Nine of Today's Hottest EE's-Turned Entrepreneurs-and-Venture-Capitalists

discuss what it takes to climb as high as they did.

A group of entrepreneurs and venture capitalists, who all started out in engineering, convened 4 June 1998  in Palo Alto, Calif., the intellectual heart of Silicon Valley. Their two-and-a-half hour discussion centered on the special skills electrical engineers (EEs) can bring to entrepreneurship, other knowledge they need to succeed as entrepreneurs, and tips for EEs bit-ten by the entrepreneurial bug, from picking an idea, to team-building, to writing a business plan.

The discussion was moderated by Charles H. House (, executive vice president for R&D at Dialogic Corp., Parsippany, NJ., and president of the Association for Computing Machinery. A leader of start-up activities that became a dozen business units for Hewlett-Packard Co., he is well known for his work on in trapreneurship" and best known technically for his work in creating the logic analysis instrumentation field. He has also held executive positions at Spectron Microsystems, Veritas Software, and Informix. His degrees include a BSEng in physics from the California Institute of Technology, an MSEE from Stanford University, and an MBA from the Western Behavioral Sciences Institute.

The participants included:

Andreas Bechtolsheim (, vice president of engineering, Gigabit Switching Group, Cisco Systems Inc., San Jose, Calif. Together with Vinod Kosla, Scott McNealey, and Bill Joy, he started Sun Microsystems Inc., but in 1995 left to start a new company in the gigabit network business, Granite Systems. Granite was acquired by Cisco in 1996. He has an M.S. in computer engineering from Carnegie Mellon University and was a Ph.D. student in computer science and electrical engineering at Stanford University when he left to start Sun.

Yogen K. Dalal (ydalal@mayfield com), a general partner of Mayfield Fund, Menlo Park, Calif. He has been at Mayfield and in the venture capital business for seven years. After working on Star and Ethernet at Xerox Parc, he cofounded Metaphor and Claris Originally from India, Dalal has his Ph D in electrical engineering from Stanford University, where he worked on the original design of the Transmission Control Protocol/Internet Protocol (TCP/IP).

Brett Galloway (, cofounder, vice president of engineering, and chief operating officer at Packeteer Inc., Cupertino, Calif., a vendor of data communication systems for managing wide-area network bandwidth. He was previously director of engineering at Metricom Co. His BSEE and MSEE are from Stanford University.

Atul Garg (, chief technology officer and cofounder, Proactive Networks, Santa Clara, Calif. After joining Hewlett-Packard Co. in 1981 and staying for over 10 years, Garg went to Bay Networks, where he led the Advanced Technology Development Group. Then he joined TCSI Corp., where he managed a group delivering turnkey management solutions. His MSEE is from the University of Hawaii, where he worked on the AlohaNet.

Henry Kressel (, managing director, E. M. Warburg, Pincus & Co., in New York City. Kressel has been in the venture capital business for 15 years and has helped to build more than a dozen successftil companies, six of which have so far gone public. He previously was vice president in charge of solid-state R&D at RCA Corp. A physics graduate of Yeshiva College, he has an M.S. in applied physics from Harvard University, an MBA from the Wharton School of the University of Pennsylvania, and a Ph.D. in material science from the same university.

Charles j. McMinn (, chairman of the board and founder of Covad Communications Co., Santa Clara, Cal if., which offers high-speed data services on copper phone lines using digital subscriber line technology. Earlier he was a consultant in high- speed broadband communications, chief executive officer at Visioneer Communications, a general partner at InterWest Partners, director of engineering and director of marketing at Megatest, and product manager of the 8086 icroprocessor at Intel. He received his BSEE from Brown University, is MSEE from Syracuse University, and his his MBA from Harvard Business School.

Zvi Or-Bach (, president, chief operating officer, and founder of Chip Express Corp Santa Clara, Calif. Or-Bach previously was chief engineer for Elbit Computers in Israel, and before that was principal engineer in Honeywell's Electro-Optic Division. His BSEE is from the Technion-Israel Institute of Technology, and his MS in computer science from Israel's Weizmann Institute.of Science.

Bernard V. Vonderschmitt, chairman, founder, and former chief executive officer of Xilinx Inc., San Jose, Calif. He earlier on ran the solid-state division at RCA Corp., then was vice president of the microprocessor division at Zilog Inc. He received his BSEE from the Rose-Hulman Institute of Technology, his MSFE from the University of Pennsylvania, and his MBA from Rider University.

Geoffrey Y. Yang (, partner, Institutional Venture Partners (IVP), Menlo Park, Calif. Yang has been in the venture capital business for 13 years, first with First Century Partners and now with IVI, where he focuses on communications-oriented investments, including Synoptics, Welifleet, MMC Networks, Centillion, and Excite. He started out in marketing and sales for IBM Corp. Yang has an ISE in management systems engineering and a B.A. in economics from Princeton University and an MBA from Stanford.


The entreprenerial road

MODERATOR CHARLES H. HOUSE: Most of you have started at least two or three companies. What led you to do that? Because in our schooling, going back 25 years or So, it wasn't normal even at Stanford to teach that you should start a company?

ZVI OR-BACH: Early in my career I came up with a few ideas that I thought were pretty good. So I went and met some people who I thought were the right contacts for this type of idea. One was the idea to develop and offer a dual-port RAM, and I proposed it to the general manaaer at Intel Israel. They said, "It's a nice idea. Yes, we will think about it." But nothing happened. And five years later I learned that a whole company, Integrated Device Technology (IDT), was built based on that idea. [So] if I believe in something, I should go ahead and do it because selling your ideas to others is not going to work. Today, people are getting very careful about expressing their ideas. But, you should not be afraid of telling anyone your ideas, because unless you're willing to put your life behind your idea, it's probably not going to happen. But once you prove your idea and become successful, then others may decide to compete with you. Nobody is going to take your brainchild and make a man out of it. That's your job.

YOCEN K. DALAL: When I was at Stanford and Xerox, the goal was to do great things~ro change the world. The legacy of the '60s was still on our shoulders. I started Metaphor Computer Systems partly out of frustration that a large company [like Xerox] couldn't change the world. I realized that small is better, you can move faster, that you can, in fact, help change the world. But in the late '80s and the '90s came the notion that technologists are smart, energetic, brilliant people who can become wealthy. And so with Claris Corp., my second company, came the notion that engineers could also generate wealth. Today the motivation [spurring] brilliant minds is a combination of wanting to change the world and wanting to generate wealth.

HOUSE: Is it balanced? The pendulum hasn't swung?

DALAL: The pendulum has swung to the extreme end~wealth creation.

CHARLES J. McMINN: I wanted to create something out of nothing. I think I've become a start-up junky, you know? I'll take any seat at the table. I've been on the investor side, the engineer side, a CEO [chief executive officer] once, a private investor. And now I'm chairman of the board. But the motivation to me is to start with a blank sheet of paper, with a whole set of confusing little facts, and out of it comes an entity that is able to generate revenue and profits. And then the measurement of whether you have succeeded in creating something is the wealth. It's just the scorecard.

BRETT CALLOWAY: When I was a freshman in high school, my father, who had started a couple of ventures, had [had] some software written [fur his company]. It was not very high quality, so I rewrote it and he ended up selling that software. As a junior in high school, I was going on sales calls and supporting the software. It was ultimately licensed to a company in St. Louis for quite a bit of money. That experience planted a seed: the concept that business and the creation of products and the creation of revenue and wealth was desirable and even p05sible. The motivator for me was, in equal measures, wealth creation as a matter of keeping score and the basic concept of creating something. In this context, creation is not just creating technology. It is creating organizations, cultures, things you can look at and measure and feel good about. That is one of the ties to engineering, because engineering attracts people who like to create.

Ingredients for success

HOUSE: What is the most important ingredient? The technology, or the people, or the drive, or the niche, or what?

CEOEEREY Y YANC: There are certain personal characteristics and company characteristics. We look for people who are impatient, optimistic, bold thinkers in really wanting to do something dramatic. Boldness is really important. As for the type of company, small improvements are not a reason to start a venture-backed company. You should be looking for something that can change either the way people do or think about things today, or enable people to think about things that they've never been able to think about before. I always say there are two types of companies-a faster, better, cheaper company and a brave new world company. The first should think about an order of magnitude of improvement on the way [something] is being done today. A brave new world type of company should be creating an industry that didn't exist. Otherwise, if it's just another neat product, it probably should be part of another company's product portfolio [instead of being a company on its own]. Looking at the wave of Internet companies, the people were very inexperienced. The prototypical Internet entrepreneur is a year or two out of school. Part of the reason [these people succeeded] was that they didn't know what they eren't supposed to be able to do. ince it was a brand new industry, I ink that conventional thinking was a etriment versus people who had a lank sheet of paper and could dream out the possibilities. And that's the reakthrough thinking.

DALAL: When you see somebody oming out of school with an engineerng degree, the most important thing hey've got going for them is curiosity. ngineers-or technologists-basically are curious people. That's why you're in that discipline. You're trying to look into the future. You're surrounded, not only by fellow undergraduates, but also by graduate students and professors; you are exposed to the future.

HENRY KRESSFL: The entrepreneurial spirit manifests itself in many engineers when they first realize that there is a better way of doing something that could be the basis of a new business. If they are serious in exploring this option, their next step should be to think about their capabilities and ambitions. Some people are best suited to build small businesses with modest financing needs because that suits their capabilities and ambitions. They can build personal value, but they will not change the world. Others have larger dreams and will strive for larger business ideas. But vety few people have the talent to build large successful businesses. Without the requisite skills, setting out on such a mission means frustration and failure

BERNARD V VONDERSCHMITT When we started Xilinx, I looked at mask-programmable gate-arrays, which had been pioneered by LSI Logic. They were invented by an engineer, but the engineer sometimes is too focused on his thought processes. So I said to my friend who invented the concept, 'This is not a bad idea, but let's modulate it. Rather than have it be an enormous task, every time you make one of these products for one application for one customer, why don't we make it in such a way that it runs impersonalized on a manufacturing line and is personal ized afterward, through soft-ware?" That doesn't sound like a big difference. But it makes a very big difference in manufacturing cost. Then I said, "Does this thing have value?" The answer was "Yes." Is it economically effec tive? It was not. But I said, "In time it will be. And we can leverage this company by riding the crest of what other neonle are doing. The Intels and others of this world will be developing the processes. They'd be refining it." The first devices we brought to customers were at about a 500-gate equivalency in logic cumplexity. Today we just released a device that's going to be at least 500 000-gate equivalency. That would have been hard to extrapolate even for the most optimistic venture guys who kept on saying, "What's the market? What's the market?" The answer was always, "We know what the market is." it is the logic market that we're going to replace.

HOUSE: So you had the boldness that Geoff talks about and you had $2 million [in personal] seed money. But you [still] had to persuade someone.

VONDERSCHMITT Raising the money was quite simple because we had an incredibly inventive and eloquent technical associate. Some people sitting around this table are associated with VC [venture capital] companies that said we were lunatics, as did some of our customers when we first sampled these things. They said, "This is a piece of logic. When the power goes off, it becomes a total idiot. It loses its information. How can you possibly bring something like that to the marketplace?" But you're bound to get rebuffed.

McMINN: I want to draw the same distinction as Henry [Kressel], that there are different classes of companies. Small companies, $10, $20, $30 million in revenues, can be done with a small amount of money and smaller aspirations and smaller skill-sets in the people that do it, with a higher probability of success. But most engineers, when they think about starting a company, it's to start Yahoo, Microsoft, a company that makes hundreds of millions of dollars. Then it's a different set of critical success factors. In the smaller company, you can focus on what you're going to do. In the larger company, you need to spend a lot more time thinking about a couple of "who's." Who are you going to sell to and how many of them are out there? And who are you going to assemble as a team that maximizes the probability [of doing] this very difficult thing? When you say you're going to build a multi-hundred- million-dollar company, you've given yourself no room to make mistakes. So you need to counterbalance that by assembling people around you who have the highest probability of being able to pull it off.

HOUSE: But a lot more people are apt to succeed at doing the small to medium company, I suspect, than to become the next Bill Gates. So I wouldn't want our readership to feel that, hey, the only game in town is to do a Yahoo or Microsoft.

GALLOWAY: Originally, Microsoft was itself a small idea. It's the small ideas that are great that become great companies.

McMINN: In everything we've [said] so far, there's been the bias toward the $100-million- plus company. Owning 10 percent of a $100 million company, which is what the entrepreneurs end up owning after they raise all the money needed to build it, is the same as owning 100 percent of a $10 million company. And the probability you can be successful building a $10 million company is a lot higher than the probability you can build a $100 million company.

OR-BACH: Success stories get engineers to think that, hey, we can do it, too. We forget that a lot of start-ups end in failure. Success requires significant efforts. And the most important things are the ability to be persistent and committed. Because you're going to run into obstacles and you have to be committed to overcome them. Everyone willing to go that way needs to understand that it's not necessarily going to be a glowing story from beginning to end. It's going to be hard work, involving a lot of frustration. And you may or may not be successful.

YANG: I'd probably add flexibility. Very few of the companies we've ever been involved with, go the way they think they're going to go. And it's the persistence and the flexibility of the entrepreneurs to reach the end goal of success [that counts].

OR-BACH: At Chip Express, in about 1988, when we approached Mayfield and IVP to invest in us we were about to set up the type of company that would enable people to buy the equipment. Mayfield and IVP told us, 'Listen, you need to become a service company. You should own the equipment and provide the service and that will create a better opportunity." So we changed the business plan. In the end Mayfield and IVP did not invest in Chip Express. But we, as a company, did change our strategy and we have been very happy since, So I think flexibility is important.

The team in the making

HOUSE: You've all been founders or cofounders of numerous places. And a question I find intriguing is, when you mentioned this persistence, dedication, flexibility, and boldness, right, it's one thing to find it in yourself and quite another to find it in a band of 15 people that you want to go with during all those early times. How do you handle that? It's one thing to say you're going to do something 20 hours a day fur seven days a week. It's easy to have that fervor and that excitement because it's your idea. But for the 15th person hired in, it's a job, n'ght?

McMINN: We went from three founders to 150 people in 18 months, and everybody shares the passion. That's part of what's required, to be able to convince a set of people to believe it's their passion as well.

GALLOWAY: I'll select the people who can be motivated.

HOUSE: And the idea is its own motivation? I mean people say, "I have to be part of that."

McMINN: To the people who you end up picking, they do. And for everyone you pick, there's five or 10 that don't, and they don't have it.

VONDERSCHMITT: You have to decide what kind of culture you [want] within the company Then, as you hire beyond the founders, you screen to bring in people consistent with that culture. That's not easily done. But if you don't have just one person, but maybe four or five people, interviewing, and [you] get the assessment of those five, for example, as opposed to one person screening, that helps a great deal.

DALAL: A company has different kinds of people in it. You can't hire [just] rocket scientists. Greatness comes from making average and good people motivated enough to do great things. So in a company that has 25, 50 people, you have to remember that you want the rocket scientists, you want the leaders, but you also have to have people who do other jobs. And sometimes the culture and the environment makes those people produce 150 percent of what they're [normally] capable of producing.

KRESSEL: In watching the successful growth of companies, some key skills of CEOs emerge. A major one is the ability to build and maintain the loyalty of their team. New businesses invariably go through hard times, and the future remains uncertain for quite some time, so why don't talented people walk out? I have seen companies in the throes of death, but not a single key mdividual left because everybody still believes in the idea and the company's management. They don't persevere because they are being overpaid. It is just the fact that many talented people want to be part of a pioneering mission they feel that they are doing something new, exciting, and unique, which is very satisfying to them. With that kind of spirit success is eventually achieved. Once a company is past the critical growth stage, the situation changes. As a company grows continuing to maintain the startup spirit is a major challenge. When you start a business with five guys, everybody feels important. When the staff grows to one thousand, the personal interaction becomes diluted and maintainin~ that same winning team spirit is a major chalIenge~but one that successful businesses manage to meet.

OR-BACH: I think the key words mentioned were "make them part" of the venture. If you can allow people to be part of what you do, they will often take hold of the vision. People tend to do it, so you can just rely on human nature, but you still have to put forth the effort to make it happen.

YANG: It's the concept of equity, and not just monetary or stock equity. There's an emotional equity and a belief that everybody feels like they're part of it. The monetary equity will keep them there only so long. I've seen lots of situations where people are giv ing out very little stock, but they're still getting the best people. And all the people are staying, even in tough times, when it may not make economic sense to stay, mainly because they feel a piece of them is part of the company. One of the things that motivate a lot of people is the challenge and the ability to make a difference. And if you have articulated a vision, which they can see will have a big impact, then that provides the motivation and the challenge. And you need to continue to communicate that vision to the team. If you do that, then those are the pieces that will keep the momentum going.

CEO material or not

ANDREAS BECHTOLSHEIM: Rule No. I in almost any business 15: never give up. Numerous start-ups didn't go well for a while until there was a breakthrough or some change in the business regime. I remember a company called SB that started off trying to build multiprocessor chips before there was a multiprocessor operating system on the Intel architecture. They finally decided they were running out of money. They decided, '~Let's be pragmatic. Let's build graphics chips." And they're a big winner there. So the stories abound. Maybe we should also discuss one of the more difficult issues with start-ups. Most entrepreneurs who start companies do not stay on as CEOs as the companies mature. That seems to be rooted in personality, the kind of a person who sees an opportunity and starts pursuing it, versus a person who likes to manage hundreds or sometimes thousands of people. That often leads to difficulties in companies in terms of management transition. People should be really honest in looking at their own personality and understanding how they relate to others and what is their contribution in a company going forward, instead of hanging on to their perception that they were the founder who had all these shares and so they should tell everybody else what to do.

HOUSE: How have you all dealt with that question?

BECHTOLSHEIM: What's the venture capital batting average on entrepreneurs becoming CEOs or staying on as CEOs as the companies go public? DALAL: Around 20, 25 percent-it all depends on [at what point] you are starting this company. At a seed incubation stage, the answer would be 'probably never.' In the Valley, there are very few engineer CEOs or entrepreneur CEOs. Most have had to bring other people in because engineers are not necessarily, as Andy said, the kinds of people who can do the personnel, human leadership, the financial stuff-all the other stuff that detracts from being an entrepreneur and visionary.

HOUSE: But how do people handle the transitiun-more gracefully or less gracefully? McMINN: If you've been through it once before, very gracefully. If you haven't been through it before, badly. [Laughter.]

KRESSEL: We need to differentiate between engineers who have remained technical specialists until they become entrepreneurs and those whe ave worked for some time in othet reas such as marketing where they arned some business skills. Engineer~ ith entrepreneurial ambitions may nt to acquire business skills by foral schooling and moving into a job that requires both technical and business skills.

ATUL GARG: I had developed this concept of what we needed to do iv network management and I started working on a business plan to take it to fruition. But along the way I felt if we were to grow into a big business, I would need to partner with somebody who could lead the marketing and business functions, so I could focus or engineering and do what I can dc best. So early on, I looked for a partner who had a business background That worked out very well because found somebody that I could work with from day one, rather than decidimg that I would be CEO for a few years but the company would ther need somebody else.

BECHTOLSHEIM: It is certainly also much easier to raise major financ mg if there's a whole team in place rather than just one entrepreneur witl an idea. But some of the most successfu companies, including Hewlett-Packard Microsoft, and Intel, had their found mg entrepreneurs be the CEOs for tht longest time. So it is not impossible But you have to have the right back ground, the business experience, the general management skills, the techni cal insights, because it is a multifunc tion job. And in many cases people with an engineering background lool too much at the technology or the product development and may not cover the issues. It is tough finding single person who wants to wear all hats. People have got to understand how they work with the rest of the team to make it really successful.

YANG: A key attribute of an entrepreneur is having his or her fingers in everything Over time the ones that I fioc don't scale are the ones that can't let go. At some point you've got to hire good people and trust them. The ones I've seen that have been successful CEOs through the early stage and into revenue and into post-[going]-public stages have been the ones that hire good people and let them do their job and not try to stay involved in every detail. That is a hard transition.

GALLOWAY: When wt started Packeteer, the issue o who should manage the com pany and how we should orga nize the team was one that my partner and I were very con cerned about. We realized neither of us was a candidate to be CEO. Our sales skills were appealling. We also ran into somebody relatively soon after we seed-financed it who was able to complement us very well and help us grow the company The fact that my partner and booth identified that neither of us was a candidate to be company president, and [that]we identified this element of needing to lead, organize, and sell the venture, were critical success factors. HOUSE: Let me come to your reaction, Chuck, when I said how is it to hand over the reins. Why don't you describe that ?

McMINN: The first time is hard because you don't know what you don't know, [including] when you're running out of gas. A whole set of things you are encountering for the first time, many other people, who could have been involved in the company, have seen many times before [They] could have helped to maximize the probability that if the company took the next step, it [woudn't] make critical mistake. But having been through it once, whether it succeed or not, you have a much better perspective of the entire trip to be traveled, and how far down the road you can take it, and where you need to hand off the reins to someone who had been farther down the road..

HOUSE: That was an intellectual answer for me. And I want to challenge you to go back to the emotions and say "What the hell happened?" How painfull was it and why? And what could you have done to avoid that pain?

McMINN: In my case it was at Visioneer Communications, where I lasted as the CEO for the first year. After that the board-including at least one person at this table-said, "Gee, Chuck, I don't think you're the guy that needs to be running this." It is a wake-up call on what it is you want to do, and why, and what you're going to do the next time around.

HOUSE: Looking back, did you see the signals?

McMINN: There is a lot that I should have seen, that I pay a lot more attention to, this time around, absolutely.

HOUSE, And you survived just fine-obviously, you're here.

McMINN: Oh, yes. It was great. And I ended up in a great place. It gave me the opportunity to go and look for the next great idea. [Since this conversation, McMinn became Covad's chairman of the board, with another individual replacing him as chief executive officer. That's another piece of this whole process-any entrepreneur has to have the mindset of a venture capitalist, except they're investing their time, not their money. And they have to realize that most venture capital deals don't succeed. On average only one-third are successful. An individual has to [expect to do] two or four or six of these things to get enough of a portfolio of investments of their time in order to have one be successful.

IDALAL, I don't think it is easy for the investors to make that kind of request [that the founder step down], either. Generally we hope the early warning signals are being detected on both sides. But part of being an optimist-venture capitalists are optrmists-you hope the person you are funding and supporting is going to make it. We don't really want to pull the rug out from underneath people. Sometimes both sides are seeing the early warning signals that more, or a different kind of, talent or experience needs to be brought in. But usually when you make the decision, it is already too late. You should have made it six months ago, but you were holding out, hoping [for the best]. We are trying to encourage people to bring in that partner earlier on in the game rather than later on in the game.

HOUSE: It strikes me this same set of qualities of boldness, brashness, and perseverance sometimes gets in the way of that recognition of handing off some control.

BECHTOLSHEIM: And people have to be pragmatic. It is not an issue of working 80 hours a week or more because it's not the hours, it's your experience. It's highly unlikely, unless you have a broad range of experience to begin with, you're going to be successful in every situation where you have to make decisions on the spot. You don't have time to do on-the-job training, or at least that is a very expensive lesson. And the whole venture is going to be much more success- ful if you have the right backgrounds at the right time in the right context in the company.

OR-BACH: I belong to [the] 0-20-percent piece where engineers still manage the company, and I've gone through this process a few times. I think many times the business community, [in~ saying too early "let's bring [in] the professional manager," has a tendency to kill companies. In history great companies were led by the entrepreneurs all the way to a pretty sizable business. If we take Xilinx or Altera, or the much bigger Microsoft or Intel- replacing the entrepreneur could have killed the company. If the company is the change-the-world type, don't lose the entrepreneur, because nobody else will have the vision to change the world.

DALAL, I agree, but I think it's an exception to the rule. Yes, the Andy Groves of the world are awesome. And those are the real successes, the institution makers. But we're talking about people leaving school to start their own companies. lust look: at Yahoo, Jerry Yang gave up the reins at Excite, the founders gave them up, too. At Netscape, Jim Barksdale was brought in by Jim Clark. And these are awesome successes. There is a spectrum of these situations. But I agree that you shouldn't throw the baby out with the bath-water prematurely].

OR-BACH: And many times they could have found that the engineer needs some additional skill, but that doesn't mean you need to replace him. Sometimes you just need to add someone with that skill to the team, not replace the CEO.

BECHTOLSHEIM, Yes. But one other difference these days is that the concept of these Internet dog years increasingly applies to company life cycles. Everything is moving faster. You just don't have the time to make mistakes because you never recover. And people can suddenly raise tons of money in the first run, and the VCs want to know that the manage ment team is in place to not waste the money. In the good old days, 20 years ago, people had more time to develop ideas, to develop their personalities, whatever. But time is becoming such a premium commodity now, it's unbelievable.

HOUSE, Let me challenge that, being older than you. I ran a program called Logic Analyzers at HP In fact, I sort of invented the damn things. It was real exciting because it was a great idea. Nobody had [a logic analyzer]. Our job was to persuade people this was useful, and that's pretty easy. You're all alone. You are the zealot. You have a lot of fun. Then Intel built this Intellect 8, a way to program microprocessors. And we thought it would be a good idea to take logic analysis technology, build emulators, and put a compiler around it, do some disassembly, be able to essentially cross-target any microprocessor from anybody, right? And what happened? This was in 1976. When we jumped in this emulator business, we spent 15 calendar months getting to the street, which, by HP standards, was fast, 20 years ago. And we were the 39th company on the street! Every VC and every IC shop and every little start-up in the world built this stuff. Just as with disk drives, or IC foundries, or any VC-backed enthusiasm later, it became a "can't make a mistake thing." All I want to do is say that was true years ago. Internet time is real, but if somebody sees a hot area, there has been plenty of money for a long time to marshal enormous competition.

BECHTOLSHEIM: I don't disagree. There has always been competition, but with one macro difference-20 years. When Sun started, our competition was Digital Equipment and IBM. They left us alone for many years until we were a billion dollar company. Today, when you start a company, you end up competing with companies such as Microsoft, Intel, and Cisco, which is a lot tougher. Almost any field you can think of, there will be others after you as soon as you start. So the pace today is much more severe than in - the late '70s or early '80s. And that's just a fact of life. It doesn't mean you can't be successful-there are more successes now than ever. But there's a premium on time.

Educating EE-entrepreneurs

HOUSE: Almost all of us have an engineering education But [in entrepreneurial termsl, what was missing in it, and what was valuable in it ?

BECHTOLSHFIM: I would have really liked to take more classes from the Stanford Business School at the time. They make it really hard at Stanford, when you are in engineering, to get into any Business School class. But they are now teaching en trepreneurial classes at Stanford~some other schools should copy that, because engineers love to know about this stuff, at least the ones who want to start companies. And bringing in entrepreneurs, founders of companies, venture capitalists to talk to people about what's important, what's relevant, it's just an incredible help to people to understand what is going on out there.

HOUSE: What MIT is also doing with its entrepreneurs' forum, those kinds of things are terrific.


McMINN: I would second that. Some formal education in business, whether it is entrepreneurial classes while you are an undergraduate or going back to business school... If you don't know what cash flow is, you shouldn't be starting a company, and you'll never find out taking engineering courses.

BECHTOLSHEIM: Make sure you take an accounting class.

McMINN: Absolutely.

GALLOWAY: One of the better classes I took at Stanford was an industrial accounting course.

CARG: The undergraduate [electrical engineering] education teaches us the critical thinking and the problem solving skills. [Mine was in] electrical engineering, but I'm now in networking and software. But a lot I learned in school-how to solve problems-still applies. Also, doing a thesis was valuable in learning how to find a problem, define it, and then solve it. What a lot of engineers miss in education is learning about the difference between teamwork and the individual contribution. That is so critical to [what~ people need to do in today's world. It somehow needs to be developed in school.

HOUSE: By "teamwork," do you mean the six people that form the company, or the people on the technical project?

GARG: Just on the technical team itself.

OR-BACH: I'd like to go from a different point of view. The world is composed of two elements-the physical and the psychological. In engineering school, we spend many years learning about the physical world. And that is good when you handle material. When we become entrepreneurs, we start to handle people, the people who work with you and the people who are going to buy from you. That is a whole different world. No physics applies any more. And if you don't teach engineers a bit about how people think and what goes on the emotional side, they will be unequipped to handle what they need to do as entrepreneurs. So I don't know if MIT has any class in history, psychology or [other humanities], but that is vital knowledge for engineers.

BECHTOLSHEIM: This raises the whole question whether management skill can be learned or whether this starts in early childhood and early psychological development.

HOUSE, That's true. And the flip side is, can one psychology course help?

YANG, Engineering education, on the positive side, teaches you that you can solve most problems if you break them down. But in entrepreneurial or management roles, you have got to learn to make decisions very quickly. Sometimes I think the engineering discipline of solving a total problem and not being able to deal with uncertainty and not going with your gut and working with practical information is a detriment. So by taking a psychology or humanities course, you find in life and in business that there are no clearcut right or wrong answers. In engineering school, it tends to be more cut and dry. But not making a decision is almost as bad as making the wrong decision. You don't have to go through the entire analysis to trust your instincts-an important attribute.

KRFSSEL, A comment on undergraduate education. I have been involved in a number of university advisory committees on engineering education. The comments around the table echo commonly discussed issues. It is unfortunately not possible to cram into an undergraduate education all of the courses that produce both a qualified engineer, a manufacturing expert, a skilled marketeer, and a seasoned businessman. Therefore, the sensible thing is to limit the course work and offer a flexible curriculum that the students can tailor to meet their personal objectives. For example, a program combining engineering with a strong business program will produce graduates that are unlikely to become working engineers. These people will be going into a career path where technological training is very valuable to the business decision-making process. I believe in the importance of teaching fundamentals to undergraduate engineering students. If you understand the fundamentals, it is much easier to deal with a rapidly changing world. Lacking the basics, everything looks brand new. If you understand the fundamentals, you understand that new technology consists of variations and applications of the basic scientific principles and this eases understanding. If the undergraduate program is too light in basic science, people will have a much harder time coping with the changing technological environment in which they will have to learn to make decisions.

GALLOWAY: You have to ask: what is the purpose of the curriculum? As an undergraduate at Stanford, I had the opportunity to take classes outside of engineering. You had some exposure to more ambiguous areas of study and to the need to write. I have hired a lot of engineers. Let's look at where they tend to be weak. Usually it's not in the ability to work in a team, but in the ability to understand things outside the technical disciplines-like marketing, the fact that there must exist customers in the world who have to buy your product. And then the need to communicate and sell. I'm beginning to think it would be good, at least, to offer a smattering of course work in some related disciplines- finance, marketing, and writing. The nice thing, of course, is most engineering students are pretty smart, so I don't think you necessarily need to have a huge amount of course work to at least introduce them to the concepts.

BECHTOLSHEIM: [To echo one earlier comment,] the single best preparation as part of an engineering education is to pick a significant project and execute it while you are a student. There is nothing like knowing you can do it. If you can build a good size project in school, you can build much bigger things later. To me the opportunity to go after a challenging project in school was one of the most fun parts.

HOUSE: You can go to a large company and practice.

DALAL: I'd like to push a theme from my own experience. It isn't so much the curriculum-most modern universities now provide cross-departmental classes. But, what I learned in my last company, before becoming a venture capitalist, is the importance of sales. Selling is the single most important thing that an entrepreneur has to do. You've got to get people to buy your products. [But] engineering schools sometimes encourage engi neers to be self-sufficient problemsolvers, and "sales" is a dirty word. In fact, most entrepreneurs think that the vice president of sales is the most irrelevant person in the company, even though he or she is the most important executive in the company because, without that person, you don't have a company. Engineers should be encouraged to sell something and to learn the psychology of the buyer. You have to learn the heartache involved in selling, even if it is at a lemonade stand -

Developing a Business Plan

HOUSE: That resonates with my experience. And it also is a great segue to talk about how to write a business plan that you could sell to, say, you or Henry or Geoff.

McMINN: What I saw when I was in the venture business, reading through business plans, is that most plans spend far too much time on the product and what it is and how it is made-inwardly focused. Proportionally very little time is focused on the customer, on who you will sell it to and how, what they will pay for it and why, and on getting some facts to back that up. People may have gone to great lengths to prototype the product or estimate its capabilities, but then, when it comes to the customer, they have done no quantitative assessment. In my view, the business plan should be no more than 20 pages long and 50 percent of the pages or more should focus on the market and the selling process. And less than five pages should focus on the product.

GARG: In our own search for product direction and funding, we were told to go and talk to the customers as if we had the product, and get their feedback as to whether they could make decisions based on that pitch, if they would buy it or not, as soon as it became available. And we went and did that. I think that was the single most important thing we did. And these 10 potential customers turned out to be our very first customers.

HOUSE: Wouldn't that just come to everybody that starts one of these things?

GARG: It's hard. You have an idea. You don't think about, "Well, can I just go and talk to a customer, even though I don't have a product?" Right now it's all on paper. But it is still very good to put together a pitch as if you have the product and then find somebody to whom you can talk.

McMINN: It's Zvi's point as well that people are afraid to talk about their idea- somebody's going to steal it, including a customer. Heaven forbid we ask a customer if they want this great idea or not.

GALLOWAY: Some of this is self-selection. People who go into engineering do not like sales. We had a very similar experience at Packeteer. We did a business plan, did the obligatory discussion of the product, the obligatory discussion of the market. However, the best feedback to the business plan that we received was, "Well, all of this is really neat. But have you actually talked to somebody who says they would buy it, if you had it?"

DALAL: There is only one question I ask at this point of an entrepreneur- whether their product is a painkiller or a vitamin. That answer tells me everything. A vitamin is good for you. You should take one every day. And you can buy it at every street corner in different colors. A painkiller solves a very specific, incredible problem. And once the customer knows that you are a vendor of that particular painkiller, they will search you out. So we invest in companies that have painkillers. And the greater the pain the entrepreneur has identified, the greater the opportunity.

OR-BACH: But a lot of people use vitamins-only a few people need painkillers.

HOUSE: But they will pay a lot. [Laughter.]

McMINN: At Covad, besides the three founders, the very first employee we hired was a salesman because, in the process of developing our service, we wanted to make sure from day one that we had customer input as to what the service should look like. This was nine months hefore we had anything to sell.

HOUSE: This is not conventional wisdom, right?

BECHTOLSHEIM: It depends on the product. If you're doing a product in a well- defined space where your advantage is an improvement over the st~tus quo, you typically know what needs to be done. If you're doing a new type of service or it is a new gen eration of product that never existed before, you better find out what the match is between the product and the customer opportunity.

KRESSEL: Entrepreneurs need to understand the fundamental business-building issues in addition to product development. The product development part is usually the easy one for engineers. However, in addition they need to realistically assess the barriers to revenue generation and the steps to reaching business profitability. This involves understanding customer needs, who the buyers are, how long it takes to close an order and how to support the customer after the sale to ensure a happy customer. Delays add to startup costs and understanding the process is the difference between starting a venture that needs $1 million to become viable and one that may need $10 million or even $50 million. An entrepreneur must set the expectations of his investors early by the maximum amount of realism.

HOUSE: So we have, on the one hand, the painkiller versus vitamin test.

KRESSEL: Right. That's the first step. Then the next test is the period of time it will take and how much money it will take you to build a cash flow break-even business.

BECHTOLSHEIM: The length of the sales cycle is a key element.

KRESSEL: And if you can't figure that out, you are asking for an investment in charity.

YANG This all applies to the faster better cheaper investment, where we first go to potential cus~rs and see if anybody cares. And, they do we figure out if it can be But in a brave new world investment you are asking people to change way they think about reality. And customers are not really forward-thinking So in this type of investment you ve got to extrapolate through analogy What other inventions is this equivalent in magnitude to? Is this the next X, Y, or Z ? If so, what are the dynamics of the industry, and how would you finance. Because, if you're creating an industry, chances are you can't finance it or do it as a start-up, you have got to do it with some significant partners. So you must consider who might those partners be and why they would care whether this is going to happen. With some of those investments, you just hold your nose and jump.

HOUSE: So if I wanted to write a business plan that would cause you to hold your nose and jump, as opposed to hold your nose and run, what do I put in it?

YANG: It would have to be really a revolutionary idea that could create an industry. And in there would be some vision of similar changes in other industries. The Internet is a great example. If you were to say, "I want to do a search site on the Internet" when the Web was just forming, who would you go to? You couldn't test it with customers and say, "If this would happen, would you use this?" They would say, "I don't know~this is so far out." The analogy would be that, as an interactive medium, this might be the next television. And, if so, who would care and how would you generate revenues? I think that is a reasonable analogy of something where you couldn't have really tested it when it was first coming out.

Today's opportunities

HOUSE: What are the opportunities for start-ups today? How many think that there are more opportunities today than ever? [Show of hands.j So there's no question on that one. But are they centered in just a few areas or are they all over the place? [Show of hands favoring all over the place.

BECHTOLSHEIM: People should look at their field of expertise, because once you start a company, the clock ticks. You start spending money and you'd better get there in a hurry. You have to know what you're going to do at that point and you've got to succeed. So people have to be familiar with the field before they jump into it. It doesn't matter whether it's communications or Internet or whatever.

HOUSE: So preparation and grounding is vital.

BECHTOLSHEIM: In fact, a great thing to do is to develop your business plan while you are in school. You will never have that much free time again. It's a great environment to think about what company makes sense. Check out the Web, learn about venture capital, start talking to people. There is a big advantage in the school setting that other people later in life do not have, That's a competitive advantage.

DALAL: I wouldn't restrict your comments to people in school because opportunities in this world are constantly being created. Those opportunities continue to occur when you are at a Microsoft or a Hewlett-Packard because the world is changing. The world has never been impacted more by technology than it is today, so there is more opportunity than ever before for solving problems or creating new industries. This is really the golden age of entrepreneurialism.

YANG: And money today is extremely plentiful. I can't think of a better time to be an entrepreneur because the opportunities are there and the money is more available than it has ever been in the history of the universe.

OR-BACH: Physics will allow us to keep doubling the density and amount of the technology every 18 months or less, and we are creating a new world every time. This creates whole new opportunities for startups; things that could not be done before are now feasible. It's like a balloon, the surface is getting greater and greater as we develop it. Every day there are more and more opportunities.  *