Category Archives: Silicon Valley and Europe

Sweden and start-ups

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…

A success story: Adobe Systems – John Warnock and Charles Geschke

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Créateurs, a local newsletter asked me to write short articles about famous success stories. I decided to begin with Adobe and its founders John Warnock and Charles Geschke. You will find the full text below as well as the usual data I like to give about start-ups: the capitalisation table of the company at its IPO and how shareholding evolved from foundation to public offering. Here is the article you may found in french in the Newsletter.

John Warnock and Charles Geschke: Adobe

Start-ups are very often associated to their founders. Entrepreneurs such as Steve Jobs or Bill Gates are obviously linked to the company they created. John Warnock and Charles Geschke may be less famous but their story is as fascinating.

Without the profile of the atypical entrepreneur (they are not “school dropouts” who launched their venture in their twenties), Warnock and Geschke founded Adobe Systems in 1982 when they were more than 40-year-old. Adobe is famous for some of the most popular software worldwide such as Acrobat and Photoshop.

From the printer to the printing protocol
It all began in the 70’s, at the renowned Palo Alto Research Park of Xerox, the vendor of copy machines. The two engineers are more and more frustrated. Xerox may have enabled the development of the computer mouse, word processing, email or Ethernet, but it has been incapable of transforming them in commercial products. Warnock and Geschke cannot convince their management of the potential of their research. “Part of it was fear and misunderstanding” but they also admit that “in fairness to the management, I think we as researchers were a little naïve about what it would take to get these things from conceptual operating prototypes all the way to full-production, supportable products. But we sort of hoped that they would hire the people who could do that.”

They left Xerox in 1982 and raised $2.5M to develop their project: high quality printers and a system which connect them to computer networks. When they met potential customers (Apple, Dec), they discovered that nobody is really interested. Steve Jobs explains to them that he needs their printer protocol, Postscript, for the Macintosh he is developing. They immediately change their business plan. Adobe became a software company with the success we all know.

Some good advice
Their vision of what is an entrepreneur is enlightening. It was more an accident than a destiny. But today their advice is worth reading.

You should always be flexible. You should try and explore many solutions, test them with customers and abandon the wrong ones very fast. They have the same views on the personality of entrepreneurs: “99% of founders fail because they cannot change and want to control too much”.

Passion, risk taking and self-confidence seem to be the critical strengths of entrepreneurs combined with intelligence and hard work. “But this is not sufficient. Luck also plays a major role.

When their age and experience is mentioned, Geschke adds that “I don’t think there’s any mystery in running a business. I think it helped that we were in our 40s, that we had worked for a variety of organizations. We had worked in other companies, but tried to leave their bad ideas as proprietary to them. We tried to pick the best things that we saw.” What is essential is to have a vision of what you want to do. “I am not a hunter, never have fired a gun, but I’m told that if you want to shoot a duck, you have to shoot where the duck is going to be, not where the duck is. It’s the same with introducing technology: if you’re only focused on the
market today, by the time you introduce your solution to that problem, there’ll probably be several others already entrenched.”

The ingredients of success
From the initial frustration which is at the origin of their departure from Xerox to the success of Adobe, the lessons are many. Never be a one-product company; technology cannot be simply transferred, you need to add brain power, hire good professionals; and as founders, you need to have “the intellectual capability, inherent honesty, ethical behavior and principles by which we lead [your] personal and business lives.”

In a few sentences, the ingredients of success are numerous, complex as well as simple and probably common to all great entrepreneurs.

To know more about Adobe:
The Revolutionaries: www.thetech.org/exhibits/online/revolution
Adobe Systems, Computer History Museum: www.computerhistory.org
Founders at Work, J. Livingston, Apress (2007)
In the company of Giants, R. Jager and R. Ortiz, Mcgraw-Hill (1997)

Next Article: Bob Swanson: Genentech

Now the cap. table in 1986

and the shareholding structure from 1982 to 1986:

Why Boston Should Worry

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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…

Carol Bartz and Yahoo

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Carol Bartz is an exceptional woman. The new Yahoo CEO had given an interview in 2002 that you can read in the book Betting It All. Author Michael Malone described her two passions: Fight Cancer and Girls and Math: “Girls in general have no interest for math. I think that in fact they are dissuaded.” On the more general topic of women and technology/business, she added: “I left 3M because I could not evolve just because I was a woman. […] You are a woman, what are you doing here?” and she also said: “But being a woman in Silicon Valley is to be part of a minority”. The topic of woman in technology is seldom and clearly not enough developed.

Carol Bartz is also amazingly energetic : “I was still running my company while I was having my chemotherapy”.

Finally among the ingredients required for entrepreneurs, she quotes uncertainty that you have to be ready to accept. “Facing the many jobs I took, I was not comfortable because I was wondeing if I was the best for it.” But she also added: “if you cannot make it, you just have to go across the street and try with someone else… which is always possible in Silicon Valley.”

The thoughts of a Swiss entrepreneur based in Silicon Valley

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Following a long phone conversation with a Swiss entrepreneur based in Silicon Valley, I received from him an email where he put his thoughts. They are indeed quite interesting and he authorized me to publish them:

“It’s a bit depressing to see that things change slowly (I had that intuition already)…

On a philosophical standpoint, I was thinking while driving my car that one of the issues is self-confidence.In the USA, everyone is raised with the idea that “anything is possible”, the “American dream”, to the point that it is sometimes stupid and annoying… On the contrary, in Switzerland, anyone wants to do things well and the culture is more about “this is not possible” or “I do not know how to do this”. But to be an entrepreneur, you must not be afraid of trying, of being far from perfect, of doing things in fields you do not master and sometimes even “quick and dirty”. It is the opposite culture of the Swiss craftsman who is a perfectionnist, the “travail bien fait”)… In summary, it is important to learn by doing things such as:

– Who to raise money, where to begin?
– How to negotiate a shareholder and investor agreement?
– How to deal with partners?
– Learn how to negotiate
– How to work with Head Hunters, Lawyers, Customers…?
– How to build and manage a team? – How to hire a sales team (a tough thing for an engineer). By the way, what are marketing, sales, operations?!!

– What about productization, schedule, specs, qualification?
– Where to find distributors?
– etc…

All this can not be taught in schools, I am not sure it is covered in an MBA. I am not conviced it can be taught anywhere. According to my experience, an entrepreneur does not stop doing new things, quite badly the first time and hopefully better and better with time. One should not have the negative attitude of never trying difficult and risky ventures, which does not mean one should launch or fund unrealist projects… There is a fuzzy line between arrogance (one should know its own limits) and dynamism of a good entrepreneur.

It is certainly a bad thing that engineering schools do not provide enough about marketing, accounting, legal elemts in the curriculum. But this is also true in teh USA, by the way!”

I was yesterday in Grenoble for a round table on the Nouveaux Conquérants:

The topics that were discussed were very similar to the comments above: self confidence, uncertainty, risk taking, passion, and success & failure.

Obama

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The first and maybe last time my post has nothing to do with start-ups. But this is just TOO BIG for America and for the Rest of the World.

It just shows everything is possible even if often risky, uncertain. Passion, ambition shall prevail!

Finally here is a picture taken in-mid october in a street of Soho in New York.

US and UK Biotech: Growth and Form

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Another interesting illustration about the differences between America and Europe: growth in the US and UK biotech. The full account can be found in Nature Biotechnology and my friend Andre mentioned the blog Corante where he read about it.

The conclusion of this blogger is:

“What I found interesting about the editorial, though, wasn’t these conclusions per se – after all, as the piece goes on to say, they aren’t really a surprise […] No, the surprise was the recommendation at the end: while the government agency that ran this study is suggesting tax changes, entrepreneur training, various investment initiatives, and so on, the Nature Biotechnology writers ask whether it might not be simpler just to send promising UK ideas to America.

Do the science in Great Britain, they say, and spin off your discovery in the US, where they know how to fund these things. You’ll benefit patients faster, for sure. They’re probably right about that, although it’s not something that the UK government is going to endorse. (After all, that means that the resulting jobs will be created in the US, too). But that illustrates something I’ve said here before, about how far ahead the VC and start-up infrastructure is here in America. There’s no other place in the world that does a better job of funding wild ideas and giving them a chance to succeed in the market.”

Aart de Geus receives the Kaufman Award

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I recently talked about EDA here. Aart de Geus, a European, a Dutch native who studied at EPFL in Lausanne, was just awarded Kaufman Award, the Nobel prize in EDA. One of the articles has been published by EDN News

Aart de Geus is one the Silicon Valley’s icons. He came to EPFL in 2007 where he made a superb presentation about Synopsys history. >

When, in another interview, he was asked about why the USA, he said Europeans are on a quest as if they could not find in Europe what they are looking for…

Concerning EDA, there is a full chapter in my book where I tried to show that EDA is the perfect illustration of Silicon Valley dynamics, of its ups and downs.

Google’s First Steps

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An interesting interview of the Google founders dated 1998!

Quite interesting lessons:

About the network of people: “Sergey: Basically, we talked to our advisers and other faculty whom we knew. And they just pointed us to other people. Pretty soon, we had investors, we had a lawyer, we had everything that we needed.”

About risk taking: “Larry: Silicon Valley is a little bit different. There’s not so much risk to us. If you fail in starting your company, you’re actually more fundable. You may have failed for some reason not involving yourself at all, just [due to] some random factors... Sergey: The main risk is really our time. We’re working much, much harder than we would in a normal job. It’s not a 40 hour a week job.”

more…

Innovation in Europe

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

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

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

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

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

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

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

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

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

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

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

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