Friday, August 29, 2008

Former Cisco CTO Judy Estrin Says Tech is Lame

Friday is a no blog day for me, but sometimes you have something you have to say. Today the New York Times has an article about a new book written by Judy Estrin, former CTO of Cisco. Here is an excerpt from the article.
Ms. Estrin traces Silicon Valley’s troubles to the tech boom. She said that’s when entrepreneurs and venture capitalists started focusing more on starting companies to turn around and sell them and less on building successful companies for the long term.

“Starting in 1998, there was such a shift in Silicon Valley toward chasing money and short-term returns,” she said.

Part of the reason, she said, was that Cisco and other fast-growing big companies started acquiring start-ups with innovative technologies instead of developing new ideas internally. Entrepreneurs began founding companies with the goal of selling to a big tech company, and venture investors encouraged that.

Ms. Estrin acknowledged that innovative ideas still appear all over Silicon Valley. But, she said, the technologies at the root of new products like Apple’s iPod or the Facebook social networking service were actually developed several decades ago. If entrepreneurs do not continue to develop groundbreaking technology, she said, the valley will be in dire straits in another decade. She compared the situation to a tree that appears to be growing well, but whose roots are rotting underground.
 Yup.

The problem is driven by an investment community too fixated on short term results. For example, what does it say when VCs will not generally invest in companies unless they have finished technologies ready for market? It says that only companies that can raise enough money from friends and family, or only companies that can self fund can get launched. This is small money. And little money can't generally fund hard stuff.

Hard does not always equal better, but real innovation is usually not cheap.

But what is worse, in this tech economy, real innovation is not respected. It used to be that if you talked about changing the world, people took notice. Now if you say such things with a straight face, you will be laughed out of the VC conference room. It seems almost silly to aspire to do something so great that it really moves the bar. And in fact, it is true that when most people today say such things, it is little more than hyperbole. The problem is that in the current environment there is little place for actually trying to *do* such things. There is little money for it, but more importantly, there is little patience even for the concept.

In fact, in our elevator pitch, fast money, thin veneer, social networking tech econonmy, real innovation is a dirty word. And I have no idea what to do about it.

10 comments:

  1. I generally agree with the opinions set forth on this matter, truely innovative technology is becoming harder and harder to find investment for... however I do think that perhaps overall other trends are forming. I work for a small company in the UK where at least 75% of the business is derived from consultancy and outsource contracts, however the remaining income is generated by allowing the developers time between projects to try and come up with innovative utilities and tools... One such one we have just released as an alternative to the Maven build system suited for larger and more enterprise projects such as those run by some of the companies we do work for. We can then sell these solutions to existing clients.

    I also think that the current ecconomic climate has been stacking against high risk technology companies. I mean who wants to sink a couple of million in to a product that next year might be classed as a luxury item rather than a necessity good. Some items obviously make the transition - I think mobile/cell phones are a good example of that, and MP3 players heading that way....

    So my overall opinion is that this is just part of the ebb and flow of business and not something we should be that concerned about....

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  2. Knee jerk idea: Take a page from the upscale housing development playbook of coastal areas where there is concern with flipping of homes that will never be lived in by the investors... and apply this to tax breaks [1].

    Encourage ownership stakes to be maintained for a minimum of 7 or 10 years with a matching escalator for tax breaks [1] based on the commitment made by founders and VC.

    Discourage rapid flips by combining tax breaks with a penalty of transaction taxes [1] upon ownership transfer at early withdrawal before year 7 or 10. These transaction taxes go into state or federal innovation funds administered by public universities.

    [1] see also carried interest debates of 2007 pre-credit crunchishness

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  3. Agree.

    That's why I started to finance my long term vision with contract work that goes into that direction, codewise.

    It just doesn't make sense anymore, to explain an (of course) uncertain long-term vision to those short term, elevator bitches ;-)

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  4. A lot of firms I deal with have gone all near term of late. I've noticed it and worry about it. As a researcher I've been told if my research doesn't immediately impact the bottom line it's not worth doing. Government isn't funding longer term research, either. What we see is an attempt to satiate our appetites eternally with a single huge meal of gluttonous proportions. This bodes ill for everyone, I believe.

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  5. Innovation capital starts with angels, not VCs. A venture community thrives or dies by its forward-looking, risk-oriented, brains-and-money seed stage investors. Silicon Valley still has such folks. (Unfortunately a lot of the newly-minted ones believe all problems will be solved with web services alone!)

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  6. (when posting with Name & URL, the comment code rejected a valid URL)

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  7. I dont work in the Tech industry, so i'm just an observer... but what exactly do you mean by innovation?

    It seems an easy thing to say, but what really seems to be needed more is consolidation (if thats the term)... again I could be totally wrong here and talking rubbish... but you could say Nokia, for example, is pushing innovation.... every year they constantly push out better phones with more advanced features and so on...

    The iPhone, as was frequently pointed out, brought nothing actually new to the table, but it did so many 'basic' so much better then other phones that it was an instant hit.

    Im no apple fan, but that was just one example that occured to me.

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  8. Start building something of value now. Laugh your ass off in 10-20 years.

    The serious failing of the current generation is a lack of patience, and an unwillingness to pay dues. Whether in the CxO level, or in an entry level developer, everyone wants everything now and doesn't want to pay for it, or risk anything to get it.

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  9. I've been a Silicon Valley CTO for 15 years and done several startups in that time. I've made and lost millions and wives doing so, and I've never "lacked patience" or a "willingness to pay dues". Get a life and get over it.

    Tech won't wait 20 years, particularly when your competition has millions to work with. If you're thinking of it chances are somebody is already doing it. We survive in the market we have, not the one that used to be which in fact created the current one.

    The real issue is that no one funds building a market. Amazon cost $1.5 billion to reach profit. Who wants to take that kind of risk today? Without hundreds of millions how will you build a market to sell your goods and recoup the investment? Pretty hard to see that you've got that money lined up when someone comes in with a power point deck, a prototype, maybe some initial revenue and asks you for $250,000 at an Angel's meeting.

    The amazing thing is that they do invest. Why? Because they look to acquisition. It costs less, way less. You plug what you have into someone else's market and suddenly for less than a million you're selling to millions of customers.

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