William Shockley, the same who co-invented the transistor at Bell Labs, played a fleeting yet key role in the shift from corporate research to the next era of innovation. After the transistor, Shockley decided that his future was not at Bell Labs. He wanted to found his own shop, explore applications for his invention, and contribute to creating a new industry. He located his new venture, Shockley Semiconductor Laboratory, in the small California town of his teenage years, where his elderly mother still lived: Palo Alto. This was also where Shockley’s wartime colleague Frederick Terman was turning Stanford University into a scientific and entrepreneurial powerhouse[147].
The rest is history. Shockley recruited eight brilliant young men, all recently graduated from the best universities in the country. Then in 1956 he won the Nobel Prize in physics. Then he became insufferable. Led by 30-year-old Robert Noyce, the eight young men defected the following year to found a new company, Fairchild Semiconductor (a subsidiary of Fairchild Camera & Instrument, a family-owned industrial business located on the East Coast). This marked the beginning of a new era in innovation: the age of the young, radical entrepreneurs[148].
That’s because there was a key difference between Shockley and Robert Noyce. The former was famous and respected, notably by potential investors. The latter was unknown and had everything to prove. He did it, impressively, and overcame the considerable risks he had taken with his seven co-founders.
These were risks that not many young people were willing to confront at the time. Founding a startup seems like a rational choice nowadays because steady jobs are scarce and corporate organizations look like they’re going through unbearable agony. But in the 1950s, leaving your employer to found your own company was rare. For young, promising talents, corporate jobs came with high wages, social status, management responsibilities, job security, and ever-ascending career paths. For that alone, the role of the “Traitorous Eight” in the advent of a more entrepreneurial age cannot be stressed enough.
Robert Noyce’s character gave a particular twist to the history of what was to become Silicon Valley. Noyce was neither an opportunistic businessman, nor a corporate manager obsessed with control, nor a misunderstood inventor willing to prove everyone wrong, nor the son of a poor family determined to have his revenge. He was, in a way, far more ordinary: born in the Midwest, raised in a happy middle-class family, an astute researcher with a genuine passion for transistors, a dedicated salesman, a leader who inspired all those who had the chance to work with him. With his partners, Robert Noyce created a new, lasting entrepreneurial culture that mixed enthusiasm, ingenuity, and ambition.
All in all, since the second half of the nineteenth century, entrepreneurship went through very different eras: that of scientists and entrepreneurs ignoring each other; that of the market for technology; then that of the corporate research lab. Entrepreneurship as we know it today only emerged with the rise of a new general purpose technology: microprocessors.
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From personal computing to continuous innovation
The link between Robert Noyce and today’s entrepreneurs such as Mark Zuckerberg, Brian Chesky, and Travis Kalanick seems far-fetched. In the 1960s, after all, Frederick Terman’s Stanford University was a place dedicated to conducting research for the military. Fairchild Semiconductor was no exception to its era: it was mostly a contractor for the US government, especially NASA. But sometime in the 1960s Noyce grew tired of Fairchild Semiconductor’s parent company and the constraints it imposed on his day-to-day business. He wanted to explore consumer applications and soon left with his partner Gordon Moore to found a new venture, which they named Intel. There he helped invent the microprocessor, which became the cornerstone of the personal computing industry.
From the 1970s onwards, a new generation of entrepreneurs decided to focus their attention on this nascent industry. Under Andy Grove’s leadership[149], Intel ultimately specialized in designing and producing microprocessors, those “computers on chips” that are at the heart of personal computers. Thanks to the microprocessor, personal computing went beyond a narrow circle of hobbyists to finally hit mass markets. In 1976, Steve Jobs partnered with Steve Wozniak to build and sell the first personal computers successfully designed for non-experts. With the Macintosh in 1984, Jobs commercialized the graphic interface and the mouse, revolutionizing what it meant to use a computer. In 1991, the demilitarization of the Internet made it possible to connect all computing devices on the planet, giving birth to powerful networked applications...and the technology bubble of the 1990s.
With the rise of personal computing and networks from the 1970s onwards, entrepreneurship took a new direction. The goal was not to best the Soviet Union at any cost, but to serve the general public, to improve people’s daily lives, to change the consumer’s world for the better. Entrepreneurs have always been key figures in the history of the industrial economy. But it was personal computing that really gave birth to tech entrepreneurs as we know them today.
There was a cultural reason for this shift from a military-financed semiconductor industry to a consumer-driven personal computing industry. The concept of personal computing was born in the counterculture of the 1960s[150]. Its birthplace, California, was home to many rebels, from the first motorcycle clubs to artists, hippies, student leaders, LSD advocates, gay activists, the Black Panthers, and computer scientists. In 1969, the Vietnam War was at its height and Richard Nixon became president. It was around that time when some of those rebels loudly voiced the idea of empowering individuals against organizations and decided to act on that idea to change America forever. The pioneers of personal computing had but one goal in this adventure: augmenting individuals with technology so as to free them from organizations, be they public (the government) or private (IBM).
Another factor in the shift to personal computing was the difficulty that incumbent tech companies had in repositioning themselves within the computing industry. With the shift from the “vertical” proprietary industry of mainframes and minicomputers to the open, “horizontal” industry of personal computing (to quote Intel’s CEO Andy Grove[151]), incumbents such as Digital Equipment Corporation and even the mighty IBM were imprisoned by the extraordinary economic rents being generated from their existing customer base. Thus, in a typical version of Clayton Christensen’s “innovator’s dilemma”[152], they were unable to participate in the new world despite their having very relevant technology[153]. This left the entire, rapidly expanding territory of personal computing almost entirely free for entrepreneurs to explore.
A third reason for the shift was financial. To found their ventures, entrepreneurs in the personal computing industry needed money. The military wasn’t interested in providing it, since personal computers couldn’t help them win the Cold War against the Soviet Union (or so they thought). Fortunately, a new breed of financier was beginning to make a difference: venture capitalists. You can’t understand personal computing and the techno-economic transition it brought about if you don’t keep in mind that it was all about radical entrepreneurs sealing an alliance with returns-hungry venture capitalists.
It was an alliance that worked beyond anyone’s wildest dreams—and it led to the military market for semiconductors and computers becoming “a marginally relevant niche” (as stated by William H. Janeway[154]). Now with the spread of computers, laptops, smartphones and other connected devices, billions of individuals are equipped with ever-increasing, ubiquitous computing power. Through the Internet and various platforms, they are connected with others and harness the power of networks. This unprecedented connectedness as well as rising, distributed computing power have radically changed our very conceptions of corporate strategy and innovation. In the twentieth century economy, innovation was undertaken to occasionally break certain constraints. In the age of ubiquitous computing and networks, innovation is a core everyday business practice.
Indeed the digital economy is characterized by its ever-growing competitive pressure. S
tartups never stop entering the market: the cost of founding them is dropping and venture capital is rising as an asset class to fund them. Direct competitors can regain the initiative at any moment, as technology makes it possible to propagate new processes and features within a large organization without much friction[155]. As a result, large tech companies are continuously trying to innovate, if only to sustain their returns on invested capital and consolidate their dominant position on their original market[156]. In the age of ubiquitous computing and networks, the cards can be quickly reshuffled, which creates an unprecedented incentive in favor of continuous innovation.
What’s more, continuous innovation has become more sustainable as technology spares executives from innovating in the dark. As innovation is more data-driven[157], with the possibility of measuring its impact almost in real time, technology minimizes the related risk and helps align innovation efforts with a given strategy[158]. Indeed we are now witnessing the convergence of innovation (anything that breaks a constraint) and strategy (which is about the constraints you embrace).
In the age of the automobile and mass production, every large corporation was confronted with painful choices: between mass production and personalization; between faster growth and higher margins; and between efficiency and innovation, in which they usually chose the former[159]. But now, it looks like tech companies can skip those choices. They seem to keep on growing longer, reaching a larger scale while still improving the quality of their product[160]. This makes their user experience more and more exceptional and even, in some cases, increases their margins as they grow.
As the rules of the new strategic game become clearer, changes are happening in many dimensions—which is exactly what a great surge of development is about[161]. Infrastructures change: we still need roads and bridges, but other infrastructures, such as cloud computing platforms, GPS satellites[162] and the Internet itself, have become more critical. Products change: fewer manufactured goods, more digital applications and entertaining experiences. Organizations change: not the rigid, pyramidal bureaucracies that used to thrive in the Fordist economy, but more agile and stacked architectures that combine user communities, digital activities, and tangible assets within a constantly evolving business model[163]. The managerial culture changes, too: instead of being obsessed by supply-side economies of scale, efficiency gains, standardization, and quarterly returns[164], managers are now focused on providing an exceptional customized experience and generating increasing returns to scale.
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Entrepreneurs are here to stay
Entrepreneurs always play a key role in the installation period of a technological revolution. They’re the ones who seize technology as an opportunity to discover new models. This is why, according to Carlota Perez, “all installation periods are led by finance and free markets as innovation focuses on setting up the new infrastructure, letting markets pick the new winners and modernizing the old economy”[165]. In a transitioning economy, where Schumpeter’s creative destruction is in full force, the ability to experiment is necessary to discover new business models, put in place appropriate regulations and enlarge businesses[166].
But in an age that imposes continuous innovation on even the most dominant firms[167], most signs suggest that entrepreneurs are about to play a more important role over the long term, even though the new economy is becoming dominated by large companies instead of small startups[168]. From its beginnings, the economy of computing and networks developed itself on top of decentralized infrastructures governed by simple standards of voluntary adoption (TCP/IP, HTTP) and an economic model that did not impose billing based on volume or time spent[169]. The innovation dynamic of the current economy comes from its initial characteristics: it is particularly adapted to the appearance of emerging trends, to successive iterations, to observation and real-time adjustments.
As a result, entrepreneurs are not a vanguard paving the way for more mature managers. Instead, they emerge as the new elite destined to permanently dominate. The age of the automobile and mass production was dominated by engineers and operational managers focused on efficiency. The Dark Ages of financialization were dominated by financial managers focused on quarterly returns. The new age of ubiquitous computing and networks will be dominated by entrepreneurs focused on high quality at scale. This is why it can be best described as the “Entrepreneurial Age”, one in which entrepreneurship, otherwise defined by Babak Nivi as “the ability to serve a customer at the highest level of quality and scale, simultaneously,”[170] becomes the basis for any organization’s strategic positioning.
The advent of the Entrepreneurial Age is best revealed by the fact that more and more people want to become entrepreneurs[171]. This trend, which my partners and I are witnessing everyday in Europe, can be partially explained by the relative scarcity of full-time jobs and the frustration (even suffering) that these jobs can provoke in many workers. This is compounded by the crisis that is upending many legacy institutions. For younger generations, the future is marked by uncertainty. The continued existence of the Great Safety Net, and particularly pensions, is no longer assured. Purchasing housing in urban areas has become nearly impossible. Healthcare coverage is becoming less certain. An entire system seems to be disintegrating, and this leads some to break free and create their own career, rather than relying on a system that seems to be faltering.
Entrepreneurship is also enjoying an increased social status. Great entrepreneurs are admired by many, if not by all. Steve Jobs was mourned throughout the world upon his passing, whereas Mark Zuckerberg was put on the big screen with David Fincher’s The Social Network. As a result, entrepreneurship is becoming more widespread and democratic. It is a new identity that is sought out by those looking to increase their status in a society marked by Simon Kuper’s “great middle-class identity crisis”[172].
And it’s easier than ever to create a startup. Open source software and the deployment of huge platforms for cloud computing such as Amazon Web Services have trivialized the technologies needed to launch a new business. Developments in programming allow one to avoid having to recruit large teams of software engineers. Today, an app can be created by just one or two people. The myth of the garage has become a reality: we can now bootstrap a company from practically zero.
Finally, capital is becoming a commodity. The current discussions between economists about the “global savings glut” reveal that there is too much capital to invest and too few opportunities to secure sizeable returns[173]. This may come as a surprise for entrepreneurs who rack their brains in vain trying to pitch investors who refuse to deploy capital. But the commoditization of capital is a well-documented trend, and one that explains why growing startups have less and less difficulty raising funds as they reveal their secrets and accelerate their growth on large, global markets. (Of course, this doesn’t negate the fact that, as William H. Janeway eloquently reminds us (in a lesson we repeat often at The Family), “The secret to corporate happiness is positive cash flow”[174].)
All in all, in the Entrepreneurial Age, entrepreneurs are a force to be reckoned with. Some of them are already scaling up companies by harnessing the power of billions of users, triggering unprecedented increasing returns to scale. Whether they fully embrace it or not, entrepreneurs have become agents of change. The superior power that was once held by the state now appears to be surpassed by that of entrepreneurship fueled by ubiquitous computing and networks. And that power is up for grabs for anyone who wants to achieve long-term policy goals. As Tim O’Reilly says, it’s now up to us to imagine new institutions and provide prosperity and economic security in the Entrepreneurial Age[175]. And to be effective, the new version of the Great Safety Net will need to truly serve the multitude.
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Key takeaways
● Entrepreneurship took different forms throughout the ages. Since the Industrial Revolution, we went from mechanical tinkering to in-house corporate research to today’s VC-backed start
ups.
● As they harness the power of ubiquitous computing and networks, entrepreneurs are playing a radically new game. Continuous innovation is now the rule, not the exception.
● Entrepreneurs are here to stay. They’re rising as the perennial, dominant figure of the new corporate world, leading us into the Entrepreneurial Age.
Chapter 5
Behind Entrepreneurs: The Multitude
“Despite its supply-side economies of scale, General Motors never grew to take over the entire automobile market. Why was this market, like many industrial markets of the twentieth century, an oligopoly rather than a monopoly? Because traditional economies of scale based on manufacturing have generally been exhausted at scales well below total market dominance… In other words, positive feedback based on supply-side economies of scale ran into natural limits, at which point negative feedback took over.”
—Carl Shapiro and Hal R. Varian[176]
How customers rose as the main force in the corporate contract
I was an entrepreneur once—from 2010 to 2012, to be precise. I can’t say my startup broke any records; in reality, it never took off. But it was a comprehensive and rewarding experience, during which I tackled the same challenges as every other early stage entrepreneur: designing a product, raising funds, hiring developers, managing developers, marketing the product, selling it to customers, managing the company’s finances, and other ungrateful tasks. At the very least I survived lots of ups and downs and learned many things that I never learned in my years working for the government.
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