Business and Technology in the U.S. the Birth of Silicon Valley and the Culture of Start-Ups
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сourse: Business and Technology in the U.S. The Birth of Silicon Valley and the Culture of Start-ups Author: Anton Panov On February 14, 1956, in the hall of the St. Francis Hotel in San Francisco, guests assembled for a dinner party hosted by the prominent entrepreneur and philanthropist Arnold Beckman. He had organized the event in honor of his friend, scientist William Shockley, who had established a semiconductor laboratory. Among those present were journalists, engineers, and teachers from local universities. Everyone was excited and intrigued: Why had the legendary Dr. Shockley, one of the heads of Bell Labs, decided to give up his prestigious job on the East Coast for a backwater in the San Francisco Bay area? Opening the festivities, Beckman announced: “Headed by Dr. William Shockley, inventor of the junction transistor, the nucleus of the rapidly expanding research team consists of … experts in the field of semiconductors, the basic material of transistors which are revolutionizing the electronics field…” William Shockley © Nobel foundation Beckman was not exaggerating. The technology that Shockley was working on did indeed have unbelievable potential. Just a short explanation: semiconductors are substances that do not impede an electrical current, but do not conduct it as easily as copper. Because of this, semiconductors have all the qualities needed for the manufacture of electrical systems. Transistors help to control electrical current just like a water faucet: when the transistor is closed, the current cannot pass. When it is open, on the other hand, electricity gets through. The discovery of the transistor made it possible to manufacture electronic goods much more cheaply, and also to get rid of mechanical elements in computers, since commands could be conveyed via the transistor. In short, William Shockley’s invention promised to turn everything we knew about technology on its head. The Shockley Semiconductor Laboratory that Beckman spoke about was located in Palo Alto. Today it is the center of Silicon Valley, the area of the U.S. most closely associated with digital technology and innovation. In 1956, however, it was a sleepy little town on the banks of San Francisco Bay, where there wasn’t even a long-distance telephone exchange. There are many reasons Shockley decided to create his lab in that particular place. First, it was close to Stanford University, one of the leading technology institutes in the U.S. Second, the enterprise’s sponsor, Beckman, lived nearby. Third, for good measure, Shockley’s mother lived in Palo Alto. At first the company did not do so well. Top engineers from Bell Labs and other research centers did not want to move to the California boondocks. In the 1950s, cutting-edge technology research was carried out mainly on the East Coast, at places like the Massachusetts Institute of Technology (MIT) or IBM. No one wanted to jeopardize their career and reputation by getting involved with Shockley’s risky project. The company had to take a chance on ambitious young people, who wanted to make a name for themselves working under Shockley, a 1956 Nobel laureate in physics. Right from the beginning, though, things started to go awry. It turned out that William Shockley was a terrible boss and mentor. Some of the staff he chose were incompetent, which slowed down production. Shockley himself repeatedly demonstrated his instability as a manger, at times exploding with unmotivated aggression, at others disappearing with bouts of paranoia. Finally, Shockley announced that the laboratory had to stop producing transistors and switch to other tasks that everyone thought were less important and with no relationship to the business. The staff had had enough. In September 1957, a group of engineers told Shockley they were quitting, saying they could no longer work with such a boss, and that they wanted to start their own company to produce semiconductors. Legend has it that in answer, Shockley spat out: “Traitors!” – and the name stuck. The “Traitorous Eight” had been born. The laboratory they founded after they left was called Fairchild Semiconductor, and in its bowels were formed almost all the companies that would make up Silicon Valley and create the start-up culture. “Traitorous Eight” Terrence McCarthy © The New York Times Over the next several years Fairchild Semiconductor would become the leading semiconductor manufacturer in the U.S. Even NASA would work with it, ordering transistors for the “Minuteman” rockets. Fairchild’s main legacy, however, would be the firms that split off from it. Today around 70% of the companies that work in Silicon Valley can trace their history to Fairchild in one form or another. Here are several examples. In 1962, two of the “Traitorous Eight,” Jay Last and Jean Hoerni, left the company as a result of an internal conflict, and created Amelco, which would develop the first analog-to-digital converter. Today, after a series of mergers and acquisitions, the Amelco core forms part of the Microchip Technology corporation, which has a yearly turnover of more than $2 billion. Other employees of Fairchild, Robert Widlar and David Talbert, created National Semiconductor in 1965; it became famous as the largest producer of data conversion solutions, amplifiers, and power management integrated circuits. In 2011 it became part of the Texas Instruments megacorporation. Another member of the “Eight,” Eugene Kleiner, created a venture capital firm, Kleiner Perkins, which would help Amazon, Electronic Arts, Google, Sun Microsystems and many other corporations to get on their feet. Fairchild’s most famous spin-off was, of course, Integrated Electronics, or simply Intel. The history of this company seems to encompass the entire history of Silicon Valley, and it also became an example for start-ups at the end of the 20th to the beginning of the 21st centuries. The founders of Intel – Gordon E. Moore and Robert Noyce – were also members of the “Traitorous Eight.” It would be difficult to find two people less alike. Gordon E. Moore and Robert Noyce © Intel Free Press Noyce was a wonderful inventor. It was his idea to create integrated microcircuits, which united several transistors on one small silicon chip. Personally, Noyce was charming, gregarious and charismatic. He was considered the leader of the “Eight.” Moore, on the other hand, was calm and quiet. He did not like big parties, preferring to spend his free time fishing. Among Moore’s many excellent qualities as an engineer was his ability to solve complicated problems that whole teams had been unable to resolve, and to do it in a short period of time. Together, Noyce and Moore made a wonderful team, able to achieve great things. By 1968, the majority of the Fairchild founders had left to start their own projects. Noyce and Moore understood that it was time to move on. Together they decided to create a new company based on their own vision of what made a successful business. All they needed was financing. Noyce called Arthur Rock for the money. At one time, when he was still a young banker from New York, Rock had helped the “Traitorous Eight” find investors. At that time, no one wanted to invest in a group of kids who had left Shockley, the Nobel laureate. They did not have enough weight in scientific and commercial circles to obtain financing without a ready-made product. The whole business seemed too risky, too rash, but it promised huge returns, which is where that type of investment got its name. They started calling themselves “venture capitalists.” At that time Rock found just one banker who was ready to provide seed money — Sherman Fairchild, and it was his name that was used for the whole company. This time things were different. By 1968, Arthur Rock had become rich, and he realized that he could handle the role of chief investor by himself. He knew Noyce and Moore well, so he didn’t even ask what they wanted to do after leaving Fairchild. Arthur Rock Christopher Michel © Wikimedia Commons “Bob just called me on the phone,” Rock would remember later. “We’d been friends for a long time.… Documents? There was practically nothing. Noyce’s reputation was good enough. We put out a page-and-a-half little circular, but I’d raised the money even before people saw it.” Rock not only invested his own money, he offered other people the chance to participate in the deal. He made about 15 phone calls and in a few hours he had $2.5 million. He even got investments from some of Noyce and Moore’s former “Traitorous Eight” colleagues who had gone to National Semiconductor, in spite of the fact that they were now competitors; that’s how certain everyone was that they would be successful. Venture capitalism in Silicon Valley was off and running! Arthur Rock was a pioneer in the field of venture capital. Today in Silicon Valley, in addition to the start-ups themselves, there are numerous funds that are willing to invest in the very early stages, expecting big rewards later on. Ten years later, Rock would help another firm that changed our concept of tech – Apple. He met Steve Jobs and Steve Wozniak through another financier, Mike Markkula, who would also fall under the spell of the future creator of Macintosh and would stay in the company with him. Arthur Rock invested $57,000 in Apple at the beginning of Apple’s history. It was a risky deal, but extremely successful. Three years later, Rock’s share of Jobs’ company was already worth $14 million. The examples of Intel and Apple illustrate the first main characteristic of the start-up culture – individualism. It’s not a good idea to develop your idea in an already existing company.