Secrets of Silicon Valley
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The world wants to know Silicon Valley’s secret. Here, in three books by four highly successful tech entrepreneurs and investors, are some of the answers. Only, don’t expect them to agree on how you should go about making your first billion.
Creating a great start-up, it appears, is a cerebral game of chess, one that isn’t worth playing unless you’ve thought through how you’re going to win before you even start. That is, if it isn’t a gut-wrenching rollercoaster ride in which pure courage (along with a fair amount of puking and tears) are the only things that will get you through. Or then again, it may turn out to be mainly an exercise in organising very large numbers of creative – even brilliant – people in a loose but co-ordinated way that has never been achieved before in business history.
As this suggests, there is no simple – or single – formula. Since entrepreneurialism is by definition one of the great pragmatic exercises, how-to books can take you only so far. “Today’s ‘best practices’ lead to dead ends; the best paths are new and untried”, writes Peter Thiel (co-founder of PayPal and Palantir, hedge fund investor, venture capitalist and Facebook director). But the collective advice and – more importantly – first-hand experiences of some of Silicon Valley’s most successful figures of the past 15 years certainly provide some pointers.
In Zero to One, Thiel makes the start-up business sound almost mystical: “by creating new technologies,” he says, “we rewrite the plan of the world”. Out of nothing comes the start-up (hence the title). It isn’t a bad way to think about things. Entrepreneurialism requires, more than anything, sheer creative energy: not just originality but the intellectual concentration and determination to succeed, sometimes seemingly against all odds.
Thiel is the ultimate contrarian. Think of something you believe that nobody else does, he recommends, then go and make a business out of it. In this world, many of the accepted techniques of the current generation of Silicon Valley start-ups – look for incremental advances, stay lean and mean, keep iterating on the product and let sales take care of themselves – are rejected. Go big or go home.
An accomplished chess player, Thiel is a big believer in thinking out the best business before you start. Any talk of “pivoting” – a favourite Silicon Valley word of the moment, used to describe how companies that fail at one thing keep adjusting goals until they hit on something that works – would get short shrift if he was an investor.
Similarly, Thiel takes a dim view of Silicon Valley’s present obsession with “disruption”, a “self-congratulatory buzzword for anything posing as trendy and new”. People who think of themselves as disrupters are too busy being distracted by the “dark forces” they think they’re unseating to focus on the real job at hand, of coming up with great products.
The best business opportunities of all, says Thiel, are monopolies: why bother with the wasteful process of competition when you can own it all? His justification for digital monopolies is that they aren’t like the static, rent-collecting monsters of the old economy: these are dynamic platforms that bring new value to the world (think Apple’s iOS mobile software platform or – Thiel doesn’t mention it – Facebook).
Thiel, as a fan of dominant companies, clearly can’t understand why two of the greatest monopolies the tech industry has created should have set about the wasteful business of trying to destroy each other. He writes: “Just as war cost the Montagues and the Capulets their children, it cost Microsoft and Google their dominance: Apple came along and overtook them all,” with the iPhone.
It is a shame that, in How Google Works, Eric Schmidt and Jonathan Rosenberg don’t address this question head-on. Schmidt, as former chief executive, and Rosenberg, as former chief of product development, played central roles in building Google during a key phase in its existence, from the period before its 2004 initial public offering.
Their book begins, tantalisingly, by describing how board member Michael Moritz called for an urgent meeting in the company’s early days to come up with a strategy to defeat Finland (a code name, it turns out, for Microsoft – though the authors then spoil their own anecdote by revealing that this a code name for the real code name).
Some of Google’s most important (and successful) initiatives, such as its Chrome browser and Android mobile operating system, look like deliberate attempts to counter Microsoft’s main software platforms. So it’s ironic that the European Commission is considering launching a competition investigation into whether Google uses Android to block competitors, a case that would have direct parallels with an earlier case over Microsoft’s Windows.
Yet in this book, any discussion of competitive strategy is quickly buried. The authors brush off things they did to counter Microsoft as “a few tactical points”, instead coming up with platitudes about how focusing on the product and delivering the best user experience were the keys to holding the software giant at bay.
Schmidt and Rosenberg put much of their emphasis on people: how to hire, train, motivate, organise, reward (and occasionally sack) the talent needed to run a company like Google. Though the company’s culture is known for its enviable perks, they stress the importance of the hothouse atmosphere they created by jamming workers together in overcrowded cubicles (forget about working from home).
They also have a simple rule for any company in the tech world: double down on the engineers. By keeping this in mind at a time when Google’s product strategy was in danger of bloat, they claim to have kept the company focused on true innovation. In such a culture even Sheryl Sandberg, a key employee and now number two at Facebook, could be turned down for a job the first time around because she lacked an engineering background.
The question that looms large over any book like this is whether Google’s leaders have truly been brilliant in organising a 21st-century model of what a deeply innovative corporation will come to look like – or whether, with search advertising, they were just lucky enough to stumble on the biggest cash machine the advertising industry has ever produced. The jury is still out on whether the culture they have built – and all that money pouring out – can produce the innovation to carry Google into a future beyond search.
For a more down-to-earth view of start-up life after these big claims, The Hard Thing About Hard Things makes the perfect antidote. Ben Horowitz, who went through two start-ups before launching a venture capital firm with partner Marc Andreessen, gives a warts-and-all view of what it’s really like to be in charge of a business weeks away from running out of cash, threatened by the loss of its biggest customer or outflanked by a competitor with a better product. His seat-of-the-pants answer: “There is always a move.”
It is the real-world anecdotes that produce the most telling lessons in books such as these, and Horowitz comes up with some of the best. If you wondered how stress-inducing it is run a start-up, it’s all here – right down to agonising about whether excessive use of the f-word should be kept as part of a new company’s culture (the cursing stayed). Thiel has tips of his own. They include never trusting anyone in a suit and tie (at least, not if they’re claiming to be tech entrepreneurs): it was these well-dressed types who were behind many of the failed alternative energy companies Silicon Valley invested in recently, he claims.
Schmidt and Rosenberg, meanwhile, lift the lid only occasionally on life inside Google – a company they continue to serve as, respectively, executive chairman and adviser. Among their more revealing anecdotes is how co-founder Larry Page, when he was unhappy about a new Google advertising format, simply posted a public message that “These ads suck”. The message inspired a group of engineers not even responsible for the problem to come up with a solution, they say. Management by humiliation might be frowned on elsewhere, but apparently it works at Google.
Still, as always with books told from the front lines of business, you can’t help thinking that the really juicy stuff has been held back. In the clubby world of Silicon Valley, after all, it doesn’t pay to tread on too many toes.
What is left from reading these books is a sense of the conundrums that even the most successful tech start-ups find hard to solve. Hiring the best talent and “scaling” – or growing at breakneck speed before another company can come along and steal a new market – are two of the main skills of Silicon Valley. But even there, they can be challenging.
Schmidt and Rosenberg, for instance, warn of the “knaves” whose personal ambitions can wreck a company – though they beg patience for talented “divas” who can also stretch the patience. Horowitz has his own categories of workers – usually highly intelligent – who are liable to sink a company: heretics, flakes and jerks. Then there are “old people” – code for those who come from bigger companies with more experience, and who may damage the culture. Is this how tech CEOs talk about their staff behind closed doors?
Another common problem concerns size: there are no easy answers here for how to retain a new company’s dynamism as it grows. Thiel catches the problem with his astute definition of a start-up: “The largest group of people you can convince of a plan to build a different future.” What happens to that shared purpose when it exceeds that number?
Horowitz sums up the horror that awaits: “At a certain size, your company will do things that are so bad that you never imagined that you’d be associated with that kind of incompetence.” Seeing workers start to waste money, produce sloppy work and waste each other’s time “may well make you sick”, he warns aspiring chief executives.
All three of these books have their flaws. Thiel’s book was stitched together from classes he has given at Stanford University by an eager student and joint writer, Blake Masters, while Horowitz’s work is partly built out of a series of long blog posts. But they all deserve a place on the bookshelf of aspiring entrepreneurs. If nothing else, you will know how to dress – and curse – the next time you approach a venture capitalist to raise money.
Richard Waters is the FT’s US West Coast editor
Slideshow photographs from ‘Fearless Genius’, by Doug Menuez. ©2014 by Doug Menuez. Reprinted by permission of Atria Books, a division of Simon & Schuster, Inc.
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