Is it better to be lucky than good in Silicon Valley?
Reflections on insights shared at the Exponential Center Launch, June 3, 2016
On June 3, to celebrate the launch of the Computer History Museum’s Exponential Center, the Museum hosted a lunch-time symposium which explored creating exponential impact in Silicon Valley. Featured on the program were pioneers John Doerr, Jay Last, Mike Lee, Albert Lee, Regis McKenna, Gordon Moore with David Brock and Marguerite Gong Hancock from the Computer History Museum. The exponential power of innovation combined with entrepreneurship surrounds us: one set of Fairchild notebooks catalyzed the creation of semiconductor chips that power billions of devices; one business plan turned into Apple, a $500 billion company that has sold more than one billion devices; one person’s quest to lose weight created a community that has made a mark on the $55 billion digital health market. How did the stars of these exponential stories fare in the face of risk and reward? How do pioneering entrepreneurs develop their vision? What are the roles of hard work and luck? How do innovators navigate uncharted waters?
Luck and Accident?
“Everybody has luck,” opined pioneering venture capitalist Arthur Rock, “but it’s very important to have luck early.” So Rock began his remarks at the Computer History Museum’s Exponential Center launch gala, when recounting his role funding start-up Fairchild Semiconductor in 1957. His subsequent investments included Teledyne, Intel, and Apple, with a role leading Intel’s board from 1968 to 1999. “It was lucky for me and lucky for the so-called [Traitorous] Eight including fellow honorees Jay [Last] and Gordon [Moore] that Fairchild came into being. Otherwise they may all have scattered and there could very well be no silicon in Silicon Valley.”
How does Gordon Moore, cofounder of Fairchild and Intel, describe his transformation from engineer into entrepreneur? “I’ve always characterized myself as an accidental entrepreneur. Had it not been for the negative experience at Shockley,” Moore explains, “it’s doubtful I would have ever taken the entrepreneurial route.” Though his foray into the start-up world was unplanned, Moore described the ripple effects of the birth of Fairchild, which became a “hotbed in innovation and entrepreneurship. It seemed like every time we had a new product idea, we had several spin-offs... It was really the place that got the engineer entrepreneur really moving.”
Acclaimed as epicenter for generations of digital technologies and inspiration for entrepreneurial ecosystems around the globe, Silicon Valley is hard to imagine as a place born out of just luck and accidents. Yet, in the 1950s, the Bay Area, known for its fertile fruit orchards, was an unlikely soil for transistors or start-ups. The region lacked talent, a research base, and funding, and lagged behind Boston, New York, and other cities dotted with active transistor companies. Even though Hewlett Packard and Varian were established at the young Stanford Industrial Park, Fairchild Semiconductor was the company that catalyzed a cascade of change. It ultimately became the second largest chip firm in the world spawning the now $335 billion semiconductor industry and gave birth to 31 spinoff companies in just 12 years. The well-documented genealogy of firms and founders brought both the silicon to Silicon Valley and the spirit of entrepreneurship.
Luck is Where Preparation Meets Opportunity
While Moore and Rock credit serendipity, they downplay their own exceptional skills, vision, and hard work. Moreover, succeeding decades of outcomes and research have shown that entrepreneurial success depends on much more than luck and coincidence. Some entrepreneurs are much better at spotting and capitalizing on opportunities that come along. Others pioneer disruptive opportunities through their vision and innovation.
What makes some “lucky”? Some observers argue that lucky people are not blessed with kismet but rather that they behave in ways that create good fortune in their lives. Following a decade of research, Richard Wiseman, British psychologist and academic, argues that lucky people exhibit certain attitudes and actions for living in complexity, change, and chaos. Veteran venture capitalists and company founders agree these three C’s are a part of the entrepreneurial journey. Wiseman concludes that “lucky” folks are particularly good at noticing, creating and leveraging unexpected opportunities as they arise. In contrast, unlucky people stay narrowly focused and hew doggedly to plans. In addition, lucky people exhibit not only flexibility but also resilience, persistence, and optimism in the face of difficulties. These traits enable them to transform challenges into new opportunities, and bad luck into good.
These traits are exemplified by entrepreneurs, Mike and Albert Lee, founders of MyFitnessPal, selected by John Doerr, legendary venture capitalist, to share insights in a fireside chat for the Exponential Center launch symposium. The Lee’s journey goes from bootstrapping to attracting investment from Doerr and Kleiner Perkins to being acquired by UnderArmour for $475 million in 2015. MyFitnessPal now boasts 75 million users, the largest community in a burgeoning digital health industry. In retrospect, the path to success could appear straight. Yet, turning the pages back to the early days of the company, Doerr asked, “What were the scariest, hardest things?” Mike, answered: “I remember one day we had a bug where our app couldn’t sign up. Downloads and ratings went crazy…. Entrepreneurship is a roller coaster. You have a plan then everything changes. A big part of being an entrepreneur is to be nimble, to adjust, to be comfortable with chaos.”
Skill plays an important role in both entrepreneurship and venture capital. As a venture capitalist, John Doerr, while quick to point out investments in plenty of failures, has demonstrated a track record of successes, including Google, Amazon, and Intuit. Indeed, looking at a large set of venture capitalists and founders over more than 15 years in Silicon Valley, scholars have examined the relative role of luck versus skill in success in entrepreneurship and venture capital. In a classic study, Paul Gompers, Anna Kovner, Josh Lerner and David Scharfstein at Harvard Business School conclude that entrepreneurs with a track record of success are more likely to succeed than first-time entrepreneurs (or those who have previously failed). More experienced venture capitalists are able to identify and invest in first-time entrepreneurs who are more likely to become serial entrepreneurs. Investments by venture capitalists in successful serial entrepreneurs generate higher returns. Their work (and others) illustrates the role of skill in both entrepreneurship and venture capital.
What other skills contribute to entrepreneurial success? It is important to note that neither Moore or Rock attribute their success in the birth of Fairchild and silicon in Silicon Valley to carefully pre-calculated plans. Indeed, the rise of Silicon Valley as an innovative and entrepreneurial region cannot be attributed to well laid plans by any individual, company, or government. Innovation and entrepreneurship often thrive from experimentation, discovery, and learning. Especially for technologies that are new and rapidly evolving as well as business environments marked by change, the ability to pivot, re-calibrate, shift, and improve is crucial.
Scott Cook, founder of Intuit, now celebrates “savoring surprises” from unanticipated consequences. Early in Intuit’s development, he wanted to hold tight to a carefully crafted strategic focus on personal finance–even in the face of countervailing evidence. Eventually overcoming his stubborn desire to execute the plan, he relinquished his initial strategy in favor of pursuing unforeseen opportunities in the small business market. Today QuickBooks represents about half of Intuit’s revenues, while Quicken contributes less than five percent. As Cook sums up: “And all because we savored the surprise which I resisted for years.” Discovery can eclipse planning.
Pivoting Can Create Forward Progress
When Steve Jobs introduced the iPhone to the world in 2007, despite strong contrary advice from board members, he proudly announced that developers could build software applications inside the web browser. “You’ve got everything you need if you know how to write apps using the most modern web standards to write amazing apps for the iPhone today,” he said. ”We think we’ve got a very sweet story for you.” Within months, the company reversed course and Jobs announced on Apple’s Hot News page: “We think a few months of patience now will be rewarded by many years of great third party applications…” The 180-degree change in strategy created exponential growth: by January 2016, Apple announced that the iOS App Store had yielded nearly $40 billion for developers since 2008, with over one-third generated in the previous year alone. Apple estimated that more than 1.2 million jobs in Europe, 1.2 million jobs, in China, and 1.4 million jobs in the US can be attributed to the iOS app economy. Pivoting can create greater forward progress.
Unchartered Waters: Riding Waves of New Technologies
From Alibaba to Airbnb, there is a long list of examples of entrepreneurial firms that have evolved a strategy better than their original plans. Invention (and re-invention) is never more important than on the front end of waves of disruptive technologies or business models.
Looking at the revolution underway in digital health, Mike Lee predicted: “We are in the first inning in an 18 inning ball game…. There is a convergence of enablers: computing device in your pocket that has access to infinite amount of information; wearables providing data that was never accessible before; artificial intelligence and all these things. We are still just scratching the surface of what could be done.”
During this era of dynamic uncertainty, complexity, and rapid change, continuous exploration and discovery will be hallmarks of those who survive and lead the vanguard of what’s next.
In a fireside chat with me, Silicon Valley marketing guru, Regis McKenna reflected on his personal involvement in breakthrough technologies and products over the past 55 years – the first microprocessor, integrated circuit, low powered lasers, first recombinant technology. Now that information is projected to double every 13 hours, McKenna foresees breakneck changes during the next ten years and exhorts: “Hang on!”