The Facts About. . . Doing Business in Silicon Valley by Denise Caruso Before the semiconductor industry came to town and changed the Santa Clara Valley into Silicon Valley, the 50-plus miles between San Francisco and San Jose was one of California's most fertile farm belts alongside the famous El Camino Real highway. But in today's Silicon Valley, the big cash crop is new ideas, and it has been this way for some 20 years, since Gordon Moore and Robert Noyce invented the first tiny integrated circuit for Fairchild Semiconductor in a self-weathering steel building that employees dubbed "The Rusty Bucket." From that point on, an endless stream of entrepreneurs in other, equally unglamorous Silicon Valley structures have spawned big, healthy companies -- from Bill Hewlett and Dave Packard's electronic instrument company (now the valley's third largest employer) to the two Steves (Wozniak and Jobs) who started a social and technological revolution by inventing the very first Apple personal computer. In fact, Silicon Valley produced almost 16 percent of all the semiconductors and related devices made in the U.S. in 1987. It made 44 percent of the nation's computer terminals and almost 23 percent of its electronic computers. Silicon Valley is a place where engineers, affectionately dubbed "wireheads," can convince a local store to sell silicon chips in one aisle and potato chips in the next. It's an employee nirvana where part of a benefit package is likely to include child care or workout facilities. It's a place that practices what it preaches -- where waiters at popular restaurants, such as MacArthur Park in Palo Alto, send orders to the kitchen with computerized pads and set the tables with paper tablecloths and crayons, so power-lunchers can sketch that next big idea with impunity. One of the nation's most vital and unusual places to do business, Silicon Valley is devoted to the great entrepreneurial ideal -- the start-up company. "One of the things that have really helped make Silicon Valley in the last 10 years, particularly in the start-up environment, is that it's really a renewed shot at the American dream," says William Carrico, himself cofounder of two successful start-ups, Bridge Communications and Network Computing Devices in Mountain View, California. "It really works here. If you go to a start-up and it's successful, you can make a lot of money." But money isn't the only reason people join start-ups, he says. "There are start-up junkies, and not just at the management or founder level. We see quite a few people who've been at four or five start-ups, and they wouldn't go to a company that wasn't one," Carrico says. In addition, an entire complement of support systems are in place for adventurous starter-uppers. Professional services -- lawyers, accountants, bankers -- are actually the third largest revenue producers in Silicon Valley, according to statistics compiled annually by the Business Journal in San Jose. "The lawyers are here, the venture capitalists are here, the distributors are here, and everybody knows you. They know to say, 'You're a start-up, I treat you like this.' You don't have to sell the idea to them," Carrico explains. HANDS WASHING HANDS Not only is Silicon Valley arguably the best place in the world to be a high- tech entrepreneur, but it's also a great place to make money serving the people who are making the money in high-tech. For example, the Valley's second largest business today is commercial real estate. "The electronics industry drives the commercial real estate market," says Scott B. Smith, editor of the Business Journal. Smith notes that commercial real estate transactions produced enough tax revenue to allow the city of San Jose to invest about $1 billion in downtown redevelopment. And developers are once again starting to build on speculation, after a four-year period when they'd only do build-to- suit projects, claims Smith. Such factors conspire to make Silicon Valley the third most affluent market in the U.S., with an effective buying income of more that $41,000 per household in 1987, compared with the California average of $30, 537. RISING COMPETITION It's no wonder, then, that some residents have taken to calling their little patch of heaven "Silicon El Dorado." It's certain that Silicon Valley's rough- and-ready philosophy of "Start-Ups Rule!" has made the area one of the wealthiest in the world, but, as is true in almost every industry in the U.S. today, big changes are in the making. "We are due for a large dose of humility in [the electronics] industry," said Charlie Sporck, CEO and president of National Semiconductor and one of the original Fairchild team back in the late '60s, in a recent speech. To hear such words spoken by Sporck, whose reputation as a tough guy is legendary in the chip industry, is a sure sign of the changing times. For one thing, the world is shrinking, which means global competition is on the rise -- Pacific Rim countries such as Japan, Taiwan and Korea are making large investments in Silicon Valley. "I see a great deal of foreign money coming into Silicon Valley," Smith warns. In fact, the mayors of San Francisco and San Jose spent two weeks in the Orient during May to court investments in commercial real estate and electronics firms. OCL Technology Center (the OCL stands for Osaka- California Linkage) in San Jose is set up specifically to make matches between California businesses and businesses in Japan's Osaka Prefecture. Diana Yoshikawa of OCL says that Japan is the second largest foreign investor in the U.S., and sells more goods to the state of California alone -- 15 percent of its total U.S. exports -- than to any foreign country. Those are tough facts to swallow when your business depends on competing with Japan. "Japan is a double-edged sword," Carrico says. "On one hand, you look to them to be your customer; it's the third biggest market out there. You're anxious to sell to them. On the other hand, you're anxious that they don't somehow underbid you or undercut your costs. My personal belief is that U.S. industry should stand on its own." CASHING IN THE CHIPS The ability of high-tech industry to stand on its own may be challenged by a different kind of change. Frederick M. Hoar, a veteran of Silicon Valley's most visible start-ups -- Fairchild Semiconductor, Apple Computer and, most recently, the biotechnology firm Genentech -- calls it "the changing of the guard." "There's a whole generation of old-timers out there who are going to be retiring eventually," says Hoar, who's now senior vice president at Miller Communications in Mountain View. However, he says the two most significant entrepreneurial industries in the world -- automobiles and PCs -- were started by hobbyists, and he doesn't see the passion and enthusiasm for the technology in the upcoming generation of corporate executives in Silicon Valley. "We were constantly engaged in fratricidal combat -- monomaniacal, selfish, ruthless, polarized and utterly ignorant of the peril across the water, the Japanese," he says. "For years we were giving our technology away to them, stupidly, blissfully. [Now that we've awakened], one has to ask who's going to fight the next big fight with the Japanese. The MBAs have descended upon us, and whether they can play this game remains to be seen."