From Silicon Valley to Lahore
By Abid Malik, Lee's Summit, MO, USA
September 4, 2015
The key to entrepreneurship is inter-dependency which, in turn, is based on building relationship and winning trust of business stakeholders.
The word Entrepreneur is rooted in French word entreprende, meaning someone who takes the charge or responsibility, in this case running a business.
Entrepreneurship comes with a vision and a drive to make a difference. The future would not happen as quickly without investors - Without investors and entrepreneurs, we would have lower standard of living.
"Education, innovation and trickle down investment creates new jobs. A durable economy is built from middle class up, not from the upper class down"
Ibn Khaldun in 14th century also suggested that trade is about promoting mutual understanding and cooperation, fulfilling consumers needs, creating wealth and influence, and curbing growth of industrial cities, since unplanned and overpopulated metropolitan growth, in most cases, bring down quality of life - So true.
According to Geniza papers, found in an old Jewish synagogue in Egypt, favorable social and political forces helped create rational capitalism during Muslim middle ages and that these social and political conditions are responsible for rise and fall of the civilizations.
Starting a new business brings excitement to entrepreneurs but it can be extremely stressful if you don't understand the risks. You can make honest mistakes and be forgiven but there is no room for repetitive errors in business. A seasoned business person can't be bitten from a same hole twice.
Innovation
US is leading in number of billion dollar IT startups, 2nd is China. It's interesting to see Israel with a population of merely 2 million, has more billion dollar IT startups than India.
A true innovator is the one who has passion to create something that most of the people believe cannot be done.
“Steve Job was so bright, so visionary that I had to fire him”
Arthur Rock, Investor of Intel & Apple
Innovation requires laser like focus because single invention may lead to several competing value propositions.
Picking the right value requires skills, discipline and plenty of luck. And don’t forget your competition.
"Innovation includes not only technologies, but also new methods or ways of doing things that sometimes appears quite mundane. Innovation can be manifested in a new product design, new production process, a new approach to marketing, or new way of training and organizing. It can involve virtually any activity in the value chain” Michael Porter, Harvard Business School
Silicon Valley was founded on American system of innovation and free market. For outsiders, it looks fragmented and decentralized but in reality it’s a tightly knit ecosystem of Entrepreneurs, Money, Government, Academia, Mentors and Support Groups.
In Silicon Valley, ecosystem has transformed into “Rainforest”. There, the entrepreneurship is a profession and startups are an industry. It’s an industrial district of innovation, a term used by Alfred Marshall in 1890 with an idea that local technological spillover causes companies in same line of work to cluster. We have seen such clusters of traditional watchmakers in switzerland, machine tool makers in Germany, call centers of Bangalore, India, filmmakers in Hollywood and auto industry in Detroit, USA.
Unique model, availability of capital, company structure, management, and global connections make Silicon Valley keep re-inventing itself. Other places don’t have the network and commercialization know-how as people of the Silicon Valley have.
“The Prevailing business philosophy of Silicon Valley is to promote openness, learning, sharing information, co-evolution of ideas, flexibility, mutual feedback, and fast response to opportunities and challenges” The Silicon Valley edge: a habitat for innovation and entrepreneurship, by Chon-Moon Lee
Incubation
Putting a group of entrepreneurs into the same physical space is important for the growth of the business culture. Smaller clusters could transform into bigger clusters but sometimes they break too.
The key to success is that cluster of pieces that makes an ecosystem, has to grow.
When Fairchild bypassed Bob Noyce for company’s CEO position, he left company and joined an East Coast investor, Arthur, to start Intel Corporation with Gordon Moore.
Founders had no business plan. They wrote a one page double spaced document that became start of a multi-billion dollar Intel Corporation.
“It was not a profound document but rather a cute document”
Gordon Moore, Founder & CEO, Intel Corporation
Some investors look for a good team and a unique idea, other sense passion of the founders, ahead of experience and credibility.
When we were screening Maro Tandoor (bread-maker) venture at LUMS Center for Entrepreneurship in Pakistan during 2014, we did not see a good fit between an Elite University incubator and a low tech bread maker.
However, the young startup team was so passionate about their idea, the judges and director of incubator, Khurram Zafar had no choice but to accept them.
Maro Tandoor became profitable within a month of its operation. Today, you could see long lines of people outside their first shop in Model Town, Lahore, waiting for fresh Naans with choices of 18 different fillings from meat, veggies, cheese to chocolate.
Investors like entrepreneurs with a vision and a product that has huge market impact.
“I am not interested in an entrepreneur who does it our way, who has certain dress codes, I am interested in an entrepreneur who has vision, has something that is consequential and big” Don Valentine, Sequoia Capital
Knowledge Sharing
There is this old saying that wisdom is a lost property of a wise person, when he finds it, he owns it.
In Silicon Valley the flow of knowledge from one company into its “Rainforest” or ecosystem is constant. What people are up to, is there anything new happening? If the knowledge is channelled well, it helps build the region.
There is a heavy traffic bridge of expert relationship between industry and academia.
Ed MacCracken, former CEO of Silicon Graphics said, some secrets are more valuable when shared. This is the idea behind success of open-source application such as Android operating system.
The successful ecosystem of Silicon Valley provides a rich material for sociology departments of the universities.
Spreading of knowledge is easy but spreading of practice behind knowledge is not. It takes critical mass of people with special skills, motivation, and strong will.
Gilbert Ryle (1949) argued that actionable knowledge has two components, Know how and Know that. Know how will tell you how to do something. Know that is just an abstract. Without Know how, Know that has limited usefulness.
Investment Risk Takers
Venture means to proceed despite the risk of danger. Some see investment as a risk, investors see this as an opportunity.
A typical investor takes calculated risk and does not hesitate.
In VC world you look at 200 companies, select 10 that are great and you make it to hall of fame through one. That’s your life-time achievement. Some will have modest returns, some will fail, some will be living dead; they don’t succeed, they don’t fail, they just waste your time.
More troubling than shortage of talent is what critics call the American Midwest mentality: an alleged attitude among local tech entrepreneurs and investors to play it safe.
If local entrepreneurs are too careful, not taking enough risks, they can't disrupt the market with mass market consumer products.
Even Chicago veterans concede there’s some truth to it. “There are, in general, less risks taken on speculation about mass-market consumer products here,” admits Yagan, who has worked in New York, Boston, and Palo Alto. “What is our Google or Facebook or Twitter? I can’t think of any.”
University Labs
Educational institutions can play a key role too—for example, by following Stanford’s 60-year lead in establishing and supporting research institutes and technology parks. Over the years, Chicago-area schools haven’t made that enough of a priority.
According to the Association of University Technology Managers, 461 patents were issued to researchers at California universities in 2010 (the most recent year for which data is available); only 142 were issued to those at Illinois universities.
However, the relationship between industry and innovation labs of the universities is a two-way street. R&D provides raw material of ideas turned into reality by businesses. But it takes leadership and people with special skills to successfully bring a prototype to the marketplace.
Cluster of booksmart talents in universities must match with cluster of streetsmart talents in the industry
What Stanford has been doing for a startup is not magic - It offers practical steps and lots of encouragement to the start ups.
Highly Mobile Labor
In 2012, Tony Perkins, founder and editor of Alwayson, asked an audience of few hundred people at KPMG. How many of you grew up here (Silicon Valley). Only 3 raised their hands. Then he asked, how many of you want to go back home. None raised the hands.
As Intel CEO Craig Barrett said “Every doctorate should have green card attached to it”
80% of computer science graduates leave BZ University in Multan, Pakistan because there are few good paying local jobs. Chicago has same problem.
“If Chicago doesn’t figure out how to plug in the engineering talent from the region,” Kittlaus said at a Technori event in March, “they’re going to get left behind.”
The problem is keeping them here (in Chicago). “If you go down to Champaign and ask computer science graduates, ‘Where are you going to go?’ ” notes Yagan, “most will say New York or San Francisco.” One lure is greater pay. The average tech job pays nearly $105,000 in Silicon Valley versus roughly $84,000 in the Chicago area, according to a 2012 survey by the career site Dice.
Infrastructure and Government Relations
The role of private sector in developing communities is also worth mentioning. The Silicon Valley has its own index of economic, education, health, and quality of life. There, civic and business leaders work together to improve education, build information infrastructure, reduce traffic congestion, and improve government operation. Yes, they help state government run more efficiently.
The quality of life includes, fewer crimes, good schools, spacious parks, smooth roads and bridges.
Role of private sector in developing communities is important . A good example is Bahria Town in Lahore, Pakistan. That is why, some parts of Lahore has reflection of European and American cities. No kidding.
Support Groups and Community
The support group or community such as lawyers, accountants, consultants, EDCs of the cities also play important roles in creating an ecosystem.
“The community is so damn collaborative,” says Raman Chadha, a professor of entrepreneurship at DePaul University. “That hadn't existed ten years ago, when it was a bit more competitive, a bit more siloed. Today, when we hear of a startup thinking about leaving, we rally around them to get them to stay. This would never have happened in the past, to do a sort of intervention. Now there’s a civic pride that wasn’t there before.”
Capital
Wealth is money beyond basic need, Capital is used to generate additional wealth.
The majority of funding in a startup will be your own or from your friends and family. Then Angel and VC investors, some will come from an investment bank or government and a portion from crowdfunding.
FUNDING SOURCES (USA | 2013)
Average Investment (% of investment)
$48K Personal (57%)
$23K Friends & family (38%)
$6m VC (.05%)
$75K Angel (1%)
$144K Banks (1.4%)
$7K Crowd
(Top two are Kickstarter and Indiegogo)
"We also have lack of Super-Angels and lower-level VCs interest in Kansas City
“Almost all the money you raise comes from outside” Jessica Bishop, Kilink mobile
Investors in Silicon Valley not only fund the startups, they provide mentoring and coaching to founders who lack specialized skills in management, marketing and finance. If founders can’t develop such skills, they bring in management with needed skill sets.
Chicago-based tech companies attracted $488 million in venture capital in 2011, according to Dow Jones VentureSource. That’s scarcely a fifth of what flowed to New York City ($1.8 billion) and a flyspeck compared with what got invested in Silicon Valley ($8.2 billion).
"Surplus wealth is a sacred trust which its possessor is bound to administer in his lifetime for the good of the community." Andrew Carnegie
Business Plan
Intel corporation was founded after investor saw a one page double space business plan from the founder Gordon Moore. But it does not mean you should have your business plan on one page. Eight pages is normal now these days simply because investors don't have time. But always carry a one page executive summary as an starter.
“It was not a profound document but rather a cute document”
Gordon Moore, Founder, Intel Corporation on his one page double space business plan
“Entrepreneurs should never underestimate themselves. For VCs, the big numbers do matter. You have to abandon the conventional wisdom. The plan has to stand out of the herd mentality"
“I don’t know how to write a business plan, I know how to read them” Tom Perkins, Silicon Valley VC pioneer
Recently, I wrote two business plans, one with 6 million revenues in 5th year, other with 16 million in the same period. The general rule is that if your current or future revenues are not more than 10 million, VC’s are not interested.
Team
If a startup founder comes to us alone we ask them to bring at least one more founder. Why, because it's difficult for a founder with technical background to work on a product and take responsibility of marketing and sales at the same time.
According to a recent Kauffman Foundation study, highest rate of entrepreneurship and innovation
in America is shifting to the 55-64 age bracket while declining amongst those under 35.
KFC founder started his venture at age 65. You could see white bearded colonel
in old KFC logo
Another LUMS startup, King Kashmiri packages pink shaded Kashmiri tea in tea bags. The team is made up of son, father, and a woman. The tea that takes over an hour to prepare, now takes less than 5 minutes without sacrificing the taste. Again, age and gender diversified team behind a successful venture.
It's important to have diversity of talented people in your leadership, combining street smart with a book smart, teaming together a veteran with a young executive.
Here is a good example. If you look at the American companies that have been successful, they have executives, with and without MBA degrees. In other words, companies with ALL or no MBA degrees holders, don't do well.
Facebook founder and CEO, Mark Zuckerberg hired 44 year-old COO Sheryl Sandberg with MBA degree.
Luck
Weather it’s an investor or a region, there are unknown reasons that bring fortunes to some and not to others.
Why information industry never flourished despite the presence of Carnegie Mellon, one the best Computer Science Department. How come Cambridge university community, where first successful digital computer was built, could not became pioneer in technology.
Even the most successful investors will tell you that luck played a major role in their success.
“You gotta be lucky, everybody has to be lucky at some point and ... I was lucky earlier” Arthur Rock, Seed investor of Apple Computer and Intel Corporation, a VC from East Coast
When Steve Job of Apple computer was working for Noland at Atari computer, he offered Noland 1/3 of Apple computer for $50K. Apple worth in 2010 was $220 Billion. Noland refused.
“I could have owned third of Apple Computer for $50,000. A big mistake”
Noland Bushnell, Founder, Atari Game
My ex partner from Silicon Valley went to a friend of mine for funding, whose partner advised him not to invest. So I ended up investing and reaping the benefit when same company went from single employee to 72 with $17mil in annual revenues.
“So much luck goes into this that without it very few of us would have any success” Don Valentine, Sequoia Capital
With $142K from Mike Markkula $57K from Arthur Rock and $150K from Don Valentine in 1976, Apple market value in 2010 was $220 Billion
With under 3 million investment, Cisco, in 2010 worth $150 Billion. Today 80% of the world is connected to the internet through Cisco devices.
Abid Malik is Managing Director at Indus Venture based in Missouri, USA. He can be reached at abid@indusventure.com
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