Tag Archives: Cluster

What makes an entrepreneurial ecosystem by Nicolas Colin

Great analysis by Nicolas Colin (The Family) in his article What makes an entrepreneurial ecosystem? If the topic interests you, it is a must-read.

Colin-Ecosystems

in a nutshell, the entrepreneurial ecosystems need 3 ingredients – I quote:
– capital: by definition, no new business can be launched without money and relevant infrastructures (which consist of capital tied up in tangible assets);
– know-how: you need engineers, developers, designers, salespeople: all those whose skills are necessary for launching and growing innovative businesses;
– rebellion: an entrepreneur always challenges the status quo. If they wanted to play by the book, they would innovate within big, established companies, where they would be better paid and would have access to more resources.

This reminds me of two “recipes” I often mention. First the “5 needed ingredients of tech. clusters”
1. Universities and research centers of a very high caliber;
2. An industry of venture capital (i.e. financial institutions and private investors);
3. Experienced professionals in high tech;
4. Service providers such as lawyers, head hunters, public relations and marketing specialists, auditors, etc.
5. Last but not least, an intangible yet critical component: a pioneering spirit which encourages an entrepreneurial culture.
in “Understanding Silicon Valley, the Anatomy of an Entrepreneurial Region”, by M. Kenney, more precisely in chapter: “A Flexible Recycling” by S. Evans and H. Bahrami

Second, Paul Graham in How to be Silicon Valley? “Few startups happen in Miami, for example, because although it’s full of rich people, it has few nerds. It’s not the kind of place nerds like. Whereas Pittsburgh has the opposite problem: plenty of nerds, but no rich people.” He also added about failed ecosystems: “I read occasionally about attempts to set up “technology parks” in other places, as if the active ingredient of Silicon Valley were the office space. An article about Sophia Antipolis bragged that companies there included Cisco, Compaq, IBM, NCR, and Nortel. Don’t the French realize these aren’t startups?”

Many toxic friends of entrepreneurial ecosystems have not understood this. But for those who have understood, building lively ecosystems remains a real challenge: bringing the rebellion, the culture, diminishing the fear of risk taking without stigmatizing (not rewarding– here I disagree with Colin) failure remains highly challenging whereas finding know-how and capital is not easy but feasible with some hard work…

Finally, I copy his diagrams which show ideal and less ideal combinations of capital, know-how and rebellion, adding my exercise for Switzerland.

NicolasColin-NationalEcoCompar

Switzerland is probably 80% Germany and 20% France…

SwissNationalEcoCompar

(A short addition on Oct 29, 2015) – The best description of Switzerland was given by Orson Welles. It explains a lot of things…

“In Italy, for thirty years under the Borgias, they had warfare, terror, murder and bloodshed, but they produced Michelangelo, Leonardo da Vinci and the Renaissance. In Switzerland, they had brotherly love, they had five hundred years of democracy and peace – and what did that produce? The cuckoo clock.” in The Third Man, said by Holly Martins to Harry Lime.

My coming out – in the world of start-ups

No it is not a true coming out à la Tim Cook, but a much less spectacular message… I woke up early this morning very disturbed. As you can see below, the ecosystem to support entrepreneurs at EPFL (finance, coaching, exposure and office space) is rich and complex. Yet our results are average not to say mediocre… all this is in fact useless without the ambition and risk-taking of enthusiastic and passionate individuals.

I’m not talking about people, but the system. A few days ago, I said to colleagues I was a matchmaker. I encourage meetings and I put the oil in the wheels. Then I smiled, thinking – I’m usually not too vulgar – that I offered vaseline for introducing investors. Fifteen years ago, an entrepreneur who had enjoyed a chat told me that I made him think of a prostitute but hidden behind me, there were nasty pimps…

Two days ago, I was lucky to listen at EPFL to a Nobel Prize in economics who explained that the Western world is in decline, that the crisis can be explained in part by a weak innovation. Corporatism and financiarization are some reasons of this. Then there was a shocking message from another speaker. Switzerland would be fine because it is hard-working while its neighbor would go wrong because its workers start their weekend on Wednesday at noon. Who can believe that unemployment and bankruptcy in Detroit would come from the laziness of the automobile workers and the success of Silicon Valley because of workaholic nerds. Things are much more complex! Just see in particular the recent analysis of Thomas Picketty or the related MIT Technology Review Technology and Inequality.

Four days ago, I listened to the US ambassador to Switzerland and Liechtenstein. Suzi Levine knows the world of start-ups. She is therefore interested in the situation in Switzerland. I noticed two of her messages:
– First “you have a lot of money but little capital”, I leave you to think about the message that was given to her at EPFL I think, “you have a lot of money but little capital”.
– Second, the weakness of the female presence in this entrepreneurial world. She therefore particularly appreciated that the Prix Musy be created this year. But our efforts will be useless, if we do not encourage and allow the emergence of passionate and adventurous entrepreneurs that create wealth and value… it’s not just about women, but diversity in general which should not be hindered by corporatism and financiarization.

EPFL-VoD-funding

More on the EPFL support to entrepreneurs

EPFL-VoD-support

What’s a start-up? (part 3)

My colleague Jean-Philippe Solvay recently asked me to a react to a Facebook post asking what is exactly a start-up. And as you may read there, it is not so easy to answer. One of the best references given in the post is swombat.com rather exhaustive analysis.

In the past, I wrote two posts: “part 1” was in 2011, where I had given my definition: “A start-up is a company which is born out of an idea and has the potential to become a large company” as well as the very good definition by Steve Blank: “startups are temporary organizations designed to search for a scalable and repeatable business model.” (There is something I am not comfortable with Steve Blank’s: I would delete “model”, as a start-up may know what it wants to do, but has not validated it yet. And start-ups copying existing business models would not be ones…)

Then in “part 2” in early 2013, I added the following: “A start-up is a corporation which explores, which is looking for a business model, a market, customers and is trying to innovate. It usually looks for a big market (“scalable”) and therefore service businesses do not qualify (except on the web) as they do not often scale. It is also a matter of strong and rapid growth in emerging markets because the competition is tough and there will be few winners. It often go fast. That is why it is more about a mindset: you are curious, in an uncertain world, trying to bring new things to the world. Because you are looking for a business, you do not have enough paying customers, and you will most likely need external capital (business angels, venture capital) except if your future customers accept to pay a lot in advance. This is why there is a strong correlation between being a start-up and having investors.”

I agree with most features given in the facebook or swombat contributions: “start-ups are new firms focusing on innovation and growth in situations of high uncertainty (or risk)”. They do not have to be about technology and if so, they are called high-tech start-ups. Maybe innovation is not so important, as many just copy others, but growth (through scalability) is critical. Consulting or service firms usually do not qualify because the growth is linear, not exponential (with the number of jobs).

Let me add another point: if the start-up term, was created, there has to be a good reason! When was it created? Wikipedia claims it became popular with the dot.com bubble of the late nineties. However, I found the term in Saxenian’s Regional Advantage (1994) and even in Silicon Valley Fever (1984). There is no doubt the term emerged with the technology clusters Route 128 and Silicon valley, the reason why it is associated with high-tech as well as venture capital. But not all start-ups belong to these geographic clusters. Microsoft and Amazon are based in Seattle, which is (at least was) not really a cluster. When they do not belong to a geographic cluster, they belong to a technology cluster, mostly IT (electronics, software, internet) or biotech/medtech. Tesla Motors is considered a start-up because it belongs to the Silicon Valley ecosystem though it is in an industry where very few start-ups exist. I do not think EasyJet was ever called a start-up because it belongs to no (technology or geographic) clsuter. So I would finally define a start-up as “a new firm focusing on growth in situations of high uncertainty, and belonging to a technology or geographic cluster”.

PS: while looking into the topic again, I found a debate on how to spell the word… In 2007, I had decided for “start-up”, but “start up” and “startup” also existed. It seems “startup” is now more and more popular. I stick to “start-up” for the time being, just to be consistent with what I always did.

In Innovation Quest, Regions Seek Critical Mass

Very good article by the MIT technology review about technology clusters: In Innovation Quest, Regions Seek Critical Mass. Nothing really new, but it shows again and again how difficult it is to build such clusters and to promote an innovation culture. I just extract a few quotes:

“Clusters exist—it’s empirically proven,” Yasuyuki Motoyama, a senior scholar at the Kauffman Foundation, told me. “But that doesn’t mean governments can create one.”

The problem for governments is that they often try to define where and when innovation will occur. Some attempt to pick and fund winning companies. Such efforts have rarely worked well, says Josh Lerner, a professor at Harvard Business School. Governments can play a role, he says, but they should limit themselves mostly to “setting the table”: create laws that don’t penalize failed entrepreneurs, reduce taxes, and spend heavily on R&D. Then get out of the way.

But can entrepreneurs succeed in creating clusters where governments have had so much difficulty? “The conflict now is between two logics on how to create an ecosystem,” says Fiona Murray, a professor at MIT’s Sloan School, who consults as a kind of therapist to clusters, including London’s TechCity. One is “a government logic that says it’s too important to leave to entrepreneurs, and that you that need specialized inputs, like a technology park.” The other is “purely focused on people and their networks.” Murray believes the answer lies somewhere in the middle. Governments are good at organizing but poor at leading.

I will finsih by reminding you the power of SV in the cluster leadership…

WinnerTakesAll

New rankings of the best technology clusters: the USA still leads.

There are so many articles, studies about technology clusters or ecosystems that I am not sure exactly why I write this. The only explanation is that I have read a couple of simultaneous studies, all mostly going in the same direction. Whereas there’s been a trend claiming the decline of the USA in favor of Asia or predicting the decline of Silicon Valle (SV), these ones show the opposite: the USA still leads, and among the American clusters, Silicon Valley is by far #1.

The first study is the Startup Ecosystem Report 2012 by the StartupGenome. You can read for example what techCrunhc says about it: Startup Genome Ranks The World’s Top Startup Ecosystems: Silicon Valley, Tel Aviv & L.A. Lead The Way.
The following table was kind of a surprise to me, not because SV is leading (this has been obvious for me for many years), but because Boston is #6 only.

I read the report and changed the ranking method with their own data and got the following new graph. I basically weighted all parameters (Output, Funding, Performance, Mindset, Support, Talent, Trendsetter, Differentiation to SV) on the horizontal axis, but deleted the last two ones on the vertical axis as I was not convinced about their role. It obviously shows there is a lot of subjectivity in rankings! The only thing which does not seem to be debatable is that SV is number 1.

There’s been another interest study: Ecosystem 101: The Six Necessary Categories To Build The Next Silicon Valley. It’s a good complement to the Startup Genome work, which is weak on Asia. The criteria here are Market, Capital, People, Culture, Infrastructure and Regulations. Again the USA leads, but weakness here is that we do not have a more detailed description of local clusters.

Finally, there’s been a strange analysis comparing US universities, whowing that Stanford leads and MIT is not even number 2. This is about VC money. The University Entrepreneurship Report – Alumni of Top Universities Rake in $12.6 Billion Across 559 Deals

Well, Silicon Valley might be declining, btu my feeling is it will be a long time before it loses its #1 position…

The New Silicon Valley(s)

Nice series on French-speaking Swiss Radio broadcast les Temps Modernes, this week about five stimulating experiments of high-tech clusters. Probably to fight the depressing mood around WEF and the economic crisis. (And not only because I was given the opportunity this morning to comment the last case! I was only invited on Wednesday… 🙂 )

Monday it was about Russia’s Skolkovo, which I had mentioned in a post a few months ago.

I did not know at all Kenya’s Konza, and this was really refreshing.

You cannot avoid China, but here also surprise, surprise, it was not Shanghai neither Shenzhen, but Zhongguancun.


I had heard of Startup Chile, because Stanford supports the experiment in South America.

Finally, I could comment the stimulating British case, the Silicon Roundabout, in East London. You can listen to or download the mp3 file (in French).

A spontaneous emerging cluster, a name given by a local entrepreneur, no real support by decision makers, at least in the beginning and a nice and enthusiastic atmosphere. And all this attracts people from abroad. Is this finally the cluster Europe has been waiting for? We shall see… The experiment is really interesting and if you want to know more, you may wish to read (French) Le Monde, Le “Silicon Roundabout”, un succès britannique, or The Economist, Silicon Roundabout.

Start-Up Nation: Israel

Thanks to an opportunity I got to meet with the Israel Chief Scientist, and the fact I was offered Start-Up Nation at the end of the meeting, let me give you my views on this very interesting book. But first a few things about Israel and innovation.

As the map (adapted from John Kao, Harvard and showed at the OCS meeting) indicates, Israel is an innovation superpower. Cisco, Intel, Microsoft, Novartis, Nestle and many others are located there. Check Point is just one of the many start-up success stories. Israel has more start-ups quoted on Nasdaq than Europe and venture capital is very active there. Finally the office of the chief scientist manages and funds the public side of innovation in Israel. All this is perfectly analyzed in the book Start-Up Nation that I have just read.

I thought I knew a lot about Israel, but the book is rich in anecdotes. The history of Israel is well described and innovation was probably a necessity to survive. If there is a point I appreciated less is the importance the authors give to the military. They may be right, that’s not the point, but I thought the topic came too often in the chapters. This remains a great book and a must read for anyone interested in high-tech innovation and entrepreneurship.

I’d like now to quote a few things I liked. It’s not structured at all, but I invite you to read the book!

From the Introduction

Google’s CEO and chairman, Eric Schmidt said  that the United States is the number one place in the world for entrepreneurs, but “after the U.S., Israel is the best.” Microsoft’s Steve Ballmer has called Microsoft “an Israeli company as much as an American company” because of the size and centrality of its Israeli teams.”

The authors begin by explaining that adversity and multidimensionality as much as the talent of individuals, are critical:  “it is a story not just of talent but of tenacity, of insatiable questioning of authority, of determined informality, combined with a unique attitude toward failure, teamwork, mission, risk, and cross-disciplinary creativity.”

Chapter 1- Persistence

The usual joke Americans need to put, but it is a good one!
Four guys are standing on a street corner . . .
an American, a Russian, a Chinese man, and an Israeli. . . .
A reporter comes up to the group and says to them:
“Excuse me. . . . What’s your opinion on the meat shortage?”
The American says: What’s a shortage?
The Russian says: What’s meat?
The Chinese man says: What’s an opinion?
The Israeli says: What’s “Excuse me”?

—MIKE LEIGH, Two Thousand Years

– No inhibition about challenging the logic behind the way things have been done for years.
– A rude, aggressive culture which tolerates failure.
Israeli attitude and informality flow also from a cultural tolerance for what some Israelis call “constructive failures” or “intelligent failures.”
– It is critical to distinguish between “a well-planned experiment and a roulette wheel
(During the meeting with the chief scientist, there was a similar argument: “if we have a 5% success rate, we’d better give the responsability to donkeys to choose and if it is 70% success rate, we do not take enough risks”)
– Amos Oz talks about “a culture of doubt and argument, an open-ended game of interpretations, counter-interpretations, reinterpretations, opposing interpretations. From the very beginning of the existence of the Jewish civilization, it was recognized by its argumentativeness.”

Chapter 2- Lesson from the military

– Narrow hierarchy and autonomy gives a lot of responsibility to individuals, authority is discussed
– People are mature earlier.
– No need to wait for order to act.
– “The key for leadership is the soldiers’ confidence in their commander. If you don’t trust him, if you’re not confident in him, you can’t follow him.
– “If you aren’t even aware that the people in the organization disagree with you, then you are in trouble

– “Real experience also typically comes with age or maturity. But in Israel, you get experience, perspective, and maturity at a younger age, because the society jams so many transformative experiences into Israelis when they’re barely out of high school. By the time they get to college, their heads are in a different place than those of their American counterparts.”… “The notion that one should accumulate credentials before launching a venture simply does not exist.”

A dense networkthe whole country is one degree of separation (Yossi Vardi)

Chapter 5- Order and chaos

– Singapore’s leaders have failed to keep up in a world that puts a high premium on a trio of attributes historically alien to Singapore’s culture: initiative, risk-taking, and agility; in addition to being real experts who can improvise in situations of crisis.
– Innovation is fundamentally an experimental endeavor (improvisation over discipline)
– Learn from mistake with no fear of losing face.
– Nobody learns from someone who is being self defensive
– Fluidity, according to a new school of economists studying key ingredients for entrepreneurialism, is produced when people can cross boundaries, turn societal norms upside down, and agitate in a free-market economy, all to catalyze radical ideas.

Chapter 7 – Immigration

Immigrants are not averse to starting over. They are, by definition, risk takers. A nation of immigrants is a nation of entrepreneurs.—GIDI GRINSTEIN

Sergey Brin spoke in an Israeli high school: “Ladies and gentlemen, girls and boys,” he said in Russian, his choice of language prompting spontaneous applause. “I emigrated from Russia when I was six,” Brin continued. “I went to the United States. Similar to you, I have standard Russian-Jewish parents. My dad is a math professor. They have a certain attitude about studies. And I think I can relate that here, because I was told that your school recently got seven out of the top ten places in a math competition throughout all Israel.” This time the students clapped for their own achievement. “But what I have to say,” Brin continued, cutting through the applause, “is what my father would say—‘What about the other three?

The authors mention the seminal work of AnnaLee Saxenian (Regional advantage, the New Argonauts). As a few examples of Israel tech. diaspora mentioned in the book:
– Dov Frohman – Intel – 1974 –  Wikipedia link. Apparently Israel has been the core of Intel innovation in the past decade and Intel is the largest private employer in Israel.
– Michael Laor – Cisco – 1997 –  Linkedin profile. Cisco has acquired 9 israeli start-ups since Laor came back (more acquisitions than in any other country except the USA)
– Yoelle Maarek – Google –  http://yoelle.com now at Yahoo!

But one should not forget Mirabilis/ICQ (see below)  or Check Point. Check Point was established in 1993, by the company’s current Chairman & CEO Gil Shwed, http://en.wikipedia.org/wiki/Gil_Shwed at the age of 25, together with two of his friends, Marius Nacht (currently serving as Vice Chairman) and Shlomo Kramer (who left Check Point in 2003 to set up a new company).

Chapter 9 – Yozma

Another member of the tech. diaspora: Orna Berry – PhD USC – Unisys-IBM then Ornet and Gemini then OCS chief… The VC industry was really launched through the Yozma effort as well as Israeli incubators. Gemini was the first Israel fund. See the wikipedia article about venture capital in Israel.

Another quote on start-ups vs. more mature industries: “In aerospace, you can’t be an entrepreneur,” he explained. “The government owns the industry, and the projects are huge. But I learned a lot of technical things there that helped me immensely later on.”

Chapter 12 – Transdisciplinarity

“There’s a multitask mentality here.” The multitasking mentality produces an environment in which job titles—and the compartmentalization that goes along with them—don’t mean much.
– “Combining mathematics, biology, computer science, and organic chemistry at Compugen”
– “Putting this together required an unorthodox combination of engineering skills.”

The term in the United States for this kind of crossover is a mashup. And the term itself has been rapidly morphing and acquiring new meanings. … An even more powerful mashup, in our view, is when innovation is born from the combination of radically different technologies and disciplines. The companies where mashups are most common in Israel are in the medical-device and biotech sectors, where you find wind tunnel engineers and doctors collaborating on a credit card–sized device.

But the authors do not forget to mention that Israel is A country with a motive

Role models

Though Israel was already well into its high-tech swing by then, the ICQ sale was a national phenomenon. It inspired many more Israelis to become entrepreneurs. The founders, after all, were a group of young hippies. Exhibiting the common Israeli response to all forms of success, many figured, If these guys did it, I can do it better. Further, the sale was a source of national pride, like winning a gold medal in the world’s technology Olympics.

“There’s a legitimate way to make a profit because you’re inventing something,” says Erel Margalit “You talk about a way of life—not necessarily about how much money you’re going to make, though it’s obviously also about that.”

“Indeed, what makes the current Israeli blend so powerful is that it is a mashup of the founders’ patriotism, drive, and constant consciousness of scarcity and adversity and the curiosity and restlessness that have deep roots in Israeli and Jewish history. “The greatest contribution of the Jewish people in history is dissatisfaction,” Peres explained.

Again “Not just talent, but tenacity, insatiable questioning of authority, determined informality, unique attitude toward failure, teamwork, mission, risk and cross-disciplinary creativity.”

As a conclusion

“So what is the answer to the central question of this book: What makes Israel so innovative and entrepreneurial? The most obvious explanation lies in a classic cluster of the type Harvard professor Michael Porter has championed, Silicon Valley embodies. It consists of the tight proximity of great universities, large companies, start-ups, and the ecosystem that connects them—including everything from suppliers, an engineering talent pool, and venture capital. Part of this more visible part of the cluster is the role of the military in pumping R&D funds into cutting-edge systems and elite technological units, and the spillover from this substantial investment, both in technologies and human resources, into the civilian economy. … But this outside layer does not fully explain Israel’s success. Singapore has a strong educational system. Korea has conscription and has been facing a massive security threat for its entire existence. Finland, Sweden, Denmark, and Ireland are relatively small countries with advanced technology and excellent infrastructure; they have produced lots of patents and reaped robust economic growth. Some of these countries have grown faster for longer than Israel has and enjoy higher standards of living, but none of them have produced anywhere near the number of start-ups or have attracted similarly high levels of venture capital investments. What’s missing in these other countries is a cultural core built on a rich stew of aggressiveness and team orientation, on isolation and connectedness, and on being small and aiming big. Quantifying that hidden, cultural part of an economy is no easy feat. An unusual combination of cultural attributes. In fact, Israel scores high on egalitarianism, nurturing, and individualism. In Israel, the seemingly contradictory attributes of being both driven and “flat,” both ambitious and collectivist make sense when you throw in the experience that so many Israelis go through in the military. There is no leadership without personal example and without inspiring your team. The secret, then, of Israel’s success is the combination of classic elements of technology clusters with some unique Israeli elements that enhance the skills and experience of individuals, make them work together more effectively as teams, and provide tight and readily available connections within an established and growing community.

If you have arrived here, you were interested enough in this long article. Logically, your next move would be to buy Start-Up Nation!

Innovation in Europe

I just read two reports about innovation. The one in French is very deep (see my post on the French part of the blog). The one in English is also full of interesting lessons and learning. “What is the right strategy for more innovation in Europe? Drivers and challenges for innovation performance at the sector level” was published last June by the Austrian Institute of Economic Research. (Direct link to pdf file)


 

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The authors try to differentiate innovation with sectors and geography (economic advancement.) For example “The data show that firms in economically less advanced member states are less likely to be innovators than firms in countries with more developed economies such as Germany or Sweden, and if they are innovators they are more likely to be technology users.” and “It has also proposed a new classification of industries that is based on the characteristics of entrepreneurship and a broad concept of innovation that transcends the conventional R&D-based classifications.”

 

I like some of the conclusions such as “Knowledge acquisition from external sources is of particular importance in sectors with large shares of technology users, whereas R&D activities are important in sectors where firms that are technology producers prevail. […] For firms based in countries that are at a distance from the world technological frontier, technology transfer and non-R&D related innovation activities are extremely important to promote innovation. […] On the other hand, for firms located in countries on or close to the technological frontier, intensive innovation activity is a driver of competitiveness. In order to maintain a competitive edge firms need to invest in R&D, acquire and adapt new technologies.

 

Of course all this is not obvious and may be counterintuitive. Look at Cisco in the USA, which does A&D more than R&D (they acquire start-ups and then develop). Is Cisco at the Frontier or not?

 

In terms of national policies, an interesting lesson: “The results show that the impact and the magnitude of these factors vary greatly across industries and countries. In fact, most variables can have either a positive or a negative influence depending on the sector. For the energy sector, the ICT industries and the aerospace industry public R&D subsidies have a positive effect, whereas R&D spending by the government seems to crowd out R&D investment in the textile, chemical and ICT industries.” I see a slight contradiction here but…

 

Then the authors address the issue of human capital: “Engineering and science skills contribute directly to international competitiveness” and “the returns to higher education will be higher for countries farther away from the technological frontier due to the greater importance of technology transfer and absorptive capacities […] On the other hand, in countries that are on or close to the technological frontier accumulated knowledge and experience are a precondition for sustained innovation performance and growth.”

 

On the competition side, they explain: “Competition is based on the interplay between the creation of novelty and imitation, i.e. between exploration and exploitation of opportunity. […] Firms that compete mostly with less advanced firms, have an incentive to reduce their risky R&D investments, as they are easily able to keep a competitive advantage over their rivals without incurring the cost of R&D investments. On the other hand, if they compete with firms with similar technological capabilities, they have an incentive to invest more in R&D, as this is a means to explore new opportunities and market niches and therefore set themselves apart from their competitors.

 

About the gazelles, the fast growing companies: “… a count reveals a significantly higher number of gazelles in the new member states of the European Union than in other EU countries. […] Statistical analyses show that in the more advanced economies of the European Union (continental and northern countries) fast growing firms are mostly of the creative entrepreneurship type and they also have a significantly larger share of turnover from product innovations. For gazelles in the southern European countries and the new member states innovation is much less important.”

 

Among the challenges for Europe, here are some scary elements:

          There is the danger that firms will increasingly relocate their research activities to countries where conditions concerning human resources and scientific infrastructure are better.

          For technology intensive sectors the problem is that they are not able to hire enough top level science and engineering graduates or attract the best-qualified engineers, scientists and specialists from abroad to their industry. These problems are particularly severe for new and fast growing firms that cannot rely on a long-standing reputation to attract people with top level qualifications and skills.

          For firms carrying out high-risk research, for young and small start-up firms and for firms facing extraordinary growth opportunities the lack of financial resources constitutes a serious problem. New financial instruments tailored to the needs of emerging firms remain underdeveloped in most EU countries.

 

 

Win, Win, Win

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:

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“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.

EDA, an industry from Silicon Valley

Penny Aycinena asked me to write a short article in EDA confidential, which summarizes my concerns and hopes about innovation and start-ups. It is published today (June 30, 2008).

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Let me add more here:

The chapter of “Start-Up” which has been the least noticed is Chapter 6. It is one of my favourites though. It is about EDA, which stands for Electronic Design Automation. Today, no architect would design a complex building without software, nor would an automobile engineer. It is exactly the same with digital circuits.

Twenty five years ago, EDA was nearly non-existent. Forty years ago, chips were designed internally (and manually) at IBM, Motorola… and little by little, some new players emerged, tiny start-ups became big and an industry was born. It was more than $5B in revenues in 2007. The typical ebb and flow of start-up creation and acquisition went on for two decades. But since 2001, not much has happened: no IPO, small M&A deals and a few days ago, Cadence, the biggest EDA vendor, announced a hostile acquisition bid against Mentor, the number 3 player. Both companies were founded in the 80s.

eda-market1.gif

EDA is a good illustration of what Silicon Valley is: a rich network of individuals, academics, entrepreneurs, investors. What is interesting about EDA is that its center is probably Berkeley (rather than Stanford or Sand Hill Road) as the picture below shows. Let me quote again two legends of the EDA field, two recipients of the Kaufman award, the Nobel Prize of EDA:

– “Risk taking in EDA is gone.” Joe Costello

– “If there is a single point I wish to make here today, it is that as a discipline, both in industry and in academia, we are just not taking enough risks today.” Richard Newton

It could be that the maturity of EDA and of Silicon Valley is not such a good sign.

 

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