Start-Up: the book

A colleague of mine (thanks Jean-Jacques) recently mentioned to me this book by Josh Lerner, which full title is Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed–and What to Do About It. I was all the more interested that Lerner is the author of many academic papers on high-tech entrepreneurship, and particularly of one about serial entrepreneurs: “Performance Persistence in Entrepreneurship” [pdf format here] with Paul Gompers, Anna Kovner, and David Scharfstein, Journal of Financial Economics, 62 (2007), 731-764. I will come back in the future on this topic which I am currently studying.

So what should we do about the public efforts is what Lerner is trying to help us with and his answer shows how challenging the topic is. What is beautiful about the author (my personal point of view) is that he likes history (just like me). Just like Steve Jobs! Just read again what I posted about Jobs on mentors; “You can’t really understand what is going on now unless you understand what came before”.

Lerner’s initial chapter is “A Look Backwards” He shows how entrepreneurs and investors benefited and suffered from each other in the 70s and 80s, including the excess of speculative bubbles, the PC burst of the 80s for example. He also shows how important public support was in the very early days through the funding of research (mostly the cold war militaries) and the legal actions to ease venture capital (SBIRs, Erisa Acts) so that he does not really agree with Rodgers (founder of Cypress) who wanted government out of Silicon Valley (page 32) so that he claims that “The Public sector did play a key role in shaping the evolution of Silicon Valley” (page 35).

Then, in the following chapters he shows how complex it is to find facts: “consistent information on venture-backed firms that were acquired or went ou of business doesn’t exist” (page 59) which means that quantitative analysis is rare. And remember he is a respected academic, so he knows! What he tried to do then, is to show some of the obvious mistakes: incompetence in allocating public resources (page 73), capture, that is use of subsidies by the wrong groups (page 80), by “organizations that are mandated to help entrepreneurs” (page 83). “seven of the incubators gave less than 50% of funding in cash to incubated firms” (just one example from Australia, page 84) or the SBIR program which has exhausted its usefulness (page 85).

So his advice is:
- enhancing the entrepreneurial culture (page 90) [through the right laws, the access to technologies, tax incentives and training],
- increasing the venture market’s attractiveness (page 100) [through allowing partnerships, creating local markets, accessing human capital abroad],
- avoiding common mistakes: timing [be patient], sizing [not too small, not too large], flexibility [learn by doing], create the right incentives [and here it is a complex situation as perverse effects from good ideas often occur] and evaluate [which does not happen often enough].

Indeed, his introduction (pages 12 and following ones) summarized it all: you need rules, experience, time, incentives and assessment. But with all his experience and knowledge about high-tech entrepreneurship, Lerner is very humble with the lessons: the topic is really complicated, all these advice have to be implemented together and it is really their careful interconnections which will make an ecosystem lively or not. Then it is my personal conclusion that such favorable conditions will be useful if entrepreneurs use them intelligently. So the reason why all this fails has many roots…

I cannot finish this post without comparing it to my book. It is indeed very similar in its conclusions with slightly different facts and figures. So you would learn complementary and consistent things by reading both! My thesis is we need an entrepreneurial culture and access to people from Silicon Valley who have the experience. Everything else is necessary but not sufficient.

Well who am I to predict the future? In fact I do not know but I really doubt it. Famous bloggers have mentioned the topic again recently. In Techcrunch it was Can Russia Build A Silicon Valley? by Vivek Wadhwa. And in the Equity Kicker, it was Building an ecosystem to rival Silicon Valley by Nic Brisbourne. I reacted to both in the following way:

What a topic! Clearly something which has been around for… at least 35 years (I mean how to replicate SV). The fact that we still discuss it shows how complex it is. It has been my main concern in the last years and for the beauty of the debate (that’s what blogs are about, right?) let me play the devil’s advocate fully. At an extreme, I do not think there will ever be another Silicon Valley. For example, Kenney claims in his book on SV it requires 5 basic ingredients: universities of high caliber (Stanford and Berkeley in SV), a strong investor base, service providers, high-tech professionals (who accept to leave their big companies for start-ups so from Intel, Cisco, Apple, MSFT, even Google now to the next wave) and last but not least an entrepreneurial culture. All this is not easy to gather. But even worse, SV was probably an accident, a monster which was never successfully replicated. Saxenian showed in Regional Advantage how even the Boston area failed and the fact that Paul Graham moved ycombinator fully out of Boston to SV is just another sign. In Europe, Sophia Antipolis was a first experience … in 1972 so? So you need a rare combination of ingredients in the recipe and hope the oven is at the right temperature for a long, long time. Now I am playing devil’s advocate so things are not so bad. As a positive reaction, let me add my own analysis: I am not sure governments are good at innovation, they are good at stimulating research. The US federal govt has put billions through DARPA, NIH, DOE, etc, and this obviously helped Stanford, Berkeley to be the best universities worldwide (see the rankings) and the Internet to be created. Long term investment in infrastructure is what gvts are good at (education, research, transport…) Then, yes, bridges with SV are critical. It is exactly how Israel, Taiwan, then India and China have been successful with their diasporas. Countries should invite back the experienced migrants. When he has time, Brin should help Russia or Levchin Ukraine, or even Grove Hungary etc… I am less sure tax credits, admin, legal tools have been so useful in the 50′s, 60′s and 70′s when SV was its in early days. As a conclusion, it is and will remain for a while a great topic.

Of course, my reaction was not as important as the source of the posts: Russia wants to be more innovative and commissioned a report to assess experiments of innovation ecosystems. The result is the following report: Yaroslavl Roadmap 10-15-20 (pdf format.)

There isn’t anything really new in this report, at least for innovation experts. But it is a very good synthesis of what the USA, Israel, Finland, India, and Taiwan have tried, be successful in, but also in what they failed.  The historical summaries are great and full of good lessons. I had the feeling the authors put too much emphasis on infrastructure vs. culture. It is my own bias again! They mention culture a lot, but they may be aware also that it’s the most difficult thing to create… If you like the topic, you should certainly download and read the pdf, and build your own opinion.

Listen to Loic Lemeur’s views on why “Why Silicon Valley kicks Europe’s butt”. Nothing special if you read regularly my blog but said by someone who has visibility, credibility and experience on both sides of the ocean.

Check his arguments:
- the main reason is how much time we take for lunch in Silicon Valley (i.e. feeling of urgency)
- all in one place (i.e. critical mass)
- like a campus (i.e. easy connections, young, sunny)
- business happens 24/7 even when you don’t expect it (i.e. obsession)
- seed funding and VCs (i.e. money)
- flexible (i.e. changes happen fast)
- “how can I help” attitude (i.e. open and pragmatic)
- easy to get an appointemnet (i.e. open again)
- people trust by default (i.e. open mindedness)
- diversity (i.e. yes diversity works in the US)
- press and bloggers (i.e. tech friendly culture)
- Europeans begin locally (i.e. not globally)
- too much copy / paste in Europe (i.e. no real innovations?)
- Europeans hire local (i.e. challenging to go global)
- Think in English (i.e. another challenge)
- you guys can fix it (i.e. self-confidence and confidence in others – empowerment, remember class A people hire class A+ people)
- aim at being a world leader (i.e. ambition)
- focus on execution, ideas do not matter (i.e. action oriented)
- gather a community and iterate (i.e. learn by doing, by trials and errors)
- believe in yourself (i.e. …)

Well even if this may be obvious for some of you, I still had to fight against people who disagree about this (check my previous post!)

yYou can compare all this to my summary slide when I talk about Silicon Valley. No frustration in all this as we all have to say these things endlessly, but sometimes, still too often!

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.