HOW DID SILICON VALLEY BECOME SILICON VALLEY? Three Surprising Lessons for Other Cities and Regions
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This report was created by Rhett Morris and Mariana Penido. They wish to thank Jona Afezolli, Fernando Fabre, Mike Goodwin, Matt Lerner, and Han Sun who provided critical assistance and input. For additional information on this research, please contact Rhett Morris at [email protected]. PHOTO ON COVER: FLICKR USER MICHAEL KAPPEL • PHOTO ON LEFT: A RECENT VIEW OF SILICON VALLEY AT NIGHT BY FLICKR USER PETERTHOENY Lessons for Cultivating High-Growth Companies &Industries Area was far cities behind like Boston New and Bay Area. computer chip companies in the Francisco San term “Silicon Valley” in a1971 article about THE JOURNALIST tech devices was almost nonexistent. employees qualified to work with these high- puter chip components the and supply of local University did not produce any research oncom venture capital investors in the area. emerging in the mid-1950s, there were no When theoped. computer chip was industry differentplace before businessesthese devel technology hub in the world, but it was avery chip businesses. the area that highlighted the success of these to facts thesebined create two anew for name a farming valley south of the city. Hoefler com to manufacture their chips were and located in AMD.and All of these companies used silicon many prominent chip businesses, such as Intel INTRODUCTION cessful in cities and regions in regions citiescessful and CHALLENGING PLACES. CHALLENGING start up and become suc become upand start Innovative businesses can can Innovative businesses 1. GREAT COMPANIES 1. Silicon Valley is now the most famous that are far from ideal. that from are ideal. far CAN DEVELOP IN IN DEVELOP CAN UNLIKELY AND AND UNLIKELY 1 At that time, the region was to home Don Hoefler Don coined the - A very small group of small success A very ful founders has the power to to power the has founders ful spawn many companies that 2 3 CAN MAKE A LARGE CAN The Bay The create thousands of jobs. create of jobs. thousands Stanford ENTREPRENEURS ENTREPRENEURS 2. A FEW AFEW 2. IMPACT. IMPACT. - - -
York in the chip industry. tivating high-growth companies industries: and illustratesstory three lessons important for cul to leaders in communities across the world. Its opment of Silicon Valley provide can insights thisestablished region 50 years ago, the devel it is impossible to replicate the exact events that analyze the steps that enabled it to grow. While willreport share of the creation story its and newsgood to other cities regions. and This companies. region to become ahub for these technology 3. 2. 1. Silicon Valley’s rapid development offers leaders accelerate. can There is aframework for success that impact. A few entrepreneurs make can alarge ly challenging and places. Great companies develop can in unlike - How Silicon Valley Became "Silicon Valley" "Silicon ValleyHow Silicon Became New companies can develop develop can companies New SUCCESS THAT LEADERS THAT LEADERS SUCCESS preneurs follow acyclepreneurs that supporters can speed up. speed can supporters rapidly when local entre local when rapidly FRAMEWORK FOR FOR FRAMEWORK CAN ACCELERATE. ACCELERATE. CAN 4 3. THERE IS A IS THERE 3. No one expected one No the - /3 - - - return to the place where grew he up. or Southern California, but eventually he chose to company in Boston ered locating his consid Shockley three inventors were awarded Prize. the Nobel ing technologies tor quickly to began replace other signal process and Newand York in the the computer chip industry. Francisco area was far cities behind like Boston onthechart opposite illustrates, page the San Shockley’s decision was quite surprising. the As control electric signals. amplify and sistor, anew “semiconductor” device that could research center in New Jersey created the tran the late a team 1940s, of physicists at an AT&T ful company requires access to three things — fi Research shown has also that building asuccess computer chip technology. a laboratory where scientists developed the first begins thousands of miles from the Bay Area in cess is to follow of the creation. story its story This WAYTHE BEST to Silicon understand Valley’s suc for the first computerchip entrepreneurs. The San Francisco Bay Area was difficult avery place 4 San Francisco.San small town in afarming valley 50 miles south of his started newhe business in Mountain View, a duced transistors. company that pro a ratory start and to leave the labo Shockley, decided William named tist MIT-trained scien these inventors, a A REGION FULL OF CHALLENGES. AREGION OF CHALLENGES. FULL In AGROUNDBREAKING INVENTION. / In 1955, of one How Silicon Valley Became "Silicon Valley" "Silicon Valley Became Silicon How 9 became so important that its that so important . It became its - - - - 7
Farm workers drying prunes near Mountain View. Mountain near prunes drying workers Farm 5 The transis The 8 In 1956, 1956, In 6 10 10 ------production. ceived more funding for high-tech research and own state; Los both Diego San and Angeles re started hisstarted firm. graduated from the school the year Shockley quite Fewer small. than 20 engineering PhDs required. Shockley a result, their employees lacked the knowledge — the lowest level in years. the 150 last upmade less than 10% of the area’s population in short supplyin for short like startups Shockley’s. nancing, customers, employees and —that were ford did not have asemiconductor lab. experience working with transistors since Stan countries. entrepreneurs from accessing talent from other tion, strict immigration policies prevented local nies. main customer and funder of high-tech compa the Bay Area. mid-1950s, there were venture no capital firms in cisco. went to electronics firms in aroundand San Fran of capital the sales and contracts military’s startup ees sinceees with engineers semiconductor exper Stanford’s engineering program was also It was also difficult wasIt also find to talentedemploy 13 14 However, at that time only asmall portion The Bay The Area wasn’t even the leader in its 19 In the 1950s immigrants 1960s, and 15 15 12
The U.S. military often acted military as the U.S. The 17 These graduates These little had to no the transistor.the ferent from those in that were dif very with technologies companies worked tech but firms, these a small cluster of Bay Area did have tor companies. The already transis had trated in cities that tise were concen 18 20 20 In addi In 11
In the the In 16 As As ------
PHOTO AT CENTER: FLICKR USER CAMPBELL HISTORICAL MUSEUM & AINSLEY HOUSE How Silicon Valley Became "Silicon Valley" / 5
DEVELOPMENT OF THE COMPUTER CHIP INDUSTRY’S FIRST TRANSISTOR COMPANIES Many cities were far ahead of the Bay Area. 21 22 18 15
8 4 Number of active transistor companies: 1951 1952 1953 1954 1955 1956 Cities with BOSTON BOSTON BOSTON BOSTON BOSTON BOSTON active transistor CAMDEN CAMDEN CAMDEN CAMDEN CAMDEN CAMDEN companies: NEW YORK NEW YORK NEW YORK NEW YORK NEW YORK NEW YORK SYRACUSE SYRACUSE SYRACUSE SYRACUSE SYRACUSE SYRACUSE PATERSON PATERSON PATERSON PATERSON PATERSON PHILADELPHIA PHOENIX PHOENIX PHOENIX PHOENIX DALLAS DALLAS DALLAS DALLAS NEWARK NEWARK NEWARK NEWARK PHILADELPHIA PHILADELPHIA PHILADELPHIA PHILADELPHIA ELMIRA ELMIRA ELMIRA LOSANGELES LOSANGELES MORRISTOWN MORRISTOWN KOKOMO
Sources: Tilton, 52. Klepper 79-116; Endeavor Insight analysis. THE VALLEY’S FIRST FAILURE. Shockley These men were quite young — their average age worked hard to overcome these challenges. He was 30.27 Each was also hungry for new opportuni- secured financing from an investor outside the ties, which Shockley could provide. “It was like picking Bay Area, but talent was more difficult to find.21 He up the phone and talking to God,” said Robert Noyce, offered jobs to his former co-workers at AT&T’s one of the MIT PhDs. “He was absolutely the most research lab, but they refused to move to the re- important person in semiconductor electronics.”28 gion.22 (The local area was so rural that it lacked Although the company had a great team, it faced long distance telephone service.23) Researchers major problems before it could pursue customers. at RCA, another leading transistor company, also Shockley turned out to be a terrible boss.29 He insult- turned him down.24 ed employees and was so paranoid that he once or- Since he could not hire experienced employ- dered his entire staff to take polygraph tests.30 These ees, Shockley tried to recruit the best young talent actions doomed his business. After just one year, all that was available. He placed ads in academic jour- eight of the employees Shockley had worked so hard nals and traveled across the U.S. to meet graduate to recruit resigned on the same day.31 students.25 This search yielded eight promising re- Shockley’s company would shut down a few searchers and engineers who formed the core of years later. The departure of the eight researchers his new firm. They included three PhDs from MIT weakened the firm to a point from which it could not in Boston, a PhD and a professor from CalTech in recover. It also left a key question unanswered: was it Southern California, two engineers from the New even possible to build a competitive computer chip York area, and one local PhD from Stanford.26 company in the Bay Area? ern California to started had and put roots down in teamThe appreciated the of quality life in North researchers to engineers and launch their own firm. New YorkThe banker worked hard to convince the tronics, engineering, metallurgy, chemistry.” and of with men background in the fields physics,of elec We have an experienced well-diversified and group are much more valuable to an employer as agroup. senior people,” read. the believe message “We that we group reasonably can to expect take with them other of the eight employees leaving Shockley’s company. chiper industry. It from came Eugene Kleiner, one himhanded aletter that would reshape the comput banker working in New York acolleague when first successful chip company in the Bay Area. chip successful first the A small group of ambitious entrepreneurs created 6 duced the devices. other companies in the Francisco San area pro tinue working together to make transistors, but no could get financing.” a company, we and told them we would see if we suggested to them that they might want to set up looking for an employer think and much bigger. “I However, Rock thought the group should stop wewhen impressed,” met them Iwas very said. he they were probably people, then and good pretty chosen all had been by Shockley,“They so Iknew give up. their families agreat distance. weren’t They ready to iner this new industry. Most of them moved had sacrificed had ers promising careers to work togeth leavingmen Shockley as ateam. eight The research an East Coast transistor company that would hire the the bankers there they hoped he could because find the bank where Rock worked. Kleiner reached out to TWO SUPPORTERS MAKE ADIFFERENCE. SUPPORTERS TWO MAKE BEGINNING. NEW A / “If suitable“If backing obtained, be can the present The eightThe leaving men Shockley wanted to con Rock quickly recognized the group’s potential. How Silicon Valley Became "Silicon Valley" "Silicon Valley Became Silicon How 33 Kleiner’s father contacts had at 34
Arthur Rock was a young RockArthur was ayoung 32 32
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Fairchild’s annual revenues were over $20 million. contract with IBM. tives in the sector them sign helped and their first industry. introduced He the co-founders to execu man Fairchild was well connected in the electronics All theywere needed customers. Fortunately, Sher entrepreneurs of plenty had talent financing. and Shockley’s recruiting and Rock’s fundraising, the the area, which them made willing to give it a try. petitor in the chip industry. million in sales was and the second largest com theBy mid-1960s, the group was generating $90 an electronics firmhe led. sociated with Fairchild &Instrument Camera (FC&I), the new company as an independent business as Fairchild. Sherman named Fairchild to agreed fund introduced him to a serial entrepreneur in New York wasHe about to stop searching someone when ing for another job.” was aheck “It ofers. alot easier than going out look Gordon Moore, was who of one the eight research all“We owned our own houses then,” remembered of 1957.of for opened and business in Palo Alto in October theirnamed company “Fairchild Semiconductor” nental missile program. missile nental components for the government’s new interconti followed, including a prestigious contract to supply credibility with other sales soon large clients. Military beginning of the co-founders’ accomplishments. potential investors wasand rejected time. every ined the Bay Area. Rock approached more than 35 toed financing find fora transistor companylocat er processing power. to began They develop integrated circuits with great THE NEW FIRM TAKES NEW FIRM THE OFF. Unfortunately, it was more difficult than expect The entrepreneursThe grew soon more ambitious. 39 39
40 36 42
This relationship gave them them gave relationship This At the of end their third year, 41
38 44 The eight co-founders co-founders eight The Yet this was only the Thanks toThanks 43 35 37 ------
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TIMELINE OF FAIRCHILD SEMICONDUCTOR’S GROWTH AND ACCOMPLISHMENTS
1956 The eight co-founders met when they left their jobs to join Shockley Semiconductor. Most were new to the Bay Area.
BOSTON NEW YORK LOS ANGELES PALO ALTO
JAY LAST JULIUS BLANK JEAN HOERNI VICTOR GRINICH Co-Founder Co-Founder Co-Founder Co-Founder Previously earned a Previously at Western Previously a professor Previously earned a PhD PhD at MIT Electric at Caltech and conducted research at Stanford ROBERT NOYCE EUGENE KLEINER GORDON MOORE Co-Founder Co-Founder Co-Founder Previously at Philco; Previously at Western Previously earned a earned a PhD at MIT Electric PhD at Caltech
SHELDON ROBERTS Co-Founder Previously at Dow; earned a PhD at MIT
1957 The co-founders resigned and launched Fairchild Semiconductor with help from two key supporters who provided funding and connections to early customers like IBM.
ARTHUR ROCK SHERMAN FAIRCHILD Banker Investor Hayden, Stone & Co. FC&I
1959 The co-founders signed a contract to supply components to the new Minuteman missile program.
1960 Fairchild recorded sales of $21 million and was the eighth largest player in its industry. The company also began production of the first integrated circuit.
$21M MILLION IN $0 $21 ANNUAL SALES 1957 1960
1963 The company became the number three player in its industry and opened its first overseas assembly plant in Hong Kong.
1965 Fairchild Semiconductor recorded sales of $90 million.
$90M MILLION IN $90 ANNUAL SALES
$21M $0 1957 1960 1965
1966 The company ranked second in its industry and employed over 4,000 people.
Sources: Lecuyer 121, 131-149, 159-162, 204-207; Tilton 66; Endeavor Insight analsysis. 8 / How Silicon Valley Became "Silicon Valley"
These successful entrepreneurs reinvested their resources into new companies to help spawn Silicon Valley.
ALTHOUGH IT IS POSSIBLE to find great com- ductor firm a fully owned subsidiary of FC&I.50 panies like Fairchild in unlikely places, it is rare The sale made the eight co-founders rich, but to see those firms establish an entire local in- it wasn’t long before many of them returned to dustry. However, this is exactly what happened entrepreneurial careers. in the Bay Area. “That experience of starting this compa- ny and watching it grow — I thought I’d like FAIRCHILD STARTS TO MULTIPLY. The to do that again,” recalled Jay Last, one of expansion of the local computer chip industry the co-founders.51 In 1961, he partnered with began when Fairchild employees were inspired Hoerni, Kleiner, and another one of the eight by the eight co-founders and left the firm to entrepreneurs to create Amelco, a new business launch “spin-off” businesses. In 1959, the firm’s that produced specialized devices that Fairchild general manager left to start Rheem Semicon- did not sell.52 Moore and Noyce resigned sev- ductor.45 Two groups of employees resigned eral years later to start Intel, which eventually a few years later to found the computer chip became the most successful computer chip firms Signetics and Molectro.46 company in the world.53 These actions had a significant impact on the The eight co-founders also reinvested their people still working at Fairchild. “You got these capital into new startups. In 1961, four of them guys leaving and starting companies and the gave Rock funding to start the Bay Area’s first companies are running, working,” a former venture capital firm, which went on to invest in manager said. “You get a look around and look fifteen companies.54 Another founder provid- in the mirror and say, ‘Well, you know, how ed financing that helped a former employee about you? What are you going to do?’”47 launch AMD.55 When Moore and Noyce start- The eight co-founders committed their time ed Intel, the other six co-founders of Fairchild to supporting many of these ambitious new busi- Semiconductor all helped to fund the new nesses. For example, when an employee was business.56 considering starting a company to make the glass “That’s part of the legacy of Fairchild that components that Fairchild used in its man- maybe doesn’t get the attention it should,” ufacturing process, Kleiner encouraged him Moore has said. “Every time we came up with a to launch the new firm.48 Noyce and another new idea, we spawned two or three companies co-founder named Jean Hoerni also served on trying to exploit it.”57 the board of Applied Materials, an electronics equipment firm, and mentored the company’s THE FAIRCHILD VALLEY. The commit- young entrepreneur.49 ment of the eight entrepreneurs to reinvest their knowledge and capital into these new- MORE NEW FIRMS EMERGE. Employees ly spawned companies transformed the local were not the only ones leaving Fairchild Semi- community. When Fairchild Semiconductor conductor. The company’s success led Sher- won its first contract in 1958, it was the only man Fairchild to exercise a buyout clause in his company in the area producing computer chips investment contract and make the semicon- or their components. By the time that Hoefler How Silicon Valley Became "Silicon Valley" / 9
THE CREATION OF SILICON VALLEY: GROWTH OF THE LOCAL COMPUTER CHIP INDUSTRY Fairchild generated 31 spinoff firms in just 12 years.
Legend:
Size of circle reflects the influence of SPINOFFS the entrepreneurs at each company based on the number of spinoff firms. Sources: SEMI; Hoefler; Endeavor Insight analsysis.
wrote the article that coined the name “Silicon industry that grew out of Fairchild had a huge Valley” less than 14 years later, over 30 spin-off effect on the region. By 1970, the area was no companies had emerged out of Fairchild.58 In longer just a farming community. Chip busi- fact, according to Hoefler’s analysis, every local nesses in the Valley employed a total of 12,000 chip firm except for two could be traced direct- people.60 ly back to the eight co-founders.59 The thriving in its industry. its in 1966, itBy was the second largest competitor to reach $20 million in sales in just three years. took these resources grew and their company them to their first entrepreneurscustomers. The cess funding Shermanand Fairchild connected founding team. Rock’s work them ac helped atremendoushad amount of talent their among Noyce, the and other entrepreneurs at Fairchild, the to ability put these resources to use. Kleiner, nancing, customers. and possess must also They requiresThis them to have access to talent, fi achieve significant growth at their companies. of the cycle occurs ambitious when founders not want their companies to grow at all. the of vast majority small business owners do quite rare. Studies have in the U.S. shown that to note that ambitious entrepreneurs like this are their company in Mountain View. It is important ties they when took Rock’s advice launched and co-founders demonstrated both of these quali preference for living in the local area. Fairchild’s they must have astrong desire to grow a and businesses in their local communities. To do this, entrepreneurswhen to seek build large, scalable Acceleration Cycle.” It has four steps: refer to this process as the “Entrepreneurship successful entrepreneurship communities. We Endeavor Insight it in has many observed other pattern is not unique to the Valley. team Our at peated by new companies in the industry. This co-founders apattern established that was re accident. actions of The Fairchild’s eight panies that up made Silicon Valley was no THE SUCCESS reinvestment. and ment, by a cycle with four steps: ambition, commit growth, The process of Silicon Valley’s creation can illustrated be 10 GROWTH TWO: STEP ONE: AMBITION STEP / How Silicon Valley Became "Silicon Valley" "Silicon Valley Became Silicon How
of the computer chip com The secondThe step The cycleThe begins 61 - - - - - of entrepreneurs. share their resources with generation the next have the desire to stay in their local area and Cycle, which requires successful founders to third step in the Entrepreneurship Acceleration commitment This panies. is an example of the dedicated themselves to new supporting com the entrepreneurs stayed in the Bay Area and ent path. Instead of retiring somewhere else, ly retirement. Fortunately, they chose adiffer leave the Francisco San area enjoy and an ear received from the buyout of their company to co-founders could have used the money they the industry’s largest hubs. puter chip sector the made and Bay Area of one growthThis rapidly expanded the local com this second generation of companies to grow. provideders access to resources, which helped the cycle, of the Fairchild’s support co-found success. these new began firms As to repeat ambitious companies capitalize onFairchild’s tored other local computer chip entrepreneurs. in new companies such as AMD. men also They first venturecapital firm in the Bay Areaand eight co-founders were early investors in the spin-offbusinesses likeAmelco and Intel. The new companiesstart launched and their own this inspired They happen. can employees to at Fairchild demonstrated the different ways entrepreneurser leaders businesses. and The cessful companies are able to reinvest in oth step of the cycle occurs founders when of suc STEP THREE: COMMITMENT The final final The FOUR: STEP REINVESTMENT These actions helped anew actions generationThese helped of
The eightThe ------
PHOTO ON RIGHT: FLICKR USER WONDERLANE How Silicon Valley Became "Silicon Valley" / 11
THE ENTREPRENEURSHIP ACCELERATION CYCLE
OW . GR TH 2
1. AMBITION 3. COMMITMENT
Go Big & Support the Next Scale... Generation...
New Entrepreneurs Successful Entrepreneurs
4 T . R N EINVESTME
The Four Steps & Sub-Components of the Cycle:
1. AMBITION 2. GROWTH 3. COMMITMENT 4. REINVESTMENT
New entrepreneurs seek to Entrepreneurs are able to Successful entrepreneurs stay Successful entrepreneurs build scalable companies in grow their companies in the local area & engage reinvest in the next the local area due to: and reach scale based on: with new companies due to: generation through:
Access to customers Angel & VC investing Local quality of life Local quality of life Access to financing Inspiration
Access to talent Mentorship Desire to grow Desire to reinvest Entrepreneurial ability Spinoff businesses
Examples of Ways Local Leaders Can Support Each Step of the Cycle:
• Provide security and ame- • Eliminate protectionist • Provide security and ameni- • Create channels that con- nities that make your local regulations and subsidies ties that make your local area nect successful entrepre- area a great place to live for that make it difficult for new a great place to live for older, neurs with high-potential, early-stage founders. companies to win customers successful founders. early-stage founders who • Recognize fast-growing, from established firms. • Recognize successful entre- can benefit from mentorship. early-stage firms in your area • Offer loan and contract preneurs who reinvest in the • Offer tax incentives to suc- to inspire new founders. guarantees to qualified, next generation of found- cessful founders who make • Fund programs and organi- fast-growing firms. ers by acting as mentors or angel investments. zations that specifically target • Create job fairs and job investors. • Reduce enforcement of fast-growing companies boards specifically for local • Recruit successful founders non-compete agreements and evaluate these initiatives startups and entrepreneurs. to help lead and guide entre- for employees who leave based on participating com- • Establish public-private preneurship programs and entrepreneurial companies. panies’ growth. partnerships and events to initiatives in your area. • Promote successful en- attract outside investors to trepreneurs as local role your area. models. Source: Endeavor Insight analysis. Symantec, and Intuit. and Symantec, vested in companies such as Sun Microsystems, influential.become very Kleiner’s firm has in ture firmcalled Kleiner Perkins that would also ing Kleiner Sequoia, co-founded another ven other companies. Cisco, and Google as well as several hundred firms in Bay the Area. Its team has invested in ofone venture the most important capital whichlaunched Sequoia Capital, has become ceive funding from Valentine. In 1972, Valentine first CEO. Markkula even went onto become Apple’s providingtwo withApple investments. first its Mike Markkula supported career Job’s by also entine aformer and Fairchild employee named to the older entrepreneur’s advice. cycle to Noyce’s house spent and listening hours his career in the 1970s, often he rode his motor in the Bay Area. When Steve Jobs was starting tel, Noyce worked to new entrepreneurs support TION CYCLE CONTINUES. TION CONTINUES. CYCLE of calling their around home midnight. to Noyce’s wife, aunique had habit Jobs also entrepreneur at National Semiconductor. Fairchild executive asuccessful became who Kleinerand as well Valentine, as Don aformer pany’s influence by following the work Noyceof famous article in 1971. We the com observe can growth of Silicon Valley after Hoefler wrote his FAIRCHILD’S SUCCESS has firms led theto growth of 2,000over companies. The pattern of successful founders reinvesting in new 12 erberg. During Facebook’s early years, Jobs vised younger entrepreneurs like Mark Zuck Noyce’s example of mentorship quietly and ad has continuedneurs to expand. Jobs followed THE ENTREPRENEURSHIP ACCELERA / Jobs was not the only entrepreneur to re The influenceThe of the Fairchildentrepre How Silicon Valley Became "Silicon Valley" "Silicon Valley Became Silicon How 64 While Valentine was launch 65
continued to the fuel After launching In launching After 62 (According (According 63 ) Val ------
and employeesand of Fairchild. traced be can directly back to the founders dicates that about 70 percent of these firms New York Stock Exchange. analysis Our in nies that were trading onthe NASDAQ orthe We identified 130Bayover Area tech compa Fairchildquantify Semiconductor’s influence. teamOur at Endeavor Insight has worked to of India, orSpain. Canada, anies are more valuable than the annual GDP $2.1 trillion. means This that these 92 comp- are and people 800,000 now more worth than descendants of Fairchild employed over of these businesses 92 is These staggering. Collective, 500 Startups. and ment firms likeAndreessen Horowitz, Founder Paypal that spawned a new generation of invest successfuled companies like and Netscape, ital firms of Valentine and fundKleiner also and Linear Technology. Linear and Xilinx, Altera, NetApp, works, SanDisk, Palintir, Yammer, Agilent Technologies, Juniper Net LinkedIn, Tesla Motors, Nest, Electronic Arts, Instagram, YouTube, WhatsApp, Oracle, of firms includeseBay, Twitter, Yahoo!, Pixar, companies we have already listed, this group the firm’seight co-founders. additionIn to the we trace can over companies 2,000 back to Fairchild’snies, impact is even greater. In total, to share his experiences. would take Zuckerberg onafternoon walks ADDING IMPACT. UPFAIRCHILD’S If we look beyond publicly traded compa 70
66 69 The venture cap venture The
68 67 The total The impact
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PHOTO ON RIGHT: FLICKR USER WONDERLANE How Silicon Valley Became "Silicon Valley" / 13
SILICON VALLEY COMPANIES THAT CAN BE TRACED BACK TO FAIRCHILD SEMICONDUCTOR Almost 70% of the Valley’s public firms are linked to Fairchild.
AAPL GOOG ORCL FB INTC CSCO EBAY YHOO AMAT TSLA SNDK INTU TWTR LKDN A SYMC XLNX KLAC NTAP LRCX JNPR EA LLTC ALTR NVDA MXIM NOW SNPS SCTY PANW SPLK CDNS YELP FEYE ALGN PAY FTNT BRCD UBNT AMD TIBX SYNA RVBD ZNGA CAVM SNX IDTI FCS FNGN ARUN ISIL SFLY POWI CUDA CY MPWR MLNX RMBS TRLA PMCS CODE PFPT MKTO INFN RNG RKUS XOOM AMBA RPXC FUEL AMCC BLOX EHTH MCRL IMPV HLIT CHGG ISSI EXTR SABA IXYS QTM PLXT QUIK PSEM MTSN MOSY SPRT IMI ELON MERU IKAN
THESE 92 COMPANIES REPRESENT MORE THAN $2.1 TRILLION IN COMBINED VALUE & OVER 800,000 JOBS.
Note: Companies above are listed by their ticker symbols in descending order of their market capitalization on July 15, 2014. Source: NYSE, NASDAQ, and Endeavor Insight analysis. in their own communities: cultivate high-growth companies industries and illustrates three lessons for leaders wish who to to other regions cities and around the world. It idly eventually and produced 92 publicly traded enabledment. This new companies to grow rap ambition, growth, commitment, reinvest and Entrepreneurship Acceleration Cycle’s four steps: nies followed who the process outlined in the trepreneurs at Fairchild other and local compa Silicon Valley’s development was fueled by en THAT ACCELERATE. CAN CESS LEADERS people. 12,000 of that anew local industry employed atotal of than 14 years. new These firms formed the core over 30 local computer chip companies in less directly responsible for the development of companies. firm’s The eight co-founders were ful founders spawn can many fast-growing demonstrates how asmall of number success IMPACT.A LARGE of story Fairchild The also the most successful computer chip companies. develop in the Bay Area becomeand of one the the industry. Nevertheless, Fairchild to managed Boston New and York asix had in year headstart search centers focused on the sector. Cities like of talentedcant pools employees, ormajor re It did not have large sources of funding, signifi a difficultplace for entrepreneurs inthe industry. developing in the mid-1950s, the Bay Area was When the first computer chipbusinesses were UNLIKELY PLACES. CHALLENGING AND THE STORYTHE example. Valley’s Silicon from lessons Leaders in other regions and cities can draw three 14 3. THERE IS A FRAMEWORK FOR SUC3. IS A FRAMEWORK THERE MAKE CAN ENTREPRENEURS AFEW 2. 1. GREAT IN COMPANIES 1. DEVELOP CAN / How Silicon Valley Became "Silicon Valley" "Silicon Valley Became Silicon How
of Silicon Valleynews offers good ------
endeavor.org. or by contacting our team directly at insight@ (www.ecosysteminsights.org/EAC-programs) online at Entrepreneurship Ecosystem Insights supportive policies programs and found be can nesses in 20 countries. Additional examples of busi of high-growth with hundreds working policies,and as well as Endeavor’s experience tion of over entrepreneurship 1,000 programs examples are drawn from our team’s evalua Entrepreneurship Acceleration Cycle. These local companiesleaders support can the and framework highlights 11 onpage ways in which trepreneurs benefit from can assistance. The Fairchild demonstrates that even en the best Cycle. their role in the Entrepreneurship Acceleration programs in place to them cultivate and support know that these businesses exist have and no ever, in many cases community leaders do not Semiconductor of their local industries. How that have the potential to become the Fairchild least asmall of number fast-growing companies We have found that community every has at lyzed data from hundreds of cities countries. and dustries. team Our at Endeavor Insight has ana cultivate the growth of local companies in and preneurship Acceleration Cycle’s framework to areand valued at over $2.1 trillion. tech businesses that employ people 800,000 Arthur Rock’s workArthur with the co-founders of citiesOther regions and use can the Entre
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PHOTO ON RIGHT: WAYNE MILLER OF MAGNUM PHOTOS FOR FAIRCHILD SEMICONDUCTOR How Silicon Valley Became "Silicon Valley" / 15
THE EIGHT CO-FOUNDERS OF FAIRCHILD SEMICONDUCTOR From left to right: Gordon Moore, Sheldon Roberts, Eugene Kleiner, Robert Noyce, Victor Grinich, Julius Blank, Jean Hoerni, and Jay Last.
“That’s part of the legacy of Fairchild that maybe doesn’t get the attention it should... Every time we came up with a new idea, we spawned two or three companies trying to exploit it.” –Gordon Moore 16 / How Silicon Valley Became "Silicon Valley"
FREQUENTLY ASKED QUESTIONS
We have presented the results of this report to a number of audiences over the last few months. Several questions have come up repeatedly during these discussions. We have collected these questions along with brief answers on the next two pages for those readers who might be interested.
Why did Endeavor Insight choose to analyze Despite Texas Instruments’ achievements, the history of Silicon Valley? How does this the Dallas area did not develop a community of 1 relate to the work Endeavor does supporting successful computer chip entrepreneurs during entrepreneurs? the time that Silicon Valley was growing in California. John Tilton’s authoritative book on the Our team at Endeavor Insight has conducted development of the computer chip industry tracks research on successful entrepreneurship the creation and growth of the sector across the communities in cities across the Americas, Europe, U.S. up to 1971. His work does not cite any Dallas- the Middle East, Africa, and Asia. We have observed based companies producing semiconductor a pattern in these cities, in which successful devices in its lists of businesses working in the entrepreneurs commit to reinvesting their resources sector, except Texas Instruments. into new generations of growing companies. We were curious to see if this pattern also existed in the world’s most well-known entrepreneurship community, so we began studying Silicon Valley. If it is rare to see entrepreneurs reinvesting This research is closely related to Endeavor’s in others, can we find other examples of the work to support fast-growing entrepreneurs in Entrepreneurship Acceleration Cycle in addition 3 more than 20 countries. Endeavor identifies high- to the ones covered in this report? potential entrepreneurs and connects them to resources that help them access talent, investors, During the writing and editing process, we had and new markets. As the entrepreneurs we support to trim out many other stories of successful become successful, we work to empower them to entrepreneurs in the Valley who became important become role models, mentors, and investors in mentors, role models, and investors. The co- their local communities. founders of Sun Microsystems, for example, have For more information on Endeavor’s support started multiple investment firms and support a programs for entrepreneurs, please visit host of successful spinoff firms that emerged from www.endeavor.org/model/ourmodel. their original company. If we look to cities outside of California, we can also see similar patterns that supported the development of successful industries, including the high-end restaurant Don’t all tech companies naturally multiply and sector in Lima, for-profit healthcare companies 2 create spinoffs like Fairchild Semiconductor did? in Nashville, and the offshore services industry of Bangalore. Unfortunately, companies like Fairchild are quite rare, even in the technology sector. It is useful to compare the history of Fairchild with that of its biggest rival in the 1960s: Texas What would have happened if Arthur Rock and Instruments. Texas Instruments was incredibly Sherman Fairchild had not helped to support the 4 innovative. The Dallas-based company actually eight co-founders of Fairchild Semiconductor? developed integrated circuits before Fairchild did. It also achieved even greater financial success. Without support from Rock and Fairchild, it is When Fairchild was the number two company in the unlikely that the co-founders would have started chip market, Texas Instruments was number one. their company. Without Fairchild Semiconductor, How Silicon Valley Became "Silicon Valley" / 17
it is difficult and perhaps impossible to see how major research breakthroughs that supported the spin-off companies like Intel, AMD, and Applied growth of the computer chip industry in the 1940s Materials would have developed in the Bay Area. through the 1960s, none of these key discoveries After all, according to the article that created the came out of Stanford. Many people also mistakenly “Silicon Valley” name, every local computer chip believe that the first semiconductor companies firm except two could be traced back to the eight started out in Stanford’s Tech Park. This is not the co-founders. case. In fact, a map in Hoefler’s “Silicon Valley” article clearly shows that the early computer chip firms were all clustered together several miles away from the university. Why did William Shockley choose to start his While Stanford is not linked closely to the 5 company in Mountain View? creation of the industry, it did a great deal to accelerate its growth. Stanford’s dean of As far as we can tell, William Shockley never engineering, Fred Terman, sent one of his publicly explained why he chose to locate his professors to work alongside Shockley and the company in the Bay Area. However, it is obvious eight co-founders of Fairchild to learn how they that this location was far from his first choice. He were producing semiconductor devices. This had worked to set up his firm in Boston and then professor eventually returned to Stanford and in Southern California before finally settling in created the university’s first semiconductor Mountain View. laboratory. While this lab did not produce any Many of the people who knew Shockley at of the early advances in the field, it did provide the time he was setting up his company have also training to local engineering students, which emphasized the role that his personal connections greatly improved the supply of talent in the area as to the region played in his decision. The inventor the industry was growing in the 1960s. had recently divorced and left the company where he had worked for most of his career. The familiarity of his hometown and the fact that his mother’s health was declining certainly influenced What role did other companies in the San his choice. Francisco area play in the creation of the 7 computer chip industry?
There was a small technology sector in the Bay What sort of role did Stanford play in the creation Area during the 1950s. It was made up of Hewlett- 6 of the computer chip industry that became Packard, which was primarily an instrument Silicon Valley? manufacturer, and a number of firms working in the microwave industry. The technologies used There are three ways that Stanford could have by these companies were very different than helped to create the local semiconductor sector: those in the transistor and other early computer by producing its founders, creating key research chips. Perhaps because of this, we can find very for the sector, or supporting the launch and few examples of connections between these growth of computer chip companies in the Tech companies and the early computer chip firms that Park it established in 1951. Our team investigated made up Silicon Valley. Historians have identified each of these potential links during the course of more than 30 computer chip companies that our analysis. existed in the Bay Area when the “Silicon Valley” We can find relatively few examples of name was coined by Hoefler. Their records Stanford graduates among the founders of the show that only one of these early computer chip early computer chip firms. Only one of the eight companies included a co-founder from Hewlett- Fairchild founders came out of Stanford. (By Packard or the local microwave firms. comparison, three came from MIT and two came out of Cal Tech.) As far as we can tell, none of the founders of influential companies like Amelco, Applied Materials, and Intel were alumni of the school. According to historians’ analysis of the 18 / How Silicon Valley Became "Silicon Valley"
ENDNOTES
1. Don Hoefler, “Silicon Valley U.S.A,” Electronic News (1971). 2. Arun Rao, A History of the Silicon Valley: The Greatest Creation of Wealth in the History of the Planet, 2nd Edition (Palo Alto: Omniware Group, 2013) 96. 3. Philip Seidenberg, “From Germanium to Silicon, A History of Change in the Technology of the Semiconductors,” Facets: New Perspectivies on the History of Semiconductors, ed. Andrew Goldstein & William Aspray (New Brunswick: IEEE Center for the History of Electrical Engineering, 1997), 67. 4. John Tilton, International Diffusion of Technology, (Washington D.C.: Brookings Institution, 1971) 52; Steven Klepper, “Silicon Valley A Chip off the Old Detroit Bloc,” Entrepreneurship, Growth and Public Policy, Ed. Zoltan Acs et al. (Cambridge: Cambridge University Press, 2009) 79-116; Endeavor Insight analysis. 5. Joel Shurkin, The Broken Genius: The Rise and Fall of William Shockley Creator of the Electronic Age (New York: Palgrave Macmillan, 2008) 95-106. 6. Shurkin, 150. 7. Shurkin, 145. 8. Bo Lojek, History of Semiconductor Engineering (New York: Springer, 2007) 69. 9. Lojek, 69. 10. Tilton, 52. Klepper, 79-116; Endeavor Insight analysis. 11. George Foster et al., “Entrepreneurial Ecosystems around the Globe and Company Growth Dynamics,” World Economic Forum, 11 September 2013, 5 May 2014
22. Rao, 91. 23. Lojek, 69. 24. Lojek, 69. 25. A reproduction of the advertisement Shockley Laboratories placed into Chemical and Engineering News in February and March 1956 can be found in the book “History of Semiconductor Engineering,” by Bo Lojek (Lojek, 71). 26. Lécuyer, 131. 27. Endeavor Insight analysis, based on age at December 31, 1956. 28. Leslie Berlin, The Man Behind the Microchip: Robert Noyce and the Invention of the Microchip (New York: Oxford University Press, 2005) 52. 29. There is an extensive list of interviews and books that present facts and stories about Shockley’s management style. For a detailed biography of William Shockley, we recommend the reading of the book The Broken Genius: the Rise and Fall of William Shockley, Creator of the Electronic Age, by Joel N. Shurkin 30. Shurkin, 174-176. 31. Shurkin, 181. 32. Christophe Lécuyer, and David Brock, Makers of the Microchip: A Documentary History of Fairchild Semiconductor (Cambridge: MIT Press, 2010) 46-48. 33. Lécuyer, 135. 34. Arthur Rock, Interview by Amy Blitz, Harvard Business School, San Francisco, March 2001, Trancript. 35. Lécuyer, 132. 36. Gordon Moore, “Fairchild 50th Anniversary Panel,” Stanford University, 4 October 2007, Transcript. 37. Arthur Rock, “Fairchild 50th Anniversary Panel,” Stanford University, 4 October 2007, Transcript. 38. Lécuyer, 137. 39. Lécuyer, 131-139. 40. Lécuyer, 140-142. 41. Lécuyer, 149. 42. Lécuyer, 155. 43. Lécuyer, 217-221 44. Lécuyer, 207. 45. Lojek, 116-117. 46. Lojek, 141. 47. Charlie Sporck, “Interview with Charlie Sporck,” Los Altos Hills California, February 2001, Silicon Genesis, 17 March 2014
49. Michael McKneilly, Interview by: Craig Addison “Oral History of Michael McKneilly,” SEMI, 20 July 2004, 5 May 2014 < http://www.semi.org/en/About/P035091>. 50. Lécuyer and Brock, 43. 51. Jay Last, “Fairchild 50th Anniversary Panel,” Stanford University, 4 October 2007, Transcript. 52. Lojek, 179-180. 53. Lécuyer, 262. 54. Lécuyer, 166. 55. Lécuyer, 263. 56. Gordon Moore, “Fairchild 50th Anniversary Panel,” Stanford University, 4 October 2007, Transcript. 57. “Silicon Valley,” American Experience, PBS, 2013, 17 March 2014
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