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Does Silicon Valley Style Work in Your Place?

~ Seek a right style ~

Chikafuji, Ryu
fromBayArea.com

This slide shows my thoughts on how to launch and foster high-value start-ups outside the United States.
Chikafuji, Ryu(Taka Kondo) April, 2012

Part I

SILICON VALLEY

The most signicant ability for business is empathy, the ability to understand and share the feelings of the target customers.

Empathy is the source of both encouragements and inspiraJons which make your team innovaJve.

Empathy
Encouragement Inspira2on

Mo:va:on

Imagina:on

Passion

Crea:vity

InnovaJon

Empathy works as a compass, map and sails. A start-up team without it cant voyage to the new world.

There are two types of acquisiJon for a start-up team to acquire empathy,

A. Be ardent fans of your products / service, and have the right discipline to think through whether a lot of other people are going to want it(*).

Apple iPods adver2sement

(*) Steve Jobs, CNN Money, Aug/03/2008

B. Build a start-up team with seasoned professionals in your business area.

Social media start-ups, like Facebook, TwiPer, etc., took type A approach.

<low>

Technical Challenge

<high>

If we plot the entry points of these start-ups on the graph below, then

<unknown>

Needs/Market

<exis:ng>

Technical Challenge

<high>

they were here

Facebook / TwiGer

<low>

<unknown>

Needs/Market

<exis:ng>

There was liPle technology risk. Market risk was their real challenge. But nobody had markeJng experience in this area because there had been no such market.

The start-up teams had empathy because they were big fans of their service. Probably, they also had the right discipline to think through whether a lot of other people were going to want it.

Type B approach can be available in the other area

<high>

<low>

Technical Challenge

Let us think about this area.

Facebook / TwiGer

<unknown>

Needs/Market

<exis:ng>

The most signicant feature of Silicon Valley is generous supplies of talents.

Crazy tech guys and ighty investors are not the only residents in Silicon Valleys business community.

There are a plenty of seasoned professionals in markeJng, sales, nance, IP, logisJcs, etc.,

 from a variety of business areas, and from all over the world.

If an entrepreneur has a really great idea,

then he/she can build a team with seasoned professionals.

12 years 10 years 13 years

VP, Marke:ng.

I have 20+ years experience in this business area.

VP, Sales 16 years VP, Engineering 12 years

Such a team can quickly acquire empathy.

Successful Silicon Valley entrepreneurs have an average of 13 years professional experiences before they started.

* Research of UC Davis & New Hampshire Univ., 2006

The average age of founders in Silicon Valley exceeds 40 when they started, even this web business heyday.

* For instance, Vivek Wadhwa, goo.gl/pfBdV

Age when they started

M. Zuckerberg (Facebook) R. Homan (LinkedIn) W. A. Porter (E*Trade) N. C. Warren (eHarmony) 60 70 R. Shapiro (LegalZoom)

J. Dorsey (TwiGer) 20 30

F. H. Moll (Intui:ve Surgical) 40 50 I. M. Jacobs (Qualcomm)

M. Benio (Salesforce) J. Bezos (Amazon)

J. E. Warnock B. V. VonderschmiG (Adobe Systems) (Xilinx)

In general, experience maPers.

Entry points when they started

<high>
Xilinx Qualcomm Adobe Systems Salesforce eHarmony LinkedIn LegalZoom/ E*Trade Intui:ve Surgical

Technical Challenge

Amazon

<low>

Facebook / TwiGer

<unknown>

Needs/Market

<exis:ng>

Let us classify them into zones of:

Professional Zone
<high>
Xilinx Intui:ve Surgical

Technical Challenge

Too risky to invest zone

Qualcomm Adobe Systems Salesforce eHarmony LinkedIn LegalZoom/ E*Trade

Amazon

<low>

Facebook / TwiGer

Too compe11ve to invest zone

<exis:ng>

<unknown>

Needs/Market

Gusto Zone

Summary of Part I
Empathy is the most important ability to start a new business. The way to acquire it is:
Gusto Zones start-up:
Build a start-up team with ardent fans of the service because no seasoned professionals exist.

Professional Zones start-up:

Build a start-up team with seasoned professionals.

Appendix
Due to recent mass-media reports, people may embrace the illusion that most venture investment go to Gusto Zone. But the reality is:

US Investments by Industry 2011(Money)

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Other Business Products and Services Healthcare Services Retailing/Distribu:on Computers and Peripherals Networking and Equipment Financial Services Telecommunica:ons Electronics/Instrumenta:on Semiconductors Consumer Products and Services Media and Entertainment IT Services Medical Devices and Equipment Industrial/Energy Biotechnology Sokware (* based on PwC's "Shaking the MoneyTreeTM Q4/Full-Year 2011 Update")

US Investments by Industry 2011(Money)

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Other Business Products and Services Healthcare Services Retailing/Distribu:on Computers and Peripherals Networking and Equipment Financial Services Telecommunica:ons Electronics/Instrumenta:on Semiconductors Consumer Products and Services Media and Entertainment IT Services Medical Devices and Equipment Industrial/Energy Biotechnology Sokware

Professional Zone

Gusto Zone is just part of this area

(* based on PwC's "Shaking the MoneyTreeTM Q4/Full-Year 2011 Update")

US Investments by Industry 2011(# of deals)

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Other Healthcare Services Computers and Peripherals Retailing/Distribu:on Networking and Equipment Financial Services Electronics/Instrumenta:on Business Products and Services Semiconductors Consumer Products and Services Telecommunica:ons Industrial/Energy Medical Devices and Equipment IT Services Media and Entertainment Biotechnology Sokware (* based on PwC's "Shaking the MoneyTreeTM Q4/Full-Year 2011 Update")

US Investments by Industry 2011(# of deals)

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Other Healthcare Services Computers and Peripherals Retailing/Distribu:on Networking and Equipment Financial Services Electronics/Instrumenta:on Business Products and Services Semiconductors Consumer Products and Services Telecommunica:ons Industrial/Energy Medical Devices and Equipment IT Services Media and Entertainment Biotechnology Sokware

Professional Zone

Gusto Zone is just part of this area

(* based on PwC's "Shaking the MoneyTreeTM Q4/Full-Year 2011 Update")

Top 10 deals in Silicon Valley: Q4/2011

Company name Dropbox BeGer Place S:on Portola Pharmaceu:cals Soraa Workday Fulcrum BioEnergy Hearslow Box Lithium Technologies $million 250 200 100 89 89 85 69 65 62 53 Area of business Sokware, le storage and sharing service Cleantech, electric vehicle transporta:on Cleantech, thin-lm solar module Biotech, biopharmaceu:cal Cleantech, LED bulb Sokware, enterprise business sokware Cleantech, bio energy Medical device & equipment, Guiding system Sokware, le storage and sharing service Sokware, social CRM solu:on

(* based on PwC's "Shaking the MoneyTreeTM Q4/Full-Year 2011 Update")

You may forget it, but the Professional Zone is still a really Cool Zone.

Part II

THE REST OF THE WORLD

StarJng in this zone is OK because no seasoned professional is required.

<high>

Technical Challenge

Professional Zone Gusto Zone

<unknown>

<low>

Needs/Market

<exis:ng>

Actually, Chinas Gusto Zone is crazy hot as well as Silicon Valley because of its domesJc market growth.
(Million) 800 700 600 500 400 300 200 100 0

Chinas internet popula:on will be almost double US and Japan combined by 2015(*).

(*) Data from The Boston Consul:ng Group

Not only in China and Japan but also other naJons Gusto Zone are also hot even if their domesJc markets are sJll small.

* Examples of Vietnamese start-ups

The Gusto Zone is hot but its too hot for me, so my interest here is

this Cool zone

<high>

Technical Challenge

Professional Zone Gusto Zone

<unknown>

<low>

Needs/Market

<exis:ng>

A successful story in the Professional Zone in Silicon Valley.

idea!

Professional Experiences

Start-up Team Empathy

InnovaJon

A founder had experience in the eld related to the target market as a tech guy, marketer, researcher, or as a user.

idea!

Experienced Professionals

Start-up Team Empathy

InnovaJon

Seasoned professionals were hired not only from Silicon Valley but also globally.

Inspira:on Encouragement idea!

Start-up Team Empathy

InnovaJon

They made full use of their empathy from day one, and got lots of inspiraJon and encouragement through their acJviJes.

idea!

Crea:vity Passion

Start-up Team Empathy

InnovaJon

InspiraJon fostered creaJvity and encouragement led passion. Finally, the original idea became an innovaJon.

Another story in the Professional Zone, happened somewhere.

A founder got a great idea and decided to start a new business.

Start-up Team

Because it was dicult for a start-up to hire seasoned professionals, the founder had to hire junior and amateur guys locally.

Far from Empathy

Start-up Team Chaos

The start-up team couldnt understand and share the feeling of the target customers, and wasted too much Jme.

The idea failed to become innova:on

Start-up Team Chaos

Give up

The window of opportunity was closing. The idea failed to become an innovaJon.

In many areas in the world, it is fairly dicult to organize a start-up team with experienced professionals(*).

(*) Israel may be an excep:on, the na:on has great talent pool for high-tech start-ups; furthermore, many Israeli start-ups easily move to Silicon Valley.

PracJcally, a start-up team needs a kind of preparaJon period to culJvate the teams Empathy.

Case Study

Case-1
Tokyo Electron Limited, a world leading manufacturer of LSI and FPD produc:on equipment, the company name became synonymous with High-Tech company in Japan.
Revenue Net income Market Cap

$8.04 Billion(2011) $865 Million(2011) $9.83 Billion (April, 25, 2012)

Tokyo Electron Laboratories, Inc.(*) was founded in 1963, as a trading company. The company imported cuzng-edge technology products such as IC testers, electronic components and semiconductor produc:on equipment into Japan.

(*) Todays Tokyo Electron Limited.

In 1969, the company entered the market to design and develop a semiconductor produc:on equipment. About ve years experience in sales and customer support enabled the company to acquire the ability to understand and share the feeling of the target customers.

Case-2

Acer(Mil:tech) was established in Taiwan in 1976 as a trader of electronic parts and a consultant in the use of microprocessor technologies.

(*) Ref: Acers web site and Wikipedia

Acer released Micro-Professor MPF-I in 1981, the companys rst computer product. The company obtained interna:onal reputa:on through the success of Micro-Professor series, especially, in European market during 1980s.

Micro-Professor MPF-I Photo by Toytoy on en.wikipedia

I would say that several years of experiences in sales and consul:ng fostered the ability to understand and share the feeling of their target customers. Acer group became one of the biggest PC maker in the world; the company owns Gateway, Packard Bell, BenQ, AUO, AOpen, etc.

Case-3

Crea:ve Technology, a Singapore-based company established in 1981 as a computer repair shop. The company ini:ally treated the Apple II computer, then IBM PCs.

Apple II, Photo by Marcin Wichary

In 1987, the company released their own product, a sound generator card for IBM PC architecture, widely known as Sound Blaster.

* Ref: Wikipedia Crea:ve Technology

About six years experience might enable the company to understand and share the feeling of target users. As you may know, Sound Blaster dominated the PC audio market during 1990s.

Case-4

Huawei Technologies is a networking and telecommunica:ons equipment and services company headquartered in Shenzhen, China.
Revenue $29.3Bilion Net Prot $3.8Bilion Employee-owned corpora:on (2010) *1CNY=0.16 USD

The company was established in 1987 as sales agent for Hong Kongs PBX-switch company. In 1990, the company embarked on research and commercializa:on of their own PBX technologies targe:ng hotels and small enterprises. Experience in sales and support must advance their empathy to develop their own products.

In 1992, Huawei launched digital switching solu:on and generated sales RMB 1.5Billion in 1995. Huawei has con:nued to invest in technologies, and 46% of the 110,000 employees are engaged in R&D.

Huawei began interna:onal expansion in 1997, and 75% of the sales is generated from overseas markets in 2010. Huawei was ranked 5th most innova:ve company in the world by Fast Company in 2010.

Case-5

DeNA is the worlds largest mobile social gaming plasorm provider, headquarters in Tokyo.
Revenue $1.4Bilion Opera:ng margin 50% Market cap $4.7Bilion

DeNA was founded in 1999 as an eBay clone service provider. At that :me eBay hadnt entered the Japanese market, but Yahoo! Auc:on was launched at the same :me.

(*) NTT Docomo started i-mode, the world rst mobile internet service, in 1999.

DeNA struggled and decided to shik their emphasis from PC to mobile in 2002. In 2005, when the mobile auc:on service was just star:ng to take o, the company got an idea called mobile social gaming plasorm.

Six years had passed since establishment, the company became an experienced professional team. The mobile social gaming plasorm, mobage was launched very smoothly, and the business has been growing extremely quick.

All of these companies took a similar route regardless of the founders intenJon.

Start

Acquire Empathy

idea!

in Emerging Prepara1on Period market

Vision!

InnovaJon Empathy

Every company entered emerging business area

Business Area Tokyo Electron Acer Crea:ve Technologies Huawei DeNA Semiconductor (1963) Microprocessor (1976) Personal Computer (1981) Telecommunica:on (1987) E-Commerce (1999) Business when they entered Trader Trader and Consultant Repair Shop Sales Agent eBay Clone

Every company entered emerging business area as a non-technology company.

Business Area Tokyo Electron Acer Crea:ve Technologies Huawei DeNA Semiconductor (1963) Microprocessor (1976) Personal Computer (1981) Telecommunica:on (1987) E-Commerce (1999) Business when they entered Trader Trader and Consultant Repair Shop Sales Agent eBay Clone

Every company entered emerging business area as a non-technology company.

Business Area Semiconductor Tokyo Electron Acquire E(1963) mpathy Acer Crea:ve Technologies Huawei DeNA Microprocessor Business when they entered Trader Trader and Consultant Repair Shop Sales Agent eBay Clone

Prepara1on Period

Personal Computer (1981) Telecommunica:on (1987) E-Commerce (1999)

These companies took preparaJon period regardless of the founders intenJon.

Acquire Empathy

Prepara1on Period

Trader Consultant Sales agent Repair shop Clone Service

Empathy is the most important ability for business. And this kind of preparaJon period develops start-up teams empathy:

communicate with target customers,

True marketing says, These are the satisfactions the customer looks for, values, and needs. Peter F. Drucker

enhance a human network,

Today knowledge has power. It controls access to opportunity and advancement. Peter F. Drucker

and build a team.

Alone we can do so little; together we can do so much. Helen Keller

PreparaJon period is a key process.

More haste, less speed

Four Steps for preparaJon period

I. Dene target market II. Seek a business opportunity in the preparaJon period III. Start small, grow smart IV. Keep looking, dont sePle

I. Dene target market

First of all, make sure that you have a passion to do business in the target market. Emerging business area is good, but not limited to so long as you and your folks have a passion for the business area(*).

(*) For example, a UK manufacturer, Dyson successfully entered the vacuum cleaner market, a saturated market, with cuVng-edge technologies. He had worked as a licenser for 14 years a[er designing prototype, then established Dyson Ltd.

II. Seek a business opportunity in the preparaJon period

The purpose is to develop your teams ability to understand and share the feeling of the target customers. The following are examples of businesses which enable you to develop:
Importer/sales agent Repair service rm Technology consultant Clone service provider / Clone product maker

etc.

III. Start small, grow smart

Start small(of course) Enhance a human network and uJlize (open) innovaJon system
Universi:es / Na:onal Ins:tutes Foreign high-tech companies Professionals in other industrial elds

Organize internal R&D team as early as possible.

etc.

IV. Keep looking, dont sePle

Look for new business idea which makes your hearts sing. Keep looking, dont sePle
idea!

Summary of Part II
In many places in the world, a start-up team needs a kind of preparaJon period to start business in the professional zone. This slide showed some case studies and provided a direcJon for the preparaJon period.

THANK YOU

fromBayArea.com