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I have been fascinated with Silicon Valley since my youth. As an

undergraduate student, I was intrigued by the large concentration of
innovation in this region and wondered how Silicon Valley could produce so
many tech companies. It seemed, from afar, that Silicon Valleys success
formula was a well-guarded secret. Little did I know that, a decade later, I
would end up moving to California to figure it out.

It all started with an epiphany in February 2006. I wanted to solve a problem

with the business model of gaming consoles in emerging countries. By
design, a console hardware is subsidized by the manufacturer and all profits
come from software. Due to rampant piracy in the emerging world, no one
was making money in those markets and as a result game developers were
no longer interested in supporting them. It was a lose-lose situation for
customers, console makers, publishers, developers, and governments.

My solution was to come up with a hybrid between a high-end phone and a

console, where games would be downloaded over the air through 3G
networks and sold at competitive prices to pirated DVDs. The guts were
mobile, the form factor was a console. I had created Zeebo, the worlds first
3G set-top-box (or game console).

This crazy and unprecedented idea, before the iPhone or Android, led me to
move to the United States to raise venture capital and go after content
providers. It resulted in $57 million raised, a hundred games and apps
licensed and developed, a hardware and app store created from scratch,
hundreds of thousands of units sold, negotiations with companies from
many countries and an entrepreneurship crash course in a culture that I was
not familiar with. After Zeebo, I founded two more companies. 2Mundos, a

social gaming developer and publisher focused on licensing entertainment
brands; and Satomi, an app that generated logos and patterns in real time
using genetic algorithms. At 2Mundos I was able to secure angel investment,
and Satomi was accelerated by Plug & Play in Sunnyvale.

My time in California mixed moments of brilliance with many mistakes and

failures. Although I did relatively well as an entrepreneur, none of my
startups had large exits. If I knew at that time what I know today, things
would probably have ended up dierently. This is actually my main
motivation for writing this book.

By sharing some lessons learned, I want to help founders, students,

executives, and even government ocials to understand why Silicon Valley is
such a powerhouse and how its tenets can benefit players in other
ecosystems. My experience as an entrepreneur in three countries gives me a
unique perspective.

I hope the lessons contained in this book enlighten your path toward
entrepreneurship. I have learned from Silicon Valley, the hard way, how
culture influences outcomes. Do not ever underestimate it.

Regardless of your background, learning the secrets that make Silicon Valley
great may help you to think bigger, boost your business competitiveness, and
prepare your mindset for the future paradigm shifts driven by technology. If
you change, you may also contribute positively to your local ecosystem.

The conclusions and observations shared in this book are based on my own
journey through the San Francisco Bay Area and countless conversations
with founders, investors, professors, and executives over a period of 10

In the following pages, join me as I attempt to decipher the Silicon Valley

code. Thank you.



Maybe due to the bitter memories of the 1999 dot-com bubble, many
people still believe Silicon Valley is more fantasy than reality. Something
akin to a digital version of Hollywood. The bad news for these believers
is that the facts and numbers tell a dierent story.

Silicon Valley has given birth to the worlds most valuable and
influential technology startups. Companies such as Apple, Google,

Facebook, and Netflix dominate our digital lives while other behemoths
like Intel, Cisco, Oracle and NVidia power our technology infrastructure.
The trend continues to be carried on by other successful startups.

By the end of 2016, almost half of the worlds population owned a

smartphone. The operating system of 99 percent of these devices (iOS
and Android) is provided and controlled by Apple and Google. On the
PC side, Microsoft has an unchallenged 90 percent market-share
(Windows) of the 2.5 billion PCs in existence.

Ninety percent of all people who access the Internet, around 4 billion,
use a web browser provided by Google, Apple or Microsoft. Google,
Microsoft, and Yahoo own a 92% market-share of all the worlds online

Facebook properties have more than 2 billion people logging in every

day. WhatsApp and Messenger users send three times more messages
per day than all the SMSs sent by all the wireless carriers in the world.

In 2017, Amazon will be responsible for half of all online sales in the
United States. Its subsidiary, AWS, hosts 50 percent of all startups and
companies in the public cloud infrastructure, including large players
such as Netflix, with a hundred million subscribers.

Amazon and Netflix have recently become content makers and will
outspend the largest Hollywood studios in 2017, investing $12 billion to
produce and buy exclusive shows for their platforms.

Apple, Google, Microsoft, Amazon, and Facebook are now the largest
companies in the world by market capitalization and have, as of May
2017, $600 billion in the bank. This amount may triple in the next
decade as they raked, in 2016, an astonishing $100 billion in profit.

Enormous profits are allowing tech giants to invest their money in
categories outside their core businesses. The big five have diversified
their investments to areas such as contactless payments, robotics,
drones, satellites, artificial intelligence, autonomous vehicles, virtual
and augmented reality, blockchain, biotech, clean energy, quantum
computers, nano materials, etc.

I would argue that traditional industries are being slowly eroded by

competition from startups and tech companies from Silicon Valley.
Googles advertisement revenue, for instance, is now larger than all
print media combined. Netflix destroyed Blockbuster, and the iPhone
cannibalized many industries from video games to alarm clocks to
cameras. I believe this trend will only accentuate in the coming years
and will reach other industries.

Industries like car manufacturers. Tesla Motors, for instance, was the
first successful automaker to have an IPO in the United Sates since Ford
in 1956. Once laughed at by competitors, Tesla expects to sell half a
million vehicles by 2020, all of them electric and capable of full
autonomy. As of May 2017, Tesla became the most valuable American
car company.

SpaceX became the first entity in the world, public or private, to

successfully launch and retrieve reusable autonomous rockets, which are
lowering the costs of space travel by a factor of 10. The company plans
to launch an ambitious constellation of satellites to provide global
broadband coverage by 2020. And most importantly, SpaceX plans to
send a spaceship and colonize Mars by 2030.

Even the controversial Uber boasts astonishing numbers. In 2016, it

made $20 billion in bookings, $6.5 billion in revenue and $2.8 billion in
losses. Uber is subsidizing its fares to not only disrupt taxis but also
transportation and logistics. That is the main reason the startup raised

so much private money (at the time of this writing, more than $15
billion). With a fleet of autonomous cars and a subscription model
looming on the horizon, Uber may even disrupt automakers and
insurance companies. Airbnb is another Silicon Valley darling that is
leaving a mark in history. Founded in 2008, the startup has recently
become the largest accommodation company in the world without
owning a single room. By 2020, it is expected to book half a billion
nights a year from $79 million in 2016.

Food is also being disrupted by technology. The startup Impossible

Foods launched the first vegetarian burger made in a laboratory that
feels, smells, and tastes like meat. It is already being commercialized
throughout the United States. I tried the Impossible Burger and found it
to be great.

In the next few decades, other sectors such as health care, finance,
insurance, aerospace, automotive, energy, and even politics will
succumb to the power of large and small tech startups. The trend set in
motion with the invention of the first microchip, 60 years ago, is
irreversible. Computer science knowledge has become crucial to any

Silicon Valley tech giants and startups are stealing the spotlight and
protagonism of Wall Street and Main Street as Earths financial and
power capitals. Software is eating the world and disrupting industries
that were once immune to innovation.

Top executives from investment banks and the federal government are
moving to the West Coast to join tech companies and, most importantly,
the top graduates across the country are choosing to start their careers
in the information technology industry.

Tech companies are only going to expand their reach and wealth in the
next decades. The Silicon Valley ecosystem has not only produced
tremendous financial success but also has influenced and inspired
entrepreneurs around the globe.

As the world enters a new era driven by technology, it is time to

reconsider Silicon Valley as a myth. This ecosystem will become much
more powerful than Wall Street ever was. What is going to happen here
in the next few decades will aect our lives. It is a good time to
understand what lies at the heart of Silicon Valley.

* Due to cultural similarities, presence in the Bay Area or synergy with the ecosystem, I considered
Microsoft, Amazon, and SpaceX as honorary members of Silicon Valley.



The term Silicon Valley originally referred to large numbers of silicon

chip innovators and manufacturers of the Santa Clara Valley in the
1950s and 1960s, but eventually came to refer to all high-tech
businesses located in the San Francisco Bay Area where 7 million people
call home.

In this chapter, my focus is to dissect Silicon Valleys six main players:

1. Startups;

2. Large tech companies;

3. Investors;

4. Accelerators;

5. Universities;

6. Co-working spaces.

Understanding what they are, how they work, and the many ways they
interact is extremely important to grasp the culture that makes Silicon
Valley unique.

The Bay Area ecosystem may be compared to an orchestra where each

player is equivalent to a musical ensemble. If any of them fails, the
musicality of the whole orchestra is compromised.

Two startup co-founders working at a San Francisco location.

1. Startups
Startups are newborn companies founded by ambitious entrepreneurs
with just an idea in their minds. They are, by far, the most important
player in the Valley ecosystem. Startups can either be defined as a bunch
of guys in their rooms or powerful consolidated companies such as
Airbnb or Uber.

It is not an easy task to understand what a startup is in the eyes of the

local community in the Valley. Ask 10 dierent people and you will get
10 dierent definitions.

To be sure we are on the same page throughout this book, I will lay out
my own definition. To be considered as startups in Silicon Valley they
must have all the following characteristics.

A startup must be scalable

Contrary to other regions in the world, Silicon Valley does not consider
small entities such as law firms, a family owned restaurant or a
consultancy firm as startups. These companies are called lifestyle
businesses because they may be perfect to attain a comfortable lifestyle
without ever being scalable.

For instance, if you founded a company with an amazing team of five

attorneys and consultants that are the best in town, and have a hundred
clients per year, you would need basically to clone the original team to
50 thousand to reach a million clients. That takes time, it is very
expensive, and probably cannot be replicated in other jurisdictions or
countries consistently.

To transform a business such as a law or a consultancy firm into a

scalable enterprise, you would need to automate the simplest and most
repeatable processes through software and focus your business solely on
them. That is exactly what companies like Clerky (automation of
standard legal documents) or Rocket Lawyer (initial legal advice) did.
You cannot have it all.

When analyzing technology startups, the immediate conclusion is that

scalability must be built into the business at the moment of conception.
The reason is simple; it takes a long time to make money in tech, and
any startup must reach millions or even billions of customers in a few
years to dominate a category and be economically viable.

WhatsApp, founded in 2009, is a great example of scalability done right.

It started with a small, unpretentious founding team and a basic app to
replace SMS in emerging countries. Four years later it had 200 million
active users without any marketing dollar spent. Due to network eects,
the app reached 1.2 billion active users by January 2017 and became the

incontestable category leader even after bleeding cash for so many years.
It is just a matter of time until WhatsApp starts making a lot of money
like its cousin Instagram.

Uber, founded in 2009, is another great case in scalability. The startup

operates in more than 80 countries and six hundred cities around the
world as of May 2017. The company was able to grow so fast due to the
influx of more than $16 billion in venture capital to finance its
expansion and subsidize its fares.

By July of 2016, Uber completed 2 billion rides without ever owning a

car fleet. That is the main reason for Ubers humongous valuation of
$69 billion. Meanwhile, Sidecar, which raised $35 million to operate in
10 cities, and was the former third largest transportation network
company in the United States, closed its doors in 2016.

In tech, usually the winner takes it all and scalability is key to

dominating a market and destroying the competition in the long term.
The strategy can be proven by the success of leaders in their respective
industries such as Amazon, Netflix, Google, and Facebook. There is
space for maybe two or three competitors in each digital category.

It may sound counterintuitive that tech startups need to lose money in

the short term in order to stay in business in the long term. But the
unabashed success attained by the West Coast tech giants is
incontestable proof that scalability works.

In May of 2017, the market capitalization of Amazon, Apple, Facebook,

Microsoft, and Alphabet (the holding that owns Google) reached $2.6
trillion, making them the most valuable companies in the world and
worth more than all the companies listed on the stock exchanges of
Brazil, South Korea, and Russia combined. In 2016, the five tech giants

had $600 billion in the bank with combined profits of a hundred billion

A startup must have a repeatable business model

In the digital realm, it becomes much easier for customers to dump your
product. On a smartphone, just press home and download another app;
on a computer, enter a new address or a search term on Google. In
seconds, the product you have been working so hard to launch might go
to the trash bin.

For those reasons, tech entrepreneurs must focus on having an engaging

product where customers come back, potentially, every day. The more
customers use your product, the easier it becomes to monetize. Brands
do not mean much if there is no loyalty. Achieving business model
repeatability on an app or site is only possible if there are high rates of
engagement and retention.

Instagram is a prime example of a startup that has super loyal users

(700 million of them). Its goal has always been on building a great
product that people use frequently. The startup, which has not made any
money in the first years of operation, has recently figured out a
repeatable business model (advertising) that is working really well.
Instagram is poised to make more than $3 billion in 2017.

Uber and Airbnb have also been able to attract engaged users and,
therefore, they have achieved business model repeatability. The more
expensive ticket per transaction has allowed both startups to maintain a
viable business model even if their customers return weekly or monthly.
The lifetime value for the average Uber or Airbnb customer is probably
in the hundreds of dollars.

Business model repeatability is fundamental for a sustainable long-term
strategy. When startups achieve this milestone, they begin to grow
revenues exponentially and, in a few years, usually cease to be startups
to become publicly traded companies such as Google. The former
startup, which made only $400 million 15 years ago, continue to
surprise investors and, in 2016, surpassed $90 billion in revenue with
high profit margins.

A startup must have a clear value proposition

Simplicity is key to achieve both scalability and repeatability, hallmarks

of a successful product from a Silicon Valley startup. Simplicity equals to
a clear value proposition to customers and a very user-friendly
experience. The more a startup captures an existing trend or habit and
makes it easier, faster or better, the more successful it becomes.

Again, Instagram comes to mind. Since the 19th century, people have
been taking pictures and sharing them with family and friends.
However, until recently, it was still very dicult, expensive, and time-
consuming for an average person to take good pictures and conveniently
share them.

The situation changed completely with the popularization of

smartphones starting in 2008. Instagram, launched in 2010, captured
the moment in a timely manner. It enabled anyone to take beautiful
pictures on their phones and share them easily and quickly. There was
no need to explain what the app did, everyone understood its value

The same can be said about Facebook and WhatsApp, products that
have a very clear value proposition of connecting people. Or Google,
which is an oracle for curiosity, research, and where all the human
knowledge can be accessed for free.

Simplicity leads to high engagement and, therefore, to a sustainable and
repeatable business model that is able to transform tiny startups into
the most influential and valuable companies in the world.

Google headquarters aerial view.

2. Large companies
Large tech companies founded in Silicon Valley such as Apple, Google,
Facebook, HP, Intel, NVidia, Oracle, Netflix, and Salesforce were once
startups. As of May 2017, their combined market capitalization was
superior to 2.5 trillion dollars.

On their journey from tiny startups to large companies, todays tech

giants became aware that they too could be disrupted at any moment by
the startups of tomorrow. In the tech world, companies may become
irrelevant or even go out of business in less than a decade, as the recent
examples of Myspace,, BlackBerry, and Nokia highlight.

Maybe self-preservation is one reason why large companies in Silicon

Valley engage with entrepreneurs and are willing to learn from them.
The tech giants add great value to the ecosystem by mentoring,

investing, acquiring or partnering with startups. The symbiosis between
corporations and startups in Silicon Valley is very tight, unlike in most
regions of the United States and the world.

In recent years, there have been additional developments. Companies

from non-tech sectors such as banking, aerospace, Pharma, cars, and
clothing are opening Silicon Valley oces to learn from the startup
scene and acquire essential technologies for their survival.

Large companies know startups can outdo them in eciency and

innovation. The option, then, is to join the enemy. The pragmatic
approach has resulted in some very large deals.

Much of Googles success, for instance, can be attributed to strategic

acquisition such as Applied Semantics (which became AdWords, their
cash cow), YouTube, Android, Endoxon (Google Maps Europe), Waze,
and Nest.

Facebook acquired Instagram, WhatsApp, and smaller startups to

reposition itself as a cool destination for teenagers and young adults.
Apple engulfed the original creators of Siri, Palo Alto Semiconductor
(which now creates all Apples mobile chips), and dozens of tiny
startups in this decade alone. General Motors Corp. acquired self-driving
startup Cruise Automation for a billion dollars in 2016.

Even startups such as Airbnb, Uber, and Stripe are now large enough to
constantly acquihire great teams, patents or key technologies. Uber,
for instance, spent $680 million on autonomous truck startup Otto in

In Silicon Valley, the startup virus infects even longtime employees who
work at large corporations. It is common to see professionals leaving

their jobs to found their own startups, sometimes even with the blessing
of their former employers.

This collaboration between the Davids and Goliaths of tech creates a

virtuous cycle that has become one of best kept secrets for the
continuing success of the Silicon Valley ecosystem.

The good example set by HP founders William Hewlett and David

Packard in the 1950s is followed to this day by successful entrepreneurs
and investors in the Valley.

Reid Hoffman, co-founder of Linkedin and investor at Greylock Partners.

3. Investors
Money is abundant in Silicon Valley. Actually, this region concentrates
more than 40 percent of the venture capital dollars invested in the
United States in 2015.

It is important to stress that money alone does not generate results;

otherwise, we would have seen the rise of many tech hubs around the
world just because of private and public investments. An endless
number of countries continue to pour billions of dollars into local
entrepreneurial ecosystems with no visible results so far.

Nonetheless, investors are super important to the entrepreneurial

ecosystem when they have the right mindset and long-term vision,
which is the case in Silicon Valley. In this region, there are five main
categories of investors.

Family and Friends

Many startups in the Valley begin their journey with money from non-
professional investors. As the name implies, these investors may be
relatives, friends, colleagues or classmates. Facebook, for instance, got
their first $5,000 from co-founder Eduardo Saverins savings.

Family and friends are the first option for startups looking for cash.
Investments are usually made on friendly terms at the idea stage due to
a relationship of trust between the entrepreneur and investors. The
amount invested may range from a few thousand to millions of dollars
depending on how rich they are.

Entrepreneurs are usually advised to avoid raising much capital with

this type of investor as they are considered dumb money and
detrimental to the companys long-term success. Their involvement may
potentially become a red flag that will scare professional investors away.

Family and friends should not try to exercise any kind of control over
the startup unless they are founders.


Angel investor is a term used to refer to a wealthy person who is

generally a former or current executive or entrepreneur. This person
allocates money to a startup in its early stages of formation in exchange
for equity.

Angels in Silicon Valley are experienced investors who add value to the
business with networking and advice. The majority of them never try to
exert control over the companies invested and are deemed to be smart

One great example of a successful angel investor is Peter Thiel, founder
of PayPal, who famously put $500,000 on Facebook in 2004. In 2012,
after the Facebook IPO, he cashed out more than a billion dollars. Thiel
is still a Facebook shareholder and board member.

Angels who only bring money to the table or try to dictate what the
entrepreneurs should do are regarded as dumb money in Silicon Valley
and thus excluded from the hottest deals.

Venture capital firms

These are companies founded with the specific goal of investing

someone elses money into startups. Think Sequoia Capital, which
invested in the formative years of Google, YouTube, Apple, WhatsApp,
Airbnb, etc.

Venture capital firms manage money raised from external investors,

called Limited Partners, which is then put into one or several venture
capital funds. LPs can be wealthy individuals, family oces, pension
funds, universities endowments, banks, governments or even private
companies. LPs invest in a venture capital fund to diversify their
portfolio risk and multiply their money.

Large VC firms such as Andreessen Horowitz, Sequoia, and Accel

Partners may manage several funds ranging from millions to billions of
dollars. It all depends on each funds investment profile and strategy. For
instance, Fund I may invest in super early stage startups with tickets
ranging from $100 thousand to $5 million. Fund II might be a growth
fund with investments from 10 to $100 million.

Venture capital firms are managed by general partners who decide on

which startups to invest. GPs are like the founders of a VC firm. They
are paid a salary and make a cut (20 percent on average) based on the

funds profits, generally after 10 years. For example: Venture capital
company A raises a billion-dollar fund, and after 10 years, $2 billion is
returned to the shareholders. Twenty percent of the extra billion ($200
million) would be the VC A profit. $1.8 billion would go back to the

In the case above, the return would be considered a failure as the LPs
could have made more money investing in other options such as real
state, bonds, stock or mutual funds. VC firms aim to return more than
10 times the size of each fund over a ten-year period.

Venture capital funds are a very risky investment for LPs and not so
much for the general partners who manage each fund. GPs have an
average of 10 years to prove they can multiply the money before being
considered a failure. During this time, they get a decent salary, build a
huge network, and are in a very comfortable position within the

For that reason, many GPs become lazy due to the stability and the
status provided by the job until they raise the next fund. Top firms such
as Sequoia or Andreessen Horowitz must have a brilliant track record to
stay in business and raise additional funds. It is an ultracompetitive and
tough space.

Smaller venture capital firms, with less than a $100 million dollars
under management, are under a lot of pressure lately as the capital
requirements for private companies become larger.

The market in Silicon Valley is clearly being split into angels and super
large funds, which may encompass private equity players that generally
invest in the later stages (pre-IPO) of established companies.

Strategic investors

Strategic investors are large companies divisions which have the

mandate to invest corporate money into startups complementary to
their core businesses. Good examples of this category are Samsung
Next, Intel Capital, and Qualcomm Ventures, all of them very active.

Some companies, like Alphabet (Googles parent), prefer to have their

venture capital arm totally independent from the holding. Google
Ventures mandate is to simply make money. It allows, for instance,
investment in competitors or businesses that have nothing to do with
the internet such as biotech or energy. In this regard, GV behaves much
more like a traditional venture capital firm in terms of governance. The
main dierence is that GV keeps 100 percent of the profits as they do
not have external investors (LPs).

Online platforms

The new kids on the block at the Silicon Valley investment scene are the
online platforms. Spearheaded by AngelList, they allow innovative ways
for regular people to participate in the startup ecosystem. AngelList
created a product called investment syndicate, in 2013, which is
disrupting smaller VC firms.

A syndicate is basically a private VC fund created to make a single

investment. Syndicates may be led by experienced technology investors
and financed by institutional investors and sophisticated angels. A
syndicate allows investors to participate in a lead investors deals. In
exchange, investors pay the lead carry (commission).

Heres an example: Sara, a notable angel investor, decides to lead a

syndicate. The syndicate investors agree to invest $200K total in each of
her future deals and pay her 15 percent carry. When Sara makes her next

investment, she oers to invest $250K in the company. She personally
invests $50K and oers the remaining $200K to her syndicate. If the
investment is successful, the syndicate investors first receive their
$200K, after which every dollar of the syndicates profit is split 80
percent to the syndicate investors, 15 percent to Sara, and 5 percent to

Using AngelList, investors get access to deals, leads get carried, and
startups get more capital with fewer meetings. It is a win-win situation
for everyone. AngelList transforms any respectable angel investor into
his or her own VC firm.

The success of AngelList sparked the emergence of many competitors

trying similar models, including direct crowdfunding equity on startups.
Online platforms are certainly the future of startup investment.

4. Accelerators

Accelerators can be defined as a cross between a venture capital firm and

an incubator. As the name implies, they are set up with the specific
purpose to accelerate the chances of success of startups. The top
accelerators invest around $120,000 for less than 10 percent equity in
each company.

Startups from all over the world can apply to accelerators located in
Silicon Valley, but the selection process is more competitive than
applying to Stanford or Harvard. If a startup is selected, its founders
need to move to the Bay Area for three months and follow the activities
in the program.

Some accelerators work merely as connectors. They facilitate meetings

and dinners with successful entrepreneurs, executives, and investors.
Others provide a more structured program and oer oce space.

Accelerators count on an extensive network of entrepreneurs, investors,
and executives from large companies that mentor founders on diverse
subjects such as how to reach product/market fit, increasing revenue,
designing a better user experience, hiring employees, and even raising
additional capital.

The space became crowded in the last years. Dozens of accelerators have
been popping up everywhere, some of them promising shady benefits
and others oering terrible advice. The most successful accelerator in
the Valley (and the world) is Y Combinator, which propelled to stardom
several billion dollar companies such as Airbnb, Dropbox, Instacart,
Machine Zone, Stripe, and Twitch.

YCs secret is a very rigorous admittance process focused on selecting

the best entrepreneurs as well as steering them toward building great
products instead of raising money or spending money on marketing. Y
Combinators partners are successful former entrepreneurs.

Being accepted in a tier one accelerator is, perhaps, the best way for
young entrepreneurs or foreigners to build their network and reputation
in Silicon Valley. A top accelerator may definitely propel promising
startups to success, but founders expecting miracles or a revolution in
their product oerings will be disappointed.

It is advised to carefully research your options before applying to any


5. Universities

I am not usually fond of the universities role in entrepreneurial

ecosystems. I believe they teach outdated business models, use archaic
methodologies, pay no due attention to recent technology

Paul Graham, co-founder of Y Combinator, with a Winter 2009 batch in Mountain View.

developments, and employ professors with no understanding of how

modern startups operate.

In the United States, however, things are dierent. Startups are often
born inside universities. Some of the worlds largest and most successful
startups such as Facebook, Google, Microsoft, and PayPal came to be
when founders met in the classroom.

American universities became hotbeds for innovation and

groundbreaking research due to their openness, highly qualified
professors (including active scientists, entrepreneurs, executives, and
politicians), and partnerships with private companies. For example,
most of the research for autonomous vehicles, spearheaded by Google,
actually came from Carnegie Mellon and Stanford projects ran by
professors and Ph.D. students.

In Silicon Valley, Universities have a very important role. Institutions
such as Stanford or UC Berkeley are so well integrated with the
entrepreneurial community they might even be considered protagonists
that bind the ecosystem together.

Silicon Valleys top universities tend to admit students with intellectual

curiosity and who pursue extracurricular interests or activities. For
instance, if a student built something cool such as a game, applied to an
internship at a Chinese NGO, plays an instrument or had traveled the
world with no money; those are seen as positive traits. The focus at
these universities seems to be to recruit people that can solve real
problems, who are proactive, and who want to learn and expand their

Closer to finishing their undergraduate, masters or Ph.D.s, students

receive tons of competitive proposals from large companies inside and
outside the Bay Area. The Silicon Valley tech giants tend to outbid banks
and consulting firms when hiring the best candidates by oering more
cash, stock options, an open and meritocratic culture, and perks such as
free food or allowing people to bring their dogs to work. Students are
then hired for important positions and trained extensively by the large
tech companies.

After some time spent fine-tuning their skills, scaling the corporate
ladder, and building a reputation, these young professionals may see a
market opportunity and quit to found their own startups. Co-founders
in Silicon Valley are usually former classmates or work colleagues.

Startups founded by former students of Stanford, Berkeley or Ivy League

universities tend to receive much more attention from investors,
accelerators, and prospective employees. The same happens with
founders who worked at Google, Apple, Facebook, or any other
influential tech company.

Stanford University aerial view.

The rationale is that these guys were already battle tested by being
selected to be part of some of the worlds most elitist entities and,
therefore, must be really smart and hard working. Google and Instagram
founders, for instance, met at Stanford University.

Years after being founded, some of these startups may be sold to large
companies or become large companies themselves. The symbiosis with
the ecosystem goes full circle when, decades later, successful alumni
donate generous amounts of money to their alma-matters to boost
research and development. Or, even more interesting, alumni companies
sponsor projects or competitions at local universities to search for the
next generation entrepreneurs.

This virtuous cycle has been going on for decades and happens in other
tech ecosystems such as Los Angeles, Seattle, and New York as well.
However, it is more pronounced in Silicon Valley due to the

concentration of large tech companies and the thousands of startups
spread out in the region.

6. Co-working spaces

Co-working spaces became really popular in Silicon Valley in the last

seven years when the app based economy took o. They are shared
oces where you can rent a desk or a small oce to start your company.

Co-working spaces oer snacks, amenities, internet, services

(accounting, legal assistance), and meeting rooms in an environment
where you can easily meet other entrepreneurs and participate in events
to network and inform yourself about what is going on.

Usually, there are weekly events at co-working spaces where you have
the chance to listen to other founders, investors or executives talk about
a specific subject such as artificial intelligence or raising money for
fintech startups. It is also common for startups or companies to sponsor
parties or dinners to get to know the entrepreneurs frequenting the

The best advantage of locating your company at a co-working space is

the networking they provide. In powerful entrepreneurial ecosystems
such as Silicon Valley meeting great people today can be very valuable

Co-working spaces are part of the Silicon Valley ecosystem because they
are now the main link between new entrants in the Bay Area and local
entrepreneurs, large companies, and investors. If you are a foreigner
working at something cool, co-working spaces are the first option where
you can find information, contacts, and embed yourself in the Valleys

A typical startup co-working space.

Interestingly enough, the best co-working spaces are startups

themselves going to the same journey in terms of scaling, raising money,
testing new ideas, etc. The large ones such as WeWork or Rocket Space
were able to raise hundreds of millions of dollars from investors and
have oces all around the world, which facilitate interactions with
ecosystems from other countries.

Many co-working spaces also raised venture capital funds to invest in

startups hosted at their spaces. Their ability to spot nascent talent and
to connect people should not be underestimated.



At first glance, Silicon Valley seems like a place that you will not be able
to figure out. Its unique culture and best practices are still unbeknownst
and misunderstood by outsiders. It takes time to deep dive into the
ecosystem and the best way to learn about it is from within.

After living in San Diego for three years and in Shanghai for two, I
remember vividly when I moved to San Francisco in December of 2010.

At the time, a friend from Palo Alto confided to me, enthusiastically,
about his investment in a startup called Airbnb, of which I had not
heard before.

He patiently explained Airbnbs business model and asked me what I

thought. Before thinking much, I replied with confidence: This is never
going to work. Who would rent their own place to strangers? I was so
sure Airbnb would be a flop that I asked myself how my friend could
have invested in such a lame idea.

Six months after this conversation took place, Airbnb announced

incredible traction and raised a hundred million dollars from top
investors. I was shocked and my head was spinning in disbelief. I
wondered how an experienced entrepreneur like myself could have
missed the sharing economy trend. Half a decade later, Airbnb would be
valued upward of $30 billion.

This anecdote illustrates the importance of always keeping an open

mind to ideas that, at first glance, seem counterintuitive. Technology
does not care about ones opinion, ideology or cultural background as
startups success is directly correlated to good metrics. Customer
satisfaction and the business overall health can be captured, measured,
and interpreted by using the right analytics tools. In 2010, my friend
knew about Airbnbs metrics and that is why he was so confident it
would work.

Silicon Valley entrepreneurs are constantly experimenting and betting

on crazy ideas. They know disruption comes from bold founders who
defy logic and common sense. History has proven that new tech
innovations seem stupid until they become popular.

For this reason, in the last years, it has become harder to dierentiate
potential unicorns from startups that will fade into oblivion. As we get

more experienced, we naturally disconnect from younger generations
and newer innovations, underestimating their impact. I have learned
from Silicon Valley to be constantly reinventing myself due to the fast
changes in technology and digital behavior.

Actually, anyone who wants to avoid obsolescence must reset their

brains several times during their careers. In technology, no one has the
privilege to rest on their laurels anymore. Kids as young as 15 may learn
faster and outsmart any of us before we realize what is going on.

The formulas for achieving success have changed and, in a way,

technology has been working as an equalizer. Any person, from
anywhere, can learn anything from scratch, start a company or become a
domain expert. These new paradigms change everything. Experience is
overrated, so is education.

Elon Musk founded a rocket company that revolutionized the aerospace

industry without having any experience or knowledge about rocket
science. He learned from books, people and by searching on Google. The
list of disruptors with no previous experience or expertise in their
market segment is enormous, from Airbnb, Uber to Tesla and several
mobile gaming companies.

Silicon Valley became a place geared toward open minded entrepreneurs

obsessed about learning fast and being the number one. If you are
humble, patient and smart, there are many lessons to be learned from
this ecosystem.


Before taking you to Silicon Valleys psyche and well-guarded secrets, it
is important to understand why this place has a unique and dynamic
entrepreneurial mindset even if compared to other parts of California.

In the early 19th century, the United States was an overwhelmingly rural
society. The American Dream, as most then understood it, was not
centered in winning fabulous wealth, but rather to achieve the

independence that came from owning enough land to support a large
family. Enterprise and speculation were not the desired traits of the

In 1848, San Francisco was like many other ordinary American

settlements: backward, agrarian and home of just a thousand residents.
In the same year, however, the city literally struck gold starting a
movement named The Gold Rush that would forever transform the
settlement into a bustling metropolis full of opportunities.

By 1852, San Francisco had attracted more than 30 thousand

adventurers and treasure seekers in search of the second iteration of the
American Dream. The super competitive landscape made just a few
lucky winners while the majority of people didnt find any gold.

Along the immigrants, the first wave of what we define as modern

entrepreneurs arrived in San Francisco. These were savvy businessmen
who understood very early on that most immigrants would need basic
services in order to survive in town.

People such as Vermont native Henry Wells and New Yorker William G.
Fargo, who started a bank to provide express and banking services to
California residents, specifically to people around the Bay Area. The
bank was named Wells Fargo and made its founders very rich. It would
become a huge enterprise that resisted the test of time. As of May 2017,
Wells Fargo is the second largest bank in the world by market

Another famous immigrant was Levi Strauss, who came from Bavaria in
1853 to open a west coast branch of his brothers New York dry goods
business clothing, bedding, combs, purses, handkerchiefs. He made a
lot of money in San Francisco and some decades later his company

invented the Jeans and created their first pair of Levis 501, a style that
went on to become the worlds bestselling item of clothing.

Phillip Armour, who would later found a meatpacking empire in

Chicago, made a fortune operating the sluices that controlled the flow of
water into the rivers being mined. Before John Studebaker built one of
Americas great automobile fortunes, he manufactured wheelbarrows for
Gold Rush miners.

As you may have noticed already, one very direct consequence of the
gold rush was the creation of some of the largest and most important
companies of the pre-industrial United States. Companies that were not
inherited but created from scratch like the many tech colossi of todays
Silicon Valley.

The gold rush also allowed a huge influx of immigrants from all corners
of the world and walks of life. Immigrants that literally risked their lives
to pursue their dreams and who brought a diversity of backgrounds,
ideas, points of view, hopes and skills. Exactly like their modern

This quick glance of history is important to understand the origins of

entrepreneurship in this region. All this diversity and risk prone
immigrants created a culture focused on optimism, ambition, and
execution. A culture that spontaneously grew based on these values and
allowed many to create companies from scratch without lots of
resources or political connections. A culture of risk taking anchored by
long-term vision that shaped the modern Silicon Valley.

Silicon Valley was born through several contributing factors intersecting,

including a skilled STEM research base housed in area universities,
plentiful venture capital, and steady U.S. Department of Defense
spending. Stanford University leadership was especially important in the

Valleys early development. Together these elements formed the basis of
its growth and success.

The worlds first technology startup, Hewlett Packard, started in a

garage in Palo Alto, in 1939, founded by two engineers from Stanford
University and a capital of US$ 538. HP rose to prominence in the 1950s
and became the role model for all future entrepreneurs and startups of
the 1960s and 1970s. HP is recognized as the symbolic founder of
Silicon Valley.



The Silicon Valley ecosystem disproportionately focus on startups; and

the most important asset of a recently created company is considered to
be its founding team. Founders are stars and they wield a lot of power.
Why so?

The main reason may be that founders are incredibly vested on their
businesses, emotionally and rationally. Their companies success is the

number one priority in their lives. When a founder does well, investors,
employees and the whole ecosystem are directly benefited.

A 2016 study by three professors at Purdue University is part of a

growing mountain of evidence of the superior and more lasting
performance of companies where the founder still plays a significant role
as CEO, chairman, board member, or owner or adviser. The study found
that S&P 500 companies where the founder is still CEO are more
innovative, generate 31 percent more patents, create patents that are
more valuable, and are more likely to make bold investments to renew
and adapt the business model demonstrating a willingness to take
risk to invent the future.

The most valuable and disruptive tech companies of all time, such as
Microsoft, Google, Apple, Facebook, Oracle, Microsoft, Tesla, and
SpaceX, were or are controlled by the original founders at their peak.
The latest wave of billion dollar startups is no dierent. One of the few
things in common between Uber, Airbnb and Snapchat is that founders
are in charge.

The success of startups managed by founders is the main reason why

investors in Silicon Valley do not try to buy a majority stake in the first
financing rounds. It is considered to be sacrilege in the Valley to have a
new startup with an external investor controlling the board or owning
more than 50 percent of the outstanding shares.

The control of a startup, of course, might change over time as the

company raises more money, goes public and becomes mature. But the
ecosystem here is structured in a way that entrepreneurs are in charge,
not investors or even executives.

When startups are sold or go through an IPO, lots of early employees

get rich through their stock options. Successful founders also become

angel investors or venture capitalists, and the most altruistic donate
money back to their universities and communities. It is a win-win
situation for the whole ecosystem.

For those reasons, founders continue to be the foundation upon which

Silicon Valley is built upon. This region revolves around entrepreneurs,
and nothing is more important than treating founders with respect.
Silicon Valleys secret sauce is to give founders the support and
autonomy to run their startups in the way they want to. It is that



Ask your friends outside the tech world what would be the main reasons
for the success of a given tech startup. You will hear an assortment of
answers such as money raised, quality of the product, luck, ecosystem,
timing, marketing, etc. All of these, of course, are influential drivers.
Most people, however, miss the one characteristic that seems key to this

After talking to thousands of entrepreneurs around the world and in
Silicon Valley, I came to the conclusion that a founders personality is
the most influential driver for successful startups.

Great founders have a combination of rare psychological traits that

result in almost impossible achievements. These traits are not exclusive
to the Valley but are more common here due to the founder centric
culture. Here are some of them.

1. Delusion

Some founders are so obstinate about their companys success that they
invent a parallel reality where rules can be rewritten or bent. Failure is
not an option. The impossible becomes possible.

Steve Jobs was a great example of a founder with this trait. With no
technical background at all, Jobs learned the minute details of how to
build computers and developed a great understanding of what was
possible to be created with current and future technologies.

In private, Jobs was viewed by employees as a boss who pushed them to

the edge of what they thought to be possible. The ones who could
tolerate his demanding and abrasive personality said on record they
ended up doing the best work of their lives. Somehow, Jobs knew more
than the experts. His delusion made him a power of nature.

On his presentations and media appearances, Jobs presented an image of

confidence, ambition, and success that few people can rival. The media
even created a term for it: Steve Jobs reality distortion field.

When an entrepreneur is borderline delusional like Jobs was, only a few

people can understand their brilliance. There is a very thin and blurred
line between genius and crazy.

2. Perseverance

Disruptive startups are usually laughed at, rejected by investors,

misunderstood by the market, and underestimated by competitors. At
the beginning of their journey, great founders are seen by society as
nave dreamers that do not know how things work. They are treated
as eccentric or stubborn by family and friends and face, alone, enormous
pressure in order to stick to their original vision.

True entrepreneurs learn how to transform constant rejection into

determination to reach their goals. They never give up in the face of
serious adversities that would drive normal people crazy. Founders must
be the most optimistic persons in life and inside their organizations.

Jack Ma, from Alibaba, is one great founder that have traveled the path
of loneliness, anguish, and rejection, a trajectory common to the most
successful startups.

Hangzhou during Chinas Cultural Revolution, a period where his family
was persecuted by the communist party. All throughout Jack Mas life,
from childhood until building a multibillion-dollar global e-commerce
technology giant, he had failed many times, been rejected, and called

In an interview with Charlie Rose in Davos, Jack summarized his

experience: I failed a key primary school test two times, I failed the
middle school test three times, I failed the college entrance exam two
out of college. I went for a job with the police; they said, you are no
good. I even went to KFC when it came to my city. Twenty-four people
went for the job. Twenty-three were accepted. I applied for Harvard 10

times, got rejected 10 times and I told myself that someday I should
teach there.

The story does not end there. His first two internet companies failed. In
the late 1990s, after starting Alibaba, Ma tried to get venture capital
funding in Silicon Valley and got rejected for running an unprofitable
business model. He eventually went back to China without funding.

In 1999, he gathered 17 of his friends in his apartment and convinced

them to invest in his vision for the online marketplace that allowed
exporters to post product listings that customers could buy directly.

In 2005, Yahoo invested $1 billion in Alibaba in exchange for a 40

percent stake in the company. In 2014, the companys $150-billion IPO
was the largest oering for a U.S. listed company in the history of the
New York Stock Exchange. It also made Ma the richest man in China,
with an estimated net worth of $30 billion as of May 2017.

Thanks to his perseverance and tolerance of rejection, Jack Ma was able

to build one of the largest and most influential technology companies of
all time in a country with zero tradition in the industry. His example
shows how founders outside Silicon Valley can also become very

3. Tolerance to risk

Founders have an above average tolerance to risk. Startups, even in

Silicon Valley, have an 80 percent to 90 percent failure rate. The odds are
always against the entrepreneurs and just a small part of the population
is ready to pursue this illogical and risky endeavor called
entrepreneurship. An entrepreneur that has not sacrificed anything for
their companies is not a true entrepreneur.

Risk taking is not something one learns in business school. It is very
likely a trait built into peoples personalities that is manifested since a
young age. The risk takers I know were rebels and thrill seekers who
were never satisfied with the status quo or with themselves.

The worlds number one risk taker, Elon Musk, runs Tesla and SpaceX,
two extremely disruptive and large companies with the most ambitious
vision I have ever seen. He also spearheads initiatives such as an
artificial intelligence ethics institute and a new startup trying to connect
our brains directly to computers.

In 2008, Elon almost lost everything and was able to reverse course. His
current endeavors are so risky that he can lose everything again if he
makes the wrong calls and his execution is nothing short of flawless.

As of May 2017, fortunately, Elon continues to defy logic, expectations,

and the odds of failure. He is living proof that one person can literally
change the world if high risks are taken.

4. Salesmanship

The best founders are generally excellent salesmen. They have to be,
literally and metaphorically, constantly selling their products to
customers, investors, partners, and employees.

Bill Gates strikes me as one of the best salesmen of all time. He created
inferior products full of bugs (DOS & Windows) and transformed them
into monopolies in just a couple of decades. Today, 90 percent of
companies, governments, and consumers in the world use a Windows

Sure, anyone can learn how to sell, but I believe selling is more art than
math. The ability to be a top salesman is one of those traits that, in my
opinion, is built into someones personality. This ability alone is capable

of taking any startup to the next level. If a founder cannot sell, he or she
better find someone who can.

5. Flexibility

The smartest founders are stubborn on their vision and flexible on the
details. They are also avid listeners to stakeholders negative feedback
and learn as they go. If something is not working, a startup must change
course quickly.

Amazon is the greatest example of a founders long-term vision with

flexibility on the details. Je Bezos decided, in the formative years of
Amazon, that his goal would be to oer the best experience,
convenience, and price to customers, no matter what happened. Amazon
was heavily criticized by investors for its low or negative profit margins
during initial years, but Bezos fulfilled his promises sacrificing short-
term profitability for long-term growth.

Over the course of Amazons existence, Je listened to criticism and

tried many new ideas, many of which failed miserably such as the ill-
fated Amazon Phone. Others, in contrast, created entirely new business
verticals for the company, such as the Kindle e-reader, Amazon Web
Services, and the Alexa virtual assistant.

In 2017, Amazon became one of the top five most valuable companies in
the world. I believe the former startup will be the first company to reach
a trillion dollars in revenue as it expands to other areas such as
entertainment, internet of things, and artificial intelligence.

Flexibility and experimentation are at the core of Amazons long term

success, and that comes from the culture imposed by the personality of
founder Je Bezos.

6. Purpose

What dierentiates average from great founders is that the latter do not
work just for money. There must be a purpose or a motivator behind
their goals. Some might have grown up in poverty and do not want to
ever experience that again, some want to build the best products in a
certain category, others may want to make their dreams come true, and a
few crazy ones wish to save humanity or make the world a better place.

In Silicon Valley, maybe because of its liberal and meritocratic culture, it

is common to find a purpose behind the best founders. Outsiders are
usually skeptical of entrepreneurs' real intentions, and money is
generally seen as the main motivator behind successful founders.

You may or may not share this view about entrepreneurs such as Elon
Musk, Bill Gates or Mark Zuckerberg, but you cannot deny they change
things and move the human race forward. Money is not a motivator for
these folks as they pledged to donate their fortunes, in life, to causes
that are important to humanity.

Last time I have checked, I could not find many billionaires with a
purpose outside tech. Call me nave, but I truly believe that Silicon
Valley, despite all the criticism from outsiders, is a magnet for good



Raymond Chandler, the late American novelist and screenwriter, once

said that a good story cannot be devised; it has to be distilled. Sixty
years after his death, the advice seems to be followed by many Silicon
Valley startups.

Storytelling is one of those things that we relate to Hollywood or great

authors but, as I have learned from Silicon Valley, the capacity of telling

a good story is a must have trait for aspiring entrepreneurs. The reasons
are manifold.

First and foremost, being able to tell a good story is a talent that just a
few entrepreneurs have. It involves many abilities such as prioritizing
the most impactful and important pieces, understanding your target
audience well, expressing yourself concisely, and using imagination and
charisma to get the attention of people who have never heard about you
or your company.

Second, good stories create an emotional connection with people.

Everyone loves a heros journey, the common template that involves a
hero who goes on an adventure, faces many crises, is able to win, and
then comes home changed or transformed. I would argue that
entrepreneurs, contrary to fictional characters, are the true heroes due
to the real struggles they face.

Emotional stories tend to get more attention from media outlets and are
more likely to go viral on social networks, helping startups to lower
their customer acquisition costs.

One great example is Elon Musks struggles in 2008, where his

companies were falling apart. Against all odds, he figured out a way to
make a comeback in the most spectacular fashion, creating world-
changing companies (Tesla, SpaceX, Solar City, Neuralink, OpenAI, The
Boring company) and becoming the most revered entrepreneur of the
XXI century.

Third, in a world where people have limited time and attention spam, a
good story will always help entrepreneurs to stand out and be
remembered. For instance, if a venture capitalist, on average, hears a
hundred pitches a year, he or she will probably recall the ones that were
unique and able to get their attention until the end.

Last but not least, the entrepreneurs who are able to galvanize
customers trust and sense of purpose create a huge dierentiator
against competitors. In mature markets, any given category is inundated
by commoditized products whose only dierentiator is pricing.
Customers may choose the company with the better story or purpose
behind it.

One good example is Sprig, a food delivery startup in which the main
dierentiator is to serve organic and balanced meals with the best
ingredients they can find (preferably from local farms). Sprig competes
in a commoditized category that has seen many startups shutting down
in the last years. Sprig is still alive due to the great positioning that it is
selling health and not food.

Storytelling works and fits perfectly in a culture built on trust and based
on reputation. In Silicon Valley, the ecosystem believes in entrepreneurs
until proven otherwise. If you lie and someone finds out later, you lose
all your credibility.

Of course, it is well-known in startup circles that most entrepreneurs

exaggerate when pitching their companies. It is OK if they are overly
optimistic, miss some deadlines, but are able to deliver on their
promises later. Lying or cheating is not OK and must not be tolerated by
serious ecosystems. Real entrepreneurs always rely on facts, evidence,
and flawless execution to back up their stories.

Sometimes, however, many Silicon Valley entrepreneurs try to cut

corners and abuse this natural goodwill by telling fake or made-up
stories about their accomplishments. Unfortunately, lies are becoming
more common and, in the last couple of years, we have had high profile
startups caught cheating and defrauding customers. More information
about these cases in Chapter 23.

Despite its blunders, the Silicon Valley ecosystem became pretty good at
telling stories and captivating the loyalty of billions of users. If done
appropriately, storytelling can be a huge asset for any startup strategy
and is a highly important skill to master. Sometimes, it is the only thing
separating a successful company from a failed one.

The good news is that any brand building exercise is free, bound only by
an entrepreneurs imagination and charisma.



Many people outside Silicon Valley are fixated on the intrinsic value of
ideas. Some believe that, in the tech world, a brilliant idea is enough to
achieve tremendous success. How many of us have not heard from
friends that Google is an excellent idea or Steve Jobs is a genius
because he had world changing ideas.

Reality could not be more dierent from the general perception. Ideas
are a great start, but their influence is overrated. They probably
contribute less than 1 percent to the success of a tech startup.

The media compounds the problem by doing a poor job explaining how
hard and complex it is to build a winning product. Many times, we
stumble upon articles or reports romanticizing the power of an idea in
detriment of all other factors.

Non-entrepreneurs, in most cases, are unable to imagine the amount of

work behind the curtain to transform an idea into a viable product or
company. Even the simplest ideas are super complex to implement in
real life and success is 100 percent driven by flawless execution and
sheer perseverance.

Uber is a great example. At first, it looks like its merits rely only on the
brilliant idea to disrupt the transportation industry by using the
smartphone and peoples private vehicles to replace taxi companies. In
fact, Ubers success relied on a multitude of factors related to execution:

1. Ubers team built a great product, which was easy-to-use and with a
repeatable and scalable business model;

2. It raised a lot more money ($15B+) than competitors;

3. Infused with new cash, the startup was able to expand to hundreds of
cities around the world in a few years and subsidize fares to drive out
rivals and undercut local taxi companies. Copycats abounded, but now
just a few competitors are still alive;

4. It faced regulators and the wrath of lawmakers with a mix of bravery,

arrogance, irresponsibility, persistence, and competence. If fines were
imposed on drivers because they were operating illegally, Uber would
pay and continue running the service.

5. It attracted lots of talented engineers to work on current and future
products in complex fields such as artificial intelligence, robotics, and
big data. As of May 2017, Uber employed more than 7,000 people.

6. Long-term vision in sacrifice of short-term losses in order to create a

truly disruptive company that will be alive for decades to come. The
same philosophy was embraced by Je Bezos as he built
into a powerhouse.

The jury is still out on Ubers fate, as the company is going through
many growth pains and losing unthinkable amounts of money. Its
destiny will be determined, however, not by how brilliant the original
idea was, but by how good its overall execution is in the next years,
including the transition from a transportation marketplace to an
artificial intelligence and robotics company (due to the advent of
autonomous cars).

Other software startups such as WhatsApp, Instagram, Snapchat or

Airbnb have products that look even simpler than Uber and might be
misperceived by the general population as just good ideas. The truth is
that, behind all these companies, there are super smart founders who
command an army of thousands of professionals solving complex
problems every single day.

Thomas Edison, the most influential inventor in modern times, used to

say that genius is one percent inspiration and ninety-nine percent
perspiration. In tech, if you think your idea is worth something, you
will never be able to build a meaningful company or product and,
someone else will end up taking your place. Patents do not protect
digital startups. Flawless execution is the only viable path to success.



The first time the word business plan appeared in books was in the
late XIX century. Since then it has become the norm for large
corporations to use BPs when starting a new endeavor or trying to
forecast the financial and strategic goals of their businesses.

In the 1970s, business plans became super popular with entrepreneurs

and a recurrent topic in universities and startups. At that time, even in

Silicon Valley, you would not be taken seriously by investors if you did
not have a robust BP when starting a company.

In the 1990s, the usefulness of business plans started to be aected by

the exponential growth of the internet. It became harder for startups to
predict user adoption due to amplified network eects, lower barriers to
entry, and increased competition.

During the apex of the dot-com bubble, investors from Silicon Valley
stopped demanding startups to present detailed business plans. Their
assertion was that the internet was evolving too fast and BPs were a
waste of time and energy for entrepreneurs.

Pundits blame this carelessness from investors as one of the culprits for
the internet bubble of the late 1990s. At the time, startups with no
feasible business models raised millions of dollars and were valued at
incredible multiples using voodoo economics. The result, as everyone
remembers, was the dot-com crash of the 2000s, which left a trail of
debris all over Silicon Valley. On the flip side, as exceptions to the rule,
pioneer internet startups such as eBay, Yahoo, Amazon, and Google
continued to grow exponentially to the surprise of many analysts.

Then, after the storm, came Steve Paul Jobs. The launch of the iPhone in
2007 and, subsequently, the App Store, dramatically expanded the
market for software startups. Googles Android, its main competitor,
focused on lower end devices, was the icing on the cake. The dream of
having one computer for each person started to materialize in an
unprecedented way.

In the United States, as of December 2016, the penetration of

smartphones reached 81 percent of the total population or 100 percent
of adults. By 2020, there will be more smartphone users in the world
than people with access to electricity, running water or bank accounts.

With this enormous growth, and the duopoly of Apple and Google app
stores, it is just natural there would be an avalanche of applications for
the billions of people who use smartphones every day. It is estimated
that, as of May 2017, there were about 2 million mobile apps available.

The app economy changed everything. Enormous companies have been

created on the shoulders of smartphones such as Tencent ($250B+),
Uber ($69B), WhatsApp ($22B), Supercell ($10B) and Spotify ($8B).
Even the mighty Facebook now gets more than 85 percent of its
revenues from smartphones and tablets. Anyone willing to stay relevant
in the digital world has a mobile first strategy.

Although startups have been benefited by lower barriers to entry, mobile

software became a complex and cutthroat endeavor due to a business
model where the majority of apps are given for free. The freemium app
model inflated customer acquisition costs and increased the average
monthly churn rates to an astounding 95 percent. Users now have the
option to press the home button on their smartphones and never open
disliked apps again.

The business has become so dynamic and unpredictable that, in this

new mobile driven world, no startup really knows what is going to
happen when an app is released into the market. No one has the formula
to either calculate customer acquisition costs, to make an app go viral or
to retain users.

This mobile era digression serves to illustrate why business plans

became obsolete, at least in Silicon Valley. Startups are simply not able
to predict customer behavior anymore as digital products must change
every month in order to stay competitive and follow the market
dynamics. The same rationale can be applied to large companies
endeavoring in online or mobile products. Forecasting the next five
years became totally moot.

This logic led investors in Silicon Valley to stop caring about business
plans. No sophisticated angels or venture capital firms require a BP in
order to invest in early stage startups. Investors may be willing to look
at business model premises to understand the entrepreneurs logic, but
they will automatically assume yearly forecasts to be bogus.

Three or five years is an eternity for startups. During this period, new
distribution channels arise, disruptive technologies are developed, and
consumer behavior changes due to younger demographics and emergent
cultural profiles. In other words, the market may reinvent itself every
year or so.

For all those reasons, I find it shocking to witness founders and

investors outside Silicon Valley, in this day and age, still wasting time on
super detailed forecasts before their product is even launched. In my
opinion, this is a recipe for disaster and should be considered a giant red

I have talked to dozens of investors in the Bay Area over the years, and
none of them has ever witnessed a business plan to accurately predict
early stage startups metrics. A business plan is only necessary in Silicon
Valley when startups grow too fast, reach product/market fit or achieve
business model repeatability.

Steve Jobs summarized well the new paradigm shifts in product design.
He said: You cant just ask customers what they want and then try to
give that to them. By the time you get it build, they will want something

In the next chapter, you are going to learn how Silicon Valley
entrepreneurs rely on a variation of the scientific method to launch and
validate their startups without a business plan.



The modern scientific method was responsible for groundbreaking

discoveries and inventions in the last 400 years such as electricity,
Penicillin, the camera, the combustion engine, the plane, nuclear energy,
the microprocessor, and the internet.

The scientific method consists of systematic observation, measurement,

and experiment, and the formulation, testing, and modification of

hypotheses. The good thing about science is that it works whether or
not people believe in it.

In business, the scientific method has been used over time to create new
technologies but has rarely been directly applied to product
development. The reason is simple. When you are selling atoms, the
scientific method approach generally takes too long, is costly and thus is
incompatible with business plans and quarterly results.

Nonetheless, as I explained in the last chapter, the exponential growth

of internet users changed the way in which startups develop digital
products. Long gone are the business plans, forecasts, and market
research pre-launch. The always on nature of mobile devices allowed
and forced entrepreneurs to devise a new methodology, based on the
scientific method, when building their software products.

This methodology consists of releasing an incomplete version of a

product as soon as it is ready, instead of waiting months or years to
release a final build. The rationale is simple. With the advent of the
internet, digital products became live entities that are constantly being
improved and iterated.

Thus, the trial and error methodology is now used by all kinds of
companies ranging from tiny game developers to tech giants such as
Uber or Facebook. It allows companies to better understand their
customers, calibrate the messaging, look for signs of traction, and test
the scalability of the backend systems before reaching a broader market.

If you follow the story of the most successful startups, the patterns
leading to world domination looks eerily similar. They launch a bare-
bones version of their product for a small audience (early adopters),
collect feedback, experiment, conduct A/B testing, analyze the data,
iterate dozens or hundreds of times and add features little by little in a

quick but controlled process based on real metrics and feedback coming
from users.

Facebook, for instance, initially released their site only with Harvard
students, then opened it for students from all universities and finally,
two years later, Facebook was available to everyone else.

Uber followed a similar pattern. The service was tested first with the
founders friends. A few months later, the app was launched in San
Francisco followed by other large cities in the United States. Three years
down the road, the startup raised enough money to expand
internationally and today is present in more than 600 cities in 80

Game developers have an even more interesting course of action. They

first launch their games in a small market such as New Zealand to get
feedback from users, measure the numbers so they can calibrate game
mechanics and monetization loops, test the backend infrastructure, and
fix critical bugs. This process, where the app goes through dozens of
iterations, may take months. If the game does not reach certain metrics
by then, it is killed mercilessly. If it passes, it goes live across the rest of
the world.

Over the course of this decade, apps have become much less reliant on
gut feeling, oine research, and creative decisions by a company
committee. Now, product features are driven mostly by analysis of
collected data from real customers, and the decision making is done by
product managers to speed up the release of new versions. Actually,
many startups and sophisticated tech companies update their apps every
single week.

After 400 years helping the humanity to thrive, a variation of the good
old scientific method is now being used by entrepreneurs and companies

to achieve success in the digital world. The internet not only created
new distribution channels and changed the way we consume content,
but it also made this trial an error approach an irreversible trend.
Entrepreneurs outside Silicon Valley should take notice.



In a few countries such as the United States, successful entrepreneurs

are seen as role models and enjoy a lot of recognition and appreciation
by people from all walks of life. They are treated like rock stars.

Failure, on the other hand, is vilified in almost any culture, from East
Asia to Latin America. In most countries, failed products or startups are

seen as a badge of dishonor and will probably follow entrepreneurs for
life as a stain on their reputation.

In Silicon Valley, one of the most competitive ecosystems in the world,

failure is still not appreciated or encouraged but is seen through a
dierent prism. Maybe because of the engineering centric culture, the
Bay Area community has always treated failure either as an inherent
part of the scientific method, a fact of life or a means to an end.
Thinking this way has been helpful in removing the stigma that
entrepreneurs who made mistakes could not rebound later.

It is well documented that the vast majority of startups fail. What most
people do not realize is that even the most successful entrepreneurs
have failed at something or at some point in their careers. The road to
success is seldom a straight line.

Steve Jobs, for instance, worked on the failed Apple II successor before
reaching stardom with the Macintosh in 1984. The project, named Lisa,
faced many development issues and numerous delays. When the
computer was finally released in 1983, it became an embarrassing
disappointment for both Steve and Apple. Its high price ($24,000 in
2017), relatively low performance and unreliable floppy disks led to poor
sales, with only a hundred thousand units sold.

We should also not forget that Steve Jobs was fired from the company he
founded. After Apple, Steve went on to found NeXt Computer where he
stayed under the radar until 1994. NeXt had not achieved meaningful
commercial success during the period.

Things began to change in 1995, with the launch of the revolutionary

Toy Story (Pixar was acquired by Steve in 1986). Success knocked at his
door again only in 1997 when, in an unexpected turn of events, Apple

bought NeXt and brought Steve Jobs back to initiate a triumphal new
era of disruption that cemented him as the face of product innovation.

Elon Musk is another great example of how success is not a straight

line. The acclaimed entrepreneur, at some point in life, was failing at
everything he tried to accomplish. At the end of 2008, Elon invested all
his money ($180 million) into his companies, which were on the verge
of bankruptcy (Space X had three rocket failures, Tesla ran out of
capital). At the time, he needed to borrow money from friends to pay
the rent and also endured a hurtful divorce from his first wife.

Almost a decade later, Elon was not only able to reverse his fortune on
both Tesla and SpaceX but also started revolutions in industries as
diverse as energy, aerospace, and automotive, becoming the most
innovative and influential entrepreneur alive.

Mistakes that lead to catastrophic failures are painful, unforgettable and,

sometimes, irreversible. However, when entrepreneurs take
responsibility and learn from past mistakes, they are able to turn the
table. This is what Steve Jobs, Elon Musk, and smart entrepreneurs do.

The Silicon Valley ecosystem sees this process as a real life MBA, more
valuable than the lessons learned from top academic institutions. In
entrepreneurship, no pain is no gain and blaming someone or
something for our own failures is neither a responsible nor an ecient

The cool thing about Silicon Valley entrepreneurs is that they have no
shame to talk about their mistakes and what they have learned from
them. Actually, it is quite the opposite as this conversation is a common
topic of keynotes, meetups, and panels across the Bay Area. There is
even a large conference dedicated to failures called Failcon.

The idea of sharing lessons from failure is based on the premise that
anyone can learn from other peoples mistakes. This simple gesture is
extremely important to boost the ecosystems competitiveness as it
breaks conventions and accelerates the progress of other founders.

Silicon Valley truly believes failures make entrepreneurs wiser, more

mature, more resilient, and less prone to fail again. Having said that, it
is important to stress the ecosystem only respects and appreciates failed
entrepreneurs if they use the lessons learned to become successful later

Success still continues to be the best antidote to failure, anywhere.

When life gives you lemons, why not make lemonade?



In many parts of the world maybe because of an implicit belief that

ideas are worth a lot more than they are founders, investors, and
startups are very reluctant to share strategies, numbers, valuations,
lessons learned or contacts.

One of the biggest Silicon Valleys strengths relies on the culture of

openly and freely sharing information and knowledge with anyone. Over

a coee, meeting or during a pitch, it is usual to share stu that would
be considered confidential in other ecosystems.

For instance, most entrepreneurs would tell you how much money they
have raised, at what valuation and from whom. They may discuss
progress about their products, what is working and what is not, and
they may even share lessons learned during the process. People are not
afraid of having their ideas copied or stolen if they are talking to
someone credible.

On the other side of the table, investors are also very transparent and
give constructive feedback to a startup even if they have no interest in
investing. They may share non-confidential information about their
portfolio companies that might be helpful to entrepreneurs or introduce
them to other folks. Even investment documents are made public such
as Y Combinators SAFE notes.

In Silicon Valley, startups, large companies, and investors tend to protect

themselves against the leaks of ideas or restricted information by
trusting the reputation of other parties. As you will learn in the next
chapter, reputation is the de-facto currency of Silicon Valley and the
system devised around it works pretty well.

Surprisingly to many outsiders, investors and founders in Silicon Valley

are not used to signing nondisclosure agreements (NDAs) when
discussing ideas or pitching. Neither do entrepreneurs exchanging
information with large companies or other founders. The justification
for not signing nondisclosure agreements is very interesting.

People believe that, in an environment where information and

knowledge are continuously pursued, NDAs are counterproductive.
Imagine, for instance, if investors who hear a thousand pitches per year
needed to sign one NDA per meeting. It would be impossible to make

sure they would not be infringing an NDA at any given point in time,
making them an easy target for sham litigations.

That would then create a deterrent eect on the free flow of information
sharing, hampering one of the ecosystems main innovation drivers. The
non-existence of NDAs when exchanging restricted or potentially
confidential information is a culture shock for entrepreneurs and
companies outside Silicon Valley.

I, sometimes, question how far this can go. In 2016, when I attended a
dinner with other entrepreneurs and executives organized by a common
friend, I had the chance to sit right next to a CEO from a very successful
startup. Out of curiosity, I started to ask questions about the companys
financials and product metrics. To my surprise, he answered all my
questions without flinching, including sensitive information about
internal product performance, revenue growth, and plans for an IPO. In
one dinner, I learned more about this business than anything I had ever
read about it. It was pretty cool.

However chill Silicon Valley may be about information exchange in

informal situations, the mood changes completely when companies
enter into a formal relationship or share top secret information. The
signature of NDAs and other hairy agreements are expected, and the
ecosystems players do take contracts seriously. Lawsuits are certain if
trade secrets are stolen, as evidenced by Waymos Uber lawsuit
concerning the supposed theft of technology from their autonomous car

Nevertheless, Silicon Valleys sharing culture continues to be hugely

beneficial to startups, making their life much easier. Credible founders
can access hard to find knowledge with a phone call, a Facebook
message or over coee. Blog posts and local events are also a great

source of information. Chances are, if you are part of the ecosystem,
someone will help you.

For those reasons, it is interesting to note that traditional consultancy

companies are not well accepted in Silicon Valley. Entrepreneurs,
companies, and investors here do not appreciate intermediaries or gate
keepers. Local consultants in Silicon Valley have a dierent background
and are usually successful former entrepreneurs or executives with
extensive networking and possessing very specific and valuable

Startups may hire them as contractors to save on costs. For instance,

you may find great consultants on chip design, supply chain, UX, growth
hacking or even programming. Rates are aordable and many are willing
to defer payments or exchange their services for stock options in
startups deemed hot.

In my opinion, Silicon Valleys sharing culture works extremely well and

it is the one trait that could and should be adopted by players in other
ecosystems. Anyone with enough confidence in their execution
capabilities should not be afraid of having their ideas copied.



Reputation is Silicon Valleys main currency. Everything you do in this

ecosystem depends on it, from raising money from credible investors to
attracting talent to partnering with large companies. Usually, the more
achievements you get, the more your reputation goes up.

Some of these achievements may be earned in a more traditional way

such as graduating from a top university or accelerator, or by having a

job at a credible company. Achievements that really boost your
reputation require superb realizations such as leading a startup to a big
exit, IPO or by having a high-level position at a large tech giant.
Reputation goes hand in hand with ones ability to get results and is
directly proportional to the quality of your networking. If the Silicon
Valley ecosystem were a game, I would separate its reputation rankings
into three dierent categories.

In the top of the pyramid are entrepreneurs such as Elon Musk, Mark
Zuckerberg, Larry Page or Je Bezos, creators of huge innovative
companies disrupting many industries. High caliber persons such as Tim
Cook, CEO of the largest company in the world; Peter Thiel, the most
prolific angel investor in the Valley; Jessica Livingstone, founder of Y
Combinator, the worlds most successful accelerator; Sheryl Sandberg,
COO of Facebook; and Tony Fadell, considered to be the father of the
iPod and who later on founded and sold Nest Labs to Google for $3.2
billion, are also in this category. Having any of these names attached to
startups or projects would increase their chances of success by one or
two orders of magnitude.

In the second tier, there are entrepreneurs with smaller exits or who are
managing potentially disruptive startups, non-founder director or VP
level executives at large tech companies, top academics at Stanford or
Berkeley and prolific investors. Examples: Ryan Hoover, founder of
Product Hunt; Stuart Russell, professor of computer science at UC
Berkeley; and Dave Morin, founder and partner at Slow Ventures.

The third reputation tier is reserved for the rest of the ecosystem,
including entrepreneurs with no exits, mid-management executives with
no big accomplishments, professors, consultants, and the fifteen-year-
old kids with apps being used by millions of people. People can be

upgraded or downgraded to a dierent tier in real time depending on
their recent accomplishments or failures.

Entrepreneurs arriving in Silicon Valley after graduating from most

foreign universities would fit into a fourth tier. They are virtually
unknown in the Valley and thus, are not recognized by the ecosystem. It
helps to have achieved success in their country of origin, but foreign
entrepreneurs reputation will directly correlate to the magnitude of
their achievements in the Valley. These founders, regrettably, will take a
long time to build their reputation in the Bay Area.

There are some exceptions though. Foreign founders who sold or IPOed
a company for more than a hundred million dollars, anywhere in the
world, are seen as impressive folks. However, they still need to prove
they can do it again in a more competitive environment.

Entrepreneurs coming from countries with lots of exits, a burgeoning

tech ecosystem, and positive soft power such as China, Israel, Sweden or
Finland tend to be well respected in the Valley. Latin America, Southeast
Asia, the Middle East, and Africa are believed to be great markets, but
entrepreneurs from these countries are seen as less sophisticated and,
therefore, more prone to failure in the super competitive valley

The good news is that reputation can be built with hard work wherever
you come from. If you are smart, capable of creating something people
want to use, and can deliver results, then people will respect you and
will not care about your previous life. On the other hand, destroying a
reputation is super easy and can happen overnight. Sexual harassment,
fraud, lying to investors or overpromising and under delivering are seen
as career destroying moves.

Pundits love to focus on the flaws of the Valleys reputation system by
citing examples of bad behavior perpetrated by founders such as Ubers
Travis Kalanick. Travis, allegedly, created a toxic culture inside Uber that
fostered sexual harassment, lack of transparency, and unethical behavior.

Since he has been accused of malfeasance by the press, employees, and

competitors, Travis started to suer immense pressure from other
founders, friends, and investors to apologize, fix the problems, and grow
up as a leader.

I would argue that Travis is actually a textbook example of how

reputation is taken seriously by Silicon Valley. I bet that, if Uber does
not change soon, it will lose even more top talent and will have its
valuation crushed. No one will want to be associated with a company
that has dubious ethics.

The truth is that it does not matter if you believe or not in Silicon
Valleys reputation system. One of the closely guarded secrets of this
ecosystem is to focus on building your own reputation. At some point in
time, it may become more important than money or success.



Having access to the right people is fundamental to thriving in any

ecosystem. In Silicon Valley, it is no dierent, but expanding your
networking here can be tricky.

On the one hand, meeting new contacts is relatively easy and

frictionless. People are accessible, approachable, and can be reached
directly. On the other hand, if you really want to build a powerful

networking and be remembered by executives, investors, and
entrepreneurs, you must be introduced by someone with impeccable
reputation. The more credibility the introducer has, the more seriously
you will be taken by other players in the ecosystem.

Lets imagine you have just arrived in the Valley and are working on a
technology beneficial to WhatsApp. You wish to meet the founder of
WhatsApp, Jan Koum, to discuss business opportunities. The best way
to have the meeting set up is through an introduction from someone he
trusts dearly.

Your first task is to find out who that person may be and assess what is
his or her reputation with Jan. Your contacts homework is to assess if
the meeting has a good value proposition for both sides and, if so,
proceed with the intro.

If the meeting goes well, you and the introducer will have your
reputations boosted. Jan will be happy, and next time he will remember
the introducer as a reliable and trustworthy party. If the meeting is a
waste of time, the introducers reputation takes a hit. The introducer, in
this example, has a lot of responsibility as he or she becomes a
guarantor for a potential good meeting.

If you have wondered why, often times, friends who live in Silicon Valley
are not helpful to make introductions, now you can better understand
their decision. They may have assessed the meeting would not add value
for both sides and, thus, hurt their reputation.

It may sound as nonsense for outsiders, but after being part of the
Silicon Valley ecosystem for so many years, I can attest this unique
albeit archaic system really works. This is one of those things that seems
easy to understand but very dicult to master. The good news is that no

one asks for favors or charge fees to introduce people, which should be
the norm in all tech ecosystems.

Of course, like anywhere else, it is entirely possible to make cold calls

and schedule meetings through LinkedIn, at events or parties. However,
the chances of people taking you seriously diminishes dramatically.

The principle of being introduced by a reputable third party should be

applied to anything done in the Valley like raising money.
Hypothetically, if you have Peter Thiel as your angel investor and your
company is doing really well, it would be more ecient to ask Peter to
introduce you to venture capitalists than knocking their doors yourself.

This dependence on intros from certain people also creates a system that
becomes unfair and privileges the Silicon Valley elite. The former PayPal
founding team is one great example of this behavior. Anyone who
belonged to the PayPal mafia automatically gets faster access to new
deals and boost the credibility of their invested startups. Venture
capitalists, often times, invest in average startups referred by rock
stars in spite of other startups with better talent or traction.

In the venture capitalists view, the startup with no star power will have
more diculty raising future venture rounds and may end up failing. In
this regard, Silicon Valley inherits the worst traits of ecosystems such as
Hollywood or Wall Street, where the ones in power do minimal eorts
to generate more money and power to themselves.

Fortunately, this is changing due to the proliferation of accelerators and

other successful entrepreneurs not tied to mafias.



Meritocracy is a system in which the talented are chosen and moved

ahead on the basis of their achievement. At the company level,
meritocracy accelerates decision making and fosters a culture of
experimentation and iteration, boosting competitiveness. In product
development, meritocracy means the adoption of the most ecient

solutions to problems, the improvement of processes, and the creation
of better user experiences.

Meritocracy seems to have served well the Silicon Valley ecosystem over
the past decades by creating trillions of dollars of wealth for companies,
entrepreneurs, and investors in the region. The largest and best tech
startups of all time have grown anchored on the tenets of meritocracy.

Apple, Facebook, and Google, for example, took good care of their
corporate culture and continue to be super productive and innovative
even at a large scale. Usually, when the original founders remain at the
helm, companies are able to keep the flame of meritocracy alive.
Interestingly enough, meritocracy is not compatible with democracy.
The most innovative and ecient companies are benevolent

In other cases, true meritocracy becomes harder to implement, and

many times it may be replaced by bureaucracy and internal politics.
Some of the Valleys most traditional startups such as Hewlett Packard,
Silicon Graphics and Yahoo have been plagued by large company
maladies that destroyed their capacity of innovating. Lack of meritocracy
is a capital sin in technology, and it may drive companies either to
irrelevance or bankruptcy.

Unfortunately, even with all the evidence that meritocracy works, it

continues to be an alien concept in many parts of the world due to
cultural traits, conservatism, and tradition. These characteristics impede
the adoption of meritocracy and threaten local ecosystems.

In large developing countries, such as Brazil, Russia or Indonesia,

meritocracy is still a myth. For historical and cultural reasons, local
entrepreneurs tend to cut corners and hedge their success by developing

relationships with the rich and the powerful. Corruption, favoritism,
and intimidation become the weapons of success.

Other advanced economies, like Korea and Japan, have an excellent

talent pool and a strong engineering culture, but the old guard still in
power favors seniority, loyalty, and hierarchy over meritocracy. It is no
wonder that both countries, once heralded as the next bastions of
innovation, are lagging in key areas such as big data, artificial
intelligence, biotech, and manufacturing. Changing cultural values
imprinted in peoples psyche for hundreds of years is no easy task.

Smaller countries use a more pragmatic approach to stay competitive.

Singapore and Chiles strategy, for example, is to bet on economic
incentives, a solid legal system, lower taxes, and a high quality of life to
attract foreign startups and IT talent. Their governments want to mix up
locals with people from other countries to foster entrepreneurship and
give birth to a true meritocracy that is not dependent on ethnicity or

China is the one country that has been relatively successful in creating a
culture of meritocracy by using a mix of social Darwinism, government
incentives, and wild capitalism. Their formula is original and fits the
countrys unique culture and history.

However, I would argue that, although Chinese entrepreneurs have

evolved exponentially in the last decades, and are among the worlds
best, their success is still tied to connections with the Communist party,
corruption, and a protected market. Chinese companies will struggle for
many years to be competitive in free markets like the United States or
Western Europe.

The lessons I have learned from other ecosystems reinforce the

importance of meritocracy as a competitive strategy. Silicon Valleys

formula for success is going to become more and more important in the
coming decades as technology increases in complexity and starts to drive
other areas of the economy.

Any entrepreneur willing to create a solid global business should be

inserted into a meritocracy driven ecosystem or use meritocracy to run
their companies.



It may sound shocking for readers from developed countries, but the
term accountability is virtually unknown in many cultures. In emerging
countries, maybe due to the influence of ineective legal systems,
people are not used to being held accountable for their actions if
something goes wrong or has an unexpected outcome.

Accountability, as evidence shows, is a great tool to curb corruption and
malpractices in governments, organizations, and businesses as it leads
to a better corporate governance and improved processes. Accountability
and meritocracy usually go hand in hand.

In my experience, no culture takes accountability more seriously in the

business setting than Americans (in politics, it is a dierent story). The
concept is built into the fabric of society and, from a young age, kids
learn their actions have consequences, and the faster they take
responsibility and fix their mistakes, the better the outcome will be.

In Silicon Valley, accountability is fundamental to any startups survival

as it helps founders to save companies from near death moments more
eciently. It is a common sight to witness entrepreneurs reaching out to
their customers, apologizing for blunders or promising changes in their
products. Accountability is useful to avoid repeating the same mistake
twice and for building a relationship of trust with customers.

There are many examples where this ingrained behavior saved a startup
from a death spiral. One of the most interesting cases happened in 2011
with Airbnb, when the startup was crucified by the media after some
hosts had their homes vandalized by guests.

Instead of deflecting responsibility and blaming someone else, CEO

Brian Chesky took action, apologized to the hosts, paid for the damages,
and instituted a complimentary insurance of $1 million to cover any
possible future damage by guests. The move was seen as a mature and
adequate response that built trust for the Airbnb brand and elevated the
reputation of the young CEO. The startup, which is disrupting the
hospitality industry, was worth more than $30 billion as of May 2017.

Even CEOs and founders of large tech corporation such as Apple,

Facebook, Amazon, Microsoft, and Google are held to account by their

stakeholders from time to time, publicly apologizing to their customers
and implementing changes learned from past mishaps. In the worst
cases, they might be even removed from power, as happened with Steve
Ballmer from Microsoft.

Accountability is not just a cultural trait but also a system devised to

make businesses more ecient, dynamic, transparent, and fair. This is
one of the best practices from Silicon Valley that any entrepreneur or
leader can learn and implement in their internal culture, no matter
where in the world they are.



It is no secret that minorities are usually treated unfairly in most parts

of the world. Blacks in American inner cities, Catholics in Indonesia,
Muslims in Myanmar and China, Koreans in Japan, Jews in the Middle
East, Arabs in Israel, Kurds in Turkey, Turkish in Germany, gays in
Russia, Republicans in San Francisco or Democrats in Texas; you name

it. In a divided society, the word diversity may invoke ones skin color,
ethnic, political or religious background.

In Silicon Valley, though, the concept of diversity is taken into a dierent

context. The ecosystem does not care how you look like, where you
come from or what your personal beliefs are. Entrepreneurs, academics,
investors, and executives are interested in knowing about your skills,
mindset, and life story.

Have you done something remarkable? Have you created something

cool? Have you studied heterodox subjects and want to apply them to
other fields? Are you a misfit? If the answer is yes to any of these
questions, people will want to meet you and learn more.

It is widely believed in Silicon Valley that, when dealing with complex

problems, mixing people with dierent backgrounds and points of view
can only result in good outcomes.

In Berkeley, for instance, you will find a broad spectrum of students

attending classes, from well born kids to students fleeing poverty in
their home countries to former military guys who fought in Afghanistan
or Iraq. Aspiring doctors may have a computer science background or
engineers may pursue a Ph.D. in neuropsychology. Diversity is not only
part but encouraged by the ecosystem.

The same rationale is applied when tech startups or large companies

hire employees. Physicists are known to be potentially very good
programmers, designers may become very influential product managers,
artificial intelligence experts are in high demand even in law oces, and
game companies hire economists to manage their complex in-game

Tech companies and startups are now conducting research and working
on a varied set of fields such as artificial intelligence, augmented reality,
blockchain, robotics, neuropsychology, biotech, hardware, etc. Without
diversity of talent and heterodox backgrounds, they will not be able to
fulfill positions that require expertise in diverse subjects.

Even medicine is changing dramatically. The Biodesign course at

Stanford mixes engineers, designers, entrepreneurs, programmers, and
doctors to solve health related problems. The university is bringing
innovation to a slow-moving industry by betting on the diversity of
peoples backgrounds and ideas.

Silicon Valley is also a place of immigrants, and you can find people from
many countries working in the service and tech industry. Not only will
your Uber drivers be from the Middle East, Latin America, Africa or
Asia; actually, 51 percent of billion-dollar tech startups in Silicon Valley,
from 1995 to 2005, have been started by immigrants. Sergei Brin, one of
Googles co-founders, was a refugee fleeing the Soviet Union. Jan Koum,
WhatsApp co-founder, came from Ukraine and survived on food stamps
throughout his childhood. Facebook and Instagram had Brazilian co-
founders. Elon Musk is from South Africa.

Immigrants are everywhere. CEOs of Microsoft and Google are Indian.

Jensen Huang, CEO of NVidia, was born in Taiwan. Venture capitalist
Steve Jurvetson is from Estonia. The prolific investor Shervin Pishevar is
Iranian. Oracles CEO is an Israeli born woman.

On traditional diversity issues, Silicon Valley boasts beacons of hope.

Tim Cook is gay. Peter Thiel is a gay Republican. Famous tech journalist
Kara Swisher is lesbian and her colleague Ina Fried is a transgender
woman. Social Capital general partner, Mamoon Hamid, is Muslim.
Michael Siebel, partner and CEO of Y Combinator, is Black. Women
CEOs run HP, Yahoo, Xerox and many other large companies.

The acceptance of this melting pot of ideas, educational backgrounds,
values, and points of view brings the best out of people, incentivizes
tolerance, and helps immensely to generate innovative products and
successful startups. In my opinion, diversity is fundamental for tech
ecosystems to thrive.

Obviously, there is still a lot of work to be done in order to bring

minorities to the tech industry. Silicon Valley is, sometimes, heavily
criticized for being racist or misogynist.

I believe, however, the solution to these problems is more dependent on

the educational system, immigration policies, and the replacement of
the old school establishment by younger generations, which treat
diversity and equality as something ordinary.



In many emerging countries, founders face abhorrent conditions to run

startups. It takes ages to open a business, there is no supportive
ecosystem for entrepreneurs, corruption is rampant, the legal system
does not work, internet is slow and expensive, logistics are a mess, and
most people do not have the means to aord popular products.

Emerging entrepreneurs learned from inception how to survive amongst
the chaos. The chaotic environment faced by their startups led them to
become jacks of all trades, masters of none. Focusing on just one
product was never an option.

When I lived in China, in 2009, I was flabbergasted to witness local

entrepreneurs running totally dierent businesses at the same time. A
small developer in Shanghai was simultaneously developing games,
designing user interfaces for set-top-boxes, building hardware gadgets,
and consulting to large organizations. This startup, incredibly, ended up
having an exit years later with a Frankenstein business model. This is
the Chinese way, they said.

However, when startups begin operations in more structured markets

such as the United States, Japan or Western Europe, they realize that
being jacks of all trades, master of none has a short life span.
Entrepreneurs from emerging countries are learning, the hard way, that
what was good for their countries is not enough to build a global

The problem is that competition in the digital realm is very asymmetric

and favors a winner takes all approach. Google and Facebook, for
instance, have 65 percent of the online advertising market in the United
States. In the games market, with more than a million apps available on
all platforms, the top five gaming companies are responsible for more
than 40 percent of the industrys revenue.

There are so many examples, from Uber to Tinder to Airbnb, where one
player dominates an entire category. Thus, it is imperative for startups
and large tech companies to focus on the core business model and
become leaders in any given category.

In mature markets, entrepreneurs got used to focusing on being the best
in a very tiny space. If startups are number one in a category or even a
sub-category, they can expand their market inside out. Amazon, for
instance, began selling books, then CD/DVDs and years later moved
slowly to other categories. Snapchat rose to prominence focusing on
disappearing messages for tweens.

In Silicon Valley, the concept of focus transforms into hyper focus. Here,
startups may begin their life as mere product features. In 2012, for
instance, Facebook acquired, which had an advanced facial
recognition technology that was integrated into its site and mobile apps.

Instagram was initially a way for bad photographers to publish good

pictures with their smartphones. Its main feature was filters, which was
something Apple or Google could have easily copied. To the surprise of
many, Instagram executed flawlessly and became the number one app in
the space in a short period of time. After amassing millions of loyal
users, it decided to focus on creating a real photo-centric social network.

As markets get more sophisticated, they also become more competitive,

and that requires entrepreneurs to hyper focus. Hyper focus leads to
simplicity and simplicity helps entrepreneurs to direct their scarce
resources into great scalable products that people love. When people
love something, they will come back. And the more often they come
back, the faster entrepreneurs will find a repeatable business model that
will propel their startup to world dominance.

When creating a global startup, this simple lesson from the Silicon
Valley ecosystem can really make a dierence in your chances of success.
My advice is to unlearn doing many things simultaneously and focus on
being the best at just one thing. Hyper focus is the capacity of saying no
to great opportunities.



Contrary to the popular imagination, Silicon Valley investors do not like

nor give much money to starting entrepreneurs. This is not the mythical
place portrayed by the media where any startup can raise millions of
dollars by just breathing the air of California.

Actually, it is pretty hard to raise money in Silicon Valley due to the

enormous competition from the best entrepreneurs in the world. Most

investors appreciate founders that are nimble, bootstrap their companies
and can execute with few resources.

Founders like Brian Chesky, Joe Gebbia, and Nathan Blecharczyk from
Airbnb. As they were starting out in the summer of 2008, the founders
needed a way to raise money and sustain their business as no investors
were interested in their crazy home sharing idea.

During the 2008 presidential election, the three founders bought a ton
of cereal and designed special edition election-themed boxes, released
that fallObama Os and Capn McCains, which they sold at
helping them to raise around $30 thousand for the startup.

Skeptical about the product and business model, but impressed with the
founders hustle, Paul Graham, the CEO of the accelerator Y
Combinator, decided to accept Airbnb in the 2009 batch, putting
another $20 thousand dollars in their coers.

Airbnb founders, pressured by the lack of resources, were successful in

solving their lack of cash and went on to build the first prototype. The
startup was only able to raise institutional money from investors after
demonstrating their product got real traction from users. Nine years
later, Airbnb ended up becoming one of the most valuable and
successful startups of the last generation. The company raised more
than $4 billion and is now the largest hospitality chain in the world.

Stories like Airbnbs are not the exception to the rule. The smartest
founders are always capable of solving big problems with little or no
resources. Silicon Valley investors know that well and are careful, most
of the time, not to throw a lot of money on entrepreneurs that have not
proven themselves before.

Bad investments, of course, do happen from time to time but this is due
to the portfolio approach taken by venture capitalists. The media usually
amplifies the bad stu and does a really poor job of explaining what
really happens inside the ecosystem. The impression you may have by
reading tech blogs or newspapers is that Silicon Valley is a bubble where
money is thrown at stupid ideas from dropout kids. This is far from the
truth and is one of those fallacies that is repeated over and over again
with no evidence.

I vividly remember when, in 2009, most analysts were decreeing that

Facebook would never become a real business or make a profit.
Journalists accused Mark Zuckerberg of being a toddler CEO and
reprehended investors for throwing money at a dropout kid running a
vaporware business. In 2016, Facebook made $10 billion in profit and,
as of May 2017, is the fifth most valuable company in the world.

The same has been said about other industry disruptors such as Uber,
WhatsApp, Instagram, Tesla, and SpaceX. These startups were
considered by many as crazy ideas or were deemed to be unviable
economically before success. They either had problems raising money at
the beginning or were funded by the own founders. It was only after
they got traction and proved their business model, money ceased to be a

Scarcity is crucial to building a lean and successful startup culture. If too

much money is available to entrepreneurs, they will focus on the wrong
priorities and will never learn how to overcome near death moments
(that will be many). Abundance of resources damages entrepreneurship.



Steve Jobs used to say that A players hire A players; B players hire C
players; and C players hire D players. It doesnt take long to get to Z
players. This trickle-down eect causes bozo explosions in companies.

The two main advantages startups have over large companies are
eciency and speed. As startups grow and mature, the hiring process

becomes essential for their survival. If founders do not hire A players,
startups lose competitiveness and might even go bankrupt.

For that reason alone, Silicon Valley companies adopted a policy of

slow to hire, fast to fire where prospective employees curriculum and
qualifications are just the starting point. As a talent centric ecosystem,
Silicon Valley startups pay ultimate attention to the quality of their

If you are on the entrepreneur side, hiring in Silicon Valley is more art
than math. Founders need to be charismatic and go to great lengths to
convince top engineers, product managers, and designers to join their
team. People need to believe in the founders reputation. It helps if they
worked together at another company or have known each other for
years. If a potential employee does not know the founders, he or she
relies on recommendations from friends or colleagues who know them.

The next step would be to assess the founders vision and culture for the
company they are applying for. Is what they are trying to build feasible,
disruptive or cool? Could it be a billion-dollar company one day? Are the
founders nice or a bunch of sociopaths? Are other hires happy? Do they
give autonomy to the team or are they control freaks? Do they treat
minorities with respect? Dierent people look for dierent cultural
traits that may appease their purpose.

Professionals who are willing to leave their jobs at a large company in

order to work for a tiny startup generally take a huge salary cut in
exchange for stock options. Dierent from many other parts of the
world, it is well appreciated by the Silicon Valley community when
employees prefer shares over cash. It is a sign of commitment. The
sooner you join a startup, the riskier it is and, therefore, the higher is
your stock package (which can be worth millions in a few years).

If you want to apply for a job at a startup or large company, be prepared
for an interview process that may take months and involve up to 10
interviewers inside the organization. Relationships with company
employees may help to get your foot in the door, but they do not
guarantee you will be hired.

The larger the company, the more interviews the candidates will face.
They will be grilled by founders, future bosses, and subordinates who
will evaluate not only their competences for the position but also their
cultural fit. If anyone in the team has any second thoughts, the trigger is
not pulled. This is a brutal process, more thorough than anything I have
seen in other countries.

Usually, in many ecosystems outside Silicon Valley, large companies or

even startups rely on external headhunters for screening prospective
employees. I had the chance to speak to many headhunters over the
years and I tend to believe the process is outdated, slow, and very

Headhunters do not know the companys business intricacies very well

and, in the tech industry, they also happen to not have the experience or
the advanced expertise to comprehend the qualifications of the best
candidates for technical jobs. I doubt a regular headhunter is able to
discern good from bad candidates in hairy subjects such as cloud
computing, machine learning, robotics or even basic app KPIs.

Comparing the headhunting model with the Silicon Valley model, I am

highly biased for the latter. In my opinion, entrepreneurs must be
involved in the majority of hires to keep the companys culture tight and
to make sure A players are fulfilling all the top positions. Large
companies may survive with C or D players, but startups will
definitively die if they do not hire the best.



Most CEOs and entrepreneurs from brick and mortar businesses do not
understand how Silicon Valley economics work. The high startup
valuations are probably the single most misunderstood aspect of this

In the real world, companies are valued by a method called discounted

cashflow (DCF). Sophisticated financial buyers interested in acquiring a

company will run as complex as they want calculations to figure out
how much they are willing to pay today for the rights to earn a business
future free cash flow.

Cash flow is dierent from profit because the later follows accounting
principles for taxation purposes. Cash flow takes into consideration the
moment the money is spent or received by the company, including
working capital, investments, depreciation, and amortization, among
others and is considered free to be distributed to company owners.

As an example, if you forecast a company will generate a million dollars

of cash flow per year during its life, buyers would discount the cash flow
by a rate that reflects their perception of risk for that particular
business. As an exercise, lets simplify the model and imagine investors
want a 10 percent return per year for a company that will last only five
years. In this case, the million dollars would be discounted by 10
percent every year ($1,000,000 divided by 1.10, where n is the year of
the cash flow).

In the first year, it would be $909,091, in the second $826,446, in the

third $751,315, the fourth $683,013 and in the fifth year $620,921. If
you add all the five discounted values, you would have a company
valuation of $3.79 million or almost four times its nominal cash flow.
When entrepreneurs negotiate with investors using the DCF model,
they negotiate the discount rate, the cash flow forecast, and the number
of years the company may be operating.

The problem in the digital world is that most tech startups may take
many years to generate positive cash flow and are usually pre-revenue
when evaluated at the present. That would make their valuation to be
zero for the near future.

To solve the problem, Silicon Valley basically abolished the DCF model
for a framework that is seen by outsiders as controversial, opaque, and
subjective. As an extrapolation, this methodology could be analog to
quantum physics: people know it exists, but they have no idea how it

In order to elaborate a fair startup valuation, Silicon Valley investors

take into consideration the founding teams track record, the potential
of disrupting a large market, growth rate (users or revenue), retention,
the existence of proprietary technologies, how feasible is it to scale up
the operations, and the momentum of that business.

The main barriers to understanding the Silicon Valley framework are the
perceived skewed and illogical valuations. For instance, the average
valuation of early stage startups in Silicon Valley, according to AngelList,
is about $5.1 million. The majority of these startups have no meaningful
revenue and, surprisingly, they are valued at a higher price than the
company from our example, with a million dollars in cash flow per year.

In practice, what happens with this Silicon Valley methodology is that

the valuation of an early stage startup becomes what the founders are
able to sell to investors. A good story, salesmanship, confidence, a great
team and supply and demand are key factors that may define the
valuation. Regular economics are not taken into consideration because
these startups are too early and pre-revenue. Like before the Big Bang,
the common rules cannot be applied.

Investors are willing to pay so much for tech startups with no profit
because they are more likely to grow exponentially and be worth a much
higher multiple than conventional companies, as the majority of
startups can scale up without a proportional increase in fixed costs.
Facebook, for instance, lost money from 2004-2008 and, in 2016, made

$10 billion in profit. Its market capitalization, as of May 2017, was
worth more than 40 times its earnings.

At a later stage financing round, Silicon Valley investors pay a high

valuation due to a logic called salvage value. Instead of trying to
establish the correct value of a startup during the round, they accept the
companys valuation with the expectation that other investors would
likely pay even more for the company in the next round or at the event
of an IPO.

Early stage investments in startups using the Silicon Valley valuation

framework allow successful investors to make up to hundreds of times
their original investment, in a decade. In rare cases, even thousands of
times. Late stage investors are expected to get a single digit multiple
from their money, but the amount invested is much larger. All Silicon
Valley investors play a game where the higher the risk, the higher the

My advice to future tech investors is to embrace the Silicon Valley

framework when evaluating tech companies in mature ecosystems. The
cosmetics may not make sense or look reassuring, but they definitely
work. In this case, what matters is that the invested startups get follow-
on rounds at higher valuations by experienced investors. In the digital
space, an early focus on profits may end up crippling the startup growth
and thus its survivability in the long term.

In non-mature ecosystems, though, investors will probably continue to

use discounted cash flow to evaluate tech startups. The DCF model may
work for e-commerce or business models that generate quick cashflow,
but these investors will never be able to own a piece of the next
Facebook or Google.

If you are an entrepreneur, the value of your company will probably
follow the rules of the ecosystem you are based on. You cannot have
Silicon Valley priced rounds in places where investors value cash flow. If
this aects your survival, your options might be to either migrate to
Silicon Valley or change your companys profile to focus on free cash
flow. Both come with many challenges and must be thought through



The best products work when they are able to solve real problems,
create new needs or connect with customers emotionally. Sometimes, as
in the case of fast food chains and Hollywood movies, they appeal to the
basic instincts that make all of us humans.

In the digital world, things are a little bit more complicated. The
majority of startups have no money to invest in traditional marketing

channels such as TV ads or billboards to advertise their products.
Moreover, the conversion rate from oine channels to online products
has always been very poor.

In the beginning, the internet had no digital distribution channels to

have been taken advantage of, so the smartest entrepreneurs decided to
create their own to reach online users without spending money on
customer acquisition.

Yahoo!, for instance, was the internet version of the Yellow Pages.
Amazon wanted to be the digital version of Wal-Mart, and Craigslist
replaced classifieds ads on newspapers with online ads. These startups
had been growing so fast that they began thinking about what they
could do to keep their millions of users coming back. They were the
precursors of what we call, today, digital platforms.

A digital platform is a technology enabled business model that facilities

exchanges between multiple groups for example, end users and
producers and oers enormous value to the community such as the
generation of trust, revenue or knowledge. The larger a platform is the
faster are its network eects. There are many examples of successful

The top tech companies learned that having a direct relationship with
their customers, over the internet, was the best way to achieve high
margins, maintain loyalty, and lower their acquisitions costs. Those who
control distribution tend to become monopolies, as the cases of
Microsoft Windows and Internet Explorer taught us two decades ago.

Apple and Google, for instance, masterfully diverted resources from

their main businesses in order to create their own operating systems
and mobile stores. The idea was to allow developers to launch and
monetize their applications more easily while maintaining control of the

distribution channel and undercutting traditional middlemen such as
retailers, movie theaters, cable TV companies, and wireless carriers.

The best part of this model is that the tech giants do not necessarily
need to enter into the content business, which is high risk and require
lots of capital. The platform holders take a 30 percent cut, so the more
successful developers are, the more money Google and Apple make. The
iOS App Store generated, alone, $28 billion in 2016, in which more than
$20 billion went to app developers, fomenting a powerful ecosystem.

Owning the operating system and the distribution platforms, as Apple

and Google do, is the ultimate goal for any startup. These are considered
to be tier one platforms, which are a hundred percent controlled by the
companies that created them.

But there are other ways to be extremely successful on the internet.

Facebook, as we know, created a powerful platform based on people.
More than 2 billion people come back to Facebook properties every day.
They can watch videos, read news, play games, participate in
discussions, buy stu or chat with their friends. Facebook adds new
services constantly to keep customers engaged on its platform so it can
monetize them using ads.

Interestingly enough, Facebook is a tier two platform. On the web,

where there is no owner, they can control their destiny. But on iOS and
Android, which generate 85 percent of their revenues, Facebook relies
entirely on the platforms maintained by Apple and Google. If either
company decides, one day, to shut down the Facebook app from their
stores, they can bankrupt the company instantly. This is not likely to
happen, but it can happen.

There is an enormous variety of tier two platforms built on top of tier

one platforms. Uber connects drivers with riders; Airbnb, guests with

hosts; Quora, experts with laymen; Fiverr, service providers with
customers; Netflix, content makers with viewers. Each of these
platforms relies on a dierent business model, but they add enormous
value to both sides of their marketplaces.

Then, there are the tier three platforms such as the stores inside instant
messaging apps such as Viber, Line, WeChat or Kakao, where these guys
can sell and promote other apps. In the end, an app sold through their
stores would have to pay a cut for two layers of middlemen, but mobile
got so big that there is money for everyone. While the majority of the
ecosystem still focuses on mobile, startups and large tech companies in
Silicon Valley began looking for the next big tier one platform.

That is why, after the success of PCs, the internet and smartphones,
there is so much investment right now in virtual reality, augmented
reality, and autonomous cars. Each of them, on their own, could one day
supplant or complement the current one tier one platforms, creating
other huge platforms from scratch.

The fact is that Silicon Valley went surprisingly full circle as it was able
to dominate digital distribution (iOS, Android, Facebook, WordPress,
Google, Chrome, Gmail, GitHub) and online revenue models while
fomenting the creation of enormous foreign companies using its
platforms such as Didi Chuxing, Supercell, Spotify, Line, and Tencent.

The lesson I have learned from Silicon Valley is that, the majority of
value in a digital business relies on the distribution platforms, which are
scalable, have a repeatable business model, and may last for decades. If
you are a tech startup, you should strive to become a platform and not a
content player.



You may have noticed throughout this book that I have maintained an
optimistic and positive tone about Silicon Valleys culture and the
characteristics that make the ecosystem great. This chapter will be a
chance to redeem myself and weigh in on the bad stu.

A land of contrasts

Foreigners that have not been to the San Francisco Bay Area have the
erroneous impression that Silicon Valley is the Eldorado of the
developed world, where futuristic buildings abound, rich people stroll in
the streets with their latest gadgets, and the infrastructure shines on.
Regrettably, the actual scenario is quite the opposite.

Despite being one of the richest regions in the world, Silicon Valley
boasts a Third World infrastructure. Compared to European or East
Asian countries, the public transportation is inecient, slow, and
expensive, roads are full of potholes, and basic services like broadband
internet or public schools are just average. Airports are old, the largest
cities are dirty, and a huge concentration of homeless and crazy people
share the streets with the wealthy.

Oakland became the third most violent city in America and even in San
Francisco people do not feel totally safe. There are too many break-ins,
car thefts, and drug addicts wandering around. The super rich cities of
San Jose and Palo Alto also have enormous bastions of poverty.

I really do not understand how this can happen. My impression is that

local politicians are either incompetent or corrupt. The Bay Area has a
GDP equivalent to Switzerland and even so, sometimes, you wonder
where all this money from taxes is going. Cities like Shanghai or Tokyo,
which are several times the size of the Bay Area, look like futuristic
outposts of more advanced civilizations.

Maybe the chaos and the wealth inequalities of Silicon Valley influence,
somehow, the creativity of local entrepreneurs as they go through
extremes during the same day, from working on the artificial intelligence
to make cars self-driving to calling the police to remove a homeless
person defecating on their doorstep.


You may have heard that San Francisco is now the most expensive city
in the world due to a housing crisis. Locals are being expunged from the
city due to the influx of tech millionaires. Residents pay premium prices
for living here and receive, in return, mediocre service. The same
happens all around the South Bay.

Aordability is a big problem for the ecosystem. Entrepreneurs are

having problems paying their bills, and the cost of living is becoming so
high that even a $150,000 gross salary is not enough for a couple to save
money or to have a comfortable life. A one bedroom apartment rental in
San Francisco, with utilities included, costs around $4,000.

Higher rentals mean higher salaries which, therefore, mean less

competitive companies and more expensive products. If Silicon Valley
does not solve the aordability crisis in the short term, the ecosystem
will probably lose talent to other cities in the United States and the

Bad behavior

Silicon Valley prides itself on its work ethics, meritocracy, and

progressive values, and I sincerely believe most people living here are
doing good to the world. However, there have been, recently, numerous
cases of discrimination, fraud, misogyny, and favoritism in the Valley;
and they happen more frequently than I would like to admit.

Theranos, for instance, pitched a story about a young Stanford dropout

inventing a new painless blood test that would require only a drop of
blood. Its founder, Elizabeth Holmes, was a media darling for many
years and often compared to Steve Jobs. Theranos attracted $700 million
dollars in venture capital and, in 2015, was valued at $9 billion.

Her secret? She was born into a rich and influential family, and her
company was able to draw important political, military, and business
figures to the board to add credibility to her startup. The strategy did
not work for long as the company fell into a downward spiral after a
whistleblower revealed the truth to the Wall Street Journal, proving
their technology did not work and that the company lied to regulators
and investors.

After the episode, Elizabeth continued to double down on the lies. She
did not present any evidence to shut up the criticisms about Theranos
technology and accused the health care industry of orchestrating a
smear campaign. It was too late as the startups reputation in Silicon
Valley and elsewhere was already destroyed. Key people left the
company, which is now facing, along with Elizabeth, criminal and civil
lawsuits. Theranos alleges innocence.

Lily robotics is another emblematic case. The startup ran a very

successful Kickstarter campaign for a cute drone that could be thrown in
the air to follow users autonomously. The company got $35 million in
pre-sales and $15 million in private funding. By all accounts, Lily
Robotics was considered to be a success and an example of Silicon
Valleys ingenuity.

In late 2016, however, everyone was caught by surprise when the

startup announced its bankruptcy alleging manufacturing diculties. It
was demonstrated that the startups video on Kickstarter was faked with
footage belonging to a rival drone and that Lily Robotics was never able
to make a final product. As of May 2017, Lily was being sued by San
Franciscos district attorney for fraud and was required to reimburse all
the customers who paid for the product on Kickstarter.

Uber has also been in the news due to many cases of misogyny,
unethical behavior, and unsavory attitudes from the executive team

toward women, drivers, competitors, and the press. Dierently from
Theranos, though, Ubers CEO apologized, took responsibility for their
actions, and promised to change course. Time will tell if the Uber brand
will recover from the accusations and mess-ups caused by a hyper
competitive and toxic culture.

These cases are emblematic because they aect the reputation of the
whole ecosystem. Fortunately, the majority of startups in Silicon Valley
take their responsibilities seriously, and most investors, executives, and
entrepreneurs have voiced their repudiation against bad apples.

The immigrant Catch 22

Around one-third of the Bay Areas population was born outside the
United States. On the one hand, this makes diversity and acceptance of
dierences a core tenet of the Silicon Valley ecosystem. On the other
hand, some attitudes toward immigrants continue to be truly backward.

One of them is the indierence and lack of appreciation toward the

numerous struggles foreign professionals face to come here. Americans
tend to treat immigrants as if they were coming from another state. I
heard once from an investor that he understood what I went through in
my journey because he too was an immigrant, from Chicago. This is no

I think most Americans do not realize how life is tough elsewhere and
how dicult it is to immigrate to another country and adapt to a new
environment. Sometimes, immigrants fight for years for the opportunity
to come to a better place and, internally, they are completely burnt out.
What I advocate is not compassion, but recognition of immigrants
talents that may be useful to the ecosystem. Talents like persistence,
optimism, charisma, and interpersonal skills.

I could argue immigrants have solved very hard problems to come
legally to the United States, but the skills used to make their journey a
reality are not taken into consideration in job interviews or when raising
money for startups. Actually, it is quite the contrary.

Immigrant entrepreneurs are expected to behave exactly like a white

American Stanford graduate even though they face financial, linguistic,
cultural, and educational adversities for many years. Companies seem to
not have any programs to acclimatize recently arrived foreigners and
explain to them how Silicon Valleys culture works and what is the
expected behavior.

What happens is that local Silicon Valley folks take their culture for
granted and do not think this is a big deal. Some people said to that, if
someone wants to be here, he or she will find a way. As if entrepreneurs
can solve unsolvable problems like Visas, a bad educational system in
their country of origin or lack of history in Silicon Valley.

Often, the best immigrants may take years to learn the basic lessons
contained in this book and this lack of sync with the Silicon Valley
culture ends up being prejudicial to the ecosystems overall productivity.

Techs dark secret

One might think that mental health issues in the Bay Area may be
restricted to the homeless population, but this is far from the truth.
Entrepreneurship is harder than people imagine and can really crush
ones mind. It is not uncommon to hear stories about depressed
founders or people who took their lives because they could not
withstand the pressure.

Austen Heinz, the founder and CEO of Cambrian Genomics, took his
life in 2015 after a trip to Del Mar. That was a reminder to me that you

cant predict which founders are struggling, said former Y Combinator
president Sam Altman. Many others have followed this path as well,
including Aaron Swartz, the Reddit co-founder who faced (unfounded)
hacking charges that could have landed him in jail for decades.

These founder suicides are just extreme cases of the tech industrys
quiet battle with depression and other mental illnesses, exacerbated by
the stress of starting a company and creating something successful.
Actually, a recent study by Dr. Michael Freeman, an entrepreneur and
clinical professor at UCSF, was one of the first of its kind to link higher
rates of mental health issues to entrepreneurship.

Of the 242 entrepreneurs surveyed, 49 percent reported having a

mental-health condition. Depression was the number one reported
condition among them and was present in 30 percent of all
entrepreneurs, followed by ADHD (29 percent) and anxiety problems
(27 percent). Thats a much higher percentage than the U.S. population
at large, where only about 7 percent identify as depressed.

More surprising was the incidence of mental health in the families of

entrepreneurs: 72 percent said they either had mental-health problems
themselves or in their immediate family.

According to Dr. Freeman, a founder who has no history of mental

illness from a family with no history either is the exception, not the

Monolithic culture

A very annoying cultural phenomenon has been consuming Silicon

Valley over the last five years. We refer to it as the Hollywoodization of
the ecosystem. This recent issue, caused by high wages and dreams of
getting rich fast, is attracting spoiled young professionals with big egos

and a sense of entitlement that does not reflect the Valleys down to
earth values. These new entrants in the San Francisco Bay Area are
epitomized by HBOs Silicon Valley TV series as the brogrammers.

Foreign immigrants also complain the region gravitates too much

around tech and business. When you go out to a party or to a bar, the
subjects always gravitate around startups or what someone is doing. It is
rare to have a normal conversation about life, culture or politics. Or a
dinner without talking about business.

Silicon Valley should be more aware and self-critical about this

monolithic culture because it may impair the attraction of future talent.
People have much more to oer than their entrepreneurial skills.

A true meritocracy?

Over the last few years, I have witnessed many successful entrepreneurs
or executives, coming from countries that privilege relationships over
meritocracy, having trouble understanding and adapting to Silicon
Valleys rules. Often times, these folks start questioning if the
ecosystem is truly meritocratic.

For example, I met a super smart European girl with several Ph.D.s that
was pissed with the interviewing process at Facebook, where the
interviewers asked her to solve real problems before being hired. She
found the request really oensive and really did not understand why
there were so many interviews if her academic credentials were so great.
She thought the Valley was a fraud because, at home, everyone was
fighting to hire her.

Another acquaintance was a super successful entrepreneur in Latin

America who came here to build a tech startup. His business got a lot of
media, a lot of hype, but he was never able to be successful in Silicon

Valley. He started blaming it on everything the Valley represented and
moved out after he felt ostracized by the ecosystem.

As I have explained before, people in Silicon Valley expect any

immigrants that come to the Bay Area to prove their value by succeeding
here. Due to the cultural and behavioral adaptations immigrants need to
face, that can take years, even for the most talented foreign
entrepreneurs. It is super hard, and it changes you. The options are
either to run from the realization you are not special or be humble and
learn within the ecosystem. Most people choose to run.

My two cents

To finish this chapter, and to be fair to everyone that welcomed me so

warmly and openly, I want to say that, despite all its imperfections,
Silicon Valley is the closest thing to a true meritocracy I have ever

After living in many countries and doing business with dierent cultures
around the world, I could compare the pros and cons of each ecosystem
and say meritocracy in Silicon Valley is as real as it gets. There are
indeed injustices and bugs in the ecosystem, but the results obtained by
local companies are the best evidence the system functions pretty well.

If you are smart, work super hard, and assimilate to the culture, you will
find your way in Silicon Valley. Success, though, requires strategic
patience, fast learning, collaboration, and the humility to withstand an
emotional rollercoaster.



When I moved to Silicon Valley I had no one to ask for help. Google was
not sucient to quell my anxiety or to answer specific questions. It has
not been a smooth ride for me, and by no means will it be so for you.
One of the reasons I wrote this book is to make it easier for you if one
day you decide to move to Silicon Valley as an entrepreneur, executive,
student or investor. Here is what I have learned.

Moving as an entrepreneur

If you are an entrepreneur, it has probably crossed your mind moving

your company or team to Silicon Valley. The benefits seem attractive: a
mature ecosystem where you can learn more in less time, direct access
to the best talent pool in the world, and proximity with platforms
operated by the large tech companies.

The good news is: if you are a startup founder you will feel at home in
Silicon Valley. This is a place that respects entrepreneurs to the ultimate
level. Doors will open if you are humble yet confident, ambitious and
well-articulated. If you are building something cool, investors,
accelerators, universities, co-working spaces, and large companies will
treat you with respect.

But be aware Silicon Valley is not for everyone. The cost of living is
outrageous, hiring top people is complicated and expensive, and
developing a large and eective networking takes a long time.

You will not magically solve the problems of your company by living
here for a few months. It seems silly to say this, but many people think
they can raise capital or get traction for their startup by simply breathing
the air of California. It does not work that way.

Contrary to popular belief, life in Silicon Valley as an entrepreneur is

much harder than in other countries. Here, you will not receive special
treatment, no matter how smart or successful you have been abroad.
Nobody will care. Therefore, competing in Silicon Valley may be
extenuating and frustrating because it looks like everyone is smarter or
more accomplished than you. Large doses of patience and resilience are
required to survive. Remember, just 5 percent of startups become large
or meaningful companies.

The main con of being a founder in Silicon Valley is the feeling that,
often times, you are the dumbest person in the room. It takes time and
gigantic accomplishments to level up. If you have not studied at an
American university or immigrated to Silicon Valley from countries with
no tradition of entrepreneurship, prepare to have much harder

Before setting foot in Silicon Valley, my advice is to start interacting with

locals to gauge their interest in what you are doing. Be mindful that
entrepreneurs and investors here have limited time, so learning how to
tell your story eectively is a fundamental piece to becoming successful.

You should find a way to compress your story into a one minute pitch or
into a few lines of text. You must be able to communicate quickly who
you are, what you have accomplished, lessons you have learned, and
what you are doing or looking for.

As a general rule in your storytelling process, avoid buzzwords or

dropping names of important people you may know. It sounds lame and
unnecessary. However, do not be afraid to look extremely ambitious or
even batshit crazy as everyone likes an authentic pitch.

Always back your story up with deep knowledge or data about what you
are talking about. It is very common for investors or entrepreneurs in
Silicon Valley to deconstruct you in a few minutes. Remember, the
ecosystem here loves ambitious entrepreneurs, but it is also very
unforgiving of conmen. As they say in America: Walk the talk and never
make empty promises you cannot honor. Under promise and over

In the end, you should not care about statistics or probabilities if you
are an entrepreneur willing to work hard. If you really want, you will

find your way to come to Silicon Valley and be successful here. Just have
in mind it will be an emotional roller-coaster.

Moving as an executive

If you are an executive looking for a non-tech job in Silicon Valley, the
first thing you need to know is that the skillsets required to be
successful here are, very likely, dierent from the region you come from.
No matter what you have experienced or achieved in your home country,
everything will be reset when you come to Silicon Valley. No one will be
impressed by your past.

Remember, this region is very competitive and probably has the largest
concentration of talent in the world. You will need to reinvent yourself,
rebrand yourself, and go through a step-by-step ladder until you reach
the position you aim for. It takes resilience and patience. You must adapt
to the strong product-oriented and engineering culture of the Valley.

If you come here to work as a business development, marketing or

finance executive, you must be willing to add more value to the
company than you previously expected. The best non-technical people
should have interesting side projects to show they are hustlers and
willing to learn. It might be a blog, a hobby or even being part of a
nonprofit. Show to your future employer you are not boring!

If you are looking for a technical job, things will definitely be easier.
There is a strong demand for engineers, designers, and programmers.
The good thing about a technical occupation is that you can be tested
objectively. After all, the use of engineering or programming skills tends
to solve similar problems anywhere.

In other words, the main dierence between an executive position in

Silicon Valley and other places is that people here expect you to be a

doer and not a talker. A hands-on professional is generally preferred for
positions in both startups and large tech companies. In the Valley,
people believe in the saying slow to hire, fast to fire. So, do not be
scared o by the five or seven interviews that you will face during the
selection process.

Executives or recruiters might ask you to solve dicult problems or

request that you talk about something interesting outside work. They
will pay special attention to make sure you fit the culture. Sometimes
you can be a great professional with awesome skills, but your
personality might clash with the team. Basically, it all comes down to
this: if you do not fit the companys culture you will not get the job.

In any case, it would help immensely if you are open-minded, humble, a

fast learner, and endowed with an entrepreneurial spirit. Most
companies tend to focus on these traits when hiring.

Moving as a student

If you want to come to Silicon Valley as a student, you will probably be

in the best position to enjoy the benefits of the local culture. Students
receive special treatment in the Bay Area, no matter if you are taking an
undergraduate course, MBA or a Ph.D.. People understand that you can
soon become a successful founder or a high-ranked executive.

Thus, most companies, entrepreneurs, investors, and executives are very

open to meet and talk if you know the right way to ask. Being a student
is a wonderful way to gather knowledge and build your future network.
Just ask questions, listen, and learn. Be authentic. Do not try to sound
smart or impress people. That will turn them o.

If you decide to come, choose wisely the course in which you want to
enroll. As a rule of thumb, universities such as Stanford or Berkeley will

give you the most chances of success in Silicon Valley because they are
highly respected and boast an amazing network of successful alumni.

Be aware of the executive courses that last only weeks or months. They
will not make much dierence in your chances of integrating with the
local ecosystem. Executives courses are cool and might be useful when
you come back to your own country but, in Silicon Valley, they will not
open many doors.

If you plan on staying here for some months anyway, I would highly
recommend that you attend meetups, which are small community
organized events that touch a wide variety of topics such as bitcoin, user
acquisition or how to create an awesome mobile interface for your app.
The important thing about meetups is that you will be learning from the
people who actually do the work. Meetups are a hidden secret of Silicon
Valley. So, make sure to use your time wisely.

Moving as an investor

If you are a rich individual, a top company executive or manager of a

family oce with plenty of access to capital, you might have thought
about diversifying your portfolio and start investing in startups in the
Bay Area.

In theory, there are many benefits to investing here. The entrepreneurs

are super mature and smart, there is plenty of capital availability for
follow-on rounds and, of course, the Valley boasts the largest number of
exits in the world. It looks like a dream for any serious investor.

In practice, you would face enormous obstacles, the main one being
building your credibility and brand. Your money does not matter in
Silicon Valley, what matters is the value added you provide to
entrepreneurs, your networking and reputation as an investor.

As an angel, it would take years to build a reputation and compete for
the best deals. Unless you start taking risks and focus your investment
in a super specific target or vertical, you will not find the next unicorns.
One good option is to start investing in Syndicate deals on AngelList
and learn more about the Valleys culture before going solo.

If you intend to bring a strategic arm of your company to scout for

innovative startups, be prepared for a long-term residence in the Bay
Area and a budget that can last five to 10 years. You will compete with
angels, online platforms, and venture capital firms. Before opening your
proper fund, try investing your money in another small or midsize fund
from a credible firm or individual to learn the kinks.

The most important lesson to learn when investing in Silicon Valley is

understanding the culture. If you have read until here, you already have
taken the first steps. Investors in Silicon Valley are much nicer and pro
entrepreneurs than investors in other places, including other American
cities such as Los Angeles, Chicago or New York. Trying to exercise
control over an early stage deal or screwing entrepreneurs in any way
will result in a short and bitter ride.

Coming to Silicon Valley as an entrepreneur, executive, student or

investor may change your life forever, but make sure you have the right
profile and personality to be able to thrive in a very competitive
environment before making the big move.



Many regions across the world wish to become the next Silicon Valley. In
the last few years, the private and public sectors have awoken to the
importance of fostering tech startups, innovating, and creating powerful
entrepreneurial ecosystems. The number of executives and government
ocials flocking to the Bay Area has been growing steadily.

People from all continents come here with hopes of finding a magical
formula to create their own version of Silicon Valley. With a few
exceptions, these missions to the Bay Area are organized by companies
with no useful connections in the region and no idea of how the
ecosystem works.

Visitors follow a standard script of visiting universities, corporate

incubators, large companies, and co-working spaces. Just a few focus on
exploring the ecosystem on their own and meeting with students,
entrepreneurs, and investors to learn from them.

When folks go back home, they arrive with a very superficial idea of how
Silicon Valley really works. One common misconception is to believe
that Silicon Valley startups are successful only due to an abundance of
capital and good infrastructure. The result from this misleading
conclusion is the formulation of myopic initiatives to jump-start local

Governments become convinced they will give birth to the next Silicon
Valley by either throwing money at entrepreneurs or building fancy co-
working spaces. Private organizations often decide to create an
innovation department or sponsor a corporate incubator to find new
ideas. They believe these actions alone will be enough to create world
changing companies.

Executives and government ocials get it totally wrong. As you have

read in this book, the secrets of Silicon Valley rely on its unique history
and culture, the ultimate respect for entrepreneurs, and the
collaboration between all players in the ecosystem.

Building a new Silicon Valley is almost an impossible task. If similar

conditions were to be recreated anywhere in the world, it might take
decades to generate results even with the right government incentives,

academic support, and private sector investments. Due to the
exponential evolution of technology, the next Silicon Valley could likely
be something totally dierent from the current iteration.

After having the opportunity to travel, talk to entrepreneurs, and

evaluate tech ecosystems in many countries, my conclusion is that
Silicon Valley is unique and cannot be copied. Cities and countries
should look inwards to find their own competitive advantages if they
want to powerful and unique tech ecosystems similar to Silicon Valley.

Shenzhen, in China, is a good success case. Nicknamed the worlds

factory, the city decided to focus on hardware since its inception.
Shenzhen ended up developing an unparalleled supply chain and
hardware talent that is years ahead of Silicon Valley. If you want to build
any kind of gadget, Shenzhen is the place to be. The city has given birth
to many successful hardware companies such as Huawei, DJI, and ZTE.
Even Chinas most successful internet startup, Tencent, was born out of
the powerful Shenzhen ecosystem.

Israel is another great example. The country, surrounded by enemies

and neverending wars, had to outpace rivals by investing in technology
superiority. As all Jewish citizens are required to serve for up to three
years, the first place they learn about innovation and new tech is in the
armed forces. It is also where young men and women face scarcity,
insurmountable challenges and, literally, near death moments.

After service, with fresh lessons learned from this hostile environment,
and combined with a great education, Israeli entrepreneurs went on to
create some of the worlds most successful startups and products such
as Waze (acquired by Google), Viber, Mobileye (acquired by Intel),
Fiverr, Wix, ICQ (the first instant messenger), the Kinect camera (on
the Microsoft Xbox), the 8088 processor, etc.

It is no coincidence that China and Israel boast the most developed tech
ecosystems outside Silicon Valley. Both countries did not try to copy the
Valley and instead focused on their own strengths. In my view,
Shenzhen and Tel Aviv are the benchmarks to be followed for any cities
trying to create the next Silicon Valley.



This book is an overview of Silicon Valleys culture and business

etiquette throughout the lens of a foreign entrepreneur who made the
journey more than a decade ago. I arrived in Silicon Valley with no
mentors to guide me and had to learn everything through trial and error.

My experience was frustrating and stressful because no one warned me

about the peculiarities of this ecosystem. I hope that, by sharing my

observations and lessons learned, they may be applied to your career,
company or ecosystem. If my advice somehow helps your journey and
shortens your learning curve, I will have reached my goal.

I am sure other people have a dierent take on what Silicon Valley feels
like and their opinions may contradict mine. That is OK. One of the
main lessons I have learned here is to listen to dierent points of view,
extract what makes sense, and form my own opinion. You should do the
same. Take my advice for what it is worth.

Tech entrepreneurs from this ecosystem will concentrate a vast amount

of power in the nearby future and understanding how they think and
how they became so powerful is important to avoid misconceptions. The
fact is that Silicon Valley is becoming more influential economically,
technologically, and politically. Many products that are going to impact
everyones future are going to be developed here in the coming decades,
ranging from autonomous cars, augmented reality, and intelligent
personal assistants to genetic engineering, bionic implants, and
quantum computers.

I sincerely hope Silicon Valley can collaborate to solve the most pressing
problems facing humanity. I believe technology reflects the quintessence
of the human ingenuity and its positive force will exponentially improve
our lives and well-being in the future.

Thanks for reading and I will see you in my next book.


Reinaldo Normand is an accomplished entrepreneur with extensive

experience in running bootstrapped and venture-backed technology startups
in the United States, China and Brazil. He created the world's first wireless
game console, Zeebo, and has been featured in media outlets such as NBC,
Business Week, Venture Beat, Reuters and others.

Reinaldo has been invited to speak about innovation and entrepreneurship at

events, companies and universities in more than fifteen countries. He has
published the book INNOVATION and has created online courses, Youtube
programs and podcasts about technology.

Reinaldo is currently an investor and advisor in gaming and tech startups
and resides in San Francisco. In his free time, he loves to mentor young
entrepreneurs around the world.

Reinaldo holds a BSc in Computer Information Systems, a MBA and speaks

four languages.

Contact for speeches, events and media inquiries:


Copyright 2017 by Reinaldo Normand

Version 1.0 - May 2017

or used in any manner whatsoever without the express written permission of

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