Start-ups must ‘adapt or die’

A new Darwinian ethos pervades Silicon Valley start ups, according to venture capitalists attending a conference this week

In Silicon Valley, Charles Darwin is in.

Michael Kanellos
CNET News.com

The "adapt or die" ethos that has become synonymous with the 19th century British naturalist is the reigning principle in the technology industry these days, according to venture capitalists and panellists at Silicon Valley 4.0, a one-day symposium on the industry held Tuesday. It was sponsored by Garage Technology Ventures and the Churchill Club.

To survive, companies have to be willing to adjust to difficult circumstances and often be content with incremental gains or filling niches. Big companies have also become adept at adjusting to rapid market changes, which makes life more difficult for start-ups.

"You have to have something that is real original and can scale quickly," said John Sculley, former chief executive of Apple Computer and currently a partner in the investment firm Sculley Brothers. "The big guys are going to dominate with brand and distribution… I think big companies now have a much higher respect for adapting."

Judy Estrin, who has founded seven companies and once worked as the chief information officer for Cisco Systems, said she wasn’t "real positive" about the next couple of years.

Entrepreneurs, she added, might in the next few years be better off trying to bring their ideas to fruition by working for large companies or selling their start-ups to them, rather than aiming for the historically more lucrative IPO.

"Everybody has to ratchet down their expectations of value," she said.

Four years ago, speakers at futurist tech industry conferences like Silicon Valley 4.0 typically invoked the name of the Chinese warlord Lao Tzu or Ernest Shackleton, the plucky English explorer whose charismatic leadership saved the lives of his crew. But after a few bad years, everybody has started citing Darwin and the principle of natural selection.

In addition to weathering the bad years of 2001 and 2002, US technology companies must contend with the fact that that many of the advantages they enjoyed by jump-starting the information technology market have vanished, said Geoffrey Moore, founder of TCG Advisors and a partner at Mohr Davidow Ventures.

"Other countries are turning out more engineers than we are that are very, very good," he said. Shifting jobs overseas is also likely toprompt a backlash in the future, he added.

Still, despite the gloom and doom, opportunities still exist. Technology for the home will probably become a huge growth market, Estrin said. Many of the companies that demonstrated products at the conference, such as home-server manufacturer Mirra, hope to come up with products and services that will make it easier for consumers to access work and entertainment files.

Embedded computers and sensor networks that will link products and devices into pervasive networks will also likely be big. "RFID is a way of testing out what will happen when we have embedded computers," Estrin said.

Moore said that his firm is focusing on several areas, including biological engineering. "The intersection between biology and computing is as exciting and as fruitful as the intersection between the transistor and the microprocessor was 20 years ago," he said. The firm is also interested in Internet infrastructure, and defence and security.

"We live in a very much darker world," he said. "We are going to have to put more and more effort into combating the dark side."

Apples and oranges
In the early days of the industry, some companies tried to place more emphasis on idealism than survival. Sculley and Garage Technology partner and former Apple executive Guy Kawasaki both said that Apple executives really didn’t think of profit first during the heady days of the 1980s.

"Our emphasis wasn’t about making money. It was about changing the world," Kawasaki said.

At the same time, Apple was making decisions that would come to haunt it, Sculley said. It chose not to adopt Intel chips, for instance.

"It was probably one of the biggest strategic mistakes Apple ever made," he said. Sculley also complimented Microsoft chairman Bill Gates and Michael Dell, founder of computer maker Dell.

"Michael Dell had the insight that innovation wasn’t just about cool technology. It was also about innovating on logistics," Sculley said. "Bill was a much better competitor and much smarter at understanding a sustainable business model," Sculley said of Gates.

By contrast, Les Vadasz, who recently retired from running Intel’s venture capital arm, said that his company never worried too much about altruism.

"I don’t think I or my colleagues spent a lot of time staring in front of the mirror saying, ‘gee, I am going to change the world,’" Vadasz said. "If you go to work saying that, you are in the wrong business."

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