Monthly Archives: August 2008

The Trouble With…

I just finished reading The Trouble With Physics by Lee Smolin. It is a GREAT book. Now what has this to do with innovation and start-ups? Well I see a link: In my book I refer to Thomas Kuhn, the author of the “structure of scientific revolutions”. Indeed Innovation and Research have similarities in the way they progress. The specific topic he focuses on is the lack of progress in physics. Don’t we have a similar issue with innovation? I also quoted Pitch Johnson, one of the grandfathers of venture capital who wrote: “Democracy works best when there is this kind of turbulence in the society, when those not well-off have a chance to climb the economic ladder by using brains, energy and skills to create new markets or serve existing markets better then their old competitors.”

Smolin considers Science needs two ingredients: ethics and imagination. If the established science and scientists prevent the emergence of young people and new ideas, there might be a crisis. It is what he analyses brilliantly in his book. (By the way, his book tells much more, it is a really great book). When Silicon Valley people such as Joe Costello and Richard Newton claimed that Silicon Valley needs to take more risks and that greed is more important than ethics, I see similarities…

The Human Piece of the Venture Equation

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An interesting post by Fred Wilson about when ask the founders to step back and entitled “The Human Piece of the Venture Equation“. I added my own comment which is obviously linked to my pet subject: passion in start-ups. Here is what I wrote.

I like this post very much so I’d like to add my own views. As a former student in SV and then as a former VC, I have seen many, many start-up and founders. My intuition is that in an ideal world, the founder should stay as CEO as long as possible. Let me make an analogy: a start-up is a baby; the founders are its parents. Except if the parents are totally incapable of educating a baby, they will hold responsibility for its education. Many “experts” will assist them (teachers, doctors and so on…). And obviously they will make rocky mistakes and sometimes it is deadly. It does not mean they should control the kid’s life forever. Hopefully not! (Though it sometimes happen too…) By the way, let me add also that two parents/founders are better for the kid (am I too conservative?).

So I fully agree with your “nothing can replace the entrepreneur’s passion and vision for the product and the company. If you rip that out of the company too early, you’ll lose your investment. I think it’s best to wait …”

I published “Start-Up” just before reading “Founders at Work” (which is a great book on the subject as you know). In mine, I tried to take a broader perspective as I am not sure the Internet and the Web2.0 have fundamentally changed things. Yes, you can do things quicker and less expensively but Hewlett and Packard were in their mid-twenties when they founded HP in 1939. So Gates, Jobs, Dell are not the first ones. It is not only about software and computing, there is something else. I think passion is more important than experience, but once again this is gut feeling and I agree that deeper studies may be needed. Passion is one of the subjects I have developed.

A final point: do you need to replace a CEO when he “the CEO’s job goes from managing the product, writing a little code, doing customer support, and raising money to managing people and teams, processes and priorities.” I am not fully sure about this. I do not disagree but as you say later, the CEO role is about defining the right vision and strategy. Can not you ask the COO and the other top-level managers to handle processes? When Logitech was in trouble, its founder, Daniel Borel, stepped back and the new CEO was a marketing guy from Apple if I am correct. He redefined the marketing/vision. The unique story of Steve Jobs have similarities (“Inside Steve’s Brain” is another piece of interesting reading).

It is hard to know about the Human Equation and there are many counter-intuitive elements. It is neither black nor white, you need passion and experience and by definition, they are very seldom found in the same individual. It is an argument for teams of two. Google has probably nicely succeeded with Eric Schmidt as there is no doubt the two founders are still critical to the company.

Win, Win, Win

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I discovered yesterday the new 2008 Academic Ranking of World Universities done by the Institute of Higher Education, Shanghai Jiao Tong University (IHE-SJTU). Again the USA has the lion share: 8 in the top 10 and 17 in the top 20. Only the UK (Cambridge and Oxford) and Japan (Tokyo) enter the list. You can assess the ranking in more details with the full 500 ranking if you wish.

When I published “Start-Up”, I had a conversation with Christophe Alix, a journalist at Libération who told me that I forgot one thing in my explanations of the US superiority in innovation, i.e. the huge budget of the Pentagon. I certainly do not disagree and address the issue further below with a book I am just reading:

“Creating the Cold War University- The Transformation of Stanford” by Rebecca S. Lowen is an interesting book about how Stanford became wealthy in the 50’s and the 60’s thanks to federal money and industry contracts. Frederick Terman, often credited as being the father of Silicon Valley, called it a “Win-Win-Win” situation. The government funded basic and applied research (the difference between the two was often fuzzy) to develop military applications during the Cold War, the industry developed the products from the results of the research (and did not always have to directly fund the research), and companies like H-P, Varian, GE benefited greatly the effort. Finally Stanford became wealthy as well as excellent in research (which it was not in the 30’s).

Lowen explains that “by 1960, the federal government was spending close to $1B for academic research and university-affiliated research centers, 79 percent of which went to just twenty universities, including Stanford, Berkeley, Caltech, MIT, Harvard and the University of Michigan” (page147). In the Shanghai ranking, Harvard is #1, Stanford is #2, Berkeley is #3, MIT is #5, Caltech is #6 and Michigan #18 only.

Money definitely helps. I had however reacted against Alix’ argument as military money can not explain by itself the entrepreneurial spirit that Boston and Silicon Valley developed. Caltech and its JPL laboratory never reached the same start-up activity. But the quality of universities and their wealth is an extremely strong ingredient for successful technology clusters.