Category Archives: Silicon Valley and Europe

The thoughts of a Swiss entrepreneur based in Silicon Valley

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.

Win, Win, Win

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I discovered yesterday the new 2008 Academic Ranking of World Universities done by the Institute of Higher Education, Shanghai Jiao Tong University (IHE-SJTU). Again the USA has the lion share: 8 in the top 10 and 17 in the top 20. Only the UK (Cambridge and Oxford) and Japan (Tokyo) enter the list. You can assess the ranking in more details with the full 500 ranking if you wish.

When I published “Start-Up”, I had a conversation with Christophe Alix, a journalist at Libération who told me that I forgot one thing in my explanations of the US superiority in innovation, i.e. the huge budget of the Pentagon. I certainly do not disagree and address the issue further below with a book I am just reading:

“Creating the Cold War University- The Transformation of Stanford” by Rebecca S. Lowen is an interesting book about how Stanford became wealthy in the 50’s and the 60’s thanks to federal money and industry contracts. Frederick Terman, often credited as being the father of Silicon Valley, called it a “Win-Win-Win” situation. The government funded basic and applied research (the difference between the two was often fuzzy) to develop military applications during the Cold War, the industry developed the products from the results of the research (and did not always have to directly fund the research), and companies like H-P, Varian, GE benefited greatly the effort. Finally Stanford became wealthy as well as excellent in research (which it was not in the 30’s).

Lowen explains that “by 1960, the federal government was spending close to $1B for academic research and university-affiliated research centers, 79 percent of which went to just twenty universities, including Stanford, Berkeley, Caltech, MIT, Harvard and the University of Michigan” (page147). In the Shanghai ranking, Harvard is #1, Stanford is #2, Berkeley is #3, MIT is #5, Caltech is #6 and Michigan #18 only.

Money definitely helps. I had however reacted against Alix’ argument as military money can not explain by itself the entrepreneurial spirit that Boston and Silicon Valley developed. Caltech and its JPL laboratory never reached the same start-up activity. But the quality of universities and their wealth is an extremely strong ingredient for successful technology clusters.

The Next Google?

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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…

Europe and Silicon Valley

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Clearly the topic is hot. Two recent articles address the issue of helping Europe in its efforts. One is in English and was published by the Science-Business Innovation Board. The full text follows. Even if I have some doubts, I agree overall. The other one is in French, was published in Le Monde and can be found on the French version of my blog.

What is interesting is these are both letters signed by credible people. Worth reading.

Europe needs to focus.

Too many initiatives in the European Union are blunted by lack of clarity – trying to please too many constituencies at once, and in the end pleasing none. Now the EU is about to embark on another policy initiative where clarity and focus are needed. This letter, based on our collective experience in academia, industry and policy, is a plea for single-minded efficiency.

The issue is “cluster” policy – in short: How do you make a Silicon Valley in Europe? After several months of study, the European Commission is due to issue its first formal answer to that question, with a policy statement recommending action to the EU members.

There’s no dispute that clusters of dynamic companies around top-rated universities are vital to economic success. Cambridge, Oxford, Münich, Grenoble, Leuven and Stockholm are all vibrant zones for scientific discovery, technological innovation, and jobs. But large, they are not. Just one US research institution, the University of California–San Francisco in the Silicon Valley cluster, has spawned publicly traded companies with a combined market value of $90 billion – three times the value of Europe’s entire bio sector. China has concentrated resources and tax breaks on three mega-hubs for technology development. Whether by market rule or government fiat, these are clusters big, bold, and concentrated.

By contrast, Europe’s approach is small, timid and diffuse. The EU counts some 2,000 clusters, 70 different national cluster policies, and hundreds of regional programmes. Now it has the opportunity for change. Between 2007 and 2013 the European Union has budgeted €308 billion for structural funds, a type of regional-development “catch-up” funding that can be applied to knowledge networks as easily as to road networks. The EU’s upcoming cluster policy statement, led by Vice President Günter Verheugen, could direct that spending wisely. We urge that it incorporate the following principles:

A CHARTER FOR CLUSTERS

Build on existing strengths. Clusters cannot be planted on bare soil, wherever a politician feels like it. They can only be nurtured in places that have already demonstrated knowledge, skills and growth.
Focus resources. Don’t scatter the money far and wide. Pick just a few of the most promising regions and sectors for support, and provide an environment – family-friendly, multidisciplinary, well-paid – that will attract the brightest minds.
Be open. Encourage the best people, wherever in the world they may be, to work in Europe’s clusters. Promote open competition, among universities, companies and regions, for funding . Promote border-crossing – among people, ideas, scientific disciplines, and industries.
Benchmark, monitor and be transparent. Base funding and regulatory policy, not on the clash of political interests, but on empirical analysis of what’s working and on open competition.
Encourage risk-taking, cross-disciplinary work, bold innovation and experimentation

These are broad principles. One practical idea for implementation is to create Special Innovation Zones in Europe (SIZE).

We urge the EU to designate a few – and we mean just a few – existing clusters to benefit from a new legal status as special innovation zones. It would give them extra cash from that €308 billion structural-funding budget to invest in schools, infrastructure and cultural amenities that attract the world’s top knowledge workers (reversing the “brain drain”) and to stimulate university research, teaching and spin-out company formation. They would get special, temporary dispensation from rules that hamper free movement of people and ideas, such as immigration and labour policies that make it hard for small companies to hire or fire. They could tap seed funding, supported by the EU and managed by investment professionals. They could earn a new, low-tax status reserved for young, innovative companies, and access low-cost, high-quality office space and support services

How would the EU pick these centres of excellence? Through transparent, international, data-based competition, rather than through closed-door, regional politics. Create a council, dominated by non-EU experts on technology, development and education, that weighs competing applications from the regions based on their performance – in hard numbers, per euro spent, of significant inventions, publications, spin-outs, licenses, stock-market flotations, post-doctoral fellows and jobs, and soft analysis of governance, infrastructure, quality of life, and visionary planning. There are already models for this. The newly created European Research Council last year achieved a first: handing out €300 million in research grants based solely on the judgment of international experts. The “cull rate” was ferocious: 97% of applicants were rejected. But the winning 3% were, beyond any doubt, scientifically worthy of funding. If this no-nonsense, expert approach can work in the university sector – interbred and politicized as it is in many EU nations – it can surely work in regional policy.

Time is running out for Europe. The American capital markets, treacherous as they may be, are pouring vast sums into the nation’s technology centres. In South Korea, government investment of $11 billion in the Incheon Free Economic Zone has drawn $49 billion in foreign investment. At the same time, we are all confronted by the urgent problems of global warming and rising energy costs; solutions must be found through research, innovation and entrepreneurship. Unless Europe improves its capacity to innovate, it will miss these opportunities to lead and prosper.

Europe’s politicians cannot afford any longer the luxury of playing big spender to all regions great and small. They need to be bold, brave and selective. They can start with the Commission’s upcoming cluster policy statement.

Signed:

Esko Aho, President, Finnish innovation fund SITRA, and former Prime Minister, Finland

J. Frank Brown, Dean, INSEAD

Jean-Philippe Courtois, President, Microsoft International

Pat Cox, President, European Movement, and former President, European Parliament

Roch Doliveux, CEO and Chairman, UCB

Denis Payre, CEO, Kiala and Co-Founder, Business Objects

Philippe Pouletty, General Partner, Truffle Capital

Alfons Sauquet, Dean, ESADE Business School

Helmut M. Schühsler, Managing Partner, TVM Capital

Harriet Wallberg-Henriksson, President, Karolinska Institutet

Members of the Science|Business Innovation Board

Is there a recipe for entrepreneurship?

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Students from the Ecole Hôteliere de Lausanne who naturally have a taste for good food asked me the question recently. I took inspiration from Paul Graham and Steve Jobs to provide the ingredients. The text is available in pdf. Here is the full answer…

Is there a recipe for entrepreneurship?

“Launching a start-up is not a rational act. Success only comes from those who are foolish enough to think unreasonably. Entrepreneurs need to stretch themselves beyond convention and constraint to reach something extraordinary.” Vinod Khosla, founder of Sun Microsystems

Europe is aware that it is not as efficient with entrepreneurship as the USA, and Silicon Valley is the extreme illustration of the American model. Google, Yahoo, Apple, Cisco, Oracle, Intel are only a few examples. What are ours? What did we do wrong? My answer is that we have not bet on passionate individuals ready to take risks and face uncertainty: young people who may fail but will learn from their mistakes.

If you are not convinced or surprised with the argument, let me quote some Silicon Valley icons. Steve Jobs said about Silicon Valley success: “There are two or three reasons. You have to go back a little in history. I mean this is where the beatnik happened in San Francisco. It is a pretty interesting thing…You’ve also had Stanford and Berkeley, two awesome universities drawing smart people from all over the world and depositing them in this clean, sunny, nice place where there’s a whole bunch of other smart people and pretty good food. And at times a lot of drugs and all of that. So they stayed… I think it’s just a very unique place.”

The main investor in Apple, Steve Jobs’ company, Don Valentine adds: “Founders are genetically impossible by choice. There were only two true visionaries in the history of Silicon Valley. Steve Jobs and Bob Noyce [Intel’s founder]. Their vision was to build great companies… Steve was twenty, un-degreed, some people said unwashed, and he looked like Ho Chi Min. But he was a bright person… Phenomenal achievement done by somebody in his very early twenties… Bob was one of those people who could maintain perspective because he was inordinately bright. Steve could not. He was very, very passionate, highly competitive.” By the way, Bob Noyce mentored Steve Jobs.

Let me add one more quote by another investor, Tom Perkins: “The difference is in psychology: everybody in Silicon Valley knows somebody that is doing very well in high-tech start-ups; so they say to themselves “I am smarter than Joe. If he could make millions, I can make a billion”. So they do and they think they will succeed and by thinking they can succeed, they have a good shot at succeeding. That psychology does not exist so much elsewhere,”

Quotes may not be any proof, but consider the age of the Silicon Valley entrepreneurs: Steve Jobs was 21, the Google founders were 25, the eBay founder was 28, and the Yahoo founders were 27 and 29. Do not think this is linked to the Internet. Mister Hewlett and Packard were 26 and 27 in 1939 when they founded HP. Founders often come also as a team of two; many are foreigners, immigrants who have something to prove, “hungry people”.

But if we would try to find a recipe, a recipe that Europe could use to bake fresh Entrepreneurs for their economies, what would it be? Paul Graham, an entrepreneur whose blog, www.paulgraham.com, is a must-read, has his strange advice: two main ingredients are needed, rich people and “nerds”. In my recent book, “start-up”, I use his advice for my very own recipe:

– Take rich people and nerds.

– Do not add any bureaucracy, do not add concrete.

– In order to attract and keep enough nerds/cooks in a place, there is a need for a large and nice plate.

A university is a good choice, it needs personality, and it needs to be creative. Not only on its campus, but also in its surroundings, so that the ingredients feel comfortable in the plate.

– The ingredients should be fresh, i.e. they should be young and dynamic.

Graham also mentions liberal environments, which, he claims, tolerate strange and brilliant individuals. [Read again what Jobs said above about SV].

– Then the ingredients have to be put in the oven for a very long time.

Silicon Valley began in 1957. It took ten years, even twenty years, to make this region successful; it is about the time it takes to grow infants into adults.

– The oven should not be too hot, so that the desire is not killed, then the temperature should be increased to maintain the enthusiasm.

A temperate, pleasant climate is therefore necessary.

If all the conditions are in place, the result will probably be interesting.

Lausanne has many assets to become such a place. Lausanne has EPFL, Unil, EHL, IMD. It has rich people. It has a nice climate and nice food, a rich cultural environment. So what we “just” need is the desire to try. Of course, ideas and projects have to be well managed. But first and foremost, we need young people, not afraid of being ambitious. As a final word, I think we should also take more inspiration from Silicon Valley. First, visit the place and understand it better; second, invite back the Europeans who live over there and have experienced this unique culture. We have to learn from them. So you have my recipe for entrepreneurship. The recipe for success is more an Art than a Science and listen again to what Steve Jobs said in 2005 at the first graduate diploma ceremony he ever attended: “Stay foolish, stay hungry.”

Sources:

Paul Graham and Silicon Valley
http://www.paulgraham.com/siliconvalley.html

Steve Jobs at Stanford
http://news-service.stanford.edu/news/2005/june15/jobs-061505.html

“Start-up, what we may still learn from Silicon Valley”
https://www.startup-book.com