. The few are enriched, while the many (who need the aid) don’t get it. It might be used to buy guns instead of butter. Distribution is a real problem. Now, look at the VC-funded world. It shows the same unhealthy pattern: give lots of money but distribute it poorly, and the wrong people get it and almost none of it’s used for the intended aim. There’s a lot of money being thrown at Northern California, but it’s being distributed in a way that is actually harmful to innovation: it enriches people with an orthogonal if not negatively correlated (to the ability to innovate) skill set, it drives up costs of living, and it creates a fleet of businesses that look innovative but are actually, because of the existential pressures on them, even stingier when it comes to matters of employee autonomy and interesting work/experimentation than the supposedly stodgy corporations of the old system.
Of course, I am not saying that money is unimportant or that venture capital funds have to be harmful. Both are far from the truth. It’s only that the money is beneficial only when it provides the autonomy that begets innovation. This Hollywood-for-ugly-people business model doesn’t have that effect. Those dollars, when they end up in housing prices (entropic waste heat) actually end up doing a lot of damage.
Now it’s time to talk about why I think Baltimore is a strong bet for 10-15 years into the future. Don’t get me wrong: it’s probably not even a top-20 technology hub right now. As a whole, the city has some serious issues, but the nice parts are safe and affordable and the place has the “smart city” feel of a place like Boston, Seattle, or Minneapolis, which means that there’s seriously strong potential there. That’s far from enough to justify calling a winner right now, because if you’ve traveled enough (and I’ve done multiple cross-country road trips) you realize that smart people are everywhere and there are probably two dozen cities with “serious potential”. There’s more to it. Baltimore has something that venture capitalists, to be frank, don’t much like; but that’s actually good for everyone. Investors who know the city agree that it has a lot of engineering talent, but that a large proportion of it is tied up in “cushy” government and contractor jobs, and the fear is the typical VC-funded startup will struggle to compete. Those companies will be paying a little more, if they paid Bay Area/New York salaries, than the government think tanks, but not enough (for most people) to justify the sacrifices in terms of job security, interesting work, career coherency, and overall autonomy.
When you’re building a typical VC startup– a get-giant-tomorrow-or-get-lost red-ocean gambit that needs to execute fast– you’d rather compete on salary with Google (an operational cost) than compete on employee autonomy with well-heeled government agencies (which has greater effects on how the business is run). If you really have to grow 30% per month to survive, then you need ”take-charge, strong leadership” (i.e. a top-down autocratic culture). You won’t have long-term creative health, but you’re not even thinking about the long run at that point, because you’re fighting for short-term survival. When you’re at that extreme (very-high risk, very-high growth) you need the vicious but undeniable efficiency of a follow-or-leave dictatorship. Those are the companies that VCs know how to evaluate, fund, and run: get-big-or-die gambits that grow into corporate megaliths, scare existing corporate megaliths enough to get bought at a panic price, or (as most do) fall to pieces, all inside of five years. Competing with Google or Microsoft on salary brings a predictable, manageable cost; competing with a government-funded think-tank on employee autonomy rules out the get-big-or-die business strategies that involve chronic crunch time and mandate autocracy.
On the other hand, competing with “cushy” government jobs in this way is not an issue for the mid-risk / mid-growth space sometimes derided as “lifestyle businesses”– in fact, to compete on autonomy and interesting work and that was the style of thinking (before the emergence of the VC-powered mess) that built the first Silicon Valley, back in the day when it was something to admire, not crack jokes about.
All of this is far from saying that Baltimore is guaranteed to become a technology startup hub in the next 10 years. There are far too many variables in play to make that call as of now. It has a certain poorly-understood but historically potent local advantage, for sure, and I think it’s a decent bet for that and other reasons.