This is a really interesting and timely question given the current economic climate. Some historical perspective is in order here. Over the last 30 years, virtually every net new job created in the United States has been created by start ups. I don't really expect that to change in the future, although over the last couple of years, you could argue that federal, state, and local governments have created net new jobs (whether that's a good or bad thing is probably best saved for another Q&A).

I do think that in the last decade Silicon Valley venture capitalists and entrepreneurs have focused decidedly more on "capital efficient" businesses. This quest for capital efficiency impacts the labor market in a few different ways. First, in the area of direct hiring, the team of 40 engineers from 10 years ago is the team of 4 engineers today. That's due in large part to things like open source technologies, online communities like Stack Overflow, and offshoring. Second, indirect hiring is also down. As an example, the semiconductor company that used to build its fab here no longer does so choosing instead to build in Asia or just leverage a pre-existing plant there. That's meaningful when you realize that the cost to build a fab ranges from $1B to $4B.

By the way, if you want to understand these dynamics with a more concrete example, just look at the labor footprint of a consumer internet start up today. It is really small and I suspect it could be even smaller. I like to tell everyone I know that Google could lay off 95% of its workforce and retain 99% of its revenues.

All is not lost though. Silicon Valley spends a lot of time talking about the consumer internet and companies like Facebook and Twitter, but there are other start up categories out there that can yield meaningful job creation in addition to productivity improvements. Both clean tech and bio tech are good examples of this. Whether these sectors will create jobs here in the United States, as opposed to overseas remains to be seen. I would argue that if jobs are to be created here, they will not be created around low cost manufacturing roles. Instead, job creation will occur around roles that require highly skilled labor and/or a large amount of capital.

Rick Kadet

Vice President, Senior CFO Consultant, The Brenner Group, Inc.

Posted on Oct. 16, 2010

This question is worded in an odd way, i.e. is it a place "to create jobs." I am not sure that this is a meaningful way to look at the matter. Perhaps it would be better worded asking if the business climate and economic activity will be sufficient to add to our current job totals.

Silicon Valley is actually a large place, often including companies in San Francisco, the East Bay as well as the Peninsula and South Bay. There are major industries headquartered in this region; it is not solely dependant on technology or the Internet for its growth.

To concentrate on the "technology sector," this broadly includes Internet, semiconductor, software, cleantech and life sciences. The amount of activity is mammoth with thousands of companies creating an environment that is very hard to track. The size of the companies ranges from HP, Oracle, Intel and Cisco at the high end through raw startups with only a few employees. Companies at all stages conduct some of their operations and fundraising here, while operating worldwide for engineering services as well as sales and distribution.

I am quite optimistic from what I see that growth in employment in Silicon Valley will resume. The larger companies are actually doing well and will hire some new employees. One should not expect these companies to hire even a large minority of employees here as they operate worldwide. But for functions that are headquartered here, we will see job growth in a steady way.

In smaller companies, I am seeing in my consulting practice a change in attitude that will encourage Silicon Valley employment. The results from outsourcing in lower cost areas are increasingly seen as behind schedule, product not as ordered and not the bargain that it seemed. Communication difficulties can seem intractable. I have seen some companies seek to do development and customer service here with US workers and seeking to run a tight ship, rather than ship the problems offshore. Rather than throw people at problems, they seek to solve problems with well designed systems and small teams.

For small companies, it is essential that the Angel and Venture investors that have long supported innovation here continue to do so. It is very difficult to totally bootstrap a company particularly when the product cycles can take several years. The absence of this kind of funding would be a severe blow to employment in the Valley.

Seeing Tesla make a decision to manufacture cars in Fremont may seem idiotic to some, but keeps development and manufacturing close together and I suspect there will be considerable economies from this tie in.

Let's not lose hope for Silicon Valley, but at the same time let's not assume we "deserve" anything. We need to continue to nurture our infrastructure that supports innovation and funds new companies. As companies grow larger, policies need to encourage them to expand here rather than automatically seek offices in the far east and elsewhere. Many areas of the world envy the environment in Silicon Valley and the competition will only get worse. So let's roll up our sleves and make sure that our share of the coming boom times will be earned.