Author Archives: Hervé Lebret

Proven Tools for Converting Your Projects into Success (without a Business Plan)

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Winning Opportunities is not just another book about business planning. Indeed Raphael Cohen’s new book is subtitled Proven Tools for Converting Your Projects into Success (without a Business Plan).

This 200-page, 18-(short)-chapter book is a very interesting way to analyze your project opportunity (maybe more in a corporate than in a start-up set-up). “Designed for doers, it provides a structured model of the entrepreneurial/intrapreneurial process. […], it is about discipline and process. […]. In other words, creativity is not enough. Framework and discipline are essential companions.” [Page 3] Cohen is therefore a disciple of Peter Drucker who believes entrepreneurs can be tought. But he adds on page 15, that “Observation is a state of mind. To understand your customers, you need to spend time observing them in their own environment. […]. There is no way engineers ensconced in their cubicle offices could observe (and so identify) such a “Pain”. Many real opportunities can only be identified outside of your office.” He is also close to Steve Blank and his customer development framework and here I should remind the reader with Blank’s comment on creativity.” But it’s more likely that until we truly understand how to teach creativity, [entrepreneurs] numbers are limited. Not everyone is an artist, after all.” And we should be all aware that though tools and states of mind are critical, success can not be guaranteed, its odds can increased however.

Cohen has a great framework that is summarized in the next figure but you should read his book and see how he builds the full IpOp (Innovation by Opportunity) model, step by step.

Again he is close to Blank when he explains that assumptions will be checked via practice, not via theory: “Selecting a Business Model usually requires making a number of assumptions. In many cases, it is impossible to verify these assumptions before implementing the Business Model in real time or at least in a pilot study. You should test a Business Model whenever possible, and must always be prepared to revise it or explore alternatives.” [Page 73]

One critical factor that may not be enough emphasized in business planning is the energy required to sell. “To be successful, it is not enough to have written up the perfect Business Model, you still need to persuade customers to buy. And for this, you must convince them that what you offer has an outstanding superior perceived value”. [Page 80]. You need to desire and be able to sell!

Cohen mentions metrics as a way to measure success. His KISS are Key Indicators of Success and these may be subjective. He is right. But once you decide about how you define success, measure it. “The Definition of Success determines a project’s sex appeal. […] While other factors such as preventing the competition from entering the market, testing new markets or distracting stakeholders from other issues may play a role in the decision process, it is the Definition of Success that is the bottom line. Whatever is measurable will always be very much at the heart of the decision process, because it is an output that can be monitored.” [Page 91] “Defining failure will provide stop/no stop criteria” [Page 92]. My personal experience is that it is one of the toughest decisions to admit one’s own failure. “If the opportunity is worth it, you will find the necessary resources when the time comes.” [Page 99].

Cohen introduces the concept of Unknowns as a separate chapter, showing again that entrepreneurship is not easy. They should be catalogued, characterized, prioritized. “Be humble enough to recognize what you do not know” [page 109] and “testing assumptions is often the key to reducing the level of uncertainty” [page 110]. One of the best examples of reducing unknowns is Arnaud Bertrand’s amazing testing with Housetrip.

Again entrepreneurship is about selling, making money, it is about action. “The fun part is in the action. This is why people excel at thinking of Tactical Moves. In fact, most people jump straight from identification of the Opportunity into planning Tactical Moves. Some even jump into the action without any planning at all. Because most creative people are action-oriented, their natural inclination is to skip the strategic analysis presented in the previous chapters. […] And these people like action” [Page 113] and again: “Finding Tactical Moves is a highly creative process” [Page 115].

At the same time, action can be scary, because of the possible collateral effects: “damaging the company’s reputation; altering the essence or image of an existing brand; upsetting distributors or other partners; reducing the market share of other company products (this is known as cannibalization); irritating management; disclosing critical information; making colleagues jealous” [Page 118]. I remember an entrepreneur from my Index days telling me, “each day, you take 10 decisions, 5 might be good, 5 might be bad; just hope the bad ones will not be deadly”. Action, Action!

“Contrary to common belief, entrepreneurs do not like to take risks” [Page 126] “What they like is success and they are willing to take risks to achieve it.” {…] “Managing risks means not only identifying them and anticipating their impact but also preparing contingency plans.” (cf Plan B by Mullins and Komisar, next blog paper or the famous Pivot by Blank / Ries). “The contingency plan sometimes turns out to be the main plan”. And it may mean rethink the Definition of Success and revisit the stop / no stop criteria. Once again uncertainty is highly present and decisions never black and white.

“Lack of money is often presented as the main obstacle to start-ups and intraprises. While this may sometimes be the case, the truth generally is that really attractive projects get the necessary funding. Of course, some people are more skilled than others in obtaining the Resources they need. Necessary qualities of an attractive entrepreneurial or intrapreneurial project are:
• The ability to deliver a convincing Definition of Success (plus possible additional Benefits) as against the Resources required (Return on Investment)
• A reasonable chance of success, given the team behind the project and other critical success Factors and Unknowns.
Many entrepreneurs are not lucid enough to make a realistic assessment of the attractiveness of their project, having a tendency to believe that what is attractive to them is automatically attractive to others. It is important that entrepreneurs seek resources from the right people. To do so, they will need a sufficiently large network to turn to.” [Pages 135-136]
“Fund-raising exacts an enormous collateral cost. The whole time spent on looking for money and convincing fund providers is unavailable to promoting delivery of the Definition of Success. The milestone-based is much healthier than putting a lot of energy into multiple rounds of financing, but is only possible with a very well-thought-out pre-project.” [Page 138]

Business plans are in fact more trouble than they are worth [page 151], because:
• They do not increase the probability of success of a new venture, […]
• Less than 10% of business plans actually get read. […]
• Production of the plan delays presentation of the project to Decision-makers
• Apart from people who make a living producing, teaching or selling business plans, almost everybody else in the business community agrees that they are useless for start-ups and new initiatives. The business plan does however remain relevant as the output of a strategic analysis for coordinating the functions of an existing organization (marketing, production, HR, finance, etc.)
• So … writing them is a waste of time and energy

Cohen finishes his book by explaining how important is an ecosystem friendly to entrepreneurs. “The simple Five P’s formula for emPowerment is a recipe that works wonders to promote innovation within organizations:
+ A Passionate leader
+ Permission (to do)
+ Protection (in the event of failure)
+ a Process
= Powerful Performance (by emPowered People)” [Page 185]

The book is extremely well-written and this is not so common in the business litterature. Another original feature is that Cohen does not use quotes (mea culpa!) at the beginning of each chapter but jokes. And because he authorizes the use of them, here is one I liked:

Making a compelling proposition pays
A guy with a severe stutter applied for a job selling Bibles. The interviewer believed he’d never make it as a salesman, and was about to tell the guy to look elsewhere for work. The stutterer begged for the job, “P-p-p-p-p-le-ease g-gg-g-ive m-m-m-mee a ch-ch-cha-a-ance. I-i-ic-c-can d-d-d-o i-i-tt.”
The manager said, “Okay”, and gave him a few Bibles and the rest of the day to see if he could sell one or two. By lunchtime, the stutterer was back, having sold all the Bibles. The manager was impressed, and asked if he could accompany the stutterer after lunch. “S-s-sure,” said the guy, and later they went out to the streets.
They approached a house, and the stutterer went up and knocked on the door. When the homeowner answered, he said, “G-g-g-g-good a-a-a-ftern-n-n-noon, M-m-ma’am. I-i-i’m s-s-s-selling B-b-b-bibles. W-w-w-w-would y-y-y-you l-l-l-l-l-like to b-b-b-buy a B-b-b-b-bible, or sh-sh-sh-ould I j-j-j-j-ust r-r-read it t-t-t-to you?”

A non-negligeable advantage of Cohen’s book is that it is freely downloadable and the author is just aksing you to pay what you think is fair once you’ve read it. I have not paid anything yet but my contribution has been to write this blog article and I would certainly recommend interested people to read and pay! Is this enough Raphael? 🙂

The Venture Capital Secret: 3 Out of 4 Start-Ups Fail

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In a recent article from the WSJ (thanks Greg :-), it is claimed that Venture Capital is much less succesful than thought: 3 Out of 4 Start-Ups Fail. Well I am surprised by the surprise. I did some copy paste of the paper below, and I put in bold the things I found interesting. You should jump there and come back here!

I have done my analyis in the past. You can go back to by 2’700 stanford related companies (slide 9 of the pdf) or more anecdotically to Kleiner Perkins first fund.

So yes, there is a lot of failure in VC and the numbers do not count so much. It might be that in the past, there were fewer failures than today, and the reasons would be numerous, but the important point in the paper is the following: “the truth is that if you don’t have a lot of failures, then you’re just not doing it right, because that means that you’re not investing in risky ventures”

 

 

From the WSJ article:

It looks so easy from the outside. An entrepreneur with a hot technology and venture-capital funding becomes a billionaire in his 20s. But now there is evidence that venture-backed start-ups fail at far higher numbers than the rate the industry usually cites. About three-quarters of venture-backed firms in the U.S. don’t return investors’ capital, according to recent research by Shikhar Ghosh, a senior lecturer at Harvard Business School. Compare that with the figures that venture capitalists toss around. The common rule of thumb is that of 10 start-ups, only three or four fail completely. Another three or four return the original investment, and one or two produce substantial returns. The National Venture Capital Association estimates that 25% to 30% of venture-backed businesses fail.

Mr. Ghosh chalks up the discrepancy in part to a dearth of in-depth research into failures. “We’re just getting more light on the entrepreneurial process,” he says. His findings are based on data from more than 2,000 companies that received venture funding, generally at least $1 million, from 2004 through 2010. He also combed the portfolios of VC firms and talked to people at start-ups, he says. The results were similar when he examined data for companies funded from 2000 to 2010, he says. Venture capitalists “bury their dead very quietly,” Mr. Ghosh says. “They emphasize the successes but they don’t talk about the failures at all.”

There are also different definitions of failure. If failure means liquidating all assets, with investors losing all their money, an estimated 30% to 40% of high potential U.S. start-ups fail, he says. If failure is defined as failing to see the projected return on investment—say, a specific revenue growth rate or date to break even on cash flow—then more than 95% of start-ups fail, based on Mr. Ghosh’s research.
Failure often is harder on entrepreneurs who lose money that they’ve borrowed on credit cards or from friends and relatives than it is on those who raised venture capital.

“People are embarrassed to talk about their failures, but the truth is that if you don’t have a lot of failures, then you’re just not doing it right, because that means that you’re not investing in risky ventures,” Mr. Cowan says. “I believe failure is an option for entrepreneurs and if you don’t believe that, then you can bang your head against the wall trying to make it work.”

Overall, nonventure-backed companies fail more often than venture-backed companies in the first four years of existence, typically because they don’t have the capital to keep going if the business model doesn’t work, Harvard’s Mr. Ghosh says. Venture-backed companies tend to fail following their fourth years—after investors stop injecting more capital, he says.

Of all companies, about 60% of start-ups survive to age three and roughly 35% survive to age 10, according to separate studies by the U.S. Bureau of Labor Statistics and the Ewing Marion Kauffman Foundation, a nonprofit that promotes U.S. entrepreneurship. Both studies counted only incorporated companies with employees. And companies that didn’t survive might have closed their doors for reasons other than failure, for example, getting acquired or the founders moving on to new projects. Languishing businesses were counted as survivors.

Of the 6,613 U.S.-based companies initially funded by venture capital between 2006 and 2011, 84% now are closely held and operating independently, 11% were acquired or made initial public offerings of stock and 4% went out of business, according to Dow Jones VentureSource. Less than 1% are currently in IPO registration.

—Vanessa O’Connell contributed to this article.
Write to Deborah Gage at deborah.gage@dowjones.com

The Apple Revolution

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I have not read (yet) Isaacson’ authorized biography of Steve Jobs but found (by pure accident) another recent, funny an really great book, The Apple Revolution. Interesting too and somewhat related to a previous blog I published on Robert Noyce and the culture of Silicon Valley. As important is the subtitle: Steve Jobs, the Counterculture and How the Crazy Ones Took Over the World.

Dormehl, the author, is convincing when he explains that Silicon Valley is the result of the counter-culture as much as the Midwest engineers coming to SV. Noyce might have agreed! “This ideological divide is not uncommon. Silicon Valley has long been defined by the innate tension between the technologist’s urge to share information and the industrialist’s incentive to profit. […] There were aspects of the counterculture that were staunchly anti-capitalists in their views. […] One of them was definitely Marxist and the other was largely apolitical.[..] “Do you own thing” easily translated into “Start your own business”. [Pages 61-63] “Only in Silicon Valley could starting a business be read as an act of rebellion.” [Page 169]

There are so many (unknown-to-me) anecdotes that I will only mention a few. For example, I did not know about Ron English, the guerrilla street artist who circumvented Apple’s billboards using murderer Charles Manson.

“The people who built Silicon Valley were engineers.” Jobs told wired in 1996. “They learned business, they learned a lot of different things, but they had a real belief that humans – if they worked hard with other creative, smart people,- could solve most of the humankind’s problems. I believe that very much.” [Pages 7-8]

At the same time, the counter-culture, the hacker culture has been critical [page 17]:
– Access to computers – and anything which might teach you something about the way the world works – should be unlimited and total;
– All information should be free;
– Mistrust authority – promote decentralization;
– Hackers should be judged by their hacking, not bogus criteria such as degrees, age, race, or position;
– You can create art and beauty on a computer;
– Computers can change your life for the better.

A funny anecdote is a woman going to the Homebrew Computer Club because nearly all the attendees were male. Her verdict: “the odds were good, but the goods were odd”. (Page 25)

You will learn about the history of the Apple logo [pages 85-90] and the first killer apps (word processing and spreadsheets). I did not know Paul Lutus and John Draper. And what about Apple first ad campaigns!


(Go to youtube at http://www.youtube.com/embed/J0Rs7d16jhU if you do not see the embedded frame!)

You will obviously read about the mouse, about interactions with Xeroc PARC and also learn about the early days of the MacIntosh concept and its father, Jef Raskin who yanked sharply in the arm of a young developer when he saw his face and guessed his thinking, labeling as “wet-behind-the-ears marketing puke, dressed in a ridiculous chalk-pinstripe, complete with banker’s vest, shoes off, stinky feet up […] an abrasive punk in need of a slap” a Steve Jobs he had not recognized! [Page 189]

“The Macintosh project represented the first time – outside the Garage in which the Apple II had been built – that Apple would put together the kind of small, dedicated team that would produce some of the company’s greatest products in later years. Jobs referred to this company-within-a-company approach as returning to the “metaphorical garage”. The Macintosh team still had all the piss and vinegar of a start-up. “Innovation has nothing to do with how many R&D dollars you have” Jobs said. “When Apple came up with the Mac, IBM was spending at least one hundred times more on R&D. It’s not about money. It’s about the people you have, how you’re led, and how much you get it.” [Page 202]

You will also read about the legal issued Apple faced in the music field and the funny origin of the Sosumi. It’s not only about Apple, you will read about Next early team, Dan’l Lewin, Rich Page, George Crow, Bud Tribble Susan Barnes an Susan Care as well as Pixar’s founding team, Alvy Ray Smith, Edwin Earl Catmull and John Lasseter ; “Pundits even came up with a tongue-in-cheek name for the unlikely convergence of Silicon Valley technology and Hollywood moviemaking. They called it Sillywood.“ [Page 303] So you can comment my tentative cap. table of NeXT (see below) when acquired by Apple.

Another piece of video is Pixar first work, The adventures of Andre and Wally B. If Jobs did OK with Next, what about with Pixar. He got 70% for $10M then Smith and Catmull each had 4%. But jobs got 100% after putting $50M. [Pages 335-336] There is also the funny anecdote that the iMac could have been called the MacMan, sounding “like a cross between the video game Pac-Man and Sony’s handheld music player, the Walkman.” [Page 413]. There is also an analysis of intellectual property [Pages 430-431] “Whether or not a breakdown i traditional copyright laws odes, in fact, lead to a similar decline in creativity and innovation remains a hotly contested debate” adding that “Gates, typically referred as imaginative”, and having “never invented anything” is wrong. “Gates had invented the notion that Software (be it entire operating systems or simple files) could be sold. Jobs merely reframed the idea as a necessary protective measure for creativity.” Apparently Dormehl advises to read Lawrence Lessig’s  The Future of Ideas.

In the final chapters, Dormehl addresses the Apple paradox of the counterculture becoming mainstream. He quotes Norman Mailer [Page  384] “One is Hip or one is Square” and he adds [Page 408] that “no one better summarized the new ruling creative class of boomer bobos (that’s bourgeois bohemians) than Steve Jobs. […] They are prosperous without seeming greedy; they pleased their elders without seeming conformist; they have risen towards the top without too obviously looking down on those below; thy have achieved success without committing certain socially sanctioned affronts to the ideal of social equality; they have constructed a prosperous lifestyle while avoiding the old clichés of conspicuous consumption.”  Then [Page  456] Paul Lutus describes the App Store as a “classic marketer’s dream, with too many programmers with too many programs chasing too few buyer dollars, and the marketer in the middle the only really cashing in.” (Perfect capitalism, long if ever lost counterculture…) “Apple turning its back on its founding libertarian ideals.” […] “With the suggestion made that high-tech libertarianism apparently leans heavily towards the puritanical.” Still Jobs did not forget some elements of the start-up culture. “Jobs wanted the department to have only one hundred people, since that was the number of names he could remember.” “Apple was able to avoid unnecessary levels of bureaucracy. We’re the biggest start-up ion the planet Jobs proudly noted in 2010.” [Pages  462-463.] About innovation, “Gladwell’s suggestion (via economists Ralf Meisenzahl and Joel Mokyr) is that it is history’s tweakers – more so even than its inventors – who truly define the age:  The visionary starts with a clean sheet of paper, and re-imagines the world. The tweaker inherits things as they are, and has to push and pull them toward some more nearly perfect solution. that is not a lesser task. [Page  474] And as a near final quote from Norman Mailer again “One is a rebel or one conforms, one is a frontiersman in the Wild West  of American night life, or else a Square cell, trapped in the totalitarian tissues of American society, doomed willy-nilly to conform if one is to succeed.”  “It is for this reason that musicians like Jim Morrison and Jimi Hendrix who passed away at the age of twenty-seven, will forever be seen as young, idealistic rebels.” “The sheer scale of the current Apple makes it difficult to consider it any kind of rebel.”  [Page  502]  “Despite being declared moribund 59 times since 1995” [Page  495] , Apple is a formidable capitalist story as the next graph shows.

As a conclusion, let me quote Jobs again, and I discovered this on the Wikipedia page for Think Different:
“When you grow up you tend to get told the world is the way it is and your life is just to live your life inside the world. Try not to bash into the walls too much. Try to have a nice family life, have fun, save a little money.
That’s a very limited life. Life can be much broader once you discover one simple fact, and that is – everything around you that you call life, was made up by people that were no smarter than you. And you can change it, you can influence it, you can build your own things that other people can use.
The minute that you understand that you can poke life and actually something will, you know if you push in, something will pop out the other side, that you can change it, you can mold it. That’s maybe the most important thing. It’s to shake off this erroneous notion that life is there and you’re just gonna live in it, versus embrace it, change it, improve it, make your mark upon it.
I think that’s very important and however you learn that, once you learn it, you’ll want to change life and make it better, cause it’s kind of messed up, in a lot of ways. Once you learn that, you’ll never be the same again.”


(Go to youtube at http://www.youtube.com/embed/4oAB83Z1ydE if you do not see the embedded frame!)

“Entrepreneurship should be cherished,” the Nokia chairman says.

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I did not check how many times I blogged about Finland, but it is certainly one of the most interesting and entrepreneurial countries in Europe. However, when I attended the REE conference at Aalto University last week, I have been shocked by the talk of Risto Siilasmaa. He is not only the chairman of the struggling mobile giant, but also the founder and chairman of F-secure, a successful software start-up. If you have time, watch his talk and listen carefully. Here are may notes, hopefully correct: “Entrepreneurship should be cherished, because it will be critical of the future of the world. It is not a profession, it is a state of mind.”


(Go to youtube at http://youtu.be/nFyKRCo4QkM if you do not see the embedded frame!)

“In 1924, Finland got 37 medals and 14 gold medals in the Olympics, much less in 2012. Finland was poor but at that time Europe was 25% of the world population and 33% of the GDP. In 2050, it will be 7% of population and 15% of GDP. And we will not be able to give to everyone all the wealth Europeans enjoy today. Not even talking about climate change and aging. Today, out of 100 people, 46 work in Europe including 8 in health care. In 2050, 38 will work and 18 in health care. Less than 20 will create wealth for the others. The equation does not work. European subsidies are 1/3 to coal mining and agriculture and 6% to R&D and technology. This is also meaningless. Europeans citizens need to elect leaders who have vision and courage… Entrepreneurship is making an impact and there is no point in doing small innovations when you are going to fail.”

Risto founded f-secure when he was 24 years old, but began making pocket money when he was 12. He studied at Aalto but found more negative elements than positive ones. Entrepreneurship was not valued, teachers did not value their teaching or if they taught well. “It was very disappointing”. He did not have classmates with an interest in entrepreneurship BUT he has to thank Aalto for pushing him to create a company with a friend when he began doing business. It was a consulting/project firm and he hired many Aalto alumni. He also remembers “the aversion to transfer practical skills” and an attraction for theory [something we should think about – why is that?]. “Management science was disappointing, the more complicated you were, the better (do you know what are “diseconomies of time compression?” [see next line]). CEOs never read management research, researchers want they fellow researchers only to read them, or why would not they use “lead-time” instead of the complex concept before? Whereas there might be hidden gems in research but how can CEOs know.” “Again entrepreneurship is a state of mind, which implies pragmatism, ambition, dreams, perseverance, optimism and give-up-&-start-again. It is also about a desire for results. We need to wake up, try, kill what fails and start again.” Siilasmaa quoted George Bernard Shaw: “Some men see things as they are and ask why. Others dream things that never were and ask why not.”

Then there were Q&As about:
– The Taboo of Money. Yes, the new French president said he hates rich people. Money is a by-product, but success should be celebrated. Once you have enough, you do not need money, but it is an outcome.
– Stock options. Q: Is it accepted in Finland like in SV? A: yes but down rounds and lack of exits make stock-options less successful not less accepted.
– Values: they should come from parents not from school. Now it is true some leaders succeed with strange values, such as “cult leader”. Not easy to blame them when they are successful but then how do we align this with values… not easy.
– Research on entrepreneurship again: if a paper is not complex, it is not accepted, too bad! CEOs read 300-page books with 1 idea, unfortunately. So you need to select teachers with the right values & ambition. Why not entrepreneurs? There is a book about picking the right people. Google it…

The REE conference was rich in quality speakers but nothing close to Siilasmaa. I noticed some good things such as “being an entrepreneurs is making an impact. Just like scientists or artists, it is about do you want to be remembered. Therefore we should “expose as many people as possible to entrepreneurship and hope that diversity will induce wealth. Again it is about a Darwinian process. And we should also be aware that entrepreneurship is not just about satisfying needs, but also answering to frustrations and desires.

I was less convinced about the fact that creativity can be taught (but I am not creative so maybe I should follow such courses!), about the idea that customers may be better to fund your start-up than investors (it is not my experience but I might be biased) or even that teaching can replace the state of mind. But there was a funny analysis that I restate my way: “If 100 students follow a course, 10 may launch a company, 5 will fail because they did not listen / learn, 4 will survive because they learnt the tools to avoid fatal mistakes, and 1 will succeed because he did not fully listen and did it his way on top of surviving.”

Let me finish with something loosely related. As you may know if you a regular visitor here, I love to put cap. tables of start-ups when available (at time of an exit), and here is F-secure.

A Quiz to New 2012 EPFL Students

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Each year, I have a small tradition of giving a start-up-related quiz to new EPFL students. Here it was:

I was in Helsinki last week and there, the chairman of Nokia gave a talk. “The world is in crisis and the only way we will solve our challenges is with creative people and entrepreneurs. […] Therefore entrepreneurship should be cherished, it is not a profession, it is a state of mind. […] Again it is a state of mind.”

EPFL 1st mission is teaching, its 2nd mission is research. Its maybe-lesser-known 3rd mission is innovation and technology transfer, which includes entrepreneurship. If you have creative ideas, we are here to support you. More on http://vpiv.epfl.ch/innogrants

To show you that that has been understood at the top of the best universities, both the President of Stanford University and the President of EPFL have been entrepreneurs, they have been the founders of 3 start-ups each. I will offer a bottle of champagne to the first student who sends me via email the names of these 6 companies. I am Herve Lebret and I support entrepreneurs at EPFL.

The answer may be found here, and more importantly, I will come back on Risto Siilasmaa’s talk – the chairman of Nokia.

The Black Swan again

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If you understand French, you might be interested in how I explained the Black Swan on French-speaking radio broadcast Babylon on Espace 2. You just have to click on the picture. Many thanks to Jean-Marc Falcombello for the time he gave me to describe Taleb’s ideas. It is 19 minutes long – between 23:15 and 42:00.

I am less sure this works: http://www.rts.ch/espace-2/programmes/babylone/4203353-moi-je-ne-bluffe-pas-l-insoutenable-legerete-de-l-incertitude-30-08-2012.html?f=player/popup

Is Intellectual Property out of Breath?

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Here is my second paper published by Entreprise Romande after the one on the Challenges of Innovation.

Copyrights, patents, trademarks. Never intellectual property (“IP”) has seemed so visible, but would it be a victim of its success? It is indeed becoming an almost exclusive tool of the rich and powerful and even worse, it may be hindering innovation whereas it was supposed to encourage it.

In July 2011, a consortium including Apple, Microsoft, Sony bought 6,000 patents from now deceased Nortel for $ 4.5 billion. In August 2011, Google replied by acquiring patents from Motorola Mobile for $ 12.5 billion. Finally in September 2011, the United States announced a major reform of patent law, the America Invents Act. These three events in a single summer confirm the increasingly dominant position of IP in the business world. Yet I think it is bad news!

New privileges

If a patent application only requires a few hundred dollars and tens of thousands to maintain over 20 years, should a company enter in legal dispute over it, it might cost millions in damages and attorney fees. Any fragile business might be dead long before winning a case or proving its innocence. Woe to the weak! Large companies are not the only ones to have understood: companies specialized in the valuation of IP portfolios (“patent trolls”) have emerged in recent years and these companies have no ambition to sell products or services around their IP. And Europeans should not think that the problem is American only as illustrated by the recent battle between Nokia and Germany’s IPCom.

IP is now a far cry from the original patent and copyright statements made by the revolutions of the late eighteenth century. It was then about ending the monopoly of corporatism and about supporting inventors and creators. Far be it from me to push the disappearance of intellectual property. I only here mention the example of the laser patents whose saga has at least allowed a wonderful book, closer to a thriller than the complex physics from which ir was born, Laser: The Inventor, the Nobel Laureate, and the Thirty Patent-year War. But I’m not at all convinced that IP could now enable what was possible almost 50 years ago with the laser. And already in the nineteenth century an abolitionist movement had appeared, aware of the limitations of a system that set new privileges.

Hindering innovation

The other debate about IP is best summed up in a recent article in the ParisTech Review: “Are patents hindering back innovation?” The story is old: Boldrin and his coauthors [1] argue that the developments of the steam engine were hindered by patents filed in 1769. Do we know that the microprocessor from Intel was never protected, nor of course the Internet, and it is more or less constrained that Bell Labs granted licenses on the transistor, an event that is perhaps at the origin of Silicon Valley culture: “In the 70s and 80s, many engineers from Fairchild, National and others met over a beer to talk about problems they encountered in the production or sale of semiconductors. The Wagon Wheel Bar was a meeting place where even the fiercest competitors exchanged ideas.” Having recently visited LinkedIn, I’ve heard engineers explain how they solve problems with competitors from Facebook. Discussing with Apple or Google seems much more difficult today.

Intellectual property is not the answer to everything and in its current development, it poses more new problems than it solves. The U.S. patent reform has already attracted much criticism. As for Europe, it seems stuck in its national self-interest as there is no European patent and the lack of patents on software or business models does not give it any advantage. In a globalized and dematerialized world, the IP must protect the creative people, to better enable the dissemination of ideas and techniques. The “open source” software movement as well as recent experiments in the diffusion of artistic works exclusively on the Internet show that new approaches are possible without killing business or innovation. But it seems that the fears of the established players outweigh the passion and creative risk-taking culture.

-[1] Do Patents Encourage or Hinder Innovation? The Case of the Steam Engine. Patent Law Is Highly Controversial. Michele Boldrin, David K. Levine, and Alessandro Nuvolari.
– Laser: The Inventor, the Nobel Laureate, and the Thirty-year Patent War. Taylor, Nick (2000). New York: Simon & Schuster
– Are patents hindering innovation? Paristech Review, September 2011

PS: When writing this paper, I had not measured yet the impact of the Apple-Samsung litigation…

The Tinkerings of Robert Noyce

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I am reading a new book on Steve Jobs and Silicon Valley entitled The Apple Revolution. I will come back on what I think when I am finished reading it. I discovered in the first pages of this book that famous author Tom Wolfe had written in 1983 another article about Silicon Valley centered around Bob Noyce, The Tinkerings of Robert Noyce.

You probably do not remember my previous posts mentioning Noyce, and if not you may want to read them:
– What is the mentor role? in August 2010.
– The Man Behind the Microchip in February 2008.
It is not very surprising that Noyce, the founder of Intel, is mentioned in a book about Apple computer. Noyce was a mentor to Jobs as you may see below or by reading my post above. Don Valentine add further that Noyce and Jobs may have been the two most important personalities of Silicon Valley: “There were only two true visionaries in the history of Silicon Valley. Steve Jobs and Bob Noyce. Their vision was to build great companies…”

Wolfe’s article is great and if you do not have time to read The Man behind the Microchip, you might want to read this shorter version. let me just extract a few things:

About the culture of Silicon Valley, work, openness and …
“The new breed of the Silicon Valley lived for work. They were disciplined to the point of back spasms. They worked long hours and kept working on weekends. They became absorbed in their companies the way men once had in the palmy days of the automobile industry. In the Silicon Valley a young engineer would go to work at eight in the morning, work right through lunch, leave the plant at six-thirty or seven, drive home, play with the baby for half an hour, have dinner with his wife, get in bed with her, give her a quick toss, then get up and leave her there in the dark and work at his desk for two or three hours on “a couple things I had to bring home with me.
Or else he would leave the plant and decide, well, maybe he would drop in at the Wagon Wheel for a drink before he went home. Every year there was some place, the Wagon Wheel, Chez Yvonne, Rickey’s, the Roundhouse, where members of this esoteric fraternity, the young men and women of the semiconductor industry, would head after work to have a drink and gossip and brag and trade war stories about phase jitters, phantom circuits, bubble memories, pulse trains, bounceless contacts, burst modes, leapfrog tests, p-n junctions, sleeping-sickness modes, slow-death episodes, RAMs, NAKs, MOSes, PCMs, PROMs, PROM blowers, PROM burners, PROM blasters, and teramagnitudes, meaning multiples of a million millions. So then he wouldn’t get home until nine, and the baby was asleep, and dinner was cold, and the wife was frosted off, and he would stand there and cup his hands as if making an imaginary snowball and try to explain to her… while his mind trailed off to other matters, LSIs, VLSIs, alpha flux, de-rezzing, forward biases, parasitic signals, and that terasexy little cookie from Signetics he had met at the Wagon Wheel, who understood such things.
It was not a great way of life for marriages.”

About youth and innovation:
“The rest of the hotshots were younger. It was a business dominated by people in their twenties and thirties. In the Silicon Valley there was a phenomenon known as burnout. After five or ten years of obsessive racing for the semiconductor high stakes, five or ten years of lab work, work lunches, workaholic drinks at the Wagon Wheel, and work-battering of the wife and children, an engineer would reach his middle thirties and wake up one day; and he was finished. The game was over. It was called burnout, suggesting mental and physical exhaustion brought about by overwork. But Noyce was convinced it was something else entirely. It was…age, or age and status. In the semiconductor business, research engineering was like pitching in baseball; it was 60 percent of the game. Semiconductor research was one of those highly mathematical sciences, such as microbiology, in which, for reasons one could only guess at, the great flashes, the critical moments of inspiration, came mainly to those who were young, often to men in their twenties. The thirty-five year-old burnouts weren’t suffering from exhaustion, as Noyce saw it. They were being overwhelmed, outperformed, by the younger talent coming up behind them. It wasn’t the central nervous system that was collapsing, it was the ego.”

About status, hierarchy and success:
“And if he was extremely bright, if he seemed to have the quality known as genius, he was infinitely more likely to go into engineering in Iowa, or Illinois or Wisconsin, then anywhere in the East. Back east engineering was an unfashionable field. The east looked to Europe in matters of intellectual fashion, and in Europe the ancient aristocratic bias against manual labor lived on. Engineering was looked upon as nothing more than manual labor raised to the level of a science. There was “pure” science and there was engineering, which was merely practical. Back east engineers ranked, socially, below lawyers; doctors; army colonels; Navy captains; English, history, biology, chemistry, and physics professors; and business executives. This piece of European snobbery that said a scientist was lowering himself by going into commerce. Dissenting Protestants looked upon themselves as secular saints, men and women of God who did God’s work not as penurious monks and nuns but as successful workers in the everyday world.”

Although he was an atheist, Wolfe sees in the values of “Dissenting Protestantism” roots of the Silicon Valley culture. “Just why was it that small-town boys from the Middle West dominated the engineering frontiers? Noyce concluded it was because in a small town you became a technician, a tinker, an engineer, and an and inventor, by necessity. “In a small town,” Noyce liked to say, “when something breaks down, you don’t wait around for a new part, because it’s not coming. You make it yourself.”

Interestingly enough the Apple Revolution also mentions all these points, but in the context of the hippie counter-culture… wait for next post!

Parrot and Henri Seydoux, a French success story

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It is in discovering the Parrot investment in two EPFL start-ups, senseFly and Pix4D, that I was reminded a start-up which recent success I did not know. I am sometimes very much disconnected! I had indeed met its founder, Henri Seydoux, in one of these start-up conferences that were popular in the late 90s. The start-up had already received support from Sofinnova, but it was less than 5 years old and was far from its € 250 million turnover achieved in 2011 and its 700 employees it has hired since!

As usual, I could not help but get its IPO filing document, and also some older material on the French register of commerce, which allowed me to build the following capitalization table.


(Click on image to enlarge)

To learn more about Parrot, the following video is quite refreshing …

Finally, I also wanted to try to learn more about Henri Seydoux, intrigued by a fairly famous family name in France … this work is probably closer to the tabloids than this blog but hey, I find the genealogy interesting!

(Click on image to enlarge)

The State of Innovation

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After my summer break, I received mails from friends and colleagues, all related somewhat to new (in fact old) trends in innovation. Thanks to Jean-Jacques, Andrea, Will and Martin :-). The four articles I read are:
– Les Misérables – Europe not only has a Euro crisis, it also has a growth crisis. That is because of its chronic failure to encourage ambitious entrepreneurs from the Economist (July 2012).
– Small is not beautiful from the Economist again (March 2012).
– In bid for start-ups, venture capitalists elbow their way into the spotlight from the International Herald tribune, (not freely available online).
– In Silicon Valley, Chieftains Hold Sway With Few Checks and Balances from the New York Times (July 2012)

The second one is probably the easiest to summarize and it is such an important message, that it needs to be hammered again: Innovation is not about large or small companies (SMEs), it is about fast growth (gazelles, start-ups). And let me add, it is also about a culture of trying and risk taking. “Rather than focusing on size, policymakers should look at growth.” […] “In a healthy economy, entrepreneurs with ideas can easily start companies, the best of which grow fast and the worst of which are quickly swept aside. Size doesn’t matter. Growth does.”

The first article is more complex to describe and I really liked only the first half. The second half explains that Europe struggles because of bad laws on bankruptcy, bad access to finance and bad labor laws. I am not sure these are the causes of our innovation crisis. I preferred the first part such as: “Europe’s culture is deeply inhospitable to entrepreneurs; wanting to grow a start-up into a behemoth is quite as countercultural as piercings and performance art.” […] “They will struggle to hire professional managers to help their firms grow, because European executives are extremely risk-averse. Their young firms will quickly find that established European companies tend not to like dealing with tiny ones.” And as a consequence, “the giants are all ageing”.

“Europe gave birth to just 12 new big companies between 1950 and 2007. America produced 52 in the same period (see chart above).” […] “Many aspiring entrepreneurs simply leave. There are about 50,000 Germans in Silicon Valley, and an estimated 500 start-ups in the San Francisco Bay area with French founders. One of the things they find there is a freedom to fail.” The answer is not simple, but there is hope: “There are schemes […] to get academics to hate business less, to expose schoolchildren to entrepreneurial notions.”

The last two articles are probably less important but give interesting new trends in Silicon Valley. One shows that the venture capitalists are becoming more visible (in order to court entrepreneurs) and mostly thanks to or because of new fund Andreessen Horowitz. But there is also debate (and I agree with the following comment): ‘‘I don’t quite understand the venture capital celebrity. We should be supporting actors. The entrepreneurs do the work and deserve the credit.’’ But Andreessen adds an interesting comment about the dynamics of venture capital: “Each year 15 deals account for 97 percent of all venture capital profits. To be successful, they would have to pursue those 15 companies. And they would do it by aggressively marketing their expertise to the reporters and bloggers who follow start-ups.” The final paper complains about the dangers of too much control to founders and managers vs. board or shareholders: “Since Google went public in 2004 in a way that maintained control for its founders, the leaders of Silicon Valley have been chary about shareholder voting rights.” […] “Directors are meant to act as a check on executives or at least add their expertise and advice to big decisions. In the Valley, however, the idea of the visionary chief executive dominates, and there may be little room for input from directors.” […] “So the new thing in Silicon Valley appears to be for public companies to be run as private ones without significant input from boards and shareholders. This leaves the wunderkinder of the Internet free to run their companies without interference. The question is whether this is merely a bubble in corporate governance or a trend that will spread to the rest of corporate America.”