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SAN FRANCISCO-SILICON VALLEY

What the Government Can Do. And What It Can't

Why both parties could use a dose of myth-busting. But government can be the solution--if both parties get smarter.

Silicon Valley, Pre-Silicon The Valley emerged during the Cold War, when this Lockheed plant began building ballistic missiles.

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With the presidential election just weeks away, both parties are talking about entrepreneurship. In some respects, that's encouraging: It shows that policymakers finally understand what really drives the economy. But it also is depressing, as neither party can resist repeating the usual myths about what makes start-ups thrive.

On the Republican side are the usual calls for the government to get out of the picture entirely, the arguments that innovation hubs like Silicon Valley can flourish only in the hothouse of a free market. Democrats call for the government to invest in particular industries, even individual firms. Neither stance is entirely accurate. And neither does much to help the nation's entrepreneurs.

Let's take on the GOP myth first. Whatever the merits of free markets, the fact is that Silicon Valley was born when Lockheed set up an assembly line to make submarine-launched ballistic missiles during the Cold War--an effort directed by the federal government and funded, of course, by taxpayers. What's more, the feds essentially created the Valley's venture capital industry back in 1958, with the Small Business Investment Corporation, which was created to spur private capital investors.

As for the Democrats, we've seen what can happen when the government tosses free money around and makes outsize bets on individual companies (Solyndra, anyone?).

The fact is, successful regional clusters require careful cultivation. What the economy needs are policymakers who understand what works in our new regional start-up communities and can combine those lessons with what we've learned about the risk cultures that have made places like Silicon Valley and Boston's Route 128 corridor thrive. The challenge is to spur more risk capital at a local level and nurture regional start-up ecosystems. I can think of three ways to help make that happen.

First, the government can support university entrepreneurship programs in the fields of science, technology, engineering, and mathematics; that will help spur innovation. Then, we can provide funding to regional incubators and accelerators, the places where entrepreneurs are devising business models to commercialize these innovations. Finally, we can provide funding, perhaps in the form of preferential capital-gains treatment, to angel investor groups that are tied to the local entrepreneurial community and making small, smart bets on promising companies.

But perhaps what our political culture needs most is something shared by nearly all successful entrepreneurs and investors-;a tolerance for failure. After all, as any start-up founder knows, the first big ideas you try often do not pan out. The trick is to learn from those mistakes and keep moving.

But that never happens in today's Washington, where every failed policy becomes grist for an opposing party seeking political points. It would be naive to think that will change anytime soon. Yet I can't help hoping that policymakers take a cue from Silicon Valley entrepreneurs, who have learned that the secret to failing less often (and less spectacularly) is to understand that you seldom start out with the right answer, that the job of the start-up entrepreneur is to search for the answer by testing many possibilities.

If we truly want to strengthen the economy and create more jobs, government must do the same.


IMAGE: Courtesy Lockheed Martin
Last updated: Oct 1, 2012

STEVE BLANK is a retired Silicon Valley serial entrepreneur turned educator who developed the Customer Development methodology that changes the way startups are built. His book The Four Steps to the Epiphany launched the Lean Startup movement.
@sgblank




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