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Fresh Reads from the Science 'o sphere!

Saturday, November 24, 2007

Silicon Valley: Hungry People And Happy Accidents

Last Thursday, Dr. John Mashey, a Silicon Valley veteran of 24 years, came to the Biopolis and gave a talk entitled "Silicon Valley Scene: Why and How it works".

Dr. Mashey, who considers himself an "ancient" Unix person, has a PhD in computer science from Pennsylvania State University.

Starting out as a software designer in Bell Labs, he moved on to sales and marketing and has visited over 50 countries. He is now half-retired, advising venture capitalists and companies. He has also given over 500 public talks. Dr. Mashey is on the board of trustees at the Computer History Museum in Mountain View, California.

Here is a summary of his talk:

1. To begin, Dr. Mashey gave a brief overview of California's history.

He noted that the population of California is atypical of the USA - younger, more Asian and more Hispanic. 36 million people live there, which is 12% of the total population, but they produce 17% of the GDP and attract 40% of the total venture capital (30% in the San Francisco Bay area alone!). Its economy is ranked somewhere between 7th and 10th in the world.

California's leadership also departs from the norm. The current governor, Arnold Schwarzenegger, is a Republican, but his wife is a member of one of the most powerful Democrat families (Kennedy) in the nation.

Attorney General Jerry Brown has actually sued the Federal government before. The state of California has immense clout - it sets the emission control rules for the whole of USA, and sometimes can decide its own foreign policy! However, California can be experimental, unruly and chaotic at times.

The people of California are special, because these are the descendants of immigrants who moved there for opportunities or to escape rules. It is like an isolated "island" away from the populous east coast - in fact the population only started to increase significantly after the Second World War.

There is a selection for risk takers.

In the San Francisco Bay area, the selection pressure is even higher, since this was the focal point during the Gold Rush era. As a result, it is a special beneficiary of inward brain drain from all over the USA.

2. Silicon Valley itself is 700 sq km in area (about the size of Singapore). The geography of this region is important, because it is shaped like a bowl that pushes people together. Dr. Mashey noted this is opposite to the other major technology centre in the USA - Boston - where the geography pushes people apart into the suburbia.

There are a few key figures in the history of the Silicon Valley - Frederick Terman, an engineering professor at Stanford University, played a major role by attracting top minds to come to California.

Years ago, Terman himself planned to head east to become an assistant professor at MIT, but had to remain in California because of a bout of tuberculosis, which he later recovered from. As a result, he joined Stanford.

This turned out to be lucky accident.

In 1956 he convinced William Shockley (co-inventor of the transistor) to return to San Francisco, hoping that the Shockley would help to jump start the electronics industry in the valley.

Unfortunately, Shockley was an impossible person to work with - his researchers soon fell out with him. In 1957 eight of them left and formed their own company, Fairchild Semiconductor, which would end up spinning off many famous electronics giants such as Intel and AMD.

In addition, Terman's own PhD students William Hewlett and David Packard would later establish the Hewlett Packard company.

Then Dr. Mashey highlighted some cultural differences between Boston and the Silicon Valley. East coast companies tend to be vertically integrated. In Boston you are expected to be an employee for life, and if you switch companies people will hate you.

In the Silicon Valley on the other hand, it is common to switch companies and the animosity does not last - you may be foes now but friends later. Thus, closely-knitted personal networks is a key feature of the Silicon Valley culture.

The risk-taking, entrepreneurial culture in the Silicon Valley is unique and not a US-wide phenomenon. Sometimes it can be taken to an extreme, when the Silicon Valley acts crazy. The internet boom and bust (dot-com bubble) stems from an incredible sense of over-optimism and belief in perpetual growth.

3. Next, Dr. Mashey listed the key reasons for the success of the Silicon Valley.

Education is strong in California, although Dr. Mashey thought that the quality of education at the K-12 level (Kindergarten to Grade-12) is quite variable throughout the state and can be better.

At the university level, the University of California and Stanford University are very strong centres of educational excellence, often ranked within the top 20 in the world today.

Stanford in particular is a hotbed of entrepreneurial spirit. Students look forward to creating their own start-ups, join start-ups, or join big companies when they graduate.

As a private university, Stanford has more autonomy than state schools, and has become very smart about technology licensing. Start-ups nurtured by Stanford get good financial support in return for stock options. In effect, Stanford University acts like a venture capitalist firm, and it is a successful strategy - for example it owns a lot of Google stock.

On top of that, it is common at Stanford for the faculty to start companies during their sabbaticals. When they return to teaching, they earn 20% of the income from the can spend up to 20% of their time working for the start-ups as consultants. As a result, a number of Stanford faculty are actually multi-millionaires, from their stock ownership in these companies.

In addition, the administration places a strong emphasis on interdisciplinary work, using grant policies to encourage members of different faculties to collaborate on a project. Stanford President John Hennessy said that the "first 50 years of the last century belonged to physicists, the second 50 years to us computer folks, and the next century belongs to biologists."

There are other, less obvious reasons why Silicon Valley works.

One easily overlooked feature is the availability of cheap, flexible space for cash-strapped start-ups. Sometimes all you need is a grubby office with an internet connection. Dr. Mashey observed that in some other technology clusters, the workspaces are too pretty and too expensive to be practical. In the Silicon Valley, space is limited - buildings are often recycled to meet new needs.

Also, banks must understand start-ups. How can a new company possibly have five years of receipts in order to get a loan?

The right kind of lawyers is very important. They need to be familiar with start-ups, venture capitalists, patents and technology. Dr. Mashey gave an example of a Silicon Valley law firm that specializes in discouraging companies from fighting costly lawsuits with each other, opting to benefit incrementally from their growth, rather than to benefit quickly from their demise.

Some other quirky reasons: Fry's Electronics, a superstore that sells a wide selection of loose electronic parts for a low price, lets tinkerers assemble their own contraptions on a shoestring budget.

And Weird Stuff, which sells surplus hardware, old computers and other assorted junk - another haven for computer geeks.

Dr. Mashey then offered some advice for governments that are interested in replicating the success at Silicon Valley.

He felt that governments should not only make it easy to start a business (the registration paperwork should not take months!) but also make it easy to end a business. The latter process is difficult in many European countries, impeding their chances of success.

He stressed that governments cannot edict creativity and entrepreneurship. They should try to stay out of the way. But they can promote entrepreneurship by publicizing success stories, hailing entrepreneurs as heroes, and offering prizes as an incentive. A good example of this is the DARPA smart car competition.

4. In conclusion, Dr. Mashey emphasized that Silicon Valley is hard to duplicate. It was a sleepy backwater place just 50 years ago, but due to a combination of lucky accidents of great individuals like Frederick Terman, the risk-taking culture and smart investments, good results have been achieved.

During the Q&A, an audience member asked him if Singapore could make it too.

Dr. Mashey replied jokingly: "No", which drew hysterical laughter from the audience.

He then clarified his opinion by noting that Singapore had also emerged from nearly nothing 50 years ago, and is one of the relatively few places in the world that had many good features in place.

However he cautioned that: "I'm not sure that I see the right amount of discipline and looseness in Singapore," possibly alluding to the strict government control here.

He then ended his talk by emphasizing that nurturing entrepreneurs is a complicated process, but places that want to do better must be prepared to use this strategy.

7 Comments:

John Mashey said...

Thanks for posting the writeup.

Minor correction: Stanford professors don't get 20% of the profits from a startup [they wish!]. When they take a sabbatical and start a company, they normally return to Stanford a year or so later, and then for a fewyears, they spend 20% of their time working for the startup. The 20% is the maximum percentage of time they get to do whatever consulting they want. This time may contribute to vesting of additional stock.

It is definitely true there are a bunch of multimillionaires, but it's from stock ownership in companies that have IPOed or been bought, not from percentage of profits.

Also, to be fair to Singapore, I did say that Singapore was one of the relatively few places in the world that had a lot of the pieces in place.

Lim Leng Hiong said...

Hi Dr. Mashey,

Welcome to Fresh Brainz! Thanks for the interesting and informative talk on Thursday.

Minor correction: Stanford professors don't get 20% of the profits from a startup [they wish!]. When they take a sabbatical and start a company, they normally return to Stanford a year or so later, and then for a fewyears, they spend 20% of their time working for the startup. The 20% is the maximum percentage of time they get to do whatever consulting they want. This time may contribute to vesting of additional stock.

It is definitely true there are a bunch of multimillionaires, but it's from stock ownership in companies that have IPOed or been bought, not from percentage of profits.


Oops my mistake! I have corrected the relevant section.

Also, to be fair to Singapore, I did say that Singapore was one of the relatively few places in the world that had a lot of the pieces in place.

Correction made. Cheers!

Sivasothi said...

Hey Leng Hiong, another fascinating piece, thanks! With John Mashey providing edits some more, steady lah!

Lab Rat said...

Yep, it was a great talk and he got it spot on. We've got a lot of the physical infrastructure, down to the "quirky stuff" - Sim Lim Tower and the Jalan Besar area are IMHO way, way better than Fry's or Weird Stuff!

It's mindsets and red tape that needs changing first. :)

Lim Leng Hiong said...

To Sivasothi:

Thank you sir! I was surprised by his fast response - perhaps he has secret knowledge about all the pecking pigeons in teh Intarwubs...

To Lab Rat:

Personally I prefer Koba Electronics at People's Park Centre - a one-stop-shop for all your electronicky needs!

But seriously, does the environment in Singapore select for risk-takers? I think we are fast becoming victims of our own success.

Lab Rat said...

No, the young'uns are getting too comfortable in Singapore. It's kind of worrying when you have to beat the fear of solder guns out of your attachment students, or show them how to strip wires.

Koba is a bit too neat and prepackaged for my taste - I like digging through piles of stuff at Sim Lim Tower 'cos you never know what other surprises you'll find in there.

Plus, there's this great connector and cable store at Sim Lim Square next door. And all the nuts and bolts at Kelantan Lane a block or two away.

Not to mention Komala Villa, Appollo Banana Leaf or Muthu's Curry for lunch when you're done shopping!

I have to wipe the drool off my keyboard now.

hangjian said...

don't forget sungei road just next to sim lim tower! its a junk haven, i saw a vacuum tube radio on sale once.