John Chambers on the Silicon Valley exodus: ‘We’re in real trouble’
"The complacency is scary."
Photo: JC2 Ventures
John Chambers is considered somewhat of a legend in Silicon Valley. And he's very nervous about its future.
Chambers led Cisco for two decades, guiding the tech giant through major waves of disruption and innovation. After stepping down in 2015, he embarked on a new career as a venture capitalist, launching JC2 Ventures in 2018.
His views still resonate in tech and Silicon Valley, where he's often viewed as an elder statesman and mentor. And he has a lot to say nowadays.
In a conversation with Protocol, Chambers shared his deep concern about the future of California, and particularly Silicon Valley. He spoke of the alarming wave of departures from the region and the state, led by Hewlett Packard Enterprise and Oracle. He also shared his frustration with California's leadership and explained his decision to endorse the potential candidacy of the former mayor of San Diego, Kevin Faulconer, as the campaign to recall Gov. Gavin Newsom gains momentum.
This interview has been edited for brevity and clarity.
You endorsed former San Diego Mayor Kevin Faulconer's potential gubernatorial run. But are you supporting the campaign to recall Gov. Gavin Newsom?
Two separate items. Am I supporting Kevin? Absolutely. Am I actively involved in the recall? No. If there is going to be an election, I do think it is time for a change. I think we are in trouble in California.
At the present time, California is not a good state to do business in. It is getting worse. It used to be that every startup that I was involved in, if they weren't in Silicon Valley, they were talking about: When would they come? No one's asking that question anymore. When you see Hewlett Packard [Enterprise] leave — they were the original garage startup and the one that I modeled after culturally — when you see Charles Schwab leave, when you see Elon Musk leave himself, you realize our state has a problem and we are in denial.
The issues aren't anything to do with any political party. The issues are our regulations are non-competitive; our cost of living is non-competitive; our tax structure is the worst in the nation.
They had the golden goose, and nobody seems to care that suddenly the geese are flying away.
The implications for our state, long term, are terrible on job creation. Remember each core job in tech supports five additional jobs, everybody from the people who build houses to the dentists to the people who do the landscaping, the Uber drivers and so on.
I believe it's time for a change. It would be easy to just ignore this and just automatically go with startups moving throughout the nation. But I owe an obligation to Silicon Valley for us to know what I think the outcome will be at the current trends. Because I've seen the movie so many times before.
This is self-inflicted, entirely. It's a regulatory environment that takes business for granted: that when they pass regulations, they don't even do a study on the impact on jobs, especially startups and small companies. You can hit a big company with a billion-dollar fine and their stock probably won't even move. You hit a small company with regulations on privacy or other issues and that means they may not be able to be viable. Or they'll have to go to another state for the majority of their employees.
You have to realize this is global competition for new companies and existing companies. And we're not even competing. You're going to disrupt or you get disrupted. At the present time, we're getting disrupted at tremendous speed. And the complacency is scary.
It's too late once the jobs are gone, and then all of a sudden our kids can't get jobs in the state, regardless of where they are. It's too late when you suddenly say, my tax base got cut by 30% because the companies and employees left. If I were doing a startup today, I would go to Texas.
Is there a regulation that stands out for you as an example?
I think the effects of the privacy rules being passed. Do I believe that we've got to have privacy regulation? Absolutely. But you've got to understand the economic impact, especially for small companies. For every regulation passed, there should be an accompanying summary of what it means to jobs, especially jobs in startups.
The large companies will not add total headcount over the next decade anywhere in the U.S. There'll be some, like an Apple, that may go up dramatically, or an Amazon, but the banks, the manufacturing, the tech companies won't add [jobs] in total. So if you don't create an environment that is very friendly to small businesses getting bigger and startups getting bigger, you've got an issue coming at you.
Is it too late for California, in your view?
I think that the luster is clearly going off our star. I think we missed an opportunity to clearly lead in the next generation, which, by the way, we could have done.
Is it too late? No. But have we lost a huge amount of momentum? Yes. Is it very manageable and fixable? Yes, it is. But it requires a concerted effort starting with: We want this to be the state that does the best job creation. I believe we're in real trouble in California.
What are the implications, in your view, of the tech exodus from California? Some people would say that's actually a good thing because it creates new centers for tech.
Well, it's a good thing in that every state in the U.S. has to become a digital state and a startup state. And this is something that creates opportunities. I don't think there's any entitlement on where the future startup state will be. It's up for grabs. But right now, if you're handicapping them, you probably would handicap new players like Texas. Watch how quickly Florida has come up. You'd have to handicap it against New York and California.
What are your own initial thoughts about the Biden administration's approach to tech?
It's too early to tell. I think he has appointed people who are tech-savvy. [But] neither party ran on startups, on digitization as part of their platform. [Prime Minister Narendra] Modi did in India. [President Emmanuel] Macron clearly did in France. [Note: Chambers is an advisor to the Macron government, which named him global ambassador to French Tech. He is also the chairman of the U.S.-India Strategic Partnership Forum.]
This is our game. We invented this, and yet we're getting beat by others on it. Watch how far Texas has come in just five years. Five years. And who would have thought Montana or West Virginia would be a great place for a startup.
The U.S. needs a digital policy. France used to be the worst place in Europe to do business. They moved from a startup environment that was just terrible to the fastest-growing startup environment in all of Europe. We need to get back to a startup nation, a digital nation, and we need a national plan to go about it.
Going back to California: Are you considering moving, John?
If I were 25 years younger, the answer would be: It's my wife's decision, but I would. My brother-in-law and sister-in-law who had startups here in California, they moved to Florida several years ago.
Each of my startups that are located in California [is] considering: Should they stay here? Should they have the majority of their headcount remain in California? I don't know of a company that's not thinking about that.
What do you tell them?
Your decision. Here are the pluses and minuses.
Have you considered becoming active politically?
If I were going to be active politically I would have had to do it about 20 or 25 years ago. And I thought pretty seriously about it at that time. I had friends who encouraged that. But I'm not a political person. I like Democrats [and] Republicans. I have a great deal of admiration for Biden; I have a great deal of admiration with George Bush. And so I tend to be more focused on just getting things done. Will I, however, support, regardless of party, people whose values that [I] share? Answer: yes. I believe hugely in democracy and the faith in our electoral system.
Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at firstname.lastname@example.org or via Signal at (510)731-8429.