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Entrepreneurship arid Innovation: The Elec~on~cs hndushy GORDON E. MOORE What does it take to make a successful entrepreneurial environ- ment? First, it talces sources of ideas and people, particularly tech- nical people. Second, z' requires a rapidly changing technology, preferably with many varied applications. Third, it requires large and diverse markets. Fourth, it takes risk capital. And fifth, it takes a racier that recognizes the entrepreneur when he or she is suc- ces~ul. This discussion of entrepreneurship and innovation in electronics focuses on the semiconductor industry. It is not based on any scholarly study, but on a close personal association with this industry and on personal observation of the process from a variety of perspectives. Although I have never really Fought of myself as an entrepreneur, I participated in starting two companies, and before Hat had been Be eighteenth employee of another start-up company. That was Shockley Semiconductor, William Shockley's pioneering venture, which put He silicon in Silicon Valley initially. My first start-up, to give an example of how some of these Wings come about, was completely for negative reasons. A group of us had burned our bridges at Shockley Semiconductor and decided that we had to look elsewhere for jobs. We liked working together. When some of us by chance met an employee of an investment banking company, we asked him if he knew of a company that might like to hire the group of us. He sent two people out from the East Coast to talc to our group of eight young scientists and en- gineers. The two erIiissanes told us, "You don't want to work for someone, you want to son your own company." This was a completely new concept for 423

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424 GORDON E. MOORE "us, but we decided at least that way we wouldn't have to move. They took on the job of tracking down some capital for us and soon ran into Sherman Fairchild. That was the beginning of Fairchild Semiconductor. We were very naive about the whole process, but we did have a product vision that we wanted to pursue. Eleven years later ~ started Intel, also for mostly negative reasons. There were problems in the first company that ~ was not in a position to control very well. It seemed easier to set over again than to fix them. With each company, however, there was a product-market opportunity that seemed viable and a new technological direction that seemed appropriate for approaching that opportunity. In the case of Fairchild, it was the silicon transistor, which then became the Planar silicon transistor, and fortunately that was He technology appropriate for the practical integrated circuit, which was so important in Fairchild's early history. At Intel, it was the idea of semiconductor memory, which a few years later led to We invention of the microprocessor, which in turn became the principal area that Intel has pursued ever since. Looking at my involvement in the entrepreneurial process from another viewpoint, my companies have spawned several s~t-ups. In fact, sometimes it seems Mat half of Silicon Valley found its origin in either Fairchild or Intel, to say nothing of the "Silicon Forest" in Oregon, and so on. There are really many reasons for this. In electronics, an important force has been We diverse opportunities available. Any company active in the forefront of semiconductor technology uncovers far more opportunities than it is in a position to pursue. When people become en~us~ast~c about a particular new opportunity but He not allowed to pursue it, they become potential entre- preneurs. As we have seen over the past few years, when these potential entrepreneurs are backed by a plentiful source of venture capital, Here is a burst of new enterprise. Successful new enterprises, especially Hose started by people considered less capable or less deserving of success Han He people with a new idea, accelerate He process. When people see Heir peers setting up successful companies (and success in this business is generally measured by economic success, since we do not have the usual ways of measuring success typical in He academic community), it creates an environment in which more people want to my. A certain amount of this entrepreneurship Is very healthy. Otherwise, important products and ideas would never see He light of day. Anyone who has been in management positions at large, technology-onented companies has had the experience of refusing to support an idea for a variety of good reasons, often only to have a start-up develop a major business based on that idea. I personally toned down the opportunity to do home computers in the early 1970s. I could not imagine my wife putting her recipes on a computer.

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ENTREPRENEURSHIP ED INNOVAT70N: THE E~=RONICS INDU=RY 425 That-was about the only example the people proposing the idea could come up with at that particular time, but they had a very strong feeling that the idea of the personal computer was a valid business opportunity. Why is there so much exploitation of innovation, if not the innovation itself, by start-ups? I think there are a variety of reasons, including, first of all, focus. This is really the advantage of the start-up company. You can focus all your energy on realizing whatever product the company sees as important. There is no existing product line to worry about. Any established company has many other things to maintain. It can only devote a small portion of total available energy to a new enterprise. This lack of focus, however, does not exist in the start-ups. Often the start-up companies have a much more powerful team focused in an area than a big company can put together. This happens because the bit, company has many other alternative positions in which it wants to employ its better people. The start-up environment is also a more efficient way to get some things done. For example, in the early days of Intel when we were purchasing our first capital equipment, we gave each of the engineers a purchase-order book, not requisitions, but purchase orders. The engineer would talk to the equip- ment supplier and when he found the piece of equipment he wanted, he would write out a purchase order and hand it to the salesman. This is a very efficient way of getting started compared with the bureaucratic ways Mat usually develop in a larger company, again for a variety of good reasons. The United States went through a period when there was probably too little venturing. In the 1970s in particular, as venture capital dried up, largely because of the changes in the capital gains tax provision in the 1969 tax law, it was hard for anyone with a new idea to get financial support for it. Since the 1979 tax law changes, we may have swung, too far in the opposite direction. There is too much venture capital chasing too few different op- porcuniiies. The slogan of the venture capitalists appears to be, "Anything worm doing is worm doing in excess." An article in Time magazine last year said that there were some 180 different personal computers available for the consumer to choose among, although the number reported elsewhere is closer to 300. There are now 71 manufacturers of floppy disks and 84 manufacturers of hard disks, to say nothing of the innumerable new semiconductor start-ups. The semiconductor industry has become a capital-intensive business in which a minimum eco- nomic manufacturing module is probably a $100 million investment. It seems an unlikely place for venture capital. While I am not an expert in biotech- nology, when I hear of some 200 companies in that area, I cannot help thinkin, that some excess exists there also. To correct this excess, there will be a lot of consolidations, associated market disruptions, and disrupted lives. An excess of venture capital is also omen disruptive to the company the entrepreneurs leave when Hey stan their venture. For example, at Intel we

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426 GORDON E. MOORE have one area in which every person familiar with a particular technical operating system was taken by a start-up, leaving us with a void where we had developed significant expertise. Another example is a major project, important for our international competitive position, that was delayed for a year or more because of the people leaving for a start-up. More than 30 engineers left from an advanced microprocessor project, which was delayed significantly as a result. Too many start-ups also dissipate energy through duplication and overlap. Well-qualified people, particularly with the specific technical training re- quired in these areas, represent a finite resource. When this is dissipated, it can hurt our global competitiveness. Too many start-ups diffuse technology. Foreign companies have learned Mat little companies running out of money can transfer a lot of U.S.-developed technology. It has happened over and over again in electronics, and I suspect that we are going to see a rash of it occumng again. You can look at situations like Fujitsu's early investment in Amdahl when Amdahl could not find any other support. Certainly it helped Fujitsu's position in the worldwide computer competition. Several Japanese companies have acquired small U.S. semiconductor companies, and the Ko- reans are now proceeding to do exactly the same thing as a way to extract our technology and establish it in other parts of the world. My last point is about a special problem in Me semiconductor industry, where patent protection has not been an important factor, for several reasons. First, the very rapid rate of technological change and second, Me very com- plex, serial nature of Me processing involved result in the patents being very widely dispersed. In order to make a semiconductor device, you probably use the patents owned by 20 or 30 companies. Each company tries to get enough of a patent position that it can trade with everybody, usually at zero or trivial royalty rates so no other company can put it out of business. The net result is that patenting has not had a strong impact on what goes on in the industry. As mentioned elsewhere in this volume, an industry that changes monthly has a real problem when it has a legal system that is 25 years behind. Although many people are inclined to point to high-tech and the electronics industry specifically as our economic salvation, we ought to recognize that Were is significant cause for concern. In electronics, the U.S. balance of trade with Japan last year was -$15 billion. Our electronics trade deficit with Japan is larger Man our automotive trade deficit win Japan. It is pro- jected to grow to some $20 billion this year. Even in leading-edge semicon- ductor technology, MOS LSI (metal oxide silicon large scale integration), the balance of trade crossed over in 1980 and was$800 million last year. And it is increasing rapidly in Mat direction. If we lose the manufacturing battle to our overseas competitors, the re- search and development that creates the opportunities is in real danger of losing the revenue stream that is required to support it. Manufacturing in the

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ENTREPRENEURSHIP AND INNOVATION: THE TONICS lNDU=RY 427 electronics industry is being moved offshore at an extremely rapid pace, not only by our forei an competitors but also by U.S. companies pursuing lower labor rates and cheaper component sources. As manufacturing, goes overseas, the technology leadership is very likely to follow. It is a problem Mat requires considerable attention if we expect to make high technology a major portion of future U.S. economic growth. What does it take to make a successful entrepreneurial environment? First, it takes sources of ideas and people, particularly technical people. These sources are typically the large companies with extensive R&D capabilities, and sometimes universities, as in the case of the biotechnologies. Second, it requires a rapidly changing technology, preferably with many varied ap- plications. Third, it requires large and diverse markets to provide many opportunities for market niches to be developed by We companies getting started. Fours, it requires risk capital which dried up in the 1970s and seemed overly prevalent in the first few years of the l980s. Successful examples are valuable in motivating people to overcome the inertia to start a company. And, finally, it takes a society Mat recognizes Me entrepreneur when he or she is successful. Certainly these are the Wings that we have in abundance in Silicon Valley.

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