Silicon Valley Nearing the Breaking Point

European Straits #117

Nicolas Colin

Dear all,

I’m on my way to France, where I’ll spend a few days before heading back to London. Obviously there everybody’s mind is on the fire at Notre-Dame. Reading the headlines, you can sense that the disaster triggered a national trauma, which was only reinforced by the emotion expressed worldwide.

As for me, I’m not sure I ever went inside Notre-Dame. I might have a long time ago, as a child, with my father. But for many Parisians (as I once was for about 10 years), Notre-Dame is more of a pleasant, distant sight: a place you avoid because of the many tourists but that you gaze at with great pleasure whenever you have the opportunity to do so.

It’s also a place that resonates a lot with history. It’s by Notre-Dame that the masters of the Knights Templar were burnt alive on the order of King Philippe Le Bel in 1314—just a few decades after the cathedral was completed. Notre-Dame then became a national myth thanks to Victor Hugo’s The Hunchback of Notre-Dame (also an animated picture by Disney). Then the high-wire artist Philippe Petit made headlines as he made the walk between the towers of the cathedral in 1971 (an episode that I discovered through this beautiful song by my late idol Jacques Higelin—then I read Petit’s book).

Finally, it’s all about the geography. Notre-Dame is literally the center of the city of Paris: it’s for the French capital what Westminster Abbey is for London, the Capitol for Washington, DC.

You can see some impressive pictures of the fire in Vox: The devastating Notre Dame Cathedral fire, in 19 photos. (And do remember that Notre-Dame already went through a major reconstruction process in the 19th century, overseen by the architect Eugène Viollet-le-Duc: neither the spire, which burnt and collapsed two days ago, nor the legendary gargoyles and chimeras existed before that date.)

Is Silicon Valley losing it?

The San Francisco Bay Area, where I just spent 12 days, is still a magnet for entrepreneurs and engineers from all around the world. Lots of people try to figure out how to move there, either to start their own business or to join a growing startup. Everyone knows that life there is much more expensive than pretty much anywhere else. But they expect for that high initial investment—of moving to the Bay Area—will generate much better returns than those they could have anywhere else in the US or elsewhere. Indeed Silicon Valley is still a beacon in the global startup world.

Nonetheless, it’s clear that something is off. If the cost of living in the Bay Area continues to grow, it’s because the influx of new arrivals isn’t being met by the construction of additional housing. Flaws in the Californian tax system (dating back to the infamous 1978 Proposition 13) and the complexity of zoning regulations allow those who are already property owners to block any new construction projects. This backward-looking tendency, referred to as “NIMBY” (“Not in my backyard”), consistently wins out over any attempts to unclog local real estate markets. Some representatives, such as State Senator Scott Wiener are trying to turn the tables, but those efforts have not yet proven successful.

The consequences on the local economy are terrible. It has become impossible to attract proximity service workers in fields such as education, health, cleaning, and hospitality—to the point where one startup, Landed, is developing a new approach to make the housing market more affordable for those professionals who are critical to life and development in a given area.

Even young tech employees aren’t able to access affordable housing anymore. Potential recruits are more and more reluctant to move to the Bay Area, where purchasing a home (a foundational part of the American Dream) has become impossible. Today they’re more likely to consider job offers in other growing tech areas like Seattle, New York, or Austin, where housing is more affordable.

Faced with a slowing pool of new arrivals, current residents are starting to ask themselves some questions as well, because housing isn’t the only problem. Even those who own their own home in San Francisco, Palo Alto, Menlo Park, or Cupertino are facing a downturn in their quality of life. The system has become so stretched that schools and medical facilities have all seen their prices explode. In the absence of a proper transit system, roads are more congested than ever before, turning commutes into multi-hour daily challenges for those who aren’t lucky enough to live right next to the office.

The recent federal tax reform, adopted in December 2017, was another giant blow. The taxes owed to the state of California are no longer able to be deducted from federal tax returns. The pressure on household finances has shot up, a major problem even for those at the top of the income ladder.

And so we’re now starting to see a reversal of momentum. Young people are deciding not to come. Older people are deciding that it’s time to leave. Early-stage startups are organizing themselves in a more distributed manner, avoiding the need to recruit entire teams in and around San Francisco. Large tech companies are starting to make compromises: opening offices in different cities, letting their employees move to zones that are under less pressure, being more flexible on remote work, and using more and more freelancers rather than full-time employees.

Silicon Valley is thus opening the path toward a radical change in how work is organized. Between business messaging solutions like Slack and Workplace by Facebook, collaborative platforms like Dropbox and Google Drive, virtual meeting technology like Zoom and Cisco TelePresence, and platforms for managing different contractual relationships and management-at-a-distance like Upwork (whose CEO, Stephane Kasriel, I recently met), it’s now possible to manage teams in a less centralized manner. The main obstacle in this movement isn’t technological, but rather cultural. Many companies, notably older ones, are still reluctant to give up the in-person unity of the workplace. But the shift to the new paradigm is simply a matter of time.

For Europe, this is an opportunity waiting to be seized. The centralizing model of Silicon Valley is fading away quickly. And if tech companies adopt a more distributed way of managing economic activity and human resources, then Europe has a strong hand to play. Has Europe not long suffered for the fragmentation that marks its economic landscape? Now in a world where economic activity is again spreading out, that fragmentation could become a force rather than a weakness. But we still need all involved to realize what’s happening, to change our perspective on work, and to put things into motion!

🇧🇪 We started The Family back in 2013 attacking toxicity in France. Our new office in Belgium is finding a lot of the same problems still exist there. Read my colleague Ayoub Assabban’s Belgian entrepreneurs, what’s wrong with you?

🍼 The way we talk about startups really matters, and everyone in the ecosystem should be paying attention to make sure they aren’t giving off the wrong signals. On this topic, my colleague Maud Camus just wrote Let’s stop patronising startups.

🚀 People will say women are less ambitious, but maybe the problem is that society’s definition of ambition doesn’t represent the whole spectrum of possibilities. Our Berlin events manager Irina Nikolovska talks about what she’s learned about women’s ambitions here: “Women are just less ambitious.” Really?

📕 During my trip to San Francisco, I had the chance to sit down for an interview with Xavier Damman about my book Hedge that really turned out well: Discussion with Nicolas Colin from The Family.

🇨🇳 Finally, I’ll be in China from May 5-15. I’ll travel to Beijing, Wuhan, Shenzhen, and Guangzhou. If you’re in one of these cities or know anyone who I should meet, please reach out!

The Bay Area's future

The housing market lies at the heart of today’s problems in the Bay Area, but it’s only one issue among many. Here are a few articles to go deeper into the future of the Bay Area:

Warm regards (from San Francisco, California),

Nicolas