Valley of the Stunned Raccoons

People in Slicon Vlley have reached the point where they tell their stories in shorthand, like the survivors of natural disasters and show business. “I was running a bistro in Los Gatos when I went into telecom. You really need to hear more?” Bruce Schmidt says.

Schmidt is standing, eyebrows raised, in a wine bar. He looks meaningfully at the all-too-quiet street outside. The implication: Doesn’t this situation speak for itself? Doesn’t everyone know this story? “For Lease” posters hang in the shop windows. The Compaq-Hewlett Packard merger has all but evacuated a landmark mid-rise. Waiters have spent most of the past lunch hour loitering outside Spago Palo Alto on the next block, whose empty courtyard once overflowed with deal-makers. Stately homes in the part of town where Apple co-founder Steve Jobs lives are suddenly sporting “For Sale--Price Reduced!” signs.

But all right. Schmidt will summarize how he got here: Maitre d’ listens to tech hype, goes back to school. Becomes a support technician in the data center of a telecom start-up just in time for dot-com collapse, massive layoffs. The start-up was in Chapter 11 when he last looked.

“You have to remember how it was here before,” says Schmidt, a tall, middle-aged man in a shirt and tie. He sighs. “Every day was sunny. Everybody was an instant millionaire. Of course, now it all sounds very foolish.” More shorthand comes to mind--decent guy belatedly joins gold rush, ends up sighing to strangers in wine bars.

Except that isn’t what happened to Schmidt.

Instead, last year--as pink slips appeared in the office cubicles around him, and his marriage started to unravel, and his workouts got longer, and his bosses dumped the company stock in big blocks--he got a call from an old restaurant buddy. The guy wanted to open a new place and had lined up a tech-millionaire investor; now they were looking for a partner, ideally an ex-maitre d’ from this memorable Los Gatos bistro. Eleven nerve-racking months later, Schmidt and his friend opened Lavanda, the Provence-themed restaurant and wine bar where we are standing.

“It’s taking a little longer than we’d wanted to turn a profit,” he says. “But I can’t say I’m sorry to have moved on.”

Moving on is a big theme these days for people in Silicon Valley, who in a scant couple of years have morphed from capitalist icons to objects of the nation’s morbid curiosity. What’s next? The question suffuses this place, in ways large and small. Will the valley pull off another comeback? Will somebody think of something, as somebody always has in past slumps? Or has tech itself “moved on”?

The answers will depend, in large measure, on the people who are becalmed here, and who are only now coming to terms with their new place in the national economy’s doldrums. “A lot of people here are out of work who’ve never been out of work before,” says Paul Saffo, a director of the Silicon Valley-based Institute for the Future. “A lot of people are walking around this valley like stunned raccoons.”

What has played out elsewhere as a recession is being felt as a depression here in high-tech’s cradle. Unemployment rates in Santa Clara County are among the nation’s highest. The region has lost tens of thousands of tech positions. Job hunters are relocating. Investments have shriveled. Support groups for the out-of-work have long since passed the point that most people can bear to attend them. Local charities and municipalities are hip-deep in red ink. Consolidations and bankruptcies have shuttered whole buildings and office parks.

The pain isn’t entirely relentless--a lot of people cashed stock options at the peak of the bubble to buy houses, for example, and low interest rates have kept the demand for real estate from tanking, at least for now. Also, psychology has helped: Gold rushes have always self-selected the confident, the adventurous, the optimistic. The tech casualties who’ve remained here tend not to say--as have other recession victims in other places--that they feel betrayed or robbed or regretful. The emphasis remains, almost stubbornly, on what they have “learned,” or what they’ll do “for the next chapter,” or how this “break” from work actually had “an upside” that will inform the way they work when (never “if”) the valley rebounds.

That attitude, incidentally, maddens outsiders.

“I can’t stand it,” cries a lawyer in San Francisco at the mere mention of “the Peninsula,” as people in the Bay Area call the valley to the south. “The tech bubble nearly caused the disintegration of our law firm. We had to relocate out of Menlo Park when our lease came up for renewal because E-Trade offered the landlord three times what we were paying. We’d been in that office, never missing a payment, for 14 years, and the landlord met with us for five minutes and then said, ‘I don’t know why I’m even talking to you.’

“I lost three really promising associates to dot-coms in those years,” he says. “I’d try to talk them into staying and, to a person, they sat across the desk laughing at me. It was all, ‘You just don’t get it!’ And I didn’t get it. There were all these 20-year-olds all over the place, going on about ‘eyeballs’ and ‘mindshare’ and riding their stupid scooters back and forth to their offices, and I was simultaneously wanting to puke and jealous as hell. It was a complete lack of common sense, and I’m telling you, you talk to those people for more than five minutes, and it’s obvious they haven’t changed a bit.”

Still, if character doesn’t change, behavior is more circumstantial. Though the talk is all about moving beyond the anxiety of the moment, the action is all about hunkering down.

Take Palo Alto, where two-bedroom tear-downs once inhabited by Stanford University graduate students were selling to software executives for $1 million and more in the 1990s. University Avenue teemed, not with college kids, but with twentysomething dot-commers in Porsche Boxsters. When Wolfgang Puck decided to open a Northern California Spago in 1997, he chose this suddenly swank university town of 60,000 over San Francisco. “It’s the demographics,” he said at the time.

Now diminished expectations hang in the air like pipe smoke at a faculty meeting. Ask whether local families feel the downturn and parents will bring up the $1-million pledge for a high school gym that vanished--poof!--when the NASDAQ went south. Ask about Stanford’s endowment, and you’ll hear about budget cuts, postponed construction, hiring freezes, possible layoffs. Roxy Rapp, a developer with substantial holdings in town, says he’s put off new projects, especially downtown, where, at last count, more than 150,000 square feet of prime office space was empty, a 14% vacancy rate.

Rich Green, a local installer of high-end home theaters and networking equipment, says he has lost $4.5 million worth of business in 18 months to homeowners who have aborted plans to remodel. “Three of the jobs were million-dollar systems where the client just cried uncle,” he says. “One job was literally put into shrink-wrap. The client ran out of money and just shut down the site.”

Alex Resnik, general manager and partner of Spago Palo Alto, reports a 25% drop in business from the late 1990s--the downside of those once-tempting “demographics.” Michael Janeway, wine buyer at the Oakville Grocery in the Stanford Shopping Center, says sales are off by about 15%.

Nancy Elliott, who counsels college-bound students at high-scoring Palo Alto High School, says kids who had aspired to private universities are now setting their sights on the cheaper UC system. “I have families who come in saying, ‘Our college fund has been cut in half because it was invested in high tech,’ ” Elliott says.

Scott Laurence, the principal at Gunn High School, says he’s waiving more school fees for financially strapped families and seeing more incoming private school transfers. “And over the past two, three years,” he says, “we’ve seen an increase in attendance problems, health problems, depression--students coming in for counseling saying their parents have lost their jobs, or they’re having to move.”

Everyone, it seems, is in a state of adjustment: Elliott says she and her husband have postponed their retirement plans due to the reduction in their stock portfolio. Green says he is taking far smaller jobs than in prior years.

Laura Jarrell, who ran a successful outdoor-gear store for a decade before switching to a career in e-commerce, has been out of work for nearly a year now. After months of eating at home with her two kids and “worrying in the shower about savings,” the 38-year-old single mom has decided to go back to small business: She has acquired the right to open three Great Clips hair-cutting franchises, figuring, “It’s definitely slower growth than technology, but everybody needs haircuts.”

Others won’t discuss their situations for publication, or will only discuss the situations of their neighbors and friends: the friend of a friend of a marketing consultant who is commuting to a new job--in Europe. The pink-slipped woman who is paying her mortgage out of credit card cash advances. The jobless executive who has quietly hired a publicist to get her name out in front of potential employers. The software engineer who is making ends meet, for now, in his uncle’s limo business. The venture capitalist whose $10-million house in a neighboring suburb has been on the market for months, even as he has dropped the price to $9 million . . . $8 million . . . $7 million. The seemingly unfazed neighbor who turns out to be actually just keeping up appearances via withdrawals from a cheap home-equity credit line.

Beth Martin, a stay-at-home mother of three who considers herself fortunate--at long last--that her lawyer husband doesn’t work in high tech, says a poignant etiquette has grown up around the unease.

“You know who’s working and who’s not, but you never ask about it directly,” she says. “You’ll see somebody’s husband at the grocery store in the middle of the day, and it’ll be like, ‘Well, hello there! What are you doing here?’ But beyond that, you don’t ask. You don’t say, ‘What happened to your job? Is your company bankrupt? Are YOU bankrupt?’ It all stays between the lines.”

And there is a lot between those lines, Suzie O’Hair will tell you, should you catch her some morning walking her little Norfolk terrier, Boo. O’Hair’s is, in some ways, a classic valley story, with the exception that, on this morning, the 44-year-old former marketer has been persuaded to share the long version. She has time and more than a little inclination--she has just launched a job search after living on severance and savings for more than a year.

“My first job here was 22 years ago, right out of San Jose State, as a receptionist at an ad agency,” O’Hair says. It is midmorning, midweek, and we are walking toward the Stanford campus. O’Hair is blond and athletic with a big Doris Day smile. Boo is tiny and fuzzy, with stubby legs that go stiff when she sniffs the crisp air for squirrels. They live alone near the university in an airy three-room bungalow that’s bigger than it looks from the outside.

O’Hair likes to say she lives “a little life in a little house with a little dog now,” but all three--the woman, the terrier, the bungalow with its lipstick-red door and modern art and pale hardwood flooring--brim with sharp energy. It’s the energy that fueled the boom, and even now, it’s contagious.

“I worked my way up. My first account was a little teeny-weeny company, and big agencies spurned them, but our agency was also teeny weeny.” She pauses with a grin, Boo halting expectantly beside her. “That company turned out to be Adobe Systems. I was president of the agency within seven years.”

To listen to O’Hair talk about her work life is to remember the drive that overtook the valley in those years. When the ad agency’s owners eventually retired and closed shop, O’Hair hung out her own shingle. When a client invited her on board, she made the leap and became a software executive. When that business was acquired, she ignored her new boss’s take on the Internet (“hooey,” he called it) and launched a Web site called “Deep Fried” as a forum for online discussion among younger valley residents. Wherever she went, the hours were relentless, manic. Work started with transcontinental calls before dawn and ended with reports read in bed after midnight. “It was a good day if I found time to go to the bathroom,” she recalls.

“And yet that time was--well, it was intoxicating,” O’Hair says. “It was, like, so this is what Steve Jobs means when he talks about changing the world. It was a revolution. You can’t believe how hard I worked. You can’t believe how hard everyone worked.”

In early 2000, the economy began to stumble. At first, O’Hair says, she didn’t worry--she had already seen two recessions. But this one would hit home like never before. First a power struggle among nervous investors killed a bridge loan for her startup. Then an accident left her with two sprained ankles. Then her personal life imploded as a 12-year relationship abruptly ended.

“It was like every bad movie they ever put on the Lifetime Network,” she says. “And my response was to bury myself in more work.”

She took another round-the-clock job at another Internet startup, and when it folded, another. It was now 2001, and the crash had officially begun. When the owners of the Israeli-based software company where she worked called her in on Sept. 11 that year to say they were laying her off and canceling the expansion she had been hired to help launch, it felt like a sign of some sort. She had three months’ severance and $20,000 in liquid savings. If she stayed out of work, she’d get $1,260 a month in unemployment when her severance ran out. A $10,000 tax refund would be due her after April. Her biggest expenses were $2,700 a month in mortgages and $468 a month for health insurance, and she could sell the second home that she’d kept as income property. When a job offer she didn’t really want came in December, she had a long talk with her dad, a retired insurance executive who, to her astonishment, suggested she take more time off.

“I told him, ‘You’re going to think I’m crazy, but I’ve always wanted to see Graceland.’ ”

“Well,” her father said with a straight face, “why don’t you go?”

O’Hair made a list of what to do with her time off, even though “No More Lists” was the first item. She read the collected works of Steinbeck, including his journals. She fixed up her second home. “I scraped it, puttied it, hand-sanded it, primed it, painted it--I did everything myself by hand,” she recalls, laughing. “I had abs for the first time in my life. I ripped up the sod in front of the porch and made a stone walkway. The whole thing cost me exactly 400 bucks.”

She cut back ruthlessly on expenses. No more lattes or Peet’s coffee. No more fancy restaurants. No more new clothes. No more buying every CD that caught her eye at Tower Records. In fact, no more setting foot in Tower Records. No more turning up her nose, as she had in flush times, at discount stores.

“I can now tell you that the Dixie Chicks’ new album was $11.88 at Target, which was three bucks cheaper than Tower, but only $9.98 at Wal-Mart,” she deadpans.

When she loaded Boo into her gold Acura last June and headed for Graceland, that, too, was novel.

“I was 44 and I’d never been alone and I’d never been without a job,” O’Hair says. “I wasn’t that person who had taken a break when she was young and backpacked through Europe after college. I had this sense that I had sleepwalked through something. I mean how can you work 12 hours a day--days turning to weeks, weeks turning to months, so busy you can’t even buy bread or toilet paper for your bathroom--and not miss some huge part of your life?”

She wanted to think, she says, about questions that had been crowded out by the rat race: “I needed to ask myself, ‘Do you live here in Silicon Valley because you ended up here or because you want to be here? Are you in high tech because that’s where you landed, or because that’s what you want to do?’ ”

For a month she drove, stopping at every rest stop, indulging each urge to detour, engaging strangers in conversation. Graceland, in the end, offered only a good laugh. But coming home along Route 66, she felt something like an answer.

“I came through the Mojave, which was like the surface of the moon,” she says. “And then Barstow, which was nothing but shacks when I was a kid, but is now all pink-roofed developments named Mayberry, literally. And then orange groves so fragrant I could smell them through my car window. And then a few miles more and I could smell the ocean, the same ocean I’d smelled my whole life.”

The landscape made her think, she says, of Steinbeck’s people, and her own people, and all the risk takers and optimists who had come before.

“People’s Midwestern relatives think that what happened in Silicon Valley was because we didn’t want to work, but they’re wrong. Maybe we ran out of time or money, but if we failed, it wasn’t because we didn’t work harder than anyone. And people think we were just here to get rich, but that wasn’t it either. Yes, some of us made money off of stock options, but more of us didn’t. We were here because we believed we were making people’s lives better. We truly believed.”

The words rise like a battle cry from the boom years, an answer to those who wonder whether the valley has finally been brought down from its high horse. But as Bruce Schmidt has moved on back to restaurants and Laura Jarrell has moved on back to small business--and all the latecomers to the gold rush have moved on back to where they came from--O’Hair wants her “moving on” to be back into something that involves tech.

“Being in this industry, in this place, is like being in love with someone you know is going to cheat on you,” she says, reaching down to unfasten Boo’s leash. “You know the risk, but you just can’t help it.” The little dog hurls herself across a barren lot in search of--well, it wasn’t clear what.

“I wish,” O’Hair says, “that I could love it less.”

Whether any of this will add up to economic resurrection is uncertain at best. Silicon Valley happened in Silicon Valley in part because land was cheap and the work force had a critical mass of smart, driven, technologically inclined people. But land is no longer cheap, and even the true believers suspect it may be a long time before what’s left of the work force musters the morale to put in those hours again.

“I talk to my friends and they say it’s the worst job market in history out there,” O’Hair says. “We’re all ready to get back to work. But we also all hope that the lessons we’ve learned don’t go by the wayside when we go back. Will we fall back into the old routines? Will we just go to work, come home, drag the dog around the block, pour some food into our bodies? Fall into bed so we can read a bunch of reports and wake up the next day and do it all over? Just so we can make enough money to take a nice vacation, not now, but someday in the far-off future? I have spent my whole life, it seems, planning to go to Italy--next year.

“If I fall back into that trap, I don’t know, it’ll be a much bigger failure than any dot-com.”

Across town at Lavanda, Schmidt is more hopeful. Like the San Francisco lawyer, he thinks the valley’s character will be its destiny again. He’s not likely to go back to tech, he says, but others can’t wait. “There is still a lot of money here. I see movers and shakers in here all the time, and all they talk about is when it’s going to be time to get back in. Party of 10 came in last night, spent three grand and all they talked about was business.

“It’s what people here know, tech,” says the maitre d’ with the telecom training and the tech millions behind him. “When you live in the valley, you’re never really out of it.”