The document provides a summary of the history of Silicon Valley and the factors that contributed to its emergence as a major hub of innovation. It discusses several key events and individuals: 1) Frederick Terman's role as Stanford professor and provost in encouraging collaboration between academia and industry, including supporting HP's founding. 2) Stanford's focus on electronics during WWII and the Cold War, bringing defense funding and spinouts like Varian Associates. 3) William Shockley founding Shockley Semiconductor which led to the "Traitorous 8" founding Fairchild Semiconductor and initiating the chip industry. 4) The rise of venture capital firms like Draper Gaither & Anderson and later Kleiner Per

1. Generating High Growth Innovation Hubs Steve Blank www.steveblank.com Twitter: sgblank

2. A Few Short Stories Silicon Valley History All Startups Are Not the Same Why Startups and Companies Differ E- School Versus B-School

3. To predict the future you need to understand the past

4. Internet PersonalComputers IntegratedCircuits FruitOrchards FruitOrchards FruitOrchards The Popular View of Silicon Valley History Marc Andreessen Steve Jobs Moore/Noyce Hewlett & Packard Innovation Networks 1910 1960 1970 1980 2000 1990 1930 1940 1950 1920

5. Internet PersonalComputers IntegratedCircuits Microwaves/Defense TestEquipment VacuumTubes The Real Story of Silicon Valley History Venture Capital Innovation Networks 1910 1960 1970 1980 2000 1990 1930 1940 1950 1920

6. Story 1: WWII The First Electronic War

8. Precision Bombing

9. B-17’s

10. B-24’s

11. Flew at 15 - 25 thousand feetStrategic Bombing of Germany The Combined Bomber Offensive British bombed at Night Area Bombing Lancaster's Halifax Flew at 7 - 17 thousand feet

12. Math ChallengeFor every 100 bombers on a mission 4 - 20% would not return Crews had to fly 25 mission to go home

13. Story 2: The Electronic Shield – Electronic Warfare

14. Harvard Radio Research Lab (RRL) Signals Intelligence and Electronic Warfare Reduce losses to fighters and flak Find/understand German Air Defense Electronic and Signals Intelligence Jam/confuse German Air Defense Radar Order of Battle Chaff Jammers Top Secret 800 person lab

15. Electronically Blind German RadarJam the Radars with Noise MANDREL Jammer Put Jammers on Airplanes Jam and shut down Early Warning Radars Anti-aircraft Radars Fighter Radars Ground Control Radars Built over 30,000 jammers DINA Jammer

16. Who Ran this Secret Lab and became the Father of Electronic Warfare? Harvard Radio Research Lab Ran all electronic warfare in WWII 800 people Director: Fredrick Terman - Stanford

17. Fredrick Terman“the Father of Silicon Valley” Stanford Professor of engineering 1926 encouraged his students, William Hewlett and David Packard to start a company Dean of Engineering 1946 Provost 1955

18. Story 3: Stanford And The Cold War

19. WWII Office of Scientific Research and Development (OSRD) $450 million spent on weapons R&D MIT $117 million Caltech $83 million Harvard and Columbia ~ $30 million Stanford ~ $50K

20. Terman’s PostwarStrategy Focus on microwaves and electronics Not going to be left out of gov’t $’s this time Recruits 11 members of war lab as faculty By 1950 Stanford was the MIT of the West Students came from all over the U.S.

21. Stanford Spinouts - Microwave Components Microwave Tube Startups:Klystrons, BWO’s, & TWT’s Eitel-McCullough (1934) Varian Associates (1948) Litton Industries (1946) Huggins Laboratories (1948) Stewart Engineering (1952) Watkins-Johnson (1957) Microwave Electronics Co. (1959)

22. The Cold War and Stanford The Cold War battlefield moves 500 miles east Countermeasures, ELINT become critical Stanford becomes a center of excellence for the CIA, NSA, Navy, Air Force 400-person weapons lab in engineering department

23. Lockheed Comes to Town - 1956 Polaris missile SLBM Built by Lockheed Missiles Division in Sunnyvale 20,000 employees by 1960 From 0 in 4 years HP: 3,000 employees 1960

24. Stanford Spinouts - Military Systems Sylvania Electronics Defense Laboratory (1953) GE Microwave Laboratory (1956) Granger Associates (1956) Applied Technology (1959) Electronic Systems Laboratories (ESL) (1964) Argo Systems (1969) Advent Systems (1972)

25. Terman Changes the Startup/University RulesSilicon Valley as We Know it Starts Here Graduate students encouraged to start companies Professors encouraged to consult for companies Terman and other professors take board seats Technology transfer/IP licensing easy Getting out in the real world was good for your academic career Failure was accepted as part of the culture

26. Entrepreneurs WeaponsFinance Crisis Profit Motivation Customer Development Mgmt Tools Agile Development Business ModelDesign Design Thinking Stanford and the Cold War Silicon Valley’s 1st Wave Risk Taking Culture Entrepreneurial Outward-Facing Tech Universities Free flow of People/Info Infrastructure 24/7 Utilities Predictable Economic System Stable Legal System Research Universities

27. Story 4: 1956 - The Year it Becomes Silicon Valley

28. Meanwhile, on the Other Side of Town… The Head of Radar Bombing training for Air Force starts a Company

29. Internet PersonalComputers IntegratedCircuits Microwaves/Defense TestEquipment VacuumTubes The Real Story of Silicon Valley History Venture Capital Innovation Networks 1910 1960 1970 1980 2000 1990 1930 1940 1950 1920

30. William Shockley“The Other Father of Silicon Valley” Director of Navy anti-submarine warfare Head of Radar Bombing training for Air Force Co-inventor of the transistor Nobel Prize in 1956 Founded Shockley Semiconductor 1956

31. William Shockley“Great Researcher, Awesome Talent Spotter, Horrible Manager” Unintended consequences: “The traitorous 8” leave Shockley found Fairchild Semiconductor 1st VC-backed startup Noyce & Moore leave Fairchild to start Intel 65 other chip companies in the next 20 years

32. Semiconductor Genealogy: 1955 - 1976

33. Story 5: The Rise of VentureCapital

34. Internet PersonalComputers IntegratedCircuits Microwaves/Defense TestEquipment VacuumTubes The Real Story of Silicon Valley History Venture Capital Innovation Networks 1910 1960 1970 1980 2000 1990 1930 1940 1950 1920

35. The Rise of Risk CapitalFamily Money 1940’s - 1960’s J.H. Whitney 1st family office 1946 Laurance Rockefeller Draper Gaither & Anderson (1st limited Partnership) 1958 Spun out as Venrock in 1969 Bessemer East Coast focus Wide variety of industries

36. The Valley Attracts Financial AttentionThe 1st West Coast IPO’s 1956 Varian 1957 Hewlett Packard 1958 Ampex

37. The Rise of Risk CapitalSBIC Act of 1958 Cold war program – Sputnik motivated Gov’tmatch of private investments 3:1 700 SBIC funds by 1965 75% of all VC funding in 1968 7% in 1988 Replaced by the Limited Partnership

39. Rock and Davis 1961

40. Sutter Hill 1964

41. Patricof & Co. 1969

42. Kleiner Perkins 1972

44. Entrepreneurs VentureFinance Crisis Profit Motivation Customer Development Mgmt Tools Agile Development Business ModelDesign Design Thinking Venture CapitalSilicon Valley’s 2nd Wave Risk Taking Culture Entrepreneurial Outward-Facing Tech Universities Free flow of People/Info Infrastructure 24/7 Utilities Predictable Economic System Stable Legal System Research Universities

45. Story 6:Entrepreneurship as a Management Science Not All Startups Are Equal

46. Companies Get Educated Gov’t charted companies ~1600’s Modern corporations ~1800’s Business Schools to educate corporate execs Organize body of knowledge First Harvard MBA – 1908

47. Startups Get Educated Every company began as a startup Modern startups ~ 1950’s Venture funded startups ~1970’s Entrepreneurship Schools to educate founders Organize body of knowledge Emerging now

48. Wait a Minute…Aren’t Startups Small Versions of Large Companies? 50 Years of Experience Says NO

49. Story 7:Not All Startups Are Equal Small Business Scalable Startups Large Company Innovation

53. Can grow to $100m/year

54. Business model found

55. Focused on execution and processScalable Startup Execute Search A Startup is a temporary organization used tosearch for a scalable business model

57. Can grow to $100m/year

58. Business model found

59. Focused on execution and process

61. Typically needs risk capital

63. Professional Mgmt

64. Process

67. New tech / Unknown product features

70. Repeatable sales model- Managers hired

72. Product/Market fit- Repeatable sales model - Managers hired

74. Scalable

75. Price List/Data Sheets

77. Pricing/Feature unstable

78. Not yet repeatable

79. “One-off’s”

81. Scalable

82. Price List/Data Sheets

84. Waterfall Development

85. QA

87. Waterfall Development

88. QA

90. Continuous Learning

91. Self Organizing Teams

92. Minimum Feature Set

94. Cash Flow Statement

96. Viral coefficient

97. Customer Lifetime Value

98. Average Selling Price/Order Size

99. Monthly burn rate

101. Cash Flow Statement

103. Reduce risk

104. Optimize certainty

106. No profits to risk

107. Searching equals risk

108. Pains in the butt

109. Always looking at something different

111. Affects revenue/profit

112. Reflects on individual/organization

114. Normal part of startups

115. Not a crisis

116. Shared, lessons learned

117. Iterations and Pivots

118. Pains in the butt

119. Always looking at something different

122. Customers

123. Channel

124. Demand Creation

125. Revenue/Expenses/ProfitThe template to look like everyone else when you present to VC’s/Management

126. No Business Plan survives first contact with customers

127. So Search for a Business Model

128. What Is a Business Model? Diagram of flows between company and customers Scorecard of hypotheses testing Rapid change with each iteration and pivot Founder-driven * Alex Osterwalder

129. 9 building blocks of a business model:

130. CUSTOMER SEGMENTS which customers and users are you serving? which jobs do they really want to get done?

131. VALUE PROPOSITIONS what are you offering them? what is that getting done for them? do they care?

132. CHANNELS how does each customer segment want to be reached? through which interaction points?

133. CUSTOMER RELATIONSHIPS what relationships are you establishing with each segment? personal? automated? acquisitive? retentive?

134. REVENUE STREAMS what are customers really willing to pay for? how? are you generating transactional or recurring revenues?

135. KEY RESOURCES which resources underpin your business model? which assets are essential?

136. KEY ACTIVITIES which activities do you need to perform well in your business model? what is crucial? 74

137. KEY PARTNERS which partners and suppliers leverage your model? who do you need to rely on?

138. COST STRUCTURE what is the resulting cost structure? which key elements drive your costs?

139. value proposition customer relationships key activities customer segments key partners cost structure revenue streams key resources channels 77 images by JAM

140. sketch out your business model

141. building block building block building block building block building block building block building block building block building block building block building block building block

142. But,Realize They’re Hypotheses

143. 9 Guesses Guess Guess Guess Guess Guess Guess Guess Guess Guess

146. Story 10:Why Startups Fail

147. Traditional Product Introduction Model:Two Implicit Assumptions Customer Problem: known Concept Product Dev. Alpha/Beta Test Launch/ 1st Ship Product Features: known

148. More startups fail from a lack of customers than from a failure of product development

149. Story 11:Customer Development The founders ^ Get Out of the Building

150. Product Development Concept/Bus. Plan Product Dev. Alpha/Beta Test Launch/1st Ship CustomerDevelopment Company Building CustomerDiscovery CustomerValidation Customer Creation Customer Development Pivot

151. Customer Discovery CustomerDiscovery CustomerValidation Company Building CustomerCreation Stop selling, start listening Test your hypotheses Continuous Discovery Done by founders

153. Market Type

154. CompetitionTurning Hypotheses to Facts

156. Customer

157. User

159. Customer

160. User

162. Market Type

164. (Customer)

167. Customer

168. User

170. Market Type

172. (Customer)

175. Customer

176. User

178. Market Type

180. (Customer)

183. Iteration without crisis

185. Story 12:Entrepreneurship as a Management Science E-School instead of B-School

187. Strategy

188. Accounting

189. Products

190. Engineering

191. Management

193. Business Model testing

194. Customer Development

195. Agile Development

196. Metrics

197. Venture Finance

198. Design Thinking

199. Execution

200. Accounting

201. Products

202. Engineering

203. Management

205. Managing Groups and Teams

206. Financial Accounting

207. Operations

208. Modeling for Optimization

210. Customer/Agile Development

211. Business Model Design

212. Entrepreneurial Management

213. Creativity and Innovation

215. Managing Groups and Teams

216. Financial Accounting

217. Operations

218. Modeling for Optimization

220. E-School Students are not B-School Students

222. Inventor of the Modern Corporation Scalable Startup Transition Large Company

223. Inventor of the Modern Corporation Scalable Startup Transition Large Company Alfred P. Sloan

225. MIT Sloan School

226. Sloan Foundation

228. Founder of General Motors Scalable Startup Transition Large Company Billy Durant

230. Fired by board, starts Chevrolet

231. Regains control of GM

232. Fired by board, GM ~$3.6 billion** GM Net sales in 1921 $304.5M = $3.6 Billion today

233. Durant Versus Sloan Scalable Startup Transition Large Company

237. Entrepreneurs Angel / VentureFinance Crisis Profit Motivation Customer Development Mgmt Tools Agile Development Business ModelDesign Design Thinking Where is Chile? Risk Taking Culture Entrepreneurial Outward-Facing Tech Universities Free flow of People/Info Infrastructure 24/7 Utilities Predictable Economic System Stable Legal System Research Universities

238. Lessons Learned Culture needs to support and encourage risk Failure is integral to the startup process Technology hubs must be magnets for engineers But they cluster around industry specialties In what area will Chile build a world-class hub? E-School reduces early stage startup risk Healthy Venture Capital industry = large profits Chilean market not large enough Teach startups how to go global early

239. I Write a Blog www.steveblank.com

240. This Presentation Combines www.businessmodelgeneration.com www.steveblank.com

241. Thanks www.steveblank.com