Failure is key to Silicon Valley's success

A street sign reading 'Silicon Valley' A magnet for business creators in the California sunshine

I keep coming back to Silicon Valley, California.

No matter how many other places in many other parts of the world seek to emulate its success in spawning ideas and businesses, there really is nowhere else quite like it: not for balmy climate, not for energy, not for the confluence of really bright people, money, advice, marketing nous and successes that everybody knows about, off by heart.

There's also nowhere like it for failures, but I'll come to them in a minute.

So for a reporter on the hunt for stories that illuminate the creative drive behind entrepreneurs who build businesses, the Valley is still unsurpassed, though many other global hubs are catching up fast.

I was there the other month on a simple errand: to find a few good start-ups and let the people who created them tell their stories.

Lessons from PayPal

Max Levchin talks about the invention of what became the Internet payments system PayPal, sold for $1.5bn to the auction site eBay in 2002.

Max Levchin emigrated with his parents from Ukraine in 1991. Immigrants supply much of the creative energy in places such as Silicon Valley, many of them Indians and Chinese. They are hungry, clever, and determined to leave behind their limited prospects at home and start news lives in a new country.

Max studied at the University of Illinois in Urbana-Champaign. Fellow students were even then inventing the first web browser software Mosaic (which later became Netscape). Inspiration was in the air on the beautiful campus of Urbana-Champaign. Max Levchin started several businesses, but failure drove him west to Silicon Valley.

Fleeing his sweltering rented apartment without air conditioning, Max Levchin sheltered from the heat by attending public lectures at nearby Stanford University. At one of them he met by accident his future business partner and fender, the serial investor Peter Thiel.

Max wanted to create a new world currency. Thiel backed him. In a place so buzzing with ideas and ambitions, companies are created by happenstance.

What became PayPal burned money. It was originally designed for mobile phone or PDA transactions. The business almost turned its back on the idea it could be used on the internet.


A very insistent outsider changed PayPal's mind. Businesses evolve not out of a single vision, but by iterating over and over again: particularly by being shaped and responding to the way customers use their goods or services.

Security became a prime concern, as internet criminals turned their attention to cracking the PayPal system. The original intention of a business is often subverted and defined by knock-on consequences which determine the long term viability of the original idea.

PayPal was a corporate business movement, not just a company. After the sale to eBay, the now wealthy members of the "PayPal mafia" charged off in all directions round the Valley, starting billions of dollars worth of new businesses.

Another PayPal founder, Elon Musk, not only runs the Tesla electric car company but is making cheap and maybe revolutionary space rockets at his SpaceX company in Los Angeles.

Serial entrepreneurs

There are many others. For many entrepreneurs once is not enough. The thrill of the chase has impelled Max Levchin into founding another influential social network business called Slide. Entrepreneurial successes create their own potent networks.

Trainers and shopping bags Nick Swinmurn spotted a gap in the market while shopping for shoes

There are more start up lessons in this series, such as from Nick Swinmurn who founded the huge online shoe store that became, because he couldn't find the shoes he wanted in the shops he was looking in one day back in 1998.

Already wealthy, Nick Swinmurn left Zappos before it was sold last year to no less an Internet retailer than for $1.2bn.

And after years of starting high technology software and hardware companies in the Valley, Kevin Surace has now followed the lure of green tech and moved back into the physical, touchable world, with his start up Serious Materials.

He explains how he is trying to revolutionise the huge but conservative construction industry with new windows and walls.

Serious Materials has just started on a contract to replace all the windows in the Empire State Building one by one, overnight, and give the owners energy cost savings worth (it is said) millions of dollars a year.

After all this head turning success, let me add an observation vital to the understanding of why Silicon Valley remains so powerful a place, even as all round it the state of California is hard hit by the credit crunch recession and close to bankruptcy.

On failure

My friend Paul Saffo is a celebrated futurologist who has been watching and participating in the Valley for decades now. He says: "The absolute secret to Silicon Valley success is failure. This place reinvents itself because we know how to fail in the right way.

Paul Saffo on why Silicon Valley is such an attractive environment for entrepreneurs

"Silicon Valley was not built on the spires of earlier successes but on the rubble of earlier failures…the companies that grew large and then collapsed in a spectacular way and then a bunch of little start ups colonised their old offices.

"You see this again and again and again in the Valley. This place works because we know how to fail."

Another (big) lesson: They know how to fail.

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