Silicon Valley has become a haven of entrepreneurship in America, creating some of the most iconic businesses we know today. Google (NASDAQ:GOOG), Twitter (NYSE:TWTR), Facebook (NASDAQ:FB), and Tesla Motors (NASDAQ:TSLA) are just a few of the companies that were incubated in Silicon Valley's culture of creativity and grew with the abundant funding venture capital has come to provide.
But there's an increasing restlessness brewing among tech's greatest leaders. The most recent move was Google's Sergey Brin and Larry Page forming Alphabet to hold Google along with the dozens of side projects that have become their true passion. This isn't unique in Silicon Valley: Twitter's Jack Dorsey, Tesla's Elon Musk, and Facebook's Mark Zuckerberg have shown a desire to focus efforts well beyond their core business on new technologies that may or may not be good for shareholders of the base company long term.
A new attitude in Silicon Valley
The restlessness in Silicon Valley hasn't always been there, at least within the tech companies themselves. Decades-old companies like HP, Apple, Cisco, Oracle, and Intel have changed and evolved over the years, but they've focused on computing hardware and software, which were their core businesses from the start.
Today's Silicon Valley companies are taking their role as innovators to a new level, branching well outside of their core businesses. Social media company Facebook, for instance, bought Oculus VR, and is now making virtual reality hardware and software.
Twitter co-founder Jack Dorsey is now back in the CEO office, but he may be more concerned about his payment start-up Square than he is about Twitter's future as a social network.
Then there's Elon Musk, who has never stayed in one place for long. He sold Zip2, X.com, and Paypal before getting involved in SpaceX, Tesla Motors, and SolarCity, not to mention his new pet project, the Hyperloop for high-speed ground transport. And his companies are starting to intermingle, with SpaceX funding SolarCity and Tesla Motors providing batteries to SolarCity. Musk has gotten a pass because the market loves his stocks, but investors should ask whether his scattered focus is really a benefit to shareholders long term.
Founders are important, but Silicon Valley is giving them a pass
What's interesting today is that somehow being a tech company in America gives you license to pursue any technology you want. I'm not sure what anti-aging or renewable energy has to do with providing search results, but that's some of what Google's founders want to focus on.
How are Twitter, Tesla Motors, or even SpaceX shareholders supposed to feel about their founders and CEOs starting new companies and spending time and effort on them when there's plenty of work to be done at those companies?
Even quasi-Silicon Valley company Amazon, which has another iconic founder in Jeff Bezos, has gotten a pass in pursuing smartphones, tablets, drones, and streaming TV. But have any of these projects really produced financial results for Amazon or its core business? It depends on whom you ask.
What is it that you do best?
Branching into new businesses has always been a way to diversify businesses, and for companies with an innovative culture it allows employees to explore new ideas that can be key to a business's long-term success. Google did that with Chrome, Maps, and Gmail, which were either acquired or developed in-house. My argument would be that these were all extensions of the core business -- search -- and they augmented the business instead of distracting from it.
The same could be said for businesses that are decades old. GE and 3M are two great examples of companies that have become giants by innovating into new businesses. I would argue that GE's core competency is in energy and turbines, and if you look at its jet engine business, power plants, lighting, and wind turbines, the focus on energy and/or turbines is at their core. At 3M, the company does films, adhesives, and coatings better than almost anyone in the world. Post-Its, Scotch Tape, and even brightness-enhancing film -- which is probably in the screen you're reading this on right now -- came from those core competencies. So, it's branched into new businesses but mostly in places where it has an advantage because of its existing technology.
An open-ended question for Silicon Valley companies today is: How do side projects add value to the company long term, and why is your company best-suited to pursue these projects?
Whether it's virtual reality at Facebook, anti-aging at Google, Dorsey's potential Twitter/Square dilemma, or Elon Musk's continued attempts to change the world, I wonder how these non-core pursuits are good for the companies and their shareholders long term.
Maybe Silicon Valley is creating a new model for American business or a new model for venture capital? Or maybe it's just burning time and money on projects that seem fun to founders who are bored now that they've achieved billionaire status? Or maybe it's somewhere in between?
Time will tell.