Silicon Valley Microchip Industry

At the beginning of 1957 it was  a personal dispute  between employees of Shockley Semiconductor and the company’s namesake and founder, Nobel laureate and co-inventor of the transistor William Shockley.

As is likely true for the majority of outstanding scientists, Shockley was not known for his easygoing nature. As a result of this ordinary “production disagreement”, eight of his leading employees decided to quit to form their own firm, in direct competition with Shockley.

Shockley had only just formed his company “from scratch” a year earlier by hiring top performers from various universities, and this mutinous group of his former “students” formed Fairchild Semiconductor immediately following their departure, having received a USD 1.5 million investment from the New York company Fairchild Camera and Instrument.

After several years, Fairchild gained its footing, becoming a formidable presence in this sector. Its founders began to leave to start companies based on their own, latest ideas and were followed on this path by their own former leading employees. Thus, these generations of Silicon Valley’s latter-day pioneers are called “Fairchildren”.

Then began a sort of “nuclear fission” in personnel, where another crop of companies formed around the Fairchildren, and those leaving invited their coworkers along, who then went on to do the same…
The process gained momentum and what had once began in a Stanford’s research park became a veritable startup avalanche…

startup financing cycle diagram

One of the most well-known of startups appeared in the earliest stages of this chain reaction. Gordon Moore and Robert Noyce, two of Shockley’s “Traitorous Eight”, left Fairchild Semiconductor to form Intel.

Thus, over the course of just 20 years, a mere eight of Shockley’s former employees gave forth 65 new enterprises, which then went on to do the same. The process is still going:

    The 92 public companies that can be traced back to Fairchild are now worth about $2.1 trillion, which is more than the annual GDP of Canada, India, or Spain. The First Trillion-Dollar Startup By Rhett Morris

The aforementioned “personal conflict” at Shockley Semiconductor can be found at the center of practically any study of the history of Silicon Valley. It is surprising that these histories fail to note that it was only in California that this conflict—a perfectly ordinary disagreement, easily found in any industrial park all across America—inspired this unique chain reaction and gave rise to the next generation of startups, who then went on to divide and reproduce, and so on in this sort of nuclear fission.

We again take up this question, critically important as it is in understanding the reasons that only California’s Silicon Valley hosted such a boom. Can it be that there had never been a personal flare-up of this kind, or even on a much greater scale, in all the other high tech companies, long-established in various industrial parks around the country?

Why was Stanford’s Research Park only host to Silicon Valley’s growth and development?

Conflicts between creative teams and their veteran leadership were of course common in all American industrial parks, both before and after the aforementioned disagreement at Shockley. However, the crux of the matter is that, with the exception of California, all across America there are many different agreements signed between business owners and their employees that restrict the employee’s right to quit and join competing firms or, even worse, go on to create his or her own company in direct competition with their former employer.

These non-compete agreements, which new recruits are required to sign (generally in the form of NCAs or NCA & NDAs) play the role of graphite rods in a nuclear reactor, slowing the chain reaction of creation of new startups all over America.

Thus it was that these decelerators in the process of creating companies to compete with the industry’s established figures were legally withdrawn from the nuclear reactor of innovations in what would many years later become Stanford Research Park.

As was noted earlier, it was in California (and only in California) that a particular law emerged in 1872 that defended the employee’s freedom of movement, the right to leave his or her employer at any moment, even to immediately go to work in direct competition with their former employer or to create a competing firm on their own.
~ Silicon Valley History & Future by Gregory Gromov

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