August 30 2009
by Todd Hixon

Boston Innovation Culture 4 — Equity Culture

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.]

I started digging into this subject after I heard a mini-debate between Paul Maeder (founder, Highland Capital, Boston) and Tim Draper (founder, Draper Fisher Jurvetson, Silicon Valley) on the superiority of Boston versus Silicon Valley innovation in early 2008.  Paul argued that Ma has unequalled innovation resources, presenting statistics comparing Ma and Ca on dimensions like Nobel laureates, patents issued, small companies formed.  And he reminded us that there have been many good M&A exits from Ma that did not result in visible public companies (many of them were acquisition by the major CA companies).

Tim Draper did not use slides [no surprise].  He just told us that Silicon Valley is really terrific, and did his usual fine job of projecting the Sand Hill Road mojo.

For some years I have been part of a gathering each summer of tekkies and entrepreneurs from both coasts.  It takes place in August on a remote island off the coast of Maine, a big chunk of which is owned by a successful high-tech entrepreneur.  He invites about 25 male friends from both coasts to spend a week which is a mixture of projects, trips and hikes, culture, and conversations over the long plank dinner table by light of camp lanterns.  We call this “Big Boys Camp”.  [His wife hosts a Big Girls Camp.]

We all give a talk on some serious subject.  In 2008 I decided to talk about MA versus CA Innovation Culture.  I presented data similar to Paul Maeder’s and asked for comments.  I got very clear feedback:  “Forget the numbers; it’s all about the culture. In Silicon Valley, becoming an entrepreneur is a mainstream thing.  Everyone has a neighbor who got rich on options.  Going down to Frye’s on Saturday night is cool.  Getting laid off is just a chance to start a new company.”

Then I started reading, listening, and thinking about what I’ve seen in hundreds of trips to The Valley over 40 years, and I got the same message repeatedly: the cultural difference is vast. Boston venture CEOs observe that employees don’t value options highly; they care more about salary and benefits.  Boston culture has big elements that revere place in the hierarchy, professions, academia, and old, low-key money.  The Boston economy has multiple legs:  education, health care, and business services/investment management are much more prominent that in The Valley.  When I pass a house with a stone gate, a long driveway, and horses in the field near Boston, I suspect that the owner is in mutual funds or leveraged buy-outs; entrepreneur is not tip of the tongue.

Silicon valley is a concentrated place: hemmed in by the mountains and the water.   High-tech elevated Silicon Valley from its former identity as the “Prune Capital of America”.  It has been the focal point of West Coast tech since World War I, but struggled for many years to get out from under the thumb of the major East Coast tech companies (IBM, GE, RCA, Raytheon) with their market positions, patents, oligopolies, and connections to Washington.  Its culture formed in opposition to the East Coast, a culture based on equity, egalitarian ways, entrepreneurship, and engineering.  The following quotes capture this:

From Tom Wolfe:
Companies in the East adopted a feudal approach to organization.  There were kings … and yeomen and serfs … with protocol and perquisites to establish boundaries.   Noyce … rejected the idea of a social hierarchy at Fairchild.  Everywhere the [Fairchildren] went, they took the Noyce approach with them … the atmosphere of the new companies was so democratic, it startled businessmen from the East.

From Michael Lewis, in The New, New Thing:
The … counter-culture intent on arming the masses with new technology … made the Valley the place to be.  Added to this was the absence of Old World snobbery … back East engineering had always been viewed as glorified manual labor … no one thought of Harvard as a place you went to become an engineer.  The Valley gave engineers a place where they could make their living outside the enormous gray corporations.

From Don Valentine (a founder of Fairchild and Sequoia Capital, speaking in 1988 — I wonder if he would mention Boston today?):
Very few people understand why what works here and in Boston works.  It’s very difficult to clone environments.  Too many people think that the criticality in the environment is the money.  For me the criticality in the environment is the entrepreneurs.

Big Boy Camp 2009 just ended.  My 2009 presentation was the distillation of what I have learned about innovation culture in the intervening year.  The Big Boys took the culture theme and ran with it:  “The East Coast became complacent in its dominance, not just the Boston companies but also in a big way IBM” [from a former IBM executive and west-coast high-tech CEO]; “Business people in the East don’t take risks and don’t accept failure, in The Valley having failed before can make you more attractive”; “The Valley is where you go to prove you can play in the majors and make a lot of money, eg, the Facebook guys are from Boston but moved to The Valley to build their company”.

Boston needs to amp up it’s innovation culture, or we simply won’t compete.  While changing culture is never simple, the elements that lead to change are clear:  a focused entrepreneurial community, a commitment to openness, and leadership fostering an equity culture – I’ve developed these ideas in my series of posts.

And, it’s a good time to make a fresh start.  We in Boston should take advantage of being the underdogs:  create our own “rebel alliance” to shake off the yoke of California tech giants and VCs.  California is a bit complacent in its achievement, and mired in fiscal crisis.  Our society has entered into a period of reform. New technology drivers are emerging (biotech, clean tech) in fields where Boston has strong resources.

When I was a consultant at BCG we did a good business helping European technology companies understand how innovation works in the U.S.  Now, ironically, I find that we in Boston are in the same position as my European clients:  needing to better understand how innovation works in California.  Boston truly is half way between Europe and California.  We need to decide which way we are heading.

Here is the full presentation on Boston Innovation Culture:

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