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August 16 2013

05:47
Selling Hopes And Dreams In Southeast Asia
Being a startup means believing in your dreams, and Southeast Asia needs dreamers, say incubators. 500 Startups, for one, is keen to sell hope to the growing communities of startups in Southeast Asia, and is willing to back that up with real money. When I spoke with its founder, Dave McClure, in Jakarta a couple of months ago, he said the accelerator’s plan for the region starts with “throwing some money” at startups, simply to get the ball rolling. “It has to start with the ability to write some checks. It gets people off the ground. That’s the problem with other investors—they’re not willing to throw money away,” he said with a laugh. “But really, a better way to spend a million bucks is to invest in 20 companies at 50 grand each. We’d probably emerge with three wins out of that. “That isn’t even the main success of it though; the process of investing in 20 companies gives people the chance to believe in themselves, and creates an ecosystem where people believe in something,” he said. McClure is on a march to conquer the world. 500 Startups has dedicated about 20 percent of its capital to international companies, and this year set up shop in China and Southeast Asia. This follows last year’s expanded coverage to include India, Japan and Latin America. His interests in revving up the startup community, of course will mean that 500 Startups’ relatively early presence in these markets will allow it to enjoy the first fruit. For Southeast Asia’s startup scene, which he says trails behind that of Western markets and other emerging markets like Mexico, that first step needs to start with more money being up for grabs. He highlighted Startup Chile as an example. In 2010, the Chilean government set up an incubator program that offered startups $40,000, office space and industry support in exchange for them moving to Santiago for six months to build their companies. The program has launched its seventh intake, and according to reports, 37 percent of the applicants in this latest round were local, up from 10 percent in the first round. “We’re in the movie business—we’re selling dreams.” – Dave McClure This boost to the local ecosystem cost its government about $10 million a year, spread out over 200 companies. “That’s cheap, for changing the brand of your entire country,” said McClure. “In Silicon Valley, there’s

April 08 2012

19:45
From Team Player To Coach = From Entrepreneur To CEO
montana_walsh2
Editor's Note: This guest post is written by Scott Raskin, who is the President and CEO of Mindjet. Prior to Mindjet, Raskin was President and COO of Telelogic and VP of Sales and Corporate Development at Nexgenix. For entrepreneurs, navigating a career through the Valley can be a lot like competitive sports. Similarities include locker room leadership, a shifting playbook and ongoing onslaughts from opponents. What is perhaps the most important likeness to highlight, however, is the requisite sense of what your place is in the game.

November 05 2011

13:30
How Entrepreneurs Can Create Their Own Luck
horseshoe
I'm in even worse trouble now. A few weeks ago I had to speak at Barry Ritholz's conference but that turned out to be "only" a panel. It was a great panel but I knew I would only have ten minutes of time so wouldn't need to prepare much although even then I was worried. Now I'm speaking for one hour at Defrag in Boulder, Colorado next week on November 9 and I'm terrified. For one thing, all of the other speakers are smarter than me. Right before me is Roger Ehrenberg speaking about "big data". I'm not even sure what "big data" is so right off he's smarter than me. Then Paul Kedrosky is speaking later in the afternoon about god knows what. Paul has an excellent blog obsessed with everything from economics to weather data. So despite my expertise in speaking I'm finding I'm a bit nervous. I could open up with the same line I used on Barry's panel, "When I was walking over here I had an erection. Not so easy for a 43 year old without any stimulation whatsoever." But this might not be the exact crowd for it.

August 27 2011

18:11
The Long Hard Road To The Edge
SunEdgeLogo
A Year In The Life Of An Entrepeneur 1. July 2010: Ready: Set: Delaware, the state with the lowest highest point. David Argentar, a biochemist by training and bioinformaticist by trade, has launched a startup. Of sorts. Well - more of a hobby, he'd be the first to admit. He has no business plan, no investors, no employees. All he really has, in fact, is an idea and a pending patent. And as everyone is eager to tell you these days, ideas are a dime a dozen, and patents are practically a scam. It gets worse. Much. His idea is hardware. A new kind of solar concentrator, to be exact, made mostly of water. His first version was too heavy; but he thinks his redesign could conceivably, in his wildest dreams, drive down the cost of solar power by quite a lot. But—come on, now, really—a hardware startup? With only one founder? Hardware is hard. It allows for no binary abstractions, no digitized purity to protect you from the real world. It is the real world, in all in its vicious and unforgiving glory, perpetually at the mercy of a hundred unexpected environmental factors. And almost by definition it is incredibly expensive to develop. I should know: I myself have a degree in electrical engineering - but I fled to the warm embrace of software as soon as I graduated. Hardware was much too temperamental for me. Argentar, fortunately, is made of sterner stuff. Good thing, too. Over the next year he's going to need everything he's got.

June 13 2011

13:40

May 28 2011

16:09

Is There A Peak Age for Entrepreneurship?

Editor’s note: Adeo Ressi, is the founder of The Founder Institute and TheFunded.com In this guest post he argues against ageism when it comes to to entrepreneurs. Ressi is 39.

The recent articles proclaiming that 25 is the peak age for entrepreneurship deserve a considered and factual response. The demographic and racial profiling that has plagued venture capital and tech entrepreneurship has a new friend—ageism. This has to stop.

Anecdotal Evidence:

It does not take but one minute to look around the world and prove any thesis of a peak tech founder age incorrect. There are countless entrepreneurs over the age of 30, including Reid Hoffman (age 35 in 2002), Evan Williams of Twitter (age 35 in 2007), Mark Pincus of Zynga (age 41 in 2007), Arianna Huffington of the Huffington Post (age 54 in 2005), among many others.

A commonly held belief is that younger founders appear to inspire waves of innovation, like in the mid-1990s and even today with Facebook, while older entrepreneurs launch sustainable businesses. The reality is more complicated. There are older inventors and entrepreneurs, like Dean Kamen (age 60) or Elon Musk of SpaceX (age 39), who continue to create revolutionary products; and there are, of course, thousands of young entrepreneurs pursuing “me too” businesses.

Anecdotal data is at best inconclusive. I launched my first internet business at the age of 22 in 1994, and through naive optimism and blind luck, it eventually became worth over $600 million. My direct impact on the value creation was relatively low. In fact, many of the revolutionary internet businesses started in the mid-1990′s were founded by 20-somethings with blind optimism. However, the majority of the sustainable businesses created in the 90′s were founded or run by older entrepreneurs.

In some cases, older entrepreneurs paired up with the younger founders, like Google (Larry Page and Sergey Brin were both age 25 in 1998, and Eric Schmidt was age 46 in 2001). In other cases, more successful clones were launched by older entrepreneurs, like Amazon (Jeff Bezos was age 30 in 1994). And, many young founders were pushed out or sidelined for more seasoned leaders, like with PayPal (Peter Thiel took over from younger founders when he was age 31 in 1998).

Anecdotal evidence, personal stories, and biased sample sets are not the best way to draw meaningful conclusions, so let’s look at some facts.

Factual Data:

In order to identify the traits of successful entrepreneurs, the Founder Institute has conducted a battery of proprietary personality and aptitude tests on over 3,000 applicants worldwide, and then carefully tracked the progress of our nearly 1,000 enrolled founders and 350 graduates. Research scientists employed by the Institute have examined the results of the successful founders and the less successful cases, looking at high-level traits and even examining test results on a question by question basis.

The research shows that an older age is actually a better predictor of entrepreneurial success, and that three other traits also correlate strongly to success: strong fluid intelligence, high openness, and moderate agreeableness. Let’s dive in deeper on the four key traits of entrepreneurial success:

  1. Older age has shown in the data to correlate with more successful entrepreneurs up to the age of 40, after which it has limited or no impact. Our take: Older individuals have generally completed more complex projects—from buying a house to raising a family. In addition, older people have developed greater vocational skills than their younger counterparts in many, but not all, cases. We theorize that the combination of successful project completion skills with real world experience helps older entrepreneurs identify and address more realistic business opportunities.
  2. Fluid intelligence is a largely genetic trait that measures one’s ability to quickly learn a rule set and apply the learned logic to solve problems. It can also be referred to as abstract thinking, and fluid intelligence declines with age. Our take: Entrepreneurs are constantly faced with new problems that need to be understood and solved within minutes—from sudden resignations to service outages. It makes sense that they require fluid intelligence to succeed.
  3. Openness is a Big Five personality trait that measures one’s ability to see and appreciate the world around them. It is often synonymous with curiosity, adventure, or cultural awareness. Our take: Entrepreneurs, particularly in fast-growth startups, need to challenge accepted norms, and be open to changes and new information that affect the success of their enterprise.
  4. Agreeableness is another Big Five personality trait that measures cooperation versus antagonism. It can be synonymous with compassion, or, conversely, with suspicion. Our take: A moderate level of agreeableness correlates with the ability to stick to a chosen path despite conflicting information and naysayers, allowing an entrepreneur to persevere in the face of obstacles.

Our Methodology:

The 3,000+ tested applicants come from 17 cities across four continents worldwide, and range in age from 17 to over 60. Applicants self-select as being interested in entrepreneurship by applying to the Institute in the first place. Two times per year, the Institute expands the breadth of the test with different batteries, lasting as long as three hours, providing a greater set of data to identify new traits of success. In addition, the Institute enrolls a number of semesters per year without using the test results so that we have a control group to measure the effectiveness of the test results in admissions.

Figure 1: Age of Founder Institute Applicants at Time of Applying

Defining Success:

Since the Institute is only 25 months old and the oldest graduates are only 18 months out of the program, there are no M&A deals or public offerings among the graduates, yet. So, the Institute uses a careful performance evaluation of founders and their companies to identify their relative “success.” Each founder is rated weekly during the program by a subset of their closest peers in their program, rated twice throughout the program by seasoned CEO Mentors, and tracked quarterly after graduation through self-reporting on key metrics, such as revenue growth and market traction, with validation of this progress by the Founder Institute itself. All of this data is collected, processed and analyzed twice per year to check, validate and change our assumptions.

Only 39 percent of applicants are under 30, and of those who graduate, 36 percent are under 30.  The average age of all graduated founders is 34.4 years old, and the performance results of graduates speak for themselves:

Figure 2: Performance of Founder Institute Graduated Companies

Figure 3: Age of Founder Institute Graduates at Time of Graduation

The Testing Results:

The admissions test itself predicts success well by factoring in age and the other traits. 53% of the time the test will predict the assessment of a founder’s success by peers and mentors within 5%. The predictions of the test are off by 20% or more in only 14% of the cases.

Figure 4: Prediction of the Test Results Measured Against Peer Reviews

Conclusion:

Age is only one factor among many to predict the success of entrepreneurs, and anybody at any age can break any molds put forward by “experts.” However, it’s clear that the stories of a few “college-dropout turned millionaire” (or billionaire) startup founders have clouded both the mass media and the tech industry from reality. We have romanticized the idea of a young founder because, well, it’s a great story, but these stories are not the norm. In the end, classic biases of gender, race, and age need to be discarded for a real science of success.



April 03 2011

14:00

Women of Color in Tech: How Can We Encourage Them?

Over the last five years, I have taught more than 300 really smart students. One of the smartest, at the Masters of Engineering Management program at Duke University, was Viva Leigh Miller, a black woman. She had the ambition of moving to Silicon Valley after she graduated last year. I expected she would become a hotshot CEO.

But Viva couldn’t get a job in the Valley—despite introductions that I gave her to leading venture capitalists. I have never understood why. During my tech days, I would have hired Viva in a heartbeat. She had the determination, drive, and education that all tech companies look for.

It raised a red flag in my mind.

You can’t take one anecdote and extrapolate from that. It could just be that Viva didn’t connect with the right companies at the right time.

But the harsh reality is that there is a dearth of women in tech. Just look around Silicon Valley—you don’t see many blacks there, or Hispanics either. Until recently, I didn’t know of even one black woman CEO (though I had heard a rumor that one or two existed). Yes, I know that few women and members of ethnic minorities study engineering; that some women can’t deal with the stress and just want to raise children; and that this is not Mike Arrington’s fault.  It is noteworthy that blacks and Hispanics constitute only 1.5% and 4.7% respectively of the Valley’s tech population—well below national tech-population averages of 7.1% and 5.3%.

At an event I attended this week, called Alley to the Valley, at the overpriced Rosewood Sand Hill Hotel in Menlo Park, I discussed this subject with 50 very successful women. Half of the attendees were from the east coast, and half were from the west coast. We agreed that the best way of supplying this dearth is through recognizing that there is indeed a problem; providing mentoring, encouragement, and assistance to all aspiring women entrepreneurs; and showcasing the successes.

I have already presented hard data that show that there is a problem, and I’ve suggested remedies. Now I’ll showcase some successes—black women CEOs that graduated from Founder Labs, a pre-incubator for emerging entrepreneurs and from a related organization, Women 2.0. I’ll let them tell you their own stories.

Raissa B. Nebie is the CEO of Spoondate, which allows food enthusiasts to meet and connect over a meal (this is currently in private alpha, part of the 500startups incubator and will demo publicly on 4/6).

Raissa was born in Paris, where her father was pursuing a PhD in linguistics. Her family later moved to the Ivory Coast, where she lived most of her life. Her parents have since returned to their home country of Burkina Faso, where her father is a university professor, and her mother, the mayor of her home town. Raissa studied finance in college and started her career at Wall Street at firms including JP Morgan, Lehman Brothers, and ICV Capital.

Raissa’s parents valued academic excellence and wanted her to pursue a traditional career, not entrepreneurship. Her role models were her mother, who dedicated her life to community service, and her grandfather, who was the first black doctor of pre-independence Burkina Faso. Raissa says she gets her drive and tenacity from her mother, whose determined recovery from an illness of more than 10 years’ duration was an inspiration.

Raissa was comfortable working in investment banking, but itched to become an entrepreneur and pursue her passion for food. So she quit her job, attended culinary school, and was training at a high-end restaurant in Paris when she decided take her passion for food to the web. She then packed her suitcase and bought a one-way ticket to San Francisco. While networking her way around the Valley, she heard about Founder Labs and applied to the program in hopes of learning the fundamentals of tech entrepreneurship. Founder Labs helped her validate her idea, find a co-founder, and ultimately secure angel funding.

She says that entrepreneurship has been a great experience. She learned that there is always something to learn. While her co-founder is writing code, she’s out talking to potential users and learning ways to make her products better.

Her advice to others who may want to follow her path:

  1. Identify a problem you want to solve, and talk to potential customers. Be creative, and find ways to validate your idea without building any complex technology. (Before writing any code for Spoondate, she operated a dating concierge that manually matched like-minded eaters and sent them out on food dates.
  2. Get out of your house and become a part of the startup scene. Go to events. Be seen. Attend your local Startup Weekend, hackathons, pitch contests, etc. These are fun learning experiences and also great ways to meet potential co-founders. Take advantage of these events to build your network.
  3. Watch, listen, learn, and understand that anyone who takes the time to give you constructive criticism on your idea is not the enemy, but rather is doing you a favor.
  4. “Be humble. Be polite. Be charming.” It doesn’t matter what gender or race you are, people like to be around nice, pleasant people.
  5. Do it! But do it with passion and commitment.

Kimberly Dillion is the founder of House of Mikko,  a beauty social commerce site that recommends beauty products based on the ratings and reviews of like-typed women.  The site was launched last month and is gaining momentum.

Kimberly was born in California and raised in Colorado, where she has been a competitive figure skater for most of her life. Her father was a prison warden; her mother, an artist.  Kimberly received a scholarship to the University of Pittsburgh because of her skating skills, and completed a degree in marketing and in anthropology before attending business school in Michigan.

Her mother was the most profound influence on her, and taught her to express herself freely and use her talents. When Kimberly was three, she saw a show on TV and decided to become a figure skater.  Skating is an expensive sport, and her mother could only afford an hour or so of practice time weekly. So she skated her routines on a tennis court at night, on special roller blades that were fashioned onto to skating boots. She says that falling on concrete is a lot worse than falling on ice, so it actually made her a better skater. She learned that there wasn’t anything she couldn’t do.

Kimberly says she became an entrepreneur because she found a problem she wanted to solve that no one else was solving. Founder Labs taught her about the tech scene in the Bay area, and she made valuable contacts.  She says that she is glad there were also men in the program; that it is much better that way than being all black or all female.

Kimberly believes that the reason there aren’t more black women in the tech world is that it doesn’t offer them an equitable path to success—because of which most educated African Americans get into law or medicine. Her advice to entrepreneurs: go to as many networking events as you can—particularly the inexpensive ones. Meet others, exchange ideas, and learn to pitch your ideas. And she says that they should get used to rejection: “If you aren’t getting rejected, you aren’t playing the game right.”

Arielle Patrice Scott and her partners, Gleb Podkolzin and Danielle Leslie, recently launched a company called GenJuice, which creates products to help young up-and-comers build followings and audiences on line. GenJuice started as a thesis Arielle was writing on how Gen Y builds personal brands. This led to a national tour connecting 35,000 young influencers together.  She has since built this network of contributors to 300,000. (Inc. called GenJuice one of 2011’s coolest startups.)

Arielle grew up in Vallejo, CA. Her mother was a single parent and worked as a customer-service representative while she raised two children. Arielle says that it was a little difficult growing up, because she and her brother had to spend a portion of their time in foster care. She gained a scholarship to study Information Technology & Media at UC-Berkeley and was determined to make the most of it.

She says her mother was her role model because she is very passionate and independent. Arielle learned early how to make something out of nothing. She learned how to start at the bottom and solve problems through technology. She realized that entrepreneurs could impact affect of people—and that is what motived her to become one.

Arielle was a volunteer with the organization, Women 2.0 which helped herArielle build a network and connect to role models, investors, customers, and partners.  It was through the Women 2.0 network that Arielle met her co-founders, and really felt empowered and supported to be an entrepreneur, even while still in college.

Her advice to entrepreneurs:

  • Solve your problems. If there’s a problem that drives you crazy, there are most likely thousands of other people out there who feel the same way. Build a company upon solving the problems you face every day.
  • Never quit the problem, but don’t worry about quitting the product. Some entrepreneurs are afraid of pivoting if something isn’t working. It becomes more about protecting their own egos and being portrayed as quitters, than about solving the problem. Focus on the problem you’re solving and everything will fall into place.

Being an entrepreneur has helped Arielle build self-confidence and meet amazing people who share her determination to change the world.

All three of these women defied the odds and became entrepreneurs. With a bit of luck, they will achieve big success and help others behind them. It doesn’t take much to fix an entrepreneurial imbalance. We just need to recognize the reality, provide a little bit of mentorship—and a lot of encouragement.

*Photo credit–510 Media

Editor’s note: Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School, Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University, and Distinguished Visiting Scholar at The Halle Institute for Global Learning at Emory University. You can follow him on Twitter at @vwadhwa and find his research at www.wadhwa.com.



March 26 2011

16:05

Friends Don’t Let Friends Get Into Finance

After having been a tech executive for many years, I needed to take a break, and I wanted to give back to society. Duke University engineering dean Kristina Johnson gave me a great spiel about how the school’s Masters of Engineering Management program churns out great engineers, and how engineers solve the world’s problems. She said that I could make a big impact by teaching engineering students about the real world and encouraging them to become entrepreneurs. I felt so excited that I joined the university without even asking for a proper salary. That was in 2005.

I was shocked—and upset—when the majority of my students became investment bankers or management consultants after they graduated.  Hardly any became engineers. Why would they, when they had huge student loans, and Goldman Sachs was offering them twice as much as engineering companies did?

So when the investment banks tanked in 2008, I cheered because engineering had become sexy again for engineering grads (read my BusinessWeek column).

But thanks to the hundred-billion-dollar taxpayer bailouts, investment banks recovered and went back to their old, greedy ways.  And they began offering even more money to engineering grads (and themselves).

Kauffman Foundation’s Paul Kedrosky and Dane Stangler have just published a report that analyses the damage this has done to our economy.

They note that the finance sector today produces a greater percentage of GDP than at any time in history. In the mid-nineteenth century, its contribution was between 1 percent and 2.5 percent of GDP. It peaked at around six percent of GDP at the beginning of the Great Depression, and then fell sharply. Since 1945 it has been steadily increasing, to 8.4 percent over the last two years.

Historians will tell you that empires collapse when they become too dependent on finance, but I’m not so pessimistic. I do, though, share the concern that Kedrosky and Stangler expressed in their paper:

Fewer people are being added to industry employment, but they are coming from new and narrower places. The financial services industry used to consider it a point of pride to hire hungry and eager young high school and college graduates, planning to train them on the job in sales, trading, research, and investment banking. While that practice continues, even if in smaller numbers, the difference now is that most of the industry’s profits come from the creation, sales, and trading of complex products, like the collateralized debt obligations (CDOs) that played a central role in the recent financial crisis. These new products require significant financial engineering, often entailing the recruitment of master’s- and doctoral-level new graduates of science, engineering, math, and physics programs. Their talents have made them well-suited to the design of these complex instruments, in return for which they often make starting salaries five times or more what their salaries would have been had they stayed in their own fields and pursued employment with more tangible societal benefits.

An analysis of MIT’s graduate-employment data shows that the financial sector increased its hiring from 18 percent of its graduates in 2003 to 25 percent in 2006. So not only are the investment banks siphoning off hundreds of billions of dollars from our economy with financial gimmicks like CDOs; they are using our best engineering graduates to help them do this. This is the talent that our country has invested so much resource in producing.

When most sectors of the economy grow, new companies are created. The authors found, however, that the finance sector is not driving firm formation; it is cannibalizing entrepreneurship in the U.S. economy by offering wage and skill premiums to individuals who might otherwise have started companies. It is also causing far greater volatility among publicly traded firms and a reduction in the quality of businesses started.

The report concludes that a shrinking finance sector will likely lead to a higher entrepreneurship rate and the creation of companies with greater social value, and still provide the financial intermediation services that are most important to young companies. So that’s what we need in order to save this empire: to tame this beast.

Paul Kedrosky says that the virus that infects scientists and engineers and causes them to go to Wall Street rather than create something of societal value is “economic Ebola”. He wants to be an “economic virus hunter”. Let’s all help him. Let’s save the world by keeping our engineers out of finance. We need them to, instead, develop new types of medical devices, renewable energy sources, ways for sustaining the environment and purifying water, and to start companies that help America keep its innovative edge.

Editor’s note: Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School, Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University, and Distinguished Visiting Scholar at The Halle Institute for Global Learning at Emory University. You can follow him on Twitter at @vwadhwa and find his research at www.wadhwa.com.



March 04 2011

17:01

My Ordeal—and the Firestorm—in Boston

As TechCrunch readers know by now, I speak my mind and don’t shy away from controversy. I am even more provocative when I talk to students. My goal is to make them think outside the box. I encourage students not only to challenge authority, but also to challenge me. I tell them that with my research on globalization, entrepreneurship, and U.S. competitiveness, I am learning as I go; no one has all the answers; I could be wrong. In some talks, I present the available data; in others I just discuss what I have learned.

Over the last ten days, I have lectured at four universities: Columbia, Emory, MIT, and UC-Berkeley. The discussions were all lively, and I received very positive feedback from students.

But my talk at MIT, last Monday, seems to have set off a firestorm.

When MIT Entrepreneurship Club co-president Slava Menn invited me to speak at the Sloan School of Management, he said that students would be very interested in learning about the differences between Silicon Valley and Boston and why Silicon Valley is so far ahead of Boston in tech entrepreneurship. I suggested we make this more constructive, and focus on how Boston’s entrepreneurs can help it catch up. Since this was a lunchtime talk and not a for-credit class, I thought I would make it a Q&A-type session—without boring PowerPoint slides. And I assumed that, just as everyone knows that Boston’s weather doesn’t compare favorably to Palo Alto’s, everyone also knows that Boston lost the race to Silicon Valley—20 years ago.

I started with an informal discussion of my background—a tech entrepreneur who became an academic and researcher. I discussed the myths my research has been shattering, and how surprised I am that, with the data we have gathered, I can challenge governments on their innovation strategies. I said I had spent 18 months in Silicon Valley researching the success of its immigrant groups (they start 52% of its tech companies). I explained that there are valuable lessons that can be learned from these successes and that these lessons can be applied to fixing some of the Valley’s problems—such as its dearth of women and minorities.

I also discussed my experiences in Silicon Valley and what it is that, in my opinion, makes the Valley what it is.

In Silicon Valley, sharing information is the norm—unlike most places in the world, including Boston. In the Valley, techies are far less secretive and are generally helpful to one another. Silicon Valley cherishes failure—because people understand that building a technology company requires experimentation; that it takes trial and error to perfect a technology and business model; and that you learn from failure.  Many entrepreneurs who achieve success, such as Jeff Clavier and Mike Maples, stay in or move to Silicon Valley and become  angel investors and mentors.  Students stay in the area after they graduate, and they move here from all over the U.S. Silicon Valley is one giant network with dozens of networking events happening every week.

I also said that the most important characteristic of Silicon Valley is its ability to reinvent itself: it readily accepts new ideas and tries new things. Yes, it sometimes drinks its own Kool-Aid and obsesses with the latest fad, but it also discards dated concepts and ideas very fast. I gave the example of the business plan, which, as any entrepreneur will tell you, is the greatest piece of fiction that a startup creates. Whilst the market research and planning that go into creating them are very valuable, the financial projections and five-year plans never bear resemblance to reality. Silicon Valley’s thought leaders, such as Steve Blank and Eric Ries, are now advocating the concept of the lean startup—which takes small steps and iterates.

MIT is known for its $100K business-plan competition. I said that it was time to rethink it. I discussed a TechCrunch post in which I’d said that very few contest winners made it big.  Even the company that MIT boasts about—Akamai—lost the contest; and the products and business model that Akamai eventually developed bore no resemblance to what it had entered in the contest. And I said that I didn’t know of any other big successes that have resulted from MIT business plan contest. (The students corrected me on this and said one company, SmartCells, was recently acquired for $500m. And there were a few others from the ‘90s—the good old dot com days.)

I really enjoyed the session.  And many students told me that they’d learned a lot from it. So I was very surprised to see the spate of criticism that followed.

In the audience was Scott Kirsner, a columnist for the Boston Globe—who had been very upset at an article that I’d written, last year, about how Silicon Valley had left Rt. 128 (Boston) in the dust. I noted his smirks, grins, and distraction during the class. But he didn’t challenge my assertion that Silicon Valley was ahead of Boston—despite his Tweets demanding data. And then Kirsner descended into the mud with a series of unprofessional, nasty, personal attacks against me on Twitter. He dug up some old material on battles that I’d fought—and won— during my recovery from a heart attack in 2002.

In every community you have immature, opinionated loudmouths. These are usually outliers whom people tolerate but ignore. That is what I thought Kirsner was—until dozens of other Bostonians, including some tech CEOs, chimed in with him and demanded data. Then the MIT Entrepreneurship Center posted a disrespectful blog on its website: Why the MIT Ecosystem and the $100K are important (or why @vwadhwa has no clue what he is talking about). (This missed the point—I hadn’t said that MIT hasn’t made a major impact. Of course it has; it is one of the greatest universities in the world.) And then the Boston Globe published this silly piece by Kirsner (I say “silly” because it distorts the conversation).

To be fair, a number of Bostonians have written to me to apologize and say that this group does not represent the larger community. One of Boston’s most respected VCs, Fred Destin, wrote a post discussing The ridiculous Vivek Wadhwa furore and the new Boston Tea Party. Even European tech journalist Milo Yiannopoulos came to my defense (‘Over the hill’ Boston tech community lashes out at academic).

Still, many people have demanded that I present data that validate my views. Instead of cluttering up TechCrunch with these data—which will seem obvious to most people—I have included some highlights below and posted far more on my personal website. In my talk, I had also commented that Boston is at a disadvantage because its “weather sucks”. Here are some data that prove this.  And here is an academic paper by University of Michigan Prof. David Albouy which shows that the quality of life is far better in Silicon Valley than in Boston.

The two people whom I have learnt the most from about regional competitiveness are the UC-Berkeley School of Information’s dean, AnnaLee Saxenian (who is my sponsor at Berkeley and a coauthor on several papers), and Director of the Martin Prosperity Institute at University of Toronto, Prof. Richard Florida. They have both published books that explain why Silicon Valley triumphed over Boston and what it takes to build a successful tech center. I have included summaries below. I suggest that all Bostonians read these. They explain the issues far better than I can. And they contain lots of data.

Why is it that business in California’s Silicon Valley flourished while along Route 128 in Massachusetts declined in the 90s? The answer, Saxenian suggests, has to do with the fact that despite similar histories and technologies, Silicon Valley developed a decentralized but cooperative industrial system while Route 128 came to be dominated by independent, self-sufficient corporations. The result of more than one hundred interviews, this compelling analysis highlights the importance of local sources of competitive advantage in a volatile world economy.

Florida, an academic whose field is regional economic development, explains the rise of a new social class that he labels the creative class. Members include scientists, engineers, architects, educators, writers, artists, and entertainers. He defines this class as those whose economic function is to create new ideas, new technology, and new creative content. In general this group shares common characteristics, such as creativity, individuality, diversity, and merit. The author estimates that this group has 38 million members, constitutes more than 30 percent of the U.S. workforce, and profoundly influences work and lifestyle issues. The purpose of this book is to examine how and why we value creativity more highly than ever and cultivate it more intensely. He concludes that it is time for the creative class to grow up–boomers and Xers, liberals and conservatives, urbanites and suburbanites–and evolve from an amorphous group of self-directed while high-achieving individuals into a responsible, more cohesive group interested in the common good.

Here are some of the data that you can find on my personal website

The Silicon Valley Advantage – Some Benchmarks Pop 2006 Silicon Valley has more people 

San Jose-Sunnyvale-Santa Clara, CA

4,391,344 Boston-Cambridge-Quincy, MA-NH  Metro Area 1,735,819 GDP per Capita It has substantially more economic output per head 

San Jose-Sunnyvale-Santa Clara, CA

$86,069.13 Boston-Cambridge-Quincy, MA-NH  Metro Area $73,656.90 The creative class makes up a larger percentage of its workforce PctCR San Jose-Sunnyvale-Santa Clara, CA 44.09% Boston-Cambridge-Quincy, MA-NH  Metro Area 40.61% It has a higher level of human capital (measured as share of adults with a BA and above PctTalent San Jose-Sunnyvale-Santa Clara, CA 43.43% Boston-Cambridge-Quincy, MA-NH  Metro Area 40.56%

*Source: Richard Florida, Martin Prosperity Institute, University of Toronto

Editor’s note: Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School, Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University, and Distinguished Visiting Scholar at The Halle Institute for Global Learning at Emory University. You can follow him on Twitter at @vwadhwa and find his research at www.wadhwa.com.



January 08 2011

15:00

Business Models and Teenage Sex

Everyone in the tech world talks about business models. But I’ll bet that if you quizzed a random sample of these people, you’d find that they really don’t know what a business model is. I did just that with my students at UC-Berkeley. Most raised their hands, and MBA student Blake Brundidge’s attempt to answer the question was a valiant one—but none of them really had a clue.  The only one who got the answer right was Lionel Vital, a Stanford student gatecrashing my iSchool class.

The reality is that a business model is like the old saying about teenage sex: everyone talks about it all the time; everyone boasts about how well he or she is doing it; everyone thinks everyone else is doing it; almost no one really is; and the few who are are fumbling their way through it incompetently. (Yes, I know things have changed.)

I’ll tell you what a business model is, in case you are quizzed by your investors.

But first, let me answer the big question that is surely on your mind: what is a Stanford student doing at Berkeley? It may be that our classes at Berkeley are much better than those at Stanford. That is probably why Lionel approached me at the beginning of the semester and begged to be allowed to audit my class. To Lionel’s credit, he scored better than any of the Berkeley students. So perhaps some Stanford kids are a little smarter, but Berkeley students get better education? I know that our students certainly have a lot more fun. You just have to visit the campuses to note the stark difference.

Now let’s discuss business models. Sorry, the teenagers reading this will need to get their sex education somewhere else. I teach only entrepreneurship and globalization.

Step one in building a successful business is to learn what products or technologies your customers really need and are willing to buy. This is an iterative process that I explained in this piece. The vast majority of technology startups fail because too few customers buy or use their products. So don’t underestimate the importance of validating and testing your ideas.

Developing the right product is hard. But what is harder is building a good business model. Fortunately, there’s nothing magical about a business model. It’s simply the nuts and bolts of how a business plans to generate revenue and profits. It details your long-term strategy and day-to-day operations.

Entrepreneurs put together elaborate business plans showing optimistic market-share projections. Even 1% of a billion-dollar market seems lucrative, right? Wishful thinking is great, but when it comes time to create your business model, you need to be realistic. The challenges differ from industry to industry, but here are seven basic components of a business model:

1. Reaching customers. Ralph Waldo Emerson famously said, “Build a better mousetrap, and the world will beat a path to your door.” The reality is that even if you did, no one would find you. Even when you know who your prospects are, it’s usually difficult and costly to reach them. You have to find them via the Internet and e-mail, or the old-fashioned way—through broadcast media, print ads, direct mail, telemarketing, or references or by cold-calling. And these potential customers are not likely to be waiting to hear from you and may not respond to you. So be sure you know how you are going to find and reach them.

2. Differentiating your product. You think you’ve got the very best solution, but so does the other gal (or guy). There’s always competition, whether you realize it or not. Smart marketing executives know how to develop unique product-positioning strategies that highlight a product’s true value. You need to thoroughly understand the competition and effectively communicate the unique advantages of your product.

3. Pricing. One of the most basic decisions you have to make is how much you’re going to charge for your product or service. Giving your stuff away is the way to go on the web, but remember that you still need to figure out how you are eventually going to make money—you can’t make it up on volume. Start by understanding how much customers value what they’re gaining from you. Then you need to estimate your total costs, analyze the competitive landscape, and map out your long-term strategy. For your company to survive, your product’s price must be greater than its overall cost.

4. Selling. Persuading customers to buy a product that they need is one of the most important skills an entrepreneur must learn (read It’s All About Selling for Survival). You’re going to be selling at every juncture. So you have to understand what it takes to close a deal and put together the necessary sales process. And this process has to be perfectly conceived. Be sure you test your selling strategy as you would your product.

5. Delivery/distribution. This is easy on the Internet. But for big-ticket items, you usually require a direct sales force; for mid-range products, distributors or value-added resellers; and, for low-priced items, retail outlets or the Internet. It’s different in every industry and for every type of product, but you have to get this right. Your products need to be designed and packaged for the channel through which they will be distributed to customers.

6. Supporting Customers. In addition to teaching customers how to use your product, you need to ensure that you can deal with defects and returns, answer product questions, and listen to and incorporate valuable suggestions for improvement. You may need to provide consulting services to help customers integrate and implement your products. If your product is a critical component of a business, you may also need to provide 24/7 onsite or web support.

7. Achieving customer satisfaction. The ultimate success or failure of a business depends on how much it helps customers achieve their objectives. Happy customers will become your best sales people and buy more from you. Unhappy customers will become your biggest liability.

All the pieces have to come together like a jigsaw puzzle in your business model. The good news is that you don’t have to start from scratch when formulating it. You can give yourself a head start by learning from competitors and other markets. It is not only the successes that provide valuable lessons; it is also the failures.

You can innovate as much in your business model as you do in your products. Be prepared to evolve your innovation strategy as you gain experience and as your market changes. Like your products, it will probably take several versions to get your business model right; you get better with practice.

Editor’s note: Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. You can follow him on Twitter at @vwadhwa and find his research at www.wadhwa.com.



December 18 2010

15:00

Chile’s Grand Innovation Experiment

Regions all over the world have spent millions—sometimes billions—of dollars trying to create their own Silicon Valley. They drank the same Kool-Aid and used the same recipe: start with a research university; build a fancy tech park next to it; give tax breaks to chosen companies to locate in the park; attract venture capital by offering matching investments; and watch the magic happen.

Unfortunately, the magic never happened, anywhere.

All government-sponsored tech-cluster efforts—everywhere in the world—either have failed or are on life support (though some pretend they are not). That’s because they all used the wrong ingredients. It isn’t real estate, universities, or VCs that make innovation happen; it is entrepreneurs. To create a tech center like Silicon Valley, you need to first attract smart entrepreneurs from all over the world. Then you have to create entrepreneurial networks; instill a spirit of risk-taking and openness; and build mentoring systems. You also need to provide seed financing to startups. The money is easy; everything else requires a change in culture that usually takes decades.

But Chile is trying a radical new experiment that I helped conceive, to short-circuit this process. It is importing entrepreneurs from all over the world, by offering them $40,000 to bootstrap in Chile. They get a visa; free office space; assistance with networking, mentoring, fundraising, and connecting to potential customers and partners. All the entrepreneurs have to do, in return, is commit to working hard and live in one of the most beautiful places on this planet.

The program, called Start-Up Chile, is still in the pilot stage. Chile has selected 25 teams to receive grants.  Seventeen of these teams have already moved to Chile’s capital city, Santiago. The program will be officially launched on January 13, 2011. It will then be opened to the next batch of 100 startups. Chile expects to “import” around 1000 startup teams over the next three years. The program is headed by Nicolas Shea, who reports to Chile’s Minister of Economy, Juan Andrés Fontaine.

To review the progress of Start-Up Chile, I travelled to Santiago this week. I came back convinced that Chile has a chance to become the first region in the world that will build a tech center out of nothing at all. And it will achieve this feat for a much smaller investment than other regions have made in efforts that failed.

All of the teams that I met raved about the opportunities they had gained by being in Chile. They told me they have gained valuable time to perfect their technologies before having to raise capital from Angels or VCs; that they’d found Santiago to be a really cheap place to live; and that they benefit by being able to network with each other, are appreciative of the support that the Chilean government is providing by connecting them to local businesses and investors, and enjoy the high quality of life and wonderful scenery and climate. They also find the natives to be very friendly and eager to learn from them.

I thought it best to let these entrepreneurs tell you their stories, themselves.  So I recorded a video and had them collectively edit this. I must warn Chilean men not to watch this. They won’t like what Karina Aguirre (a Chilean who recently joined a Start-Up Chile team) has to say (or not to say) about them.

These are some of the companies featured in the video:

Aeterna Sol. produces modular, cybernetic, and dual-axis tracking systems for solar panels. These improve efficiency by 30%, cut installation costs by 50%, reduce installation time by a factor of ten, and require half of the land of other dual-axis tracking technologies.

Entrustet allows you to make a list of your digital assets (online accounts and computer files) and decide which accounts should be transferred to heirs and which should be deleted when you die.  Entrustet also notifies partner websites when one of its users dies.

H2020 taps the power of collective and artificial intelligence to find new solutions to global water problems.  Think internet-of-things meets crowdsourcing meets state-of-the-art analytics; add in a dash of social entrepreneurism and a team undaunted by the impossible.

CruiseWise is a travel company that is bringing cruise-booking on line. It provides a better user experience than existing cruise exploration and booking options by simplifying a complex product and bringing together information from a variety of sources.

Piehole.ie is an online directory of voiceover talent.  Its slightly irreverent site provides voiceover talent to advertising agencies world wide but is most popular in Dublin and London.

Tripeezy aims to be the ultimate resource for planning independent trips and discovering local culture during your travels abroad.



Editor’s note: Guest writer Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. You can follow him on Twitter at @vwadhwa and find his research at www.wadhwa.com.



November 06 2010

14:31

How China’s Entrepreneurs Are Helping It Win

Bob Compton and I finally have something to agree about.

The Washington, D.C.–based venture capitalist produced a provocative documentary, 2 Million Minutes, which tracked six students—two each in the U.S., India, and China—during their senior year of high school. It showed the Indian and Chinese students slogging to learn mathematics and science, and the Americans partying and playing video games. Bob concluded that the Indians and Chinese will eat our children’s lunch since they are better educated. I was featured in the documentary and agreed that Indian and Chinese children do indeed work much harder than American children; that they are brought up to believe that education is everything and will make the difference between success and starvation; and that most of their childhood is spent memorizing books on advanced subjects. I argued, however, that things aren’t nearly as dire for U.S. competitiveness as they might appear to be in the documentary. My team’s research into global engineering education showed that more than 95% of Indians and Chinese do not receive a good education, and even those that do receive one take much longer to develop crucial real-world skills than do Americans. Yes, U.S. teens work part-time, socialize, and party. But the independence and social skills they develop give them a big advantage when they join the workforce. They learn to experiment, challenge norms, and take risks. They innovate from the get-go.

As I explained in this article, India has succeeded at building an innovation and R&D capability despite its weak education system: its private industry reeducates its engineering graduates. Chinese industry doesn’t have equivalent workforce-development practices, so the country lags in R&D outsourcing and innovation. China has achieved marvels by upgrading its infrastructure; uplifting hundreds of millions out of poverty; and building world-class universities and state-of-the-art research facilities. But its state enterprises—which dominate industry—are still bureaucratic, corrupt, and run autocratically by Communist Party members. Multinationals hype the R&D they are performing in China, but in reality, the majority of the work they do there is the localization of their technologies, not the design of innovative new products. And, despite the impressive numbers, the papers published by Chinese academics and the patents filed by its researchers are not worth the paper they are printed on—they are mostly plagiarized or irrelevant.

But things are rapidly changing in China. Its people are becoming highly entrepreneurial. And, as Sarah Lacy has written, some are beginning to go beyond copying western technologies; they are beginning to innovate. Compton documented the entrepreneurship trend accurately in a new film, titled Win In China: China’s Entrepreneurial Explosion. This shows China’s rapid transition to a capitalist economy—with its entrepreneurs leading the charge.

I witnessed the same trends during my trip to Beijing this week. I went there to teach a class hosted by UC-Berkeley’s Center for Entrepreneurship and Technology (at which I am a lecturer). I taught about 50 students and met dozens of local tech entrepreneurs. The students were no different from those I teach at UC-Berkeley and Duke: equally intelligent, open minded, innovative, and motivated to change the world. The entrepreneurs were also surprisingly like the entrepreneurs I meet in Silicon Valley—ambitious, fearless, and determined to build world-class companies. One big difference I noted from what I’ve witnessed during my previous trips to China, over the past 5 years, is that they are more accepting of failure and readily admit that they have been copying American technologies: anything they read about on TechCrunch. But most of them talked about using their experience to build new generations of products directed at the Chinese market. They had no interest in building products for the West. They were also a lot more confident and mature than earlier generations.

So Bob and I completely agree on the significance of the Chinese entrepreneurial revolution.  And we don’t disagree any more about what our children have to worry about: when it comes to global competitiveness, the Chinese (and the Indians) will eat our children’s lunch. More innovation is good, no matter where it happens, but America is going to face tough competition from the rising powers in the East. We had better encourage our kids to improve their skills, learn about global markets, and prepare for a time when they will be copying Chinese and Indian technologies.

P.S. The week of November 15 is Global Entrepreneurship Week. Started by Kauffman Foundation to encourage the type of game-changing entrepreneurship that China has witnessed, this has grown into a global movement which involves 10 million people in 100 countries with 40,000 events. I encourage you to get involved.

Editor’s note: Guest writer Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. You can follow him on Twitter at @vwadhwa and find his research at www.wadhwa.com.



October 23 2010

13:00

The Goldmine Of Opportunities In Gov 2.0

Seeing a need to help 60 million Americans manage their $4 trillion dollars in retirement accounts, Mike and Ryan Alfred launched BrightScope in 2008. They headed to Washington, DC, to obtain electronic data on 401K plans from the Department of Labor. They assumed that since every employer is required to provide the government with this information, it would be readily available to any citizen.

But the brothers were wrong. Labor Department officials first said that they didn’t have these data; and when challenged, they offered to provide millions of pages of printed reports—at a cost of five cents a page. The entire data set would have cost a fortune, filled 1400 boxes, and been impossible to use. Undeterred, Mike and Ryan started a lobbying campaign.  With the help of several Senators, they caused the government to relent and give them electronic copies of the reports they needed.

This was before Federal CIO, Vivek Kundra, and CTO, Aneesh Chopra, joined the White House, and before President Obama vowed to provide the American people with the data they owned and the ability to use it—so that entrepreneurs like the Alfreds wouldn’t have to go begging. Eighteen months ago, data.gov was born, with the release of 47 government data sets of information. Today, there are more than 250,000 data sets and hundreds of applications that use them.  New data sets are being made available every week, and localities like San Francisco, New York City, the State of California, and the Commonwealth of Massachusetts have launched web sites. Countries such as Canada, Australia, and the U.K are also releasing their data. Tim Berners-Lee, inventor of the world worldwide web, is behind the U.K. effort. And legendary publisher Tim O’Reilly is championing a new movement, called Gov 2.0, to maintain the momentum of change.

With the data they obtained, Mike and Ryan were able to create a web site that allows consumers to learn how their retirement plans compare with others. Some retirement plans charge more than 4% a year in fees. How is anyone going to get to retirement paying 4% a year in fees? The BrightScope tools allow consumers—and employers—to easily learn when they are getting ripped off and quickly determine that a change needs to be made. The company is growing rapidly: last year it booked $100K in revenue; this year it expects to net $3 million and achieve profitability; next year it expects to hit the $10 million mark.

The opportunities aren’t just in mining financial data. Sonpreet Bhatia launched My City Way—a mobile applications platform, available in 30 cities around the world, that provides information on things like public restrooms, transit, traffic, tourist attractions, and restaurants. This is based on data provided by the local governments. So when you’re traveling to San Francisco and need to know what BART train to catch or the latest restaurant-inspection results, you can look up San Francisco Way App on your iPhone. If you hate the NYC traffic situation, check out live traffic cameras or find a good parking spot using NYC Way App. Other city-based applications provide everything from volunteer opportunities to lookup of information on traffic-ticket and bill payment. My City Way has had more than a million downloads in its first year and expects to hit the 15 million download mark next year.

The list of available data sets is endless:

  • The federal government is opening up health data, the information it has on health care at the national, state, and county levels, by age, gender, race/ethnicity, and income; data on the quality, cost, and accessibility of public health (such as obesity rates and smoking rates); community-health indicators and rankings; and more. Entrepreneurs are already building applications that allow citizens to understand health performance in their area and others; “dashboards” that monitor public health; and social-networking applications that allow people to share best practices in health care, compare performance, and challenge each other.
  • The Education department is, similarly, making available data on the performance of students in different schools by grade and other factors. Entrepreneurs can build applications that challenge these schools to perform more highly and provide parents with information about different possible institutions within which to educate their children.
  • San Francisco City is providing information on everything from its purchase of pens and pencils, to the demographics of its health plans, to cruise schedules for ships that dock at its ports.

What is happening with the opening up of government data is nothing less than a silent revolution. There are literally thousands of new opportunities to improve government and to improve society—and to make a fortune while doing it. Unlike the Web 2.0 space, which is overcrowded, Gov 2.0 is uncharted territory: a new frontier to explore, grow things on, and settle on.  It’s fresh soil for unlikely seedling ideas that, if they take root, could lead to very successful ventures.  So I encourage entrepreneurs to stake their claims as soon as they can.

Editor’s note: Guest writer Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. You can follow him on Twitter at @vwadhwa and find his research at www.wadhwa.com.



October 18 2010

01:27

Japan: To Fix Your Economy, Honor Your Failed Entrepreneurs

After visiting Okinawa, Japan, and meeting with global experts on innovation, I’ve come to the conclusion that Silicon Valley’s greatest advantage isn’t its diversity; it is the fact that it accepts and glorifies failure. Like many other countries, Japan has tried replicating Silicon Valley. It built fancy tech parks, provided subsidies for R&D, and even created a magnificent new research university. Yet there are few tech startups, and there is little innovation; Japan’s economy is stagnant.

There is a reason for this stagnation.

In any country, innovation and economic growth come from startup ventures.  But most Japanese don’t want to take the risk of starting a business.  Indeed, the social stigma and financial repercussion of failure are so great that the founders of failed businesses become social outcasts; no one will work with them again or fund them; and all too often they end up committing suicide.

Jeff Char, who is a serial entrepreneur and CEO of Tokyo-based incubator J-Seed Ventures, told me that he sees huge opportunities for startups in Japan, and that there is almost no competition there. One of his new ventures, Piku Media, is a Groupon clone that has been able to rapidly create a new market.  In the Japanese tech industry, the playing field is wide open.  There is also no shortage of experienced engineering talent. But, because society doesn’t tolerate failure or respect entrepreneurs, Char can’t get engineers to leave their industry jobs to join his startups. He also can’t find any experienced entrepreneurs to lead his companies: once entrepreneurs fail, they are out of the game. Hence most ventures in Japan are managed by first-time entrepreneurs.  And of course they make the same mistakes as their predecessors—because there is no one for them to learn from.

In the old days, most businesses were in manufacturing, services, or retail. A business failure was associated with unethical practices or mismanagement. Things moved slowly. But the tech world is very different. Even though the basics of building a business are always the same, technology changes rapidly and so requires the creation of new business models. New technologies and business models are developed through experimentation. Entrepreneurs start risky ventures to test their ideas and raise financing from others who have been down the path before—and achieved success. And they learn from one another.  Innovation is a by-product of this synergy and experimentation.

This is something that Silicon Valley figured out long ago, and that is how it left other tech centers in the dust.  Failure is regarded as a badge of honor, not as an object of shame. When you meet tech entrepreneurs in Palo Alto or Berkeley and ask them what they do, they typically tell you about their current startup; then they start showing off about all of their previous failures—because to have failed means to have gained experience and to have learned.

Japan is an extreme, but things aren’t that different in other parts of the world. In Germany, for example, company founders are held personally liable for unpaid debt for up to 30 years—even after they declare bankruptcy. So if the business fails, they lose their house; their savings; practically everything they have. What’s worse: the Japanese and German entrepreneurs may also face criminal penalties and go to jail. So they try to avoid business exit at any cost—even if this means personally absorbing business losses. The result is that you see very few business startups, and those companies that are started take few risks.

The lesson that other regions need to learn from Silicon Valley is to glorify and embrace their failed entrepreneurs. Countries such as Germany, Japan, France, and India need to change their laws to allow high-tech companies to be started and shut down more easily. Their leaders need to work toward removing the stigma associated with failure. Their public needs to be educated to understand that, in the high-tech world at least, experimentation and risk-taking are the paths to success; that success is often preceded by one or more failures. This must be discussed frequently by political leaders and taught in schools. They should establish venture funds for entrepreneurs who are starting their second or third businesses after failing.

Innovation and growth result from courage, risk-taking, and opportunity.  Japan, and countries offering similar discouragement to their potential entrepreneurs, won’t see significant innovation and economic growth until they appreciate entrepreneurs’ human qualities and build on them.

Editor’s note: Guest writer Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. You can follow him on Twitter at @vwadhwa and find his research at www.wadhwa.com.



October 10 2010

16:55

October 03 2010

14:00

Should Entrepreneurs Bet It All On The Billion Dollar Exit, Or Cash Out Small?

One of the most interesting discussions at TechCrunch’s Disrupt conference was the debate between the “super angels” and VCs. No, I’m not referring to “AngelGate” or the question of which investor group squeezes entrepreneurs the most. Despite what they say, all investors are in the game for personal financial gain; it’s not about nurturing entrepreneurs or doing good for the world. The most interesting discussion—for entrepreneurs—was about whether a startup should raise lots of venture capital and go for the billion-dollar exit, or raise less money and be happy with a few million.

This issue is much more important than it seems: it affects the way you grow your company, and the focus you place on products and customers. When you go for the billion-dollar exit, you have to start with a master plan for owning a significant slice of a multi-billion-dollar market. You need to develop grand products for grand markets. This is good—you need a vision and a long-term focus. The problems begin when you start raising capital and racing to grow at all costs. And that is where the real chasm between the “super angels” and VCs is developing.

At the TechCruch event, “super angel” Dave McClure argued that there was nothing wrong with the $50 million exit. “It’s not a bad thing to be building a small mousetrap”, he said.  McClure told me, after the panel, that he believes that raising too much money can be harmful to a startup—it leads to bad habits and increases the chance of failure. In the race to build billion-dollar businesses, companies lose sight of their customers and crash more readily, after burning through large amounts of capital.  By aiming for smaller markets, startups can have a greater customer focus and build better products. And they can differentiate themselves from competitors going after bigger markets.

McClure is right. When you raise small amounts of money, expectations are small, and you have to bootstrap your way to success. You have to focus on building products very fast, validating that your customers really need them; and on bringing in revenue. The $50,000 to $250,000 that you raise through angel capital doesn’t go very far. You are largely on your own.

When instead you have millions in the bank after raising venture capital, you have the luxury of building products that are more strategic. You don’t need to ask customers what they need; you can let your gut guide you. This is great if your instincts are correct—you might build a Twitter or FaceBook.  But entrepreneurs are almost always wrong.  They really don’t understand their customers; they learn by trial and error. And what happens in the venture industry is that when one big-name VC funds one particular type of company, every other VC jumps on the same boat; it becomes a mad race to gain market share. Witness what is happening in the location-based services market with Foursqare and Gowalla—with all the new competitors. And with all the Groupon clones. Only a handful of the hundreds of companies that are receiving funding will survive. Maybe one—and this is a big maybe—will become a sustainable billion-dollar business.

Then there is the issue of the exit. If you’re a founder and own 50% of your startup, a $30 million acquisition can be life-changing. With a $15 million payout, you go from poverty to riches. You’re set for life: you can afford to send the kids to the best schools, buy a multi-million dollar house on the hills, live a great lifestyle, and personally fund your next startup (or you can become a “super angel”). The difference to you between $15 million and $150 million (if you go for the billion-dollar exit) is small—the extra millions really won’t change your world that much more. But for VCs, these small exits don’t make sense: because of the big funds they manage and the limited numbers of companies VCs can involve themselves with, they need to make big investments to get big returns. A modest 2x return is of no interest to them. That is why they often block acquisition offers of less than $100 million. VCs see the acquisition offer as an endorsement of the company’s products and usually want to invest even more so they can go for the billion-dollar exit. This usually puts them at odds with the company founders. (There are shades of gray here: VCs can always buy part of the stock that founders own, but all else is the same. And VCs often force companies to replace company founders with “more seasoned management” as the companies grow.)

As well, the lower the price, the higher the number of potential acquirers. There are hundreds, if not thousands, of companies that can do a $50M deal and only a few that can spend $500M on an acquisition.

There are also alternatives to early exits, as I wrote about in this piece: Is Entrepreneurship Just About the Exit? Most entrepreneurs are happy to build a lifestyle business that pays the bills and lets them learn; grow; and “enjoy” the entrepreneurial journey. Angel investors may well endorse this strategy if they can see the steady, long-term returns.

So my advice to entrepreneurs is to always think big and dream of changing the world—but be pragmatic and live within your means. You are more likely to succeed—and possibly to build a billion dollar business—if you stay focused on your customers and grow at a sustainable pace. And if you’re lucky enough to get a life-changing acquisition offer like Mike Arrington just did, follow his example. Go for the billion dollars when you start your next company—by then you’ll have more experience and you won’t be risking the kids’ college education.

Editor’s note: Guest writer Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. You can follow him on Twitter at @vwadhwa and find his research at www.wadhwa.com.



September 26 2010

00:08

Students: You Are Probably Not Mark Zuckerberg, So Stay In School

Instead of another boring lecture, last week my students at UC-Berkeley got quite a treat: a lively discussion with TechCrunch founder Mike Arrington. I once described Mike as a cross between Oprah Winfrey and Howard Stern; so I was ready for a little controversy. But he ended up lighting such a big fire, that I’ve been bombarded with questions from students about their education and careers. The questions aren’t just coming from Berkeley; after the discussion was posted on TechCrunch, students at Duke asked me to discuss this at a keynote I am giving at their entrepreneurship symposium on Wednesday; and students at other schools, from as far as India and Singapore, have asked for advice.  So I’ll just respond here in the hope of quenching this fire.

At the UC-Berkeley Distinguished Innovator Lecture Series, this week, Mike and I discussed a variety of topics.  We agreed on most subjects—except on the importance of education (and dearth of women in tech—which is a battle I’ll fight another day). When I brought up my TechCrunch post on the importance of MBA degrees, Arrington questioned why students needed to get any degree or go to college at all.  He talked up the success of tech CEOs who had dropped out of college—Zuckerberg, Gates, and “countless high-profile entrepreneurs including Larry and Sergey” (Mike: Larry and Sergey both have undergraduate degrees and were completing PhD’s). Despite being interrupted by Berkeley professor Ikhlaq Sidhu (who I was afraid would come on stage and strangle Mike before he could finish his sentence), Arrington said that he didn’t learn much from college; gaining admittance to a Berkeley or Harvard is the only certification a student needs; dropping out from college doesn’t carry a stigma anymore; so “the best thing in the world is to go to Harvard for a year and drop out because everyone knows you were smart enough to get in”.

Arrington told students that the kind of person who wants to increase his chances of success by getting a masters degree isn’t an entrepreneur; older entrepreneurs have no chance of raising money (so they’re a lost cause); success means building a billion dollar business and making a lot of money—it’s not good enough to build a good lifestyle business that pays the bills and brings you happiness. So they should “ready-fire-aim” and go for the big prize rather than thinking small.

Here is the problem with Arrington’s logic: students may come up with great ideas and start a company, but they aren’t going to be able make it big unless they have the educational foundation. Maybe Zuckerberg lucked out by being at the right place at the right time, but he wasn’t born with the knowledge of how to grow a business. To build a business, you need to understand subjects like finance, marketing, intellectual property and corporate law. Until you have been in the business world for a while, you don’t know how to negotiate contracts, deal with people, manage and nurture employees, and sell to customers. Most importantly, if students don’t learn the importance of finishing what they start, they will never achieve success—this requires perseverance and determination.  And by dropping out of college, they won’t have the alumni networks that they need to help them later in their careers and in business.

The harsh reality is that for every Zuckerberg, there are a thousand who drop out of college and fail. Many get discouraged after their failures and move to other professions which require less skill and education. Some universities do readmit students who dropped out for a short period of time, but most students end up burning through their savings and loans from friends and relatives, and can no longer afford their education. Some give up and look for jobs in big companies, but big companies don’t generally hire people without degrees—because they want employees who have the discipline to finish what they start; who won’t jump ship and chase every rainbow.

Plus, if you look at the backgrounds of the people who actually built Facebook—the executives and employees of the company—you’ll find that they aren’t college dropouts; they are highly educated. Facebook, Microsoft, and Apple—all started by college dropouts are the most selective in hiring; they are the most fussy about degrees.

My advice to students is to get all the education they can, while they can. Complete at least a bachelors and get a masters degree if you can. The degree doesn’t have to be from an elite college like Harvard or Stanford; any education will carry you far. As this chart shows (based on an analysis of the backgrounds of the founders of 652 successful technology companies), there is a huge difference in the size and revenue of companies founded by people with college degrees. But there is only a small difference between those with ivy-league degrees and the average (which includes all startups).

After you graduate, you should gain some practical work experience and learn the realities of the business world before making the plunge into entrepreneurship. Work for a big company for a few years; learn about how the corporate world works; get good at people management, project planning, and teamwork. Then join a startup—which will probably fail as most startups do. But you get to fail on someone else’s dime and learn all the valuable lessons.

In his talk, Mike Arrington said that he got little from his education.  He also said that he wished he had gotten an MBA instead of a law degree.  But what Mike didn’t seem to acknowledge was that he needed the law degree to become a lawyer; when he was a lawyer, he gained an in-depth knowledge about the tech world and its problems —which led to his startups; and this education gave him the knowledge to take on unethical companies and question unethical practices—all of which have helped make TechCrunch the world’s leading tech blog. Does anyone think that Mike would have been able to build TechCrunch if he was a college dropout?

In our discussion, Mike joked that instead of doing the law degree, he wishes he had learned to play the guitar in junior high—“maybe he would have become a rock star”. I have no idea if Mike has any musical talent, but a smaller proportion of guitarists become rock stars than techies who become CEOs.

Editor’s note: Guest writer Vivek Wadhwa  is an entrepreneur turned academic. He is a Visiting Scholar at the School of Information at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. You can follow him on Twitter at @vwadhwaand find his research at www.wadhwa.com.



September 12 2010

19:15

Can Russia Build A Silicon Valley?

A few months ago, I wrote about why I believed that Russia’s planned “science city” was destined for failure, in my BusinessWeek column. I predicted that it would follow the path of the hundreds of cluster development projects before it. Political leaders would hold press conferences to claim credit for advancing science and technology; management consultants would earn hefty fees; real-estate barons would reap fortunes; and as always happens, taxpayers would be left holding the bag. You don’t read about the failures of tech clusters all over the world, in countries like Japan, Egypt, Malaysia, and in many regions of the United States. But that’s because they die slow, silent deaths. But that is the way nearly all government-sponsored innovation efforts go.

Given my scathing criticism, I had expected the Russian Federation to declare me persona non grata. Instead, I got an urgent call from Ellis Rubinstein, president of the New York Academy of Sciences.  He said that the Honorable Ilya Ponomarev, head of the high-tech subcommittee of the Russian State Duma (Russia’s parliament) had asked the academy to prepare a detailed report on this subject. And they wanted my input. Ellis also asked whether I would accompany his team to Russia to discuss the issue.  I wasn’t sure if this was an elaborate scheme to have me locked up in a Russian gulag, but I hold Ellis in such high regard that I agreed.

The Academy prepared an excellent report that explained how Israel, Finland, Taiwan, India, and the United States achieved success in building their technology industries.  The report also made high-level recommendations on how Russia could achieve similar success. Earlier this week, I accompanied the authors of the report to Yaroslavl, Russia, to an event called the Global Policy Forum. This event, billed as the “Russian Davos”, was hosted by President Medvedev himself.

To my relief, the Russians didn’t have a dark cell in a labor camp waiting for me. But they did spring a terrifying surprise: at the last minute, Ponomarev asked me to give a talk—in the plenary session—on how Russia can build a Silicon Valley.  The 500+ attendees included seven heads of state (including Silvio Berlusconi of Italy and Lee Myung-bak of Korea), two former Presidents, several finance ministers, some Russian Governors and Duma members, and, from the U.S., our Chief Technology Officer and our Ambassador to Russia. If that were’nt enough, they told me that the session was being broadcast live on two TV stations. And seated directly behind the podium where I was to deliver the speech were Presidents Mbeki of South Africa and Abdul Kalam of India, and a former vice-premier of China.

I started my talk by stating, quite bluntly, that I don’t believe that there is any way that Russia will ever be able to build a Silicon Valley: it lacks the requisite networks and culture of entrepreneurship, risk-taking, and openness. But Russia isn’t alone—even Boston’s Route 128, which was once a rival to Silicon Valley, lacked these ingredients and so bit the dust. And no other region in the world has been able to replicate Silicon Valley’s success.

Is there hope for Russia to build a different type of innovation/R&D hub? Yes, definitely. But Russia will need to start leveraging its own strengths to build a unique capability. It is home to some of the best engineers and scientists in the world. Unlike in the U.S., where they are called geeks and nerds, in Russia engineers and scientists are often considered national heroes. And Russian parents still encourage their children to study mathematics and science. That’s why Russians routinely win global science and engineering contests such as the recent challenge that NASA posted on Innocentive.

I know from my own experience the quality of Russian engineering talent. In 1991, right after the collapse of the Soviet Union, I hired 48 engineers in St. Petersburg and Novosibirsk, to help solve a problem that the most expensive consultants on Wall Street couldn’t—to reengineer legacy systems. The Russians were creative, able to think outside the box, and willing to challenge authority—the key characteristics needed to achieve innovation (read this piece for details of how I built a technology company based on Russian-designed technology).

But Russia has many challenges. Foreign investors are discouraged by rules of law that fail to match countries such as the U.S. and Western Europe; bureaucracies are confusing and cumbersome; corruption is rampant and is even seeping into the education system; powerful oligarchs dominate key industries; and secrecy in R&D is the norm. Until these problems are fixed, tech entrepreneurship simply can’t flourish.

Even when these problems are fixed, building a science park and adding some venture capital won’t lead to innovation. A lot more is needed. Here is my advice to Russia:

  1. Teach entrepreneurship, not just to university students, but also to experienced workers. Like their American counterparts, Russian entrepreneurs primarily come from the workforce: they have ideas for technologies that can be built, and when they get tired of working for others and want to build wealth, they develop the motivation to start companies. What stop them is the lack of knowledge on how to do it and fear of failure.  Programs like Kauffman Foundation’s Fasttrac can teach the fundamentals of starting companies.
  2. Have President Medvedev provide a vision for the grand challenges that Russian society faces and ask entrepreneurs to help solve them. Let the entrepreneurs know that they should expect to fail at least two or three times before they achieve success; or very simply: that  it’s okay to fail.
  3. Open the doors. From 1995 to 2005, 52% of Silicon Valley tech companies were founded by immigrants.  These foreign-born workers brought diversity and new ideas with them. They caused Americans to work harder and think smarter. And they helped give the U.S. its huge global advantage. But because of flawed immigration policies, future generations of entrepreneurs are now leaving the U.S. in droves. Take a page from Chile’s book—invite them over and offer some incentives. Russia doesn’t have the proximity to the U.S. or the climate advantage that Chile does, so this will be harder. But it may be able to attract some of the graduating students and skilled workers who are returning to Eastern Europe and South Asia.
  4. Take advantage of the Patent-Free Zone. Over previous decades, very few western companies have bothered to file patents in Russia or in the other countries whose economies are now growing rapidly. As I explained in this piece, there is a huge opportunity to freely use the wealth of proven intellectual property that has already been created. Russian engineers and scientists can be solving problems for most of the world—in fields such as solar power; electric cars; mobile technologies for the poor; disease eradication; medical devices; and food processing. They can combine all sorts of technologies to produce solutions that patent restrictions prevent from being ’t easily being created in the U.S. Any breakthroughs will ultimately benefit the patent owners when licenses are obtained for use in the West.
  5. Connect Russia’s engineers with their counterparts in the U.S. The Russian government should create the resources needed for American tech companies to find and hire the right Russian talent. It may even want to subsidize salaries for the first year or set up a fund that invests in Silicon Valley startups that hire Russians. This is a win—win: startups here get desperately needed seed funding and talent, and Russians gain experience and knowledge of markets and establish valuable contacts.
  6. Invest in capacity-building networks such as those being developed by The New York Academy of Sciences. The academy has created an alliance of research universities and academic medical centers which are linked to industry. It has enrolled more than 6000 doctoral students and post-docs and built about 25 multi-institutional communities of researchers and students in multi-disciplinary fields. These could be linked to similar Russian networks.

Imagine the good that can come from stronger ties between the engineers and scientists of all nations: new innovations, solutions to world problems, and more jobs and economic growth.

Editor’s note: Guest writer Vivek Wadhwa  is an entrepreneur turned academic. He is a Visiting Scholar at the School of Information at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. You can follow him on Twitter at @vwadhwaand find his research at www.wadhwa.com.



September 04 2010

14:00

Tech Industry Managers: Little Men in Big Shoes?

When I was ready to transition from computer programmer to project manager, my employer, Xerox Corporation, sent me to its huge training center in Leesburg, Virginia. Over two weeks, the people there taught me some of the skills I needed in order to succeed in my new role: managing projects, motivating people, complying with employment regulations, and preparing status reports and presentations. The company also encouraged me to complete an MBA, on a part-time basis, at New York University. It gave me lots of time off and paid for the tuition.

Tech companies in the internet era offer their employees some great perks. But do you think that Facebook, Groupon, or Zynga provide budding professionals with any serious management training? Not at all. Given the way tech companies grow and the HR challenges they face, management training and career development are more important than ever. But few have the time—they are too busy surviving.

Professors Robert Fulmer and Byron Hanson of Duke University’s Corporate Education group researched the management practices of 23 leading high-tech firms. Corporate executives in an overwhelming majority, 89 percent, believed that leadership development was becoming increasingly important for their companies; 58 percent ranked this as a high corporate priority. Yet less than one-fourth of the managers interviewed had a clear roadmap for how they could develop themselves, and more than half didn’t even know who in their organization was responsible for the development of leaders. The conclusion of the researchers wasn’t surprising: many high-tech companies are young, so their systems and procedures for grooming leaders aren’t well developed or firmly established.

Maybe this is why so many tech companies suffer from morale problems, missed deadlines, customer-support disasters, and high turnover. And this may be one of the reasons why so many tech startups who succeed in selling their vision and raising millions in financing are just a flash in the pan.

One of the interesting findings in the Fulmer and Hanson research was that more than 70 percent of the tech executives interviewed said that leadership development in technology-driven firms is different than in other industries. The researchers believed, just as I do, that these tech executives were dead wrong. The lessons that leading companies like Proctor and Gamble and General Electric have learned about management development and training apply as much, if not more, to tech companies.

This means that if you’re a fresh grad joining a hot new tech startup, you shouldn’t expect your managers to train and groom you, or the company to provide you with time off to complete an MBA. You’re on your own. If you are working at some of the more established companies, such as IBM and HP—which do have excellent management-development practices—take full advantage of them. You need to learn all you can.

Many people are born with an innate sense of vision; they readily learn new technologies and master them. Some are very good at communicating and inspiring others. But you can’t be born with the skills needed to plan projects, adhere to EEOC guidelines, and prepare budgets and manage finances, or to know the intricacies of business and intellectual property law. All this has to be learned. Some skills can be developed on the job, but this is usually through trial and error.

I usually recommend that engineering students who want to become managers and CEOs complete a fifth year of education. There are one-year long engineering management programs which cover such subjects as marketing, finance, intellectual property, business law, and management—similar to the key courses in an MBA program; plus tech-oriented subjects like innovation management, operations management, and entrepreneurship.  One such program (and there are many) is the Duke Masters of Engineering Management program, at which I teach.

For experienced tech workers in Silicon Valley, Berkeley and Stanford both have excellent executive MBA programs. Berkeley Haas School dean, Rich Lyons told me over dinner, last month, of his plans to make his school the premier training ground for Silicon Valley executives. Boston’s Babson College is also launching a program in San Francisco.

But not everyone needs to spend two years doing an MBA. Berkeley’s college of engineering is creating a much shorter program targeted at Silicon Valley techies with leadership potential. Under the aegis of Fung Institute Chief Scientist and Director of UC Berkeley’s Center for Entrepreneurship & Technology, Ikhlaq Sidhu, the school is developing a professional program in Engineering Leadership. This will meet one evening a week for six months and teach subjects like product management, entrepreneurial thinking, leadership and finance. It will also teach team building, business management, and motivation.

The new Berkeley program is highly selective however.  It will only accept 25 candidates in 2011, based on recommendations from senior executives in the valley. Sidhu says that he hopes to address the “symptoms of engineering without leadership”—which include organizational indecision about new products and services; unresolved conflict between product management and engineering; and superficial technology strategies.  Berkeley will likely expand this program significantly over time and add many others. After all there is a great need.

Editor’s note: Guest writer Vivek Wadhwa  is an entrepreneur turned academic. He is a Visiting Scholar at the School of Information at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. You can follow him on Twitter at @vwadhwaand find his research at www.wadhwa.com.



August 28 2010

14:00

Silicon Valley’s Dark Secret: It’s All About Age

An interesting paradox in the technology world is that there is both a shortage and a surplus of engineers in the United States. Talk to those working at any Silicon Valley company, and they will tell you how hard it is to find qualified talent. But listen to the heart-wrenching stories of unemployed engineers, and you will realize that there are tens of thousands who can’t get jobs. What gives?

The harsh reality is that in the tech world, companies prefer to hire young, inexperienced, engineers. And engineering is an “up or out” profession: you either move up the ladder or face unemployment. This is not something that tech executives publicly admit, because they fear being sued for age discrimination, but everyone knows that this is the way things are. Why would any company hire a computer programmer with the wrong skills for a salary of $150,000, when it can hire a fresh graduate—with no skills—for around $60,000?  Even if it spends a month training the younger worker, the company is still far ahead. The young understand new technologies better than the old do, and are like a clean slate: they will rapidly learn the latest coding methods and techniques, and they don’t carry any “technology baggage”.  As well, the older worker likely has a family and needs to leave by 6 pm, whereas the young can pull all-nighters.

At least, that’s how the thinking goes in the tech industry.

Professors Clair Brown and Greg Linden, of the University of California, Berkeley, analyzed Bureau of Labor Statistics and census data for the semiconductor industry and found that salaries increased dramatically for engineers during their 30s but that these increases slowed after the age of 40. At greater ages still, salaries started dropping, dependent on the level of education. After 50, the mean salary of engineers was lower—by 17% for those with bachelors degrees, and by 14% for those with masters degrees and PhDs—than the salary of those younger than 50. Curiously, Brown and Linden also found that salary increases for holders of postgraduate degrees were always lower than increases for those with bachelor’s degrees (in other words, even PhD degrees didn’t provide long-term job protection). It’s not much different in the software/internet industry. If anything, things in these fast-moving industries are much worse for older workers.

For tech startups, it usually boils down to cost: most can’t even afford to pay $60K salaries, so they look for motivated, young software developers who will accept minimum wage in return for equity ownership and the opportunity to build their careers. Companies like Zoho can afford to pay market salaries, but find huge advantage in hiring young workers. In 2006, Zoho’s CEO, Sridhar Vembu, initiated an experiment to hire 17-year-olds directly out of high school. He found that within two years, the work performance of these recruits was indistinguishable from that of their college-educated peers. Some ended up becoming superstar software developers.

Companies such as Microsoft say that they try to maintain a balance but that it isn’t easy. An old friend, David Vaskevitch, who was Senior Vice-President and Chief Technical Officer at Microsoft, told me in 2008 that he believes that younger workers have more energy and are sometimes more creative. But there is a lot they don’t know and can’t know until they gain experience. So Microsoft aggressively recruits for fresh talent on university campuses and for highly experienced engineers from within the industry, one not at the expense of the other. David acknowledged that the vast majority of new Microsoft employees are young, but said that this is so because older workers tend to go into more senior jobs and there are fewer of those positions to begin with. It was all about hiring the best and brightest, he said; age and nationality are not important.

So whether we like it or not, it’s a tough industry. I know that some techies will take offense at what I have to say, but here is my advice to those whose hair is beginning to grey:

  1. Move up the ladder into management, architecture, or design; switch to sales or product management; or jump ship and become an entrepreneur (old guys have a huge advantage in the startup world). Build skills that are more valuable to your company, and take positions that can’t be filled by entry-level workers.
  2. If you’re going to stay in programming, realize that the deck is stacked against you. Even though you may be highly experienced and wise, employers aren’t willing or able to pay an experienced worker twice or thrice what an entry-level worker earns. Save as much as you can when you’re in your 30s and 40s and be prepared to earn less as you gain experience.
  3. Keep your skills current. This means keeping up-to-date with the latest trends in computing, programming techniques, and languages, and adapting to change. To be writing code for a living when you’re 50, you will need to be a rock-star developer and be able to out-code the new kids on the block.

My advice to managers is to consider the value of the experience that the techies bring. With age frequently come wisdom and abilities to follow direction, mentor, and lead. Older workers also tend to be more pragmatic and loyal, and to know the importance of being team players. And ego and arrogance usually fade with age. During my tech days, I hired several programmers who were over 50. They were the steadiest performers and stayed with me through the most difficult times.

Finally, I don’t know of any university, including the ones I teach at, that tells its engineering students what to expect in the long term or how to manage their technical careers. Perhaps it is time to let students know what lies ahead.

Editor’s note: Guest writer Vivek Wadhwa  is an entrepreneur turned academic. He is a Visiting Scholar at the School of Information at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. You can follow him on Twitter at @vwadhwaand find his research at www.wadhwa.com.



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