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OCR for page 423
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
OCR for page 424
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.
OCR for page 425
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
OCR for page 426
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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
OCR for page 427
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.
OCR for page 428
Representative terms from entire chapter:
electronics industry
