Tag Archives: Silicon Valley and Europe

The myth of the entrepreneur – Undoing the imaginary of Silicon Valley

A friend mentioned this new book about Silicon Valley to me a few days ago and I quote: “The author’s argument is wrong (but it’s pernicious). […] Indeed, entrepreneurship generates excellence and independent-minded people, while [another view – opposition to liberal capitalism] creates a population of people dependent upon the state.”

I’m not sure I agree with my friend: on the one hand, the relationship between collective and individual is a key topic around entrepreneurship. Does a company create value without “outstanding” individuals? The subject is as old as the world. On the other hand, the distribution of this value is a second subject which belongs among other things to the field of taxation and Piketty has clearly shown that, for several decades, the distribution gap has greatly increased in favor of the richest to the detriment of the poorest.

Marianna Mazzucato has shown this imbalance in The Entrepreneurial State, which she finds all the more unfair as she shows the primordial role of the State in upstream funding (education, research, public services in general) which provides a favorable context for the creation of wealth.

In the beginning of his book, Le mythe de l’entrepreneur – Défaire l’imaginaire de la Silicon Valley (The Myth of the Entrepreneur – Unraveling the Imaginary of Silicon Valley), Anthony Galluzzo explains similar things but it seems different to me. I am only at the beginning and I will see later how closely it joins the criticism introduced above. The author is a specialist in merchant imaginary and the subtitle is convincing, namely that it is necessary to deconstruct the imaginary of this region, based on story-telling around the stars of the region, such as Steve Jobs and Elon Musk (although Elon Musk has largely lost his aura). It shows us that Elisabeth Holmes tried the same approach but succeeded only very partially.

Joseph Schumpeter is quoted extensively in the book at the beginning, in particular it seems to me, for a critique of the role of the entrepreneur and of creative destruction. Galluzzo prefers to use destructive creation to show the chronology of actions. But I didn’t see in the beginning of the book, at least, that Schumpeter adds that capitalism cannot exist without advertising. So without story-telling and imaginary.

This imaginary of Silicon Valley is therefore, I believe, only what allows capitalism to self-develop, to survive, with all the current paradoxes of destructive waste. But behind this imaginary, what is the reality? Galluzzo refuses to oppose entrepreneurs and businessmen. I understand the argument. Creators, stars at least, can make a lot of money. But I don’t know if the main reason is their ability to do business or if they are simply at the origin of a creation that makes it possible to do business. I am neither an economist, nor a historian, nor a sociologist and I find it very difficult to make sense of things, all other things being equal.

Anatomy of the Myth – the Heroic Entrepreneur

So here are a few things that I found interesting in the beginning of the book:

1- The solitary entrepreneur

Steve Jobs was not alone and worse is perhaps not critical to the initial success. The story is indeed quite well known while Jobs is seen as the only genius of Apple.
– Steve Wozniak is the real genius (Galluzzo will not like the term) behind the first computers from Apple.
– Steve Jobs is said to have “stolen” [Page 35] many ideas from Xerox to build his machines. The story is known but the term “stealing” is too strong even if many Xerox employees were shocked. Xerox received Apple shares in exchange for this rather unique deal in history.
– “Mike Markkula can be considered the true founder of Apple, the one who transformed a small, insignificant hobbyist operation into a structured and solidly financed start-up. » [Pages 19-20]
– “Arthur Rock, meanwhile, is one of the most important figures in Silicon Valley, he contributed to the emergence of the largest companies in the region – Fairchild Semiconductor, Intel, then Apple. However, no biography has ever been devoted to him and his wikipedia page is starving”. [Page 20]

I will nuance Galluzzo’s remarks again. Certainly Wozniak, Markkula and Rock have not penetrated the imagination of the general public, but Silicon Valley connoisseurs are not unaware of them and the film Something Ventured (which Galluzzo does not seem to mention in his very rich bibliography) does not forget them at all. And what about this cover of Time Magazine.

2- The war for talent

“The functioning of the labor market in Silicon Valley, however, shows us a completely different dynamic. The industrial concentration in this region leads to significant personnel movements: an engineer can easily change company, without moving or changing his lifestyle. […] This high degree of labor mobility has been observed since the 1970s, when on average IT professionals only stayed in their jobs for two years [Cf AnnaLee Saxenian’s Regional Advantage]. When circulating like this, employees, even bound by non-disclosure agreements, take with them their experiences and knowledge. The propagation of this tacit knowledge is at the heart of the ecosystem, it allows permanent collective tacit learning. » [Page 45]

Galluzzo gets to the heart of the matter here, which makes Silicon Valley unique. Not so much the concentration of talent, which exists in all developed regions. But the circulation of talent. Almost everything is said!

However, Galluzzo adds a significant nuance that I was less familiar with: “Therefore, problems arise for entrepreneurs relating to what has been called in business jargon the “war for talents”. To carry out his projects, he must succeed in appropriating the most precious commodity there is, the work force of highly qualified engineers.” [Page 46]

Galluzzo then mentions the stock options, the aggressive recruitment but also this: “Another court case illustrates well the issues of employee retention. In the 2000s, several Silicon Valley giants, including Intel, Google and Apple, formed a “wage cartel”, mutually agreeing not to attempt to poach employees. This tacit agreement was intended to eliminate all competition for skilled workers and to limit wage increases.” [Page 47 & see Google, Apple, other tech firms to pay $415M in wage case]

3- The invisibilization of the State

The subject is also known and I mentioned it above. We too often forget the role of the collective in the possibility of favorable conditions and context. But Galluzzo shows that too often there is even a certain hatred of the collective, illustrated by the growing visibility of libertarians. It is also known, Silicon Valley is afraid of unions. Here’s another example I didn’t know:

“I want the people who teach my children to be good enough to be employed in the company I work for, and earn $100,000 a year. Why should they work in a school for $35-40,000 a year if they can get a job here at $100,000? We should hire them and pay them $100,000, but of course the problem is the unions. Unions are the worst thing that has happened to education. Because it is not a meritocracy, but a bureaucracy. »

You have to read the entire excerpt and maybe even the entire interview with Steve Jobs. Excerpts from an Oral History Interview with Steve Jobs. Interviewer: Daniel Morrow, April 20, 1995. Computerworld Smithsonian Awards. We are there in the core American culture and the importance given to competition between individuals rather than to the equality of the members of the collective.

So are there geniuses or not? Is there only Darwinian emergence of talents a posteriori among those who will have survived? I don’t know or I don’t know anymore. Probably something in between. Or maybe it is an act of faith, as long as sociology does not have elements that will allow me to have a more convincing opinion…

To be continued…

A Library of Books about Startups, High-Tech, Innovation

I began this blog in July 2007, so more than 15 years ago. I began my professional activity around startups in September 1997, so more than 25 years ago. So many adventures, so many great moments. And so much book reading! I revisited these pages and did an exhaustive list of the books I could remember reading. Most have a post somewhere in the blog.

I created a little artificially 6 categories:
– About Google and Apple
– Entrepreneurs’ Biographies
– Startup Stories and Analyses
– Ecosystems and Innovation
– Venture Capital
– How to
– Fictions / Thrillers (or close)

Here they are… Enjoy (maybe!)

About Google and Apple

  • Goomics, Google’s corporate culture revealed through internal comics, Manu Cornet
  • In the Plex, How Google Thinks, Works and Shapes Our Lives, Stephen Levy
  • How Google Works, Eric Schmidt, Jonathan Rosenberg
  • Dogfight, How Apple and Google Went to War and Started a Revolution, Fred Vogelstein
  • I’M Feeling Lucky, Falling On My Feet in Silicon Valley, Douglas Edwards
  • The Apple Revolution, Steve Jobs, the Counter Culture and How the Crazy Ones Took Over the World, Luke Dormehl
  • Work Rules! Insights from inside Google that will transform how you live and lead, Laszlo Bock
  • The Google Story, David Vise
  • Return to the Little Kingdom, How Apple and Steve Jobs Changed the World, Michael Moritz

Biographies

  • Elon Musk, Tesla, SpaceX, and the Quest for A Fantastic Future, Ashlee Vance
  • Steve Jobs, La vie d’un génie, Walter Isaacson
  • Inside Steve’s Brain, Leander Kahney
  • The Man Behind the Microchip, Robert Noyce and the Invention of Silicon Valley, Leslie Berlin

Startups Stories / Analyses

  • Trillion Dollar Coach, The Leadership Playbook of Silicon Valley’s Bill Campbell, Eric Schmidt, Jonathan Rosenberg, and Alan Eagle
  • L’entrepreneuriat en action, Ou comment de jeunes ingénieurs créent des entreprises innovantes, Philippe Mustar
  • Chercheurs et entrepreneurs : c’est possible ! Belles histoires du numérique à la française, Laurent Kott, Antoine Petit
  • Bad Blood, Secrets and Lies in a Silicon Valley Startup, John Carreyrou
  • Bienvenue dans le Nouveau Monde, Comment j’ai survécu à la coolitude des startups, Mathilde Ramadier
  • Les start-up expliquées à ma fille, L’entrepreneuriat vu de l’intérieur, Guillene Ribière
  • Startup, Arrêtons la mascarade, Contribuer vraiment à l’économie de demain, Nicolas Menet, Benjamin Zimmer
  • No Exit, Struggling to Survive a Modern Gold Rush, Gideon Lewis-Kraus
  • The Hard Thing About Hard Things, Building a Business When There are no Easy Answers, Ben Horowitz
  • Zero to One, Notes on Startups, or How to Build the Future, Peter Thiel, Blake Masters
  • Startupland, How Three Guys Risked Everything to Turn an Idea into a Global Business, Mikkel Svane, Carlye Adler
  • European Founders at Work, Pedro Gairifo Santos
  • Founders at Work, Stories of Startups’ Early Days, Jessica Livingston
  • The Monk and the Riddle, The Education of a Silicon Valley Entrepreneur, Randy Komisar
  • Once you’re lucky, Twice you’re good, The Rebirth of Silicon Valley and the Rise of Web, Sarah Lacy
  • They Made It! Angelika Blendstrup
  • Betting It All, The Entrepreneurs of Technology, Michael Malone,
  • In the Company of Giants, Candid Conversations With the Visionaries of the Digital World, Rama Dev Jager, Rafael Ortiz
  • Startup, A Silicon Valley Adventure, Jerry Kaplan

Ecosystems and Innovation

  • From the Basement to the Dome, How MIT’s Unique Culture Created a Thriving Entrepreneurial Community, Jean-Jacques Degroof
  • The Microchip Revolution: A brief history, Luc O. Bauer, E. Marshall Wilder
  • The Code, Silicon Valley and the Remaking of America, Margaret O’Mara
  • Loonshots or how to nurture crazy ideas, Safi Bahcall
  • Troublemakers, How Generation of Silicon Valley Upstarts Invented the Future, Leslie Berlin
  • The Rainforest, The Secret to Building the Next Silicon Valley, Victor W. Hwang, Greg Horowitt
  • The Innovators, How a Group of Hackers, Geniuses, and Geeks Created the Digital Revolution, Walter Isaacson
  • The Entrepreneurial State, Debunking Public vs. Private Sector Myths, Mariana Mazzucato
  • Genentech, The Beginnings of Biotech, Sally Smith Hughes
  • Science Lessons, What the Business of Biotech Taught Me About Management, Gordon Binder
  • Le prochain Google sera Suisse (à 10 conditions), Fathi Derder
  • Prophet of Innovation, Joseph Schumpeter and Creative Destruction, Thomas McCraw
  • Start-up Nation, The Story of Israel’s Economic Miracle, Dan Senor, Saul Singer
  • Boulevard of Broken Dreams, Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed–and What to Do About It, Josh Lerner
  • The Innovation Illusion, How So Little is Created by So Many Working So Hard, Fredrik Erixon, Bjorn Weige
  • Un paléoanthropologue dans l’entreprise, S’adapter et innover pour survivre, Pascal Picq
  • Against Intellectual Monopoly, Michele Boldrin and David K. Levine
  • The New Argonauts, Regional Advantage in a Global Economy, AnnaLee Saxenian
  • Regional Advantage, Culture and Competition in Silicon Valley and Route 128, AnnaLee Saxenian
  • Silicon Valley Fever, Growth of High Technology Culture, Everett M. Rogers, Judith K. Larsen
  • Creating the Cold War University, The Transformation of Stanford, Rebecca S. Lowen
  • Nurturing Science-based Ventures, An International Case Perspective, Ralf Seifert, Benoït Leleux, Christopher Tucci
  • Entrepreneurship and Innovation, Peter F. Drucker
  • The Gorilla Game, Picking Winners in High Technology, Geoffrey Moore
  • Inside the Tornado, Strategies for Developing, Leveraging, and Surviving Hypergrowth Markets, Geoffrey Moore
  • Crossing the Chasm, Marketing and Selling High-Tech Products to Mainstream Customers, Geoffrey Moore
  • The Founder’s Dilemmas, Anticipating and Avoiding the Pitfalls That Can Sink a Startup, Noam Wasserman
  • The Innovators Dilemma, When New Technologies Cause Good Firms To Fail, Clayton M. Christensen
  • Accidental Empires, How the Boys of Silicon Valley Make Their Millions, Battle Foreign Competition, and Still Can’t Get a Date, Robert X. Cringley

Venture Capital

  • The Power Law, Venture Capital and the Making of the New Future, Sebastian Mallaby
  • The Masters of Private Equity and Venture Capital, Management Lessons from the Pioneers of Private Investing, Robert A. Finkel
  • The Startup Game, Inside the Partnership between Venture Capitalists and Entrepreneurs, William H. Draper III
  • Creative Capital, Georges Doriot and the Birth of Venture Capital, Spencer Ante
  • The Business of Venture Capital, Insights from Leading Practitioners on the Art of Raising a Fund, Deal Structuring, Value Creation, and Exit Strategies, Mahendra Ramsinghani
  • The New Venturers, Inside the High-Stakes World of Venture Capital, John Wilson

 

How To

  • The Mom Test, How to talk to customers & learn if your business is a good idea when everyone is lying to you, Rob Fitzpatrick
  • Straight Talk for Startups, 100 Insider Rules for Beating the Odds, Randy Komisar, Jantoon Reigersman
  • Measure What Matters, OKRs, The Simple Idea that Drives 10x Growth, John Doerr,
  • The start-up of You, Adapt to the Future, Invest in Yourself, and Transform Your Career, Reid Hoffman
  • Don’t f**k it up, How Founders and Their Successors Can Avoid the Clichés That Inhibit Growth, Les Trachtman
  • How To Start a Business That Doesn’t Suck (and will actually turn a profit), Michael Clarke
  • The Four Steps to the Epiphany, Successful Strategies for Products That Win, Steve Blank (NB: the book has been updated and renamed as The Startup Owner’s Manual, The Step-by-Step Guide for Building a Great Company, Steve Blank, Bob Dorf)
  • The Lean Startup, How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, Eric Ries
  • Business Model Generation, Alexander Osterwalder and Yves Pigneur
  • Slicing Pie, Funding Your Company Without Funds, Mike Moyer
  • Getting to Plan B, Breaking Through to a Better Business Model, John Mullins, Randy Komisar
  • Winning Opportunities, Proven Tools for Converting Your Projects into Success (without a Business Plan), Raphael Cohen
  • Start-up, (anti-)bible à l’usage des fous et des futurs entrepreneurs, Bruno Martinaud
  • The Art of the Start, GuyKawasaki

 

Fiction / Thrillers or close

  • Drop by Drop, Keith Raffel
  • Smasher, a Silicon Valley Mystery, Keith Raffel
  • dead, a Silicon Valley Mystery, Keith Raffel
  • The Ultimate Cure, Peter Harboe-Schmidt
  • The First $20 Million Is Always The Hardest, Po Bronson
  • The Nudist on the Late Shift, And Other True Tales of Silicon Valley, Po Bronson

The largest technology companies in Europe and the USA in 2020

I regularly look at the largest technology companies in the USA and Europe and obviously this year, I had the impact of Covid in mind. Here are the tables I build once a year (and that you could compare to the ones published in January 2020 here or in 2017 here.

I am adding below their PS (price to sales, ratio of market cap to revenues) and PE (price to earnings, ratio of market cap to profits when positive) as well as the growth of the market cap. and revenues. There are 3 new companies I had not studied last year (Airbnb, Paypal and AMD) for which the growth is therefore not mentioned.

There would be many comments to give btu I will be fast:
– The GAFAs are the clear leaders, 4 of them are trillion dollar companies. Facebook is a little surprinsingly not as impressive and Tesla is appearing on top.
– The COVID did not have a big impact, not to say it had a positive impact on technology companies (in financial more than in economic terms)
– Again, looking at averages we see Europe is lagging in market caps, employement, sales and profits by factors close to 10…

The largest technology companies in Europe and the USA in the last 10 years

It’s just after reading on Twitter that Google had just become a trillion dollar company (In honor of Google becoming a $1T company today), and also after reading Nicolas Colin’s concerns about European technology companies (Will Fragmentation Doom Europe to Another Lost Decade?) that I remembered I used to compare US and European tech former startups.

So here are my past tables and also a short synthesis in the end. The full data in pdf in the end too.

USA vs. Europe in 2020

USA vs. Europe in 2018

USA vs. Europe in 2016

USA vs. Europe in 2014

USA vs. Europe in 2012

USA vs. Europe in 2010

USA vs. Europe: the Synthesis over the decade

If you prefer to download it all and a little more: Top US Europe (in pdf)

Steve Jobs in Paris in 1984

My friends at INRIA just mentioned to me a short but great interview of Steve Jobs by French Television in 1984, when he was asked if France could have similar start-ups to Silicon Valley. Here is his answer:


Even if you hear more the French translation, you can hear his voice too:
– Research level is good but concrete applications seem to be a problem, and this is an important step for innovation
– This is coming from a lack of companies ready to try
– The risk is seldom taken by large corporations, but by small ones
– You need many small firm with talented students and venture capital
– You also need champions you take as models, that enable saying “innovation is this”
– There is a more subtle problem, a cultural one: in Europe, failure is serious. If you fail in Europe right after university, it follows you for ever. In the USA, we keep failing all the time.
– What you also need is a solid software industry, because software is the new oil. You need hundreds of small firms and then you can dominate an industry.
– You need talented students, a good understanding of technology and encougare young people to create small firms.
– It’s all about private initiative. Big companies should not interfere, neither the government should. We should let entrepreneurs own it.

Thirty-five years later, is the situation different? And if he was still alive, would he say the same things? I let you judge …

The top US and European (former) start-ups in 2017

Since I published my book in 2007, I have regularly been doing the exercise of comparing the largest US (former) start-ups and their European counterparts. You can look at my data in 2016 in The top US and European (former) start-ups in 2016. Here are my update lists:

Things have not changed that much. Yahoo is out. Rovio is in…

The Rainforest by Hwang and Horowitt (Part IV) – Venture Capital

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]

The Rainforest by Hwang and Horowitt (Part III) – the Recipe

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.

The Rainforest by Hwang and Horowitt. Part 2: the Importance of Culture

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]

Look at Harari again if you have not not already…

Notes on the Rainforest by Hwang and Horowitt

I must thank here first Bogdan Ceobanu from the European Commission. After spending a few hours discussing the challenges (and opportunities) of innovation in Europe, he sent me his copy of The Rainforest – The Secret to Building the Next Silicon Valley by Victor W. Hwang and Greg Horowitt. Bogdan is one of the leading voices behind Startup Europe. Thanks 🙂

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!