Steve (for Wick)

Many years ago, I had the great pleasure of showing Steve Jobs a laser projector prototype in our suite at a major tradeshow. When I brought him into the room wearing the customary jeans and T-shirt, my chairman tried to tell him it was a private suite, and who was he and why wasn’t he wearing a suit like everyone else? Interestingly, none of this seemed to bother him, as he was obsessing on the projection system at the time.

I had met Steve 3 times in 23 years and while I doubt he ever remembered me, I was always stunned by his perception, vision, and imagination tempered by ability to focus (obsess) on core over context. He lived next door to a fellow CEO Wick Goodspeed near downtown Palo Alto for many years, and because he didn’t have a pool (his yard was an orchard) he and his family often used Wick's. Wick was a wonderful friend to many people, a role model, and he is sadly missed. I asked Steve once if he was left- or right-handed (so many of the original Apple team were lefties)--and without missing a beat he said ambidextrous. :)

Now, while many people will tell you the stores are all true, I would observe that all visionaries can be difficult because they are obsessed--I'm sure Gandhi was a pain at weddings, too. My limited observations of him were augmented by working with a lot of his close co-workers and meeting a lot of the classic Apple alumni, including one of my portfolio CEOs and my current business partner Scull, who had the dubious pleasure of channeling go-to market strategies to Steve’s ideas...you can imagine!

My final meeting with him was a few years back, still related to the cell phone projector idea--I was in big trouble with my family because it was my birthday and the only time I could meet him was at night, so I was missing my cake. I waited in the lobby for quite a while, and since no one was there I started playing the Bosendorfer piano, which surprisingly wasn't locked (normally in the US, playing the piano in a big hotel gets the "may I help you?" and dirty look), so I figured this might accelerate my meeting so I could get back to my birthday cake. After another 10 minutes or so I realized he was listening, so I stopped and figured I was in big trouble, but apparently not. I discovered later that he loved art and artists--he wasn't artistic himself, at least not in the traditional sense, but that made art even more important to him, as evidenced in Apple's designs.

Apple, even with Steve's vision, is impossible for a startup to do business with--they pay well, they have massive volumes, and they value performance and quality over price, but they are relentless in their pursuit of excellence. And startups beware--they will suck you dry like any big company, only worse. So, excited as I was, I really didn't want to get into bed with them, but I wanted to see if the idea really had legs or was crazy. What intrigued Steve was not the projector or the laser or the cool tech, but the key issue that a laser is always in focus, so when you project a beam the image is always in focus, even if its on an irregular surface like a sphere, cylinder, or someone's T-shirt. He immediately leapt to the idea of projecting clothes onto people, and structural drawings on old buildings and at least 20 other "apps." The other amazing thing about him, was his willingness to take a big bet early on--he bought the little startup that invented the multi-touch technology, ploughed years of resources and cash into it, and made it the key selling point of the iPhone. He did the same thing many years before with a crazy idea completely computer animated movies buying the property from George Lucas after Lucas' financial advisors insisted he sell the dog that was draining his cash--10 years of pouring money into it made Steve CEO of 2 public companies simultaneously.

Love him, hate him (and the same people did both), he was truly a national treasure, and an inspiration to us hardware guys who struggle for attention against the white noise of the Internet. In my final meeting, I made the mistake of answering his "how important are we to you" question by saying "I’m giving up my birthday with my family to be here with you at night, isn’t that a good start?"--he ignored that and moved on. I found out later that it was his birthday, too--oops….

IEEE Entrepreneurs talk

I was fortunate enough to be invited to present at the IEEE Forum recently at National Semiconductor in Santa Clara. What’s great about these presentations is that you learn so much from the questions entrepreneurs ask, and there is always a new perspective and ideas to share. Personally, I don’t like success talks, they are always too glib, and too often accompanied by super-sized ego. I prefer to talk about failure and learning, and if possible how the failure was recovered and turned into a modicum of success, maybe God forbid even making a little money along the way ;-)

I really enjoy giving my life by misadventure talk, which basically explains how one can stumble into success despite making a bunch of wrong decisions – if you think about just how many decisions a CEO makes in a day, it's not surprising that many of them turn out to be wrong. What's great about startups is that you can change your mind, and second guess decisions and quickly adapt to correct mistakes. When Mark Hurd decided to cut and consolidate design centers in HP, it took a year to formulate a plan, another year to execute, and believe it or not, there wasn’t much of a chance to change his mind along the way, and even if there was, it would have taken another two years to undo - some more recent things can't be undone and more's the pity ...

As entrepreneurs, we go down a lot of rabbit holes (and not a few ratholes as well) in our search for the right products, solutions, businesses, and opportunities. Many of the rabbit holes are dead ends, or lead to the madhatter’s tea party, rather than the magical growth elixir for which we originated the quest – those failed quests are what temper us for eventual success. I have sat through so many presentations by successful entrepreneurs who did everything right, were geniuses, and had market vision so profound that everything worked out exactly as they planned. I read Alice in Wonderland as a kid, so little need to hear more fairy tales now. Engineers are not afraid of failure, nor do they expect to have clairvoyance enough to see every mishap and engineer it out before it becomes a problem – they twist and turn and always have a backup plan because they know failure is an inevitable part of pushing the envelope.

The other epiphany I had while preparing the talk, is drawing on my Aussie entrepreneur’s talk, I realized if I replaced the words “Australian Entrepreneur” with “Laser Jock” then the talk worked for both groups. It's amazing the similarities with the little Aussie battler entrepreneur, and the US laser engineer. We tend to think with solution or technology looking for a problem, we worry about saving money to success, we don’t understand marketing, and we don’t get just how much harder it is to market and sell a product vs design and build it. On the positive side, the similarities are even ore striking. We never give up, always find a way around any problem, are very straightforward in our dealings (and this is not the case with many other types of entrepreneurs), know how to deliver, can create a lot with a little, and are fueled with the passion of belief in what we are doing that transcends all obstacles.

Chip companies and why they are hard

At present its very, very hard to fund a chip company. Firms that would previously have been very bullish on the space have backed off completely, and one very well known firm for chip deals has done only one deal this year in that space. VCs have always been careful on fabless semi, because it typically takes $50M to build a chip-company--not for the weak of heart!

However, the economics and scale of the chip business keeps luring investors back. For example a GPS chip that might go into a cell phone, or a laser that might make a cell phone display ,get investors excited because of that wonderful "billion" prefix to the number of phones sold--even when multiplied by an ASP of only say $5 that turns into a very very large number.

Chips have large gross margins because they are hard to build and can have great IP barriers to entry. The downside is just about every design decision you make is fraught with risk and quickly followed by a $5M price tag on making your first serious chip run. The level of design team you need to get to tape out the chip means a million a month level burn rates, and pretty quickly your cash is gone.

If your market materializes and you are first in, then chances are you can be the Intel of that market and enjoy 80% share for a long time to come; but if you miss and your competitor gets in first, then you are fighting with the others for the scraps. The worst case is when the market does not take off when you thought--like femto cells, or RFID. Then you are stuck waiting for the market to happen and all your technological lead becomes worthless because your competitors have plenty of time to catch up while you are waiting. VCs get scared off by the lack of a market, and the company is in real trouble.

Volume is key to the chip-co; remember when DSP was first thrown at optical for dispersion compensation? It was like black magic for its ability to solve aberrations occurring in transit with DSP at the receiver. There was a massive wave of investment in that area because the technology offered such a compelling value proposition. Unfortunately, the volumes couldn’t support the chip economics, even in a high volume optical application like telcom (which for laser jocks is like consumer electronics is to PC people), you were still only selling say 50,000 transponders that needed EDC which simply couldn’t support the economics of a single chip-co let alone a flurry of them.

On the positive side, they are great because chips have the unique ability to integrate functionality on a scale never seen before. Remember how wireless started on a card or a USB plug-in and ended up as a feature on an Intel chip?

So once you are in, you can retain your gross margin and ASP simply by adding more and more functionality to your chip through integration of other hardware and software functions elsewhere in your customer’s product. From the customer perspective you are taking cost out of their product and driving up their gross margin, and at the same time you are supporting yours, albeit by eating someone else’s lunch ;-(.

There is a particularly interesting connection between CMOS and optical, at least for me, because the parallel processing potential of optics is so great, and the DSP capability of CMOS offers the ability to solve tough optical problems. The combination of the two often leads to great technologies, at least when there aren’t 20 companies funded at once to do it (circa 2000). Hey, maybe this is a good time to do a chip deal ;-)

Responses to Comments:

To Life Saving Beverage Maker:
It's true that at acquisition time many investors don’t seem to value the team, but I think it's all about Team--and a good investor should be part of that team, otherwise, sure, put the money in the bank instead. Man, we’ve met a few VCs who acted a lot more like bankers when it came to risk haven’t we?

To BJ:
Mate, I was actually thinking of Lightbit when I wrote this one; the CEO or Chairman should answer your question, but if you shoot me an email, I will forward to them. From the VC’s perspective it was a top quartile success, and 3x return in the year after IPO is great – but you’ve given me a great idea for a future blog, thanks.