Start-Up: the book

Two pieces of news caught recently my attention. One is entitled Frank Quattrone, Star Banker of Technology Ventures, Talks Wistfully of the Good Old Days—Before Netscape’s IPO.

The other one is less nostalgic because of the web site name, which I quite like: You’re in Deep Chip Now.

Here is the full text captured from the site:

I will not comment this but let me come back on Quattrone. Quattrone was a star of the IPO world as you may read from this Xconomy blog. What is striking is that in the last 8 years, following the Internet bubble, there has been less venture capital, fewer IPOs. The reasons are many. But the key question remains: are we facing a major innovation crisis? After the transistor in the 60’s, the computer in the 70’s and the PC in the 80’s, the Internet and mobile communications in the 90’s, what have the 00’s given us? And what about the 10’s… I do not have any answer. What about you?

Start-Up, what we may still learn from Silicon Valley is two years old. I still make presentations of it and I hope to share my passion about this world.

By clicking on the picture below, you can download an extensive presentation inspired from others made in places such as Paris, Barcelona, Stockholm, Marseille, Antwerpen, Geneva… It’s never easy to follow slides without any comment, but I hope you will enjoy some of them… have fun and contact me if they are not clear!

Here is my fourth contribution to Créateurs, the Geneva newsletter, where I have been asked to write short articles about famous success stories. After women and high-tech entrepreneurship, Adobe and Genentech, here is Aart de Geus, founder of Synopsys.

Aart de Geus was born in the Netherlands in 1954. At the age of 4, he moved with his parents to french-speaking Switzerland and in 1978, he graduated from EPFL, the Swiss Institute of technology in Lausanne (where I currently work). He then moved again to the USA and got his PhD from the Southern Methodist University in Texas. After a few years with General Electric (GE), he founded Synopsys in 1986, raised $15M of venture-capital before Synopsys went public (in 1994). In 2008, Synopsys had 5′600 employees, $1.3B in sales and a $3B market capilalization.

According to him, « Everybody from Europe who comes to the U.S. or Canada is looking to discover something ». In his case, when he arrived to the USA, he was lucky in being assigned as a graduate student to Ron Rohrer “He took a liking to me. […] Rohrer essentially gave me the freedom to do whatever I wanted within the graduate school research facilities”. Rohrer became his mentor. He learnt how to manage a team, a know-how he changed in a management style. “everybody counts on the team and there’s always a role for everybody, which produces an ecosystem that manages itself.” He recognizes it is as much luck as destiny.

He also shows how difficult it is to predict anything: “In fact, I’ll tell you a story. In 1978 or ‘79, I attended a conference in Switzerland of leaders in the field of electronics, or microelectronics. They all agreed on 2 things. Number 1, electronics was going to be a big deal and would move forward for many years to come. Number 2, one micron was the hardest barrier that we would never move across. And [laughing again], those same people who made the predictions are the ones who made 22 nanometers happen!” and he adds: “The lesson here: whenever one predicts the end of something in high tech, there’s always a twist or new perspective that makes a new breakthrough possible.”

Aart de Geus, a born entrepreneur?

The art of metamorphosis…

Aart appreciates complexity and metamorphosis. Everything is important and everything changes. In the early days of a start-up, ideas and people matter. When you have an idea, what do you do? “First, you write a business plan. Then, you ask, is it ethical? Is it okay to do that? How do you go about planning the business so as not to go up against GE?” Well, according to Aart, “there’s a simple answer. You write a business plan and propose it to GE. After all, it was clearly their IP. Period.” GE not only backed the idea but invested in it. Money and values are essential at that stage.

But the baby has to grow. The teenager will have to develop the products, sell them to customers. This may be a tough crisis. Does Aart feel lucky to have survived? “Luck favors the well prepared,” and added that a fortuitous combination of management, graduate students, geographic location, viable business plan, and marketing expertise were augmented by having the “right technology at the right time.”

Back to EFPL in 2007.

… with the risk of becoming a dinosaur !

The adult age means processes, experienced managers so you need to survive the tornadoes that Geoffrey Moore describes so well. Aart summarizes these permanent metamorphoses through a parallel management of teams, customers, investors, products and their cycles, but also managers, leaders, implementation. All these things are interdependant and it is often underestimated. In a talk he gave to EPFL in 2007, he showed the history of Synopsys acquisitions in the form of the animal below! His sense of humour was certainly very useful. This sense of humour hides the humbleness of the individual who succeeded without giving any lesson. If there is one lesson in all this, is that you must try, be curious and flexible. Success may come.

As usual, I finish with my beloved capitalization table and charts.

Sources :
-Aart de Geus at l’EPFL (vpiv.epfl.ch)
-Peggy Aycinena (www.eetimes.com)
The Aart of Analogy is alive and well at Synopsys -2001
The Aart of Analogy Revisited -2009

Next article: A Swiss in Silicon Valley

As I mentioned in a recent post, I have spent a few days in Sweden where I discovered some features of the Swedish start-up scene. I was invited by Anders Gezelius who has a very interesting profile: a graduate of KTH - Stockholm with an MBA from Wharton, he worked Californie for Intel and then co-founded a startup which was selling accounting software. After the M&A of the start-up, he has gone back to Sweden where he runs Mentor4Research and Coach & Capital.

Here are the talks I made for:
- Stockholm Innovation & Growth: why do start-ups succeed or fail?
- Mentor4research: What we may still learn from Silicon Valley

If there is one interesting lesson that I also learnt from my recent trip to Boston (cf the MIT venture mentoring service), it is that the combination of mentoring and investing as a business angel may become more and more critical. Both are very much needed. Mentors may be seen as friends of entrepreneurs and give advice based on their experience. They may or may not become business angels who invest at an early stage in start-ups.

One of the best illustration of mentoring is given by the encounter of Steve Jobs and Bob Noyce when the Apple founder needed advice…

An interesting post by Xconomy on the topic. It’s been a on-going topic and there are no clear answers.

Check the post at Can Business Schools Teach Entrepreneurship?

In “vibrant ecosystems” such as Route 128 and Silicon Valley, business schools are embedded and students easily find or develop ideas. But I am less sure Business Schools really teach. They explain, they expose and of course they teach management. As I comment on that post:

There is a talk by Prof Byer (Stanford) about the Silicon Valley and Stanford ecosystems, where the author claims about 5% of companies are direct transfers of technology:http://spie.org/documents/Newsroom/audio/Byer.pdf
It is not clear how many companies Stanford alumni have created. At least 2′500 but probably many more. Now the role of business schools is another subject of interest. You have stories on both sides, i.e. pure engineers or scientists (Google, Yahoo, Cisco in the academia, Apple outside) or entrepreneurs from bus. schools (Sun Micro, eBay).

I refer again to the excellent Xconomy with the post Paul Graham on Why Boston Should Worry About Its Future as a Tech Hub—Says Region Focuses On Ideas, Not Startups

I had to react so I posted my own comment on their site, which I copy here:

There is no doubt Paul is right (unfortunately). I do not care about Boston too much but about the ROW. The debate, I think, was definitely closed when AnnaLee Saxenian published Regional Advantage (I think in 94). She had predicted before that SV would suffer from too much activity: “In 1979, I was a graduate student at Berkeley and I was one of the first scholars to study Silicon Valley. I culminated my master’s program by writing a thesis in which I confidently predicted that Silicon Valley would stop growing.” She admits she was wrong at a conference in Stockholm in 1998! So what?

SV is the only place on earth where the right environment for start-ups exists. Read again Paul’s essays on his web site www.paulgraham.com. One important element is that Fairchild gave birth to hundreds of start-ups and this is well documented. The start-up culture emerged at that time. I am so passionate about the subject that I have published my own book and [this] blog (”Start-up, what we may still learn from Silicon Valley”). But if you do not like self-promotion, you may also want to read Junfu Zhang’s extremely detailed work: “High-Tech Start-Ups and Industry Dynamics in Silicon Valley” that you can find online I think and where you will discover the different dynamics at work there (vs. Boston again)…

Boston is by far nb2, no doubt, but we, the nb3 and below, should be worried that even Boston does not manage to compete with SV…

This is the third book I report on this blog about entrepreneurs. In fact it is the fourth if I include Inside Steve’s Brain (but this one is about a single entrepreneur). The two previous ones were interviews of many, i.e. Betting it all and Founders at Work. The beauty (and at same time weakness) of Once you’re lucky, Twice you’re good is that is is about web2.0. Is this new step in the Internet development a speculative bubble or a speculative revolution. It is probably too early to say even if author Tracy Lacy (appearing in another post) is quite convinced it is a revolution.

It is a beautiful book because it shows once again the richness of individual connections. I have done below my illustration of it. Paypal and its founders appear to be at the center of this network. Fairchild had such a similar situation at the beginning of Silicon Valley in the sixties, Apple, Sun, Cisco thereafter.

Another interesting element is about investors. There has been a popular idea that web2.0 was not funded by venture capitalists anymore because the web2.0 business angels who were web1.0 entrepreneurs had learnt their lesson. The situation is more complex as the web2.0 financing shows. Greylock, CRV, Accel but also Benchmark and Sequoia are vey active. Finally, it shows again and again what entrepreneurs are: passionate, driven individuals and I can only advise reading the epilogue about Levchin’s childhood. Quite fascinating…

Source: Crunchbase and companies’ web sites.

A scary video interview about Silicon Valley and I can not fully disagree: the IT industry is maturing so innnovation may be less relevant than it has been.The VC industry is in trouble though it will not admit it. Risk taking is disappearing. “Engineers are gun shy of start-ups”. What a terrible message.

Of course, there is hope: this is not new… Silicon Valley Fever is a 1984 book which already described the troubles start-ups and engineers could experience. People always claimed there were too few deals for too much money.

Whatever, enjoy and comment if you wish…

PS: thanks to Andre M.  for drawing this video to my attention!

There’s been plenty of activity in search in the recent years so entrepreneurs are apparently not afraid of Google. Today, a new one appeared, with a lot of Venture Capital: cuil. What is most remarkable is that the founders left Google… good luck!

Not related is the release of Ilog being acquired by IBM for $340M. Ilog was one of the European success stories. After the acquisition earlier this year of mysql by Sun, another European company is acquired by an American giant…

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).

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 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.