Rocket Science and Rocket Fuel in The Valley
It’s obvious that here in Silicon Valley, nobody pays much attention to the old adage to “never mix fuel and fire”.
by Dave Lim, 1999. (This is one of a series of articles published by CNET that I wrote while I was living in Silicon Valley during the first Internet Revolution in the late 1990s.)
Recently, I was at one of those archetypal Californian summer BBQs on campus and met a fresh engineering graduate with the dead-giveaway American name of Brad. Between gulps of his diet Coke, Brad announces, "I'm joining a startup on Monday" proclaiming it as if he were brandishing a Purple Heart. But before I continue, dear reader, I have share this incredulous observation with you to the Californian student of today is so health conscious that beer is on the brink of extinction, at least on this campus. In fact, the BBQ was delayed for half an hour because there wasn’t a SINGLE matchstick to be found among the 30-odd non-smoking students who came.
I didn’t ask him for the name of the company. There was no much point because you’d never have heard of it, of course, unless you’re a person who likes to crow, “You know that hot, new Internet company that was just acquired for $700 million? Well, just last summer, I met one of the founding members at a BBQ on campus…” One polite response would have been to ask Brad what his startup does, but you should tactfully avoid probing for details about the business or, heaven forbid, the structure of its business model. At most, you should expect an enigma-shrouded reply like “Think AskJeeves.com meets @Home.com”, to which you can appropriately respond, “I see” and take a sip of your diet Coke.
The mere mention of the word “start-up” in Silicon Valley conjures visions of huge market potential, paving a route to what could be untold fortunes for its founders. Jerry Yang and David Filo who dropped out of their Stanford Ph.Ds together to co-found Yahoo!, who, now at their ripe old Internet ages of post-30s own 11% of the company each, which is worth, oh, just about several billion dollars – and still work in a shared cubicle. Of such stuff are Silicon Valley legends made of.
The mythology of it all holds an irresistible and almost mystical allure for Brad and thousands of other top-notch grads like him all across America. With their imaginations fired up, American graduates are now shunning prestigious jobs, fast-track career paths, and lucrative paychecks offered by corporate America. The bravest and most visionary among them strike it out on their own to form their own companies (the highest calling).
Otherwise, like Brad, they embark on the next best thing by joining an unheard-of start-up company that may not even be able to afford the luxury of buying him a desk to replace the one the 25-year old CEO had “borrowed” from mom's kitchen. I wonder just how much glory may fade while Brad sweats it out at the foothills of his start-up. Like many other fresh graduates, Brad shoulders a mountain load of student loans - a 4-year Ivy League undergraduate degree or a 2-year Stanford MBA would typically incur a debt liability of US$120,000 or more.
Declaring that you are seeking a job with a top Fortune 500 company is equivalent to confessing to your peers that, “Actually I don’t have a business idea (i.e. I’m not creative or imaginative enough)”, or “A startup’s is too risky a prospect for me (i.e. I’m a wimp)”. After one newly minted MBA grad spurned what once would have been considered a highly coveted marketing position at Procter and Gamble, she was quoted as saying, “I could be an assistant to an assistant brand manager. I could spend a year deciding whether to change the thickness of a line on a box”. Here at Stanford, graduates whisper almost embarrassingly, “If my start-up doesn’t get off the ground…ahem… I guess I‘ll just have to settle for that US$70,000/year+bonus analyst position at McKinsey…”
This phenomenon is not just limited to fresh college grads. Another Silicon Valley record was recently shattered. A new concept Internet company called E-pinions (www.epinions.com) was formed from scratch, VC-financed and is already up and running – all within 12 weeks. How was this possible ? The founding team is made up of veteran programmers and engineers from Netscape, AOL, @Home, combined with business and finance savvy professionals from Morgan Stanley and McKinsey. Average age: 28. And typical of SV’s cultural melting pot, is made up of 3 Indians, 3 Caucasians and 1 Chinese.
Just how strong was Epinions the entrepreneurial drive? Well, it turns out that you can measure this in stock options. When e-pinions founder, Nirav Tolia, quit his job at Yahoo!, he walked away from his unvested Yahoo stock options worth $10 million. Two of the other founders walked away from their options worth $4 million. The VCs gave them $8 million after their 14-slide PowerPoint concept presentation –which incidentally did not contain a single financial projection. For this start up at least, they could afford to buy desks for their computers – well, they were actually more like desks constructed from wooden doors and 4x4s from Home Depot.
Highly motivated and driven to success, these 21st century entrepreneurs are the brightest brains and talents this planet produces and revel in nothing less that taking on the entire world. To the CEOs of traditional ‘brick and mortar’ businesses who have only just discovered what priceline.com is about, I have this to say: You betcha that at least one of these entrepreneurs out there has fixed YOUR business in their sights, and are solely motivated to get between you and your customers, carve up your market share, and serving the leftovers, if any, to their family pooch.
Behind where I live on campus, VC firms neatly line Sand Hill Road, eagerly waiting to crank up their US$10 billion financial fuel pumps to fund the next bright spark that drops out of the Terman Ph.D. computer engineering program, or walks out from his or her cubicle at Yahoo! or perhaps from the NASA Ames research lab down the road.
Rocket scientists and rocket fuel. It’s obvious that here in Silicon Valley, nobody pays much attention to the old adage to “never mix fuel and fire”
Be afraid, be very afraid.