The Power Law: Venture Capital and the Making of the New Future

by Sebastian Mallaby

They observe that clusters develop deep labor markets in specialized fields, so a company needing experts in, say, a particular kind of database software can hire the precise skills that it is seeking.[4] But Saxenian was going beyond economists’ focus on productive matching between workers and employers. By emphasizing the porous boundaries between Valley startups, she was probing the quality of the relationships within a cluster and suggesting why some clusters pull ahead of others. A cluster that is dominated by large, self-contained, secretive companies will be characterized by tight relationships among insiders at each firm, but few links between professionals at one firm and similar professionals at another one. In contrast, a cluster that consists of transient startups will feature fewer deep bonds among colleagues, but it will be enriched by myriad, looser external connections. Saxenian’s contention was that a small number of tight relationships makes for less idea sharing and innovation than a large number of loose relationships. In this she was building on an insight from one of the most cited social science papers of all time.