Fascinating discussion on Tom Coates’ blog about reactions to Paul Graham’s talk on “How American Are Startups?”

What makes it interesting is the fact that most of the commentors live in the UK, rather than the US, and thus have a completely different perspective.

To me, Graham’s essay was an interesting explanation of why America has been such a good environment for startups.

To some of the people who listened to his keynote, it was:
“A Thatcherite screed about why businesses should be able to get away with doing anything they want and treat employees like slaves.”

Clearly, we’re approaching this from different starting points.

Even Tom (who works for Yahoo) wrote:
“Paul’s piece felt extraordinarily American, in a semi-utopian libertarian free-market kind of way, and I have to admit it felt alien and strange and fairly abrasive.”

The most frightening quote (for me) was this one from Laurens Holst:
“Also, I don’t see why governments aren’t trusted with financial decisions. Clever investment decision-makers with good knowledge of the field and experience can’t/don’t work for the government? I don’t buy that.”

I ended up commenting with this little mini-piece on the strengths (and weaknesses) of the Silicon Valley model. You can decide for yourself if you agree or disagree. As always, Scott Adams’ BOCTAOE (But Of Course There Are Obvious Exceptions) principle applies!

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Full disclosure: I am an American who has lived his entire life in the USA (aside from brief trips to Europe and Asia). Furthermore, I have spent most of my adult life in Silicon Valley, and all of my adult life working for startups.

Given the passion of the discussion, I think it’s worthwhile to try to lay out in a single comment the pros and cons of the American, and more specifically the Silicon Valley model.

As you’ll see, whether or not you believe that this model is superior or inferior to other models is largely dependent on the importance you assign to these pros and cons.

PROS:
1) Freedom.
By freedom, I mean the availability of many different options, with few (if any) governmental restrictions on your actions. Of course, freedom is a double-edged sword–freedom can be used or abused. That brings us to our next pro…

2) A willingness to accept variance, including bad results.
Here in Silicon Valley, we accept an astonishing amount of variance without blinking an eye. It’s perfectly acceptable to start a venture with a 60% chance of failure, 30% chance of muddling along, 9% chance of mild success, and 1% chance of striking it rich. In fact those figures closely match the success rate of venture-backed firms, which in turn are far more likely to succeed than companies that do not receive funding. This kind of variance would be completely unacceptable to a society which valued equality of outcome (e.g. safety nets and high wages for all).

3) Optimism and openness.
Many have commented on Cory Doctorow’s “kicking ass” comment, but it is very true and telling. The culture is Silicon Valley is neophilic–we love the new, and we’re all searching for the next big thing. The fact is, most of us won’t find it, but our optimism allows us to keep looking no matter what in a triumph of hope over experience.

CONS:

1) Unhealthy obssession and tunnel vision.
People in Silicon Valley tend to forget about the outside world. We live in a little bubble where we talk about companies like Flickr and del.icio.us, and read TechCrunch daily, and believe that the rest of the world does the same. We tend to ignore things like politics, literature, and the arts, focusing instead on product launches and liquidity events.

2) Minimal compassion.
This is all you need to read:
http://www.valleywag.com/tech/charity/internet-millionaires-to-african-aids-babies-drop-dead-181899.php

Bill Gates is giving away his fortune. Larry Ellison is defaulting on a $100 million commitment to Harvard, is only giving his own foundation $100 million because he’s being forced to by an SEC settlement. Meanwhile, he spent $194 million on a new yacht.

3) Dizzying pace of change.
Everything is always changing. You can go from hero to goat in a matter of months. Take a look at guys like Mark Andreesen, who went from the next Bill Gates to, well, some guy. Or more recently, how about how Friendster founder Jonathan Abrams went from lionization to vilification in less than 6 months.

If you need stability, this isn’t the place. Future shock is a way of life.

Ultimately, whether you like Silicon Valley depends on what you consider important. If you believe that life should be fair, and that you like things the way they are, you should steer clear.

On the other hand, despite all its flaws and room for improvement, I don’t believe there’s a better place in the world to start a company. The world would be better off with more Silicon Valleys.