06:24 AM

EAST MEETS WEST - 5 Observations on Silicon Valley from an MIT Sloan Perspective

By Rob Lemos and Erdin Beshimov

Last week, a class of 90 MIT MBA students traveled to Silicon Valley as part of the annual MIT Sloan Entrepreneurship & Innovation Class Trek. Our purpose was to cast a deeper glance at the entrepreneurial ecosystem on the West Coast by engaging entrepreneurs and venture capitalists in the Valley. We met with successful companies such as Genentech and LinkedIn, hot startups such as Aardvark and Yammer, and premier VCs from Sequoia, Kleiner Perkins, Accel, and more.

As co-founders of the MIT Entrepreneurship Review (think Harvard Law Review but from and for MIT; set to launch in February-March), we were keenly interested in entrepreneurial and industry trends, local investment perspective, and the Silicon Valley culture.

Here are our top 5 observations:

5) Be wary of hardware.

VCs in the West are big on capital efficient start-ups. The mentality that start-ups should stay agile and respond quickly to the market, a carryover from the days of the Internet bubble, continues to permeate the atmosphere. Interestingly, we found, at least anecdotally, that cleantech start-ups don't seem to be as hot in the West as here in the East - a) they typically require large infusions of initial investment and b) returns usually take several years. Hardware bets certainly can be very successful, but the feeling in the Valley is that it's important to choose wisely.

In a similar vein, consumer web is generally more preferable to enterprise software. Typically, consumer web startups are able to launch quickly and learn, iterate, and adapt based on user feedback, which is more difficult to do with enterprise software applications. As founder and CEO of Aardvark, Max Ventilla, aptly pointed out, the only real risk in consumer web is product fit.

4) The pathway to success is paved with failure.

Fail often but fail quickly - this is, perhaps, the most reiterated message from the Valley. It appears as though trial-and-error is an evolutionary process in the West where failures are seen as creating opportunities for better innovations to take root. Failure is encouraged and rarely punished. The spirit of the American West! And it's not that this message isn't well known, most of us have heard it multiple times before. It's that hearing this message live being continuously stressed by some very successful people brought it to life that much more.

At the same time, we heard from Doug Leone, Sequoia Capital partner and MIT Sloan alum, that successes and failures should be balanced. If you haven't failed, you haven't tried; but if you've only failed, you don't know how to do things right.

3) Social Media will reshape the world.

It's not just that the icons of Web2.0 such as Facebook and Twitter are all based in Silicon Valley, but that startups out West are responding quicker than anyone to the burgeoning business ecosystem around Facebook and Twitter. There was a big surprise in store for those students who visited Zynga, a rapidly growing (an understatement) social gaming startup, and expected to see a small, plucky, garage-based outfit. We found instead a huge (yet superbly funky) office and seven hundred employees - while the company was founded only two years ago! Absolutely impressive.

2) The people make the culture.

Silicon Valley has a culture characterized as fast-moving, encouraging of failure, and wary of prolonged investments. Add to that list a spirit of experimentation that is rampant and reinforced by the individuals who embody it. The environment is flat and welcoming; a nice change from the entrenched and often bureaucratic culture in the East. It was amazing that on our trip we were able to schedule meetings with some very busy and accomplished people at just a couple of days' notice. This is much less likely to happen in Boston.

1) Pivot.

Entrepreneurs cannot predict how their businesses are going to go. Business plans are only worth as much as the paper they are written upon. Therefore, an entrepreneur has to pivot upon his/her business plan according to the customer. Be careful not to let your customer rule the roost, but pay special attention to what the customer wants.

After our trip, the top question we are left wondering is this:

Is Silicon Valley going to host the next decade of Malcolm Gladwell's "outliers"? If not, where will they come from...?

At the MIT Entrepreneurship Review, we hope to continuously explore this question and many more by examining the interplay between science, technology, and entrepreneurship. If you want to be on the cutting-edge of thought-leadership in entrepreneurship, follow us on Twitter @MITEReview for updates and news about our upcoming launch.

Rob Lemos and Erdin Beshimov are MIT Sloan MBA students Class of 2011. To see the MIT Entrepreneurship Review's "About Us" video, go to http://entrepreneurship.mit.edu/MITER.