Innovation is a complex topic but this does not prevent the desire to measure it. The Global Innovation Index with its 83 parameters is the best illustration of this. But cann’t we make it simpler? I propose the simpler Tesla Index which measures the number of Tesla linked to the institution which innovation is to be measured. It shows a certain financial success combined with a curiosity for novelty. We can always bring it back to the size of the entity if necessary …
At EPFL, the Tesla index according to my measures is 4 as of June 26, 2017 …
A Tesla, being charged on the EPFL campus on June 26, 2017…
I usually do not mix my EPFL activity and my blog activity. This is one of the rare exceptions. At EPFL’s startup unit, we just published a short report describing EPFL spin-offs. Here is a short link. By the way you can also visit the pages about EPFL’s support to entrepreneurship.
The report gives data about value creation through fund raising and job creation and also about a known phenomenon, the importance of migrants for entrepreneurship. I am aware that value creation is a sensitive topic, all the more that in Europe venture capital has not proven a real correlation with value. It may even have destroyed more value than created any…
I had never mentioned here Federico Faggin, another European who became a serial entrepreneur in Silicon Valley. He was at EPFL today where he delivered an amazing speech about creativity and courage, the two elements inventors, innovators and entrepreneurs critically need. If you do not know him, just rush to his wikipedia page: “an Italian physicist, inventor and entrepreneur, widely known for designing the first commercial microprocessor. […] He was co-founder, with Ralph Ungermann, and CEO of Zilog, the first company solely dedicated to microprocessors. He was also co-founder and CEO of Cygnet Technologies and of Synaptics.”
I hope his talk will be put online, in which case I will give the reference later. In the mean time, here are just 3 pictures (taken by a colleague, thanks!) about his lessons learned.
– If you see a ‘little’ technical problem you don’t understand, don’t dismiss it: Face it and find its root cause
– Likewise, when you perceive that something is not working with an employee, act promptly: do not let performance or attitude issues fester
– Be open to receive solutions from anywhere: colleagues, literature, intuitions, dreams
– Strike the right balance between freedom and control
– ‘Throw an idea up in the air and leave’
– The power is in in the team: Foster a team spirit with passion for innovation and for quality products
– Always identify the critical issues and pay attention primarily to them
– Business problems are not technical problems
– Logical reasoning is good but watch out for the assumptions
– Intuition is your friend
– Risk cannot be avoided – you need courage
– Never underestimate the competition
– ‘Sensing’ the right product and the right time to market is the most important decision
– Articulate and explain the values, vision, mission, strategy and objectives of the company to all employees
– People watch and copy what you do, not what you say: The company culture is shaped by the actions and not the talk of the CEO
– Teach people how to make decisions based on principles and values
– Push decision making to the lowest possible level in the organization
– Know when it’s time to move on and make a change for yourself
As a conclusion to this post, here is my usual cap. table when I have data about founders. Here is Synaptics.
After my initial notes (part I), the importance of culture (part II), the recipe (part III) in the Rainforest by Hwang and Horowitt, here are my final notes about venture capital. It may indeed be their best chapter, even if the topic has produced probably hundreds of books and thousands of articles… Their (apparent) bias as venture capitalists is only apparent. Their description is close to what I experienced but I may be biased too!
The subtitle of the chapter is “Big V, Little C” and their quote to begin the chapter is “if you want to make money, do private equity. If you want to have fun, do venture capital”. They then borrow to AnnaLee Saxenian: “In Boston it was the entrepreneurs who dressed nicely and showed up on time to impress the investors. In Silicon Valley it was the opposite.” […] “In other words, the venture – that is the startup – is always more important than the capital, with a Big V and a Little C.” [Pages 218-21]
They explain why investing in the seed and early stage is costly for venture capitalists. “It’s better to buy a wonderful company at a fair price than a fair company at a wonderful price. […] Investing earlier in a deal must be counter-balanced by a strong potential of a massively disproportionate payout at the end. Otherwise, it is simply not worth the risk. […] Lowered transaction costs due to trust and social norms make high-risk seed-stage and early-stage venture capital more profitable [in Silicon Valley].” [Pages 228-29]
In other areas, subsidized capital plays a role. But it does not mean VC should not be understood: “There are two ways to build a venture fund. One takes as little as thirty minutes to learn. The other can take twenty years or more. The short course is to learn the formal legal structuring and financial processes of a typical venture fund. […] the more difficult and time-consuming course is to learn the human behavioral dynamics that happen in and around venture funds. […] Questions such as:
– how do you treat others in situations where mistakes and failures happen almost daily?
– how to build a reputation for trust, candor and integrity when millions of dollars are at stake?
– what type of value can you provide an entrepreneur who probably knows far more about the business than you do?
– how do you actively listen to an entrepreneur, and then see beyond their words to the true prospects of a company?
– how do you know when a CEO is not fit to run a company anymore?
– how do you help a tiny company build life-or-death relationships with huge, powerful customers or strategic partners?”
It reminds me what I learnt 20 years ago: it takes 5 years and $10M to make an investor.
The authors conclude their chapter with marvelous documentary SomethingVentured: “[VCs]’re working really hard, they’re very bright, they’re working together, and they’re collaborating. And there’s a lot of fun involved in achieving things together as a group. So I don’t think you can underestimate how much fun the people… had doing what they did. I think they’re extremely proud, but when they talk about these stories, they’re laughing, they’re smiling. There’s just this excitement and energy about building something.” [Page 242]
After my initial notes (part I) and the importance of culture (part II) in the Rainforest by Hwang and Horowitt, here are my new notes about their recipe to build efficient ecosystems for entrepreneurial innovation. I will finish with a part IV about venture capital.
Again the authors remind us that “innovation is chaotic, serendipitous and uncontrollable, so processes that are linear and controlled are rarely self-sustaining. In contrast, what we strive for in a Rainforest is a system that yields immense impact, is low-cost, and generates internal sustainability. The only possible way to achieve these goals is to build a community of innovators where transaction costs have been reduced through the creation of trust, social norms, connectivity and diversity.” [Page 183]
So their recipe is not so much a recipe as a cure. In fact they say “rather than thinking like macroeconomists, to change behavior, we must think like psychiatrists […] We build rainforests by shaping the outward behavior of innovators. Over time, those behaviors can create changes in attitude, and eventually, the changes in attitude can lead to change in beliefs”. [Page 200-1]
In the recipe [pages 194-200], there is Hardware made of 4 “P”s: People, Professional, (i.e. institutions), Physical (i.e. infrastructure) and Policy. Hardware is necessary but not sufficient. There is also Software, with 5 pillars, Diversity, Extra-Rational Motivations, Social Trust, Rules (see my previous post) and Interpretation of the Rules. The Keystones will make all this possible.
The Rainforest canvas may be a helpful tool to assess the situation of an ecosystem in its physical and cultural components:
About Role Models, they have the interesting Porsche principle. “This principle holds that one of the greatest motivators for professors or graduate students on campus to start new companies is when one of their colleagues drives up in a new Porsche after selling their startup”. [Page 210] To be honest, today, at EPFL and probably elsewhere, I would call it the Tesla principle… (see my previous post…The University-based Startup Porsche Principle. Or is it the Tesla Principle?)
In their epilogue, the authors explain that “Perhaps, instead of fighting the chaos, we need to become more comfortable with it. Perhaps we just need a better map. The Rules of the Rainforest provide a useful map – one that shows the way to balance the freedom of chaos with the beauty of collaboration. […] It requires a ‘joyful participation’ in the ups and downs, the mistakes and the failures that are inevitable. Thus, love is like a solution to chaos. ” [page 280] They use a magnificent quotation from Richard Feynman to whom a student asked to write a message to his mother so that she would be interested in science. Here it is: “Tell your son to stop trying to fill your head with science – for to fill your hear with love is enough. Richard Feynman (the man you watched on BBC ‘Horizon'”.
Here is a slideshare presentation by the authors, which beautifully summarizes their vision.
In the book The Rainforest that I am currently reading, the authors write about Role Models that “a common phenomenon of university-based startup companies in the United States is what is sometimes jokingly called the Porsche principle. This principle holds that one of the greatest motivators for professors or graduate students on campus to start new companies is when one of their colleagues drives up in a new Porsche after selling their startup. Confidence is contagious”. [Page 210]
It reminds me a famous quote by Tom Perkins: “The difference is in psychology: everybody in Silicon Valley knows somebody that is doing very well in high-tech small companies, start-ups; so they say to themselves “I am smarter than Joe. If he could make millions, I can make a billion”. So they do and they think they will succeed and by thinking they can succeed, they have a good shot at succeeding. That psychology does not exist so much elsewhere.”
I’ve seen it in Europe too, but to be honest, today, at EPFL and probably elsewhere, I would call it the Tesla principle… or Tesla Index. I biked quickly on campus today and here is what I found, although I know of at least 4-5 Teslas close-by… Could this become the equivalent for Innovation to the Impact Factor in Research?!!!Don’t take all this too seriously. Launching a start-up is not motivated by money. It is mostly about passion…
And two more on June 13, 2017…
and June 15, 2017
EPFL’s Tesla Index on June 15, 2017 is larger than 3…
After my introductory post about The Rainforest – The Secret to Building the Next Silicon Valley by Victor W. Hwang and Greg Horowitt, which focused on the importance of trust, here is a second piece about culture. The final part will describe how the authors claim they know the recipe to build rainforests. What is remarkable with the Rainforest is the ambition to explain that innovation is mostly cultural so that at the micro-level it cannot really be engineered, but at the macro-level rainforests can be built. I am not sure the authors are right, but the effort is really to be recognized.
One lesson of the Rainforest is that outcomes cannot be engineered. […] Serendipity itself cannot be engineered but an environment that is conducive to serendipity can be. [Page 65]
In their chapter 3 about People, they begin with Keystones, not Entrepreneurs. “What defines a Keystone? Over the years, we have observed certain individuals practicing a unique manner of human interaction that is critical to the growth of entrepreneurial innovation. […] These people are usually missing, or at least too scarce, in almost all regions that have failed at generating significant amounts of entrepreneurial innovation.” [Page 71]
These people are integrative, influential and impactful, they are brokers of social trust (by contrast to entrepreneurs who are people who absorb information, learn from practice and seek opportunities). “The San Francisco Bay Area has a vastly higher percentage of people who are involved in multiple firms. 4.5% of the actors counted in the Bay Area were involved in three or more startups, compared to 2.9% in Boston, 2% in San Diego, […] 1.2% in Austin […] 0.7% in Portland. […] The bay Area has a significantly higher share of individuals who are extremely connected and contribute to the growth of multiple startup ventures”. [Page 74]
The authors also show the diversity of psychologies, the diversity of backgrounds in people which are still connected and work together. “We see these unconscious behaviors at work with innovators everywhere in the world. Scientists versus entrepreneurs. Startups versus large corporations. Investors versus investees. These tribal conflicts can be obstacles to the development of Rainforests.” [Page 109] All the more that: “Similarly the process of building a startup company is one in which people must often rely on gut-level decision-making. Entrepreneurial innovation, by its nature, is virtually a never-ending series of educated guesses. Almost every decision is based substantially incomplete information.” [Page 106]
America is the building of a society not burdened by historical tribes. […] They are less chained to the past. Instead Americans tend to be identified by self-reliance. […] People still run to California today. It is commonly regarded as the land of pioneers, nonconformists, artists, and rebels. [Page 116] Culture is critical to the way economic systems function because it provides the rules of engagement between people that hopefully can maximize their collective well-being. [Page 118] The authors are not naïve but claim that all these people need to find the right balance. A venture capitalist is caught between trying to own as much of a company as possible and trying to leave enough equity in the hands of the entrepreneurial team to keep them fully incentivized. […] A VC wants to preserve a reputation. [Page 119] Innovative behavior is not driven by rational maximization. There are in fact other forces, which can be called extra-rational: competition, altruism, adventure, discovery, creativity, meaning, concern.
Here I cannot avoid mentioning the great (counter-)example of Orson Welles about the Scorpio and the Turtle… Hopefully nature is not everything, culture matters.
One mistake of policy makers is to underestimate these extra-rational motivations. “Governments and corporations often try to incentivize innovation by focusing on financial mechanisms, such as tax breaks, subsidies, grants and loans. But overall, this strategy has been poor. They cannot be only the ends in themselves.” [Page 127]
Traditional incentives, benefits and costs: [Page 124] Benefits:
Some possibility of making more money Costs
Sacrifice a stable income and career perhaps forever
Risk social disapproval from family, friends, potential spouses
Difficulty and fear of working with strangers outside conventional circles of trust, culture, ethnicity, language
Difficulty and extra effort in communicating effectively
Huge investment of time, effort, stress
Possibility of losing everything (depending on laws, regarding bankruptcy, partnerships, etc.)
Rainforest incentives, benefits and costs: [Page 126] Benefits:
Perceived and possibly real opportunity of making more money (following role models that have validated the path already)
Joy of discovery, novelty, adventure, creativity, passion
Social approval (as a peer member of a community of innovators)
Joy of friendship, sharing, love working on a team, building new trust, common values and goals
Fulfillment from the possibility of making a difference in society, leaving a legacy for future generations
Thrill of competition
Freedom and independence Costs
Little social punishment, often encouragement, from family and friends for taking a worthwhile risk
Some anxiety from meeting new people, but offset by the joy of making new friendships
Huge investment of time, effort, and stress, but viewed in a neutral or even positive light because pursuing a personal passion
Little risk of losing everything because new opportunities emerge in the process of experimentation
Much lower probability of failure from a broad community of fellow innovators.
And the authors claim what are needed are 7 rules [Page 156]: – Break the rules and dream
– Open doors and listen
– Trust and be trusted
– Experiment and iterate together
– Seek fairness, not advantage.
– Err, fail and persist.
– Pay it forward.
People usually think of Silicon Valley as an anomaly in the otherwise “normal” history of the world, but what if we reversed that proposition? What if we envisioned Silicon Valley as the natural endpoint of a 50,000-year story? Perhaps it could be the latest stage in the evolution of human society, from a culture based on tribes to a culture based on pragmatic individuals. [page 152]
There may be nothing really new in this book about ecosystems, but the messages are strong and clear. You may need an infrastructure, but without culture, nothing will happen, no innovation will emerge. I might write a few posts about this book as I just began reading it recently. And as usual, here are my notes / extracts.
Despite hundreds of books and thousands of papers on the subject, real-world innovation is little understood. […] Having the right ingredients will not necessarily result in successful innovation. You need to prepare those raw ingredients, combining them in just the right way. […] We argue that the two pillars of innovation’s conventional wisdom – free markets and clusters – are unable to provide comprehensive answers to the mystery of systemic innovation. [Pages 18-20]
Funnily enough, I gave my own recipe in 2007: “Two main ingredients are needed, rich people and nerds; this has been said already. Do not add any bureaucracy, do not add concrete. In order to attract and keep enough nerds, there is a need for a large and nice plate. A university is a good choice. But it must not be a university like any other; it must be a superb university. There are some; a few are being built from scratch. It needs a unique personality, and it needs to be creative. Not only on its campus, but also in its surroundings, so that the ingredients feel comfortable in the plate. They should be fresh, i.e. they should be young and dynamic. Young and dynamic people are the founders of start-ups. Graham also mentions liberal environments, which, he claims, tolerate strange and brilliant individuals. Then the ingredients have to be put in the oven for a very long time. Silicon Valley began in 1957, Silicon Fen in 1960. It took ten years, maybe even twenty years, to make these two regions successful; it is about the time it takes to grow infants into adults. The oven should not be too hot, so that the desire is not killed, then the temperature should be increased to maintain the enthusiasm. A temperate, pleasant climate is therefore necessary. If all the conditions are in place, the result will probably be interesting”. [Page 176. Start-Up: What We May Still Learn From Silicon Valley]
The world of innovation does not happen at the macro-level. Innovation is a “body contact sport.” It is a micro-level phenomenon. When applied to innovation, rational choice theory might make sense if you’re a theorist thinking abstractly about the way the world should work. It does not accurately describe the way the world actually works. [Page 37] You cannot understand the macro without understanding the micro. […] the world is far more complicated – one must deal with a range of complex social and psychological factors, personal networks, and information flows. [Page 48]
Free market proponents sometimes support investments in scientific research as a way to stimulate new innovation. […] Scientific research, however, does not always lead to economic growth. Each $1 increase in scientific research does not necessarily result in a $1 increase in economic activity in the overall system. The research alone is not sufficient. […] In the real world, the path from discovery to commercial product is so long, tortuous, and serendipitous that the vast majority of world-changing technologies never see the light of day. Society has a surprisingly huge backlog of scientific discoveries that are “stuck in the pipeline”, stalled by the human barriers that prevent them from reaching the marketplace. [Page 40]
For instance, the state of Kansas actively invested in its high-tech entrepreneurs. The University of Kansas provided research grants to develop products for commercial application. The university promoted regional collaboration, entrepreneurial training and even direct assistance. The results of these endeavors, however, were nothing like those of Silicon Valley. And the vast majority of the world looks a lot more like Kansas than California. [Page 41] A cluster is a description of a phenomenon, not a prescription for policy. [Page 42]
Whereas a company is a group of individuals working together, a cluster is a region of individuals or companies working together. In both cases, these relationships result in lower transaction costs. And in both cases, those savings are derived from the fact that people are closer together, can communicate more easily, and trust each other more. [Page 46]
And again let me give you an extract from my book, now quoting Richard Newton: “The Bay Area is the Corporation. […When people change jobs here in the BayArea], they’re actually just moving among the various divisions of the Bay Area Corporation.” [Page 102 – Start-up]
I am not sure anyone has “The Secret to Building the Next Silicon Valley”, but I will post more when I am more advanced in reading the Rainforest!
Here is a new book, fun and serious…In French: Bienvenue dans le nouveau monde Comment j’ai survécu à la coolitude des startups (Welcome in the new world – How I survived the coolitude of startups) by Mathilde Ramadier. Mockery uses language. The “novlangue”, the “coolitude”. But this hides more unacceptable behaviors. Discounted wages, ridiculous working conditions. All this in the tone of humor, or more of chilling irony. Excessive? A little bit in the sense that not all start-ups act as the author describes, but revealing a reality that should not be underestimated … Here are some examples:
“We’re a start-up, so please bring your own laptop.” [Page 24]
“During the end-of-test interview, my CEO tells me that instead of the 1500 euros agreed upon at the start, I will finally be hired with a payroll three times lower. [… He] knows very well what he does and delivers a perfectly honed speech to sweep away my disappointment. […] So I refused a job paid 500 euros because I lacked motivation, belief and ambition. I did not deserve to participate in the adventure.” [Page 26-7] The CEO had previously added that “if I want to make a career, I will have to accept to bend down and give everything. Just like in “the Voice’.”
“But doen’t disruption also mean an acceleration imposed too suddenly on society? […] The sharing economy allows the connection of a client who has a need and a service provider (let’s say a small hand that needs money.)” [Page 28] And then she quotes Bernard Stiegler. How right she is!
“But this tendency, pushed to the extreme, has become the watchword of a despotic regime which does not admit ‘the weakest’, that is to say the refractory, and which relegates them to the bottom of the social pyramid. Because if everyone can, in theory, become a superstar, there is little talk of those for whom “siliconization” does not embody a dream… nor a sinecure.” [Page 36]
“As Orwell has taught us, the manipulation of language is the starting point of any totalitarian discourse. […] The disappearance of the ability to think for oneself can even be the core competence of a company.” [Pages 41-2]
“In many cases, these are bullshit jobs, these new ‘jobs’ in the service sector that pride themselves abotu contributing to the rational organization of the company, but which cannot be described easily because even the first concerned fail to explain clearly what they do neither can they find a real utility. […] Wages were evidently free from all egalitarian considerations and remained confidential.” [Pages 44-5]
“I’ve seen people say ‘never again’ and had to start over again. They had promised that they would not step back behind the counter of a bar after their first internships and still return, for lack of finding a job in their branch. I have seen young women and young men becoming financially dependent on their partner, sublet their car or room to live in their living room (since all aspects of life are now marketable), and knocking at the door of their parents at thirty. Pregnant women put money aside because their maternity leave did not allow them to live decently. These are the people I saw accept a precarious contract with a ridiculous paycheck in a startup because they were promised many things, and offered ‘evolution prospects’ if they agreed to ‘give everything’.” [Page 70]
The author also has interesting definitions. “One of the definitions of start-up might be this: it is a young company with high potential but still not profitable. The objective, from the beginning, is therefore rapid growth.” (Page 94) Mathilde Ramadier even has her own glossary (pages 151-5), often funny… For example: Disruption: super-powerful innovation that breaks the codes of a whole market. An earthquake, the disruption puts everything flat and does not generally worry about the consequences of the chaos it induces. Entrepreneur: courageous person with rare talent, who has an idea of genius before everyone, is working to achieve it and succeeds – or not. Innovation: introduction of a new product or process on the market. A startup is necessarily innovative (for those who launch it anyway).
“During these four years in the startups, I was trapped in an infernal loop, tossed from one absurdity to another, finding here and there the same folklore … Paradoxically, we push the rational to the irrational, originality to conformism, thirst for the new to regression […] The solutions that the startupsphere promises us – to the crisis, unemployment, boredom, repetition of the same and even disuse, old age and ugliness, etc. – are also a deception: one can not pretend to live in the new world before having truly built it.” [Page 143]