August 11 2009
by Todd Hixon

Boston Innovation Culture — 3: “Open” Systems

In Part 1 of this series, a few posts back, I reported on work I’ve done comparing innovation in Boston and California.  I argued that Silicon Valley beats Boston by a mile in it’s “recombination” capability:   quick focus of energy and resources on new opportunities like the PC and the internet.  Recombination is enabled by three things:  an entrepreneurial community, “open” systems, and an equity culture.  [There is a link to the complete presentation, Strengthening the Massachusetts Innovation Culture, at the end of this post.]

Back when chips and computers were the growth driver in tech (1970-1995), Silicon Valley took the lead away from Boston, with many Silicon Valley companies employing strategies that were much more oriented to open systems than the Boston companies.  By “open” I mean products that are based on industry standards (Ethernet, TCP/IP), products that are based on open source technology (eg, Unix, SQL), and systems that have a industry-standard architecture and subsystems sourced from specialized providers (PCs).  The Boston companies, led by DEC, were vertically integrated and proprietary.  The Silicon Valley companies had much more of a design/market focus delivered with the help of an “open ecosystem” of component specialists, standards, and outsourcing.  This approach enabled small companies to launch new products for emerging markets quickly and cheaply.   Today, when you buy an Apple product, it says on the box:  “Made in China, Designed in California.”

But, to paraphrase a famous Californian, “We don’t have Ken Olson to kick around any more.”  DEC is dead, buried, and pretty much forgotten by the new generation of Boston tekkies.  Everyone in the East uses PCs, TCP/IP and Linux now.  Do we still have an “open” problem?

I believe the answer is yes, in a broader sense.  To begin with, the faith in open systems in Boston is not as strong as it is in Silicon Valley, but admittedly it’s more a matter of degree these days.  It’s taken two years for the engineers in one of my companies to make peace with TCP/IP.  Boston companies do particularly well in hardware businesses that are closed systems:  batteries, robots.

More important, Silicon Valley is open in some non-technical ways that matter.  It’s far more multi-cultural than Boston.  People there say that “Silicon Valley was built on ICs: Indians and Chinese”.  One of my companies had a VP who came from India.  He left after 18 months.  In the exit interview, one of the main reasons he gave was:  “My wife is not happy here.  The Indian community in Boston is nothing like it is in the Valley.”

Employment practice is a key form of openness.  Employment law in California is dramatically different from Massachusetts:  non-compete agreements are unenforceable in California.  People can move freely to opportunities.  [However, confidentiality and proprietary IP agreements are very much enforceable.]  In Mass, non-compete agreements are enforceable for up to two years post employment, even if there is no additional consideration to the employee.  This locks up employees, often in big companies, and greatly chills moving to a start-up in the employee’s area of expertise:  no start-up wants to hire an employee who might embroil them in litigation with a big company.  The history of tech is rich with examples of employees of big companies with revolutionary ideas they could not sell to their bosses, who left to form a start-up.  Steve Jobs comes to mind.

It’s well known that small companies create jobs and big companies rationalize [destroy] them.  But big companies can exert leverage over states by threatening to move part of their large (shrinking) pool of jobs to one state or another.  The Mass state government has long knuckled under this leverage, and as a result it has focused its money and rule-making on pleasing the big companies.  Current efforts to reform employment law have been gelded by the legislature.  The result will be lagging innovation and lagging growth of high-quality jobs.

Mass is a cosmopolitan place, but it will take a long time to build a better critical mass of Indian and Chinese professionals, particularly with the current visa restrictions.  But, we can make the Mass employment law open with the stroke of a few pens, and it doesn’t cost any money.  That would be a great step forward.  Hopefully, if enough of us explain this to the governor and our legislators well enough, they will come around.

The full presentation on strengthening the Massachusetts Innovation Economy:

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