Starting Up: Silicon Valley's Origins
2:00 am
Wed April 4, 2012

A Rare Mix Created Silicon Valley's Startup Culture

Originally published on Wed April 4, 2012 1:47 pm

The first in a 3-part series airing this week on Morning Edition.

When Facebook goes public later this spring, its founder, Mark Zuckerberg, will be following in the footsteps of a long line of Silicon Valley tech entrepreneurs that includes Steve Jobs and Google's Larry Page and Sergey Brin. But there was a time when the idea of an engineer or scientist starting his or her own company was rare.

In 1956, what is now called Silicon Valley was called the Valley of the Heart's Delight. Its rolling hills were covered with farms and orchards. To become Silicon Valley it needed four ingredients: the first, brilliant scientists.

Collecting Scientific Talent

William Shockley was certainly brilliant, says Leslie Berlin, a historian and archivist at Stanford University.

"People tend to collectively agree," she says, that "[Shockley] was one of the smartest people to walk about this valley for quite a long time."

In 1956, Shockley won the Nobel Prize for co-inventing the transistor. His next dream was to make transistors out of silicon; he decided to set up his lab in Mountain View — near Palo Alto — largely for personal reasons.

"He'd grown up in Palo Alto," Berlin says. Most importantly, she says, "his mother was still living in Palo Alto."

Of course, it helped that nearby Stanford University was also doing federally funded electronics research. Shockley was a magnet who drew more brilliant scientists to the valley. Among them was Gordon Moore, co-founder of Intel and the man who would come up with Moore's Law — the observation that the number of transistors on a chip doubles about every two years.

Moore says of Shockley, "He really understood the physics of these things more than anybody else at the time."

Unfortunately for Moore and the other young scientists who gathered around him, Shockley turned out to be a terrible manager. "He really had no idea what motivated people," Moore says.

Even worse, Shockley was paranoid and erratic. He put his employees through lie-detector tests, Moore says. Then, within a year of opening the lab, Shockley decided he didn't want to focus on silicon transistors.

But Shockley had brought the first ingredient to the area: brilliant scientists. And they still wanted to make Silicon transistors. So, a group of them decided to leave Shockley's lab.

In those days, it was typical for scientists to spend their entire lives working for a big company. Moore says that's why at first, they were simply hoping to find a company to hire them.

One of the men sent a letter to his father's investment brokerage firm in New York City asking for advice, "saying there's a group of us here who are thinking of leaving the company," Moore says. "You think there's a company that would like to hire the group?"

The scientists wanted to keep working together. Somehow the letter to the investment firm made its way to the desk of a young Harvard MBA named Arthur Rock.

Rock says he was so intrigued by the letter that he flew out west to meet the group. "These people were working for William Shockley, and he had his choice of anyone he wanted to work for him," Rock says, "so, I kind of figured they must be pretty bright."

An Entrepreneurial Spirit

Rock introduced the second ingredient needed to make a Silicon Valley. He suggested that scientists start their own company. And he set out to find them the third necessary ingredient: money.

In his San Francisco office, Rock has kept a piece of lined legal paper with faded ink. The page lists the companies he tried to convince to invest in the scientists. "We went around to talk about investing a million and a half dollars," Rock says. "And none of them were interested."

Rock went to 41 companies, among them Motorola, General Mills, Chrysler and Westinghouse. He told them they would get the option to buy the new company, and the eight scientists would each get a share. But in those days no company would invest, Rock says, "because they were afraid that people in their company would then wonder ... 'Why can't we get some action?' They didn't know what to make of it."

Rock was almost ready to give up when he finally found an investor willing to take a chance on a group of scientists. The investor was Sherman Fairchild, owner of Fairchild Camera and Instrument in New York, and an inventor himself. And Fairchild was not averse to risk.

"If he had not decided to do this," Rock says, "I think there would have been no Silicon in Silicon Valley."

The group of scientists was soon dubbed "The Traitorous 8." Their names were Julius Blank, Victor Grinich, Jean Hoerni, Eugene Kleiner, Jay Last, Gordon Moore, Robert Noyce and Sheldon Roberts. In 1957, they founded Fairchild Semiconductor, about a mile from their old boss William Shockley's lab.

Fairchild developed the first commercially successful integrated circuit, or microchip, by placing several transistors on a small piece of silicon. The company's product soon became the industry standard. NASA used Fairchild chips in computers for its Apollo space program.

But a fourth ingredient was needed to make Silicon Valley into the tech hub of the world: a total break from the traditional East Coast mentality.

When Fairchild's investors back east took the option to buy the company, its executives didn't understand things like giving stock options to employees. "Their attitude was much like everyone else on the East Coast," Rock says. "Companies could give out a few options, but only to top executives. They were all very staid and white-shoe."

Rock says one executive called the idea of stock options creeping socialism. "They did things the way their fathers did them," Rock says.

Embracing A Startup Mentality

The West Coast Fairchild executives got frustrated. They were ready to make the break from the East. Soon, members of the Traitorous 8 began to peel away and start their own companies.

The last of them to leave were Gordon Moore and Robert Noyce. And by the time they did so, all the ingredients were in place for them to get moving on a successful startup: a cluster of brilliant scientists who wanted to be entrepreneurs and money that didn't tie them to the East Coast.

Their old friend Arthur Rock had moved to Northern California and opened one of the first venture capital firms. He set out to find money for Moore and Noyce.

Rock laughs when he thinks back to how easy it was to find investors for the scientists the second time around.

"Everybody knew 'em. And I got together a memorandum, probably a page, and made some telephone calls," he says. "It took me a whole day and a half to put together the financing."

In fact, there were so many investors eager to help that they began to call Gordon Moore directly.

"My wife was getting phone calls at home," he recalls, "with people wanting to put money into the operation."

Moore says that not everybody got a piece of the action.

"We didn't need anymore. We had enough to get started," he says. So, with $3 million in funding, Moore and Noyce founded their company in 1968, naming it Intel.

By the late 1960s, more scientists wanted to start their own companies, says historian Leslie Berlin. She says there are accounts of a semiconductor conference in 1969 where "more than 1,000 people attended a seminar called something like, 'Startup Companies: The Engineer Becomes Entrepreneur.'"

"They were sitting in the aisles," Berlin says. "They were having it broadcast on closed-captioned TV. This was the time and place to start a company."

Two years later, in 1971, a series of articles appeared in a trade newspaper under the title, "Silicon Valley USA." It was the first time the name had been used in print — and it stuck.

Intel would become the world's leading chip maker. Its chips became the guts inside most of our PCs.

Moore says that he believes the computer revolution might have taken longer if research and development had been trapped inside an old company bureaucracy.

"If we stayed at Shockley, we never would have made the radical kind of changes we were able to make by leaving and starting over," he says.

Next in the series: A Magnet for Venture Capital.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

RENEE MONTAGNE, HOST:

Mark Zuckerberg will be joining a list of legendary Silicon Valley tech entrepreneurs when he takes Facebook public later this year - Apple's Steve Jobs and Google's Larry Page and Sergey Brin, among others. There was a time when the idea of engineers or scientists starting and running companies was pretty much unheard of. This morning, NPR's Laura Sydell begins a series on the history of Silicon Valley with a look at how the engineer-entrepreneur was born.

LAURA SYDELL, BYLINE: In 1956, what is now called Silicon Valley was called the Valley of the Heart's Delight. Its rolling hills were covered with farms and orchards. To become Silicon Valley, it needed four ingredients. First, brilliant scientists.

LESLIE BERLIN: William Shockley, people tend to collectively agree, was one of the smartest people to walk around this valley for quite a long time.

SYDELL: That is Leslie Berlin, a Stanford University archivist and historian. In 1956, Shockley won the Nobel Prize for co-inventing the transistor. His next dream was to make transistors out of silicon. He came here to open his lab.

BERLIN: Because he'd grown up in Palo Alto, his mother was still living in Palo Alto. He liked the area.

SYDELL: It helped that nearby Stanford University was also doing federally funded electronics research. But because Shockley was here, more brilliant scientists followed.

GORDON MOORE: He really understood the physics of these things, more than anybody else in the world at the time, I believe.

SYDELL: That is Gordon Moore, one of the brilliant minds that make up ingredient number one. He would later co-found Intel and come up with Moore's Law: the observation that the number of transistors on a silicon chip doubles about every two years. Unfortunately for Moore and the other young scientists who gathered around him, Shockley turned out to be a terrible manager.

MOORE: He really had no idea, really, what motivated people.

SYDELL: Even worse, he was paranoid and erratic. Moore says he put his employees through lie-detector tests. Within a year of opening the lab, Shockley decided he didn't even want to focus on silicon transistors. But the group of scientists - the first ingredient - was here. They still wanted to make Silicon transistors. So a group of them decided to leave Shockley. Moore says one of the men sent a letter to his father's investment brokerage firm in New York City asking for advice.

MOORE: Saying there are a group of us here who are thinking of leaving the company. You think there's a company that would like to hire the group, is the gist of the letter.

SYDELL: They wanted to be together. And like most scientists in those days, they expected to do it working for a big company. But somehow, the letter made its way to the desk of a young Harvard MBA in the firm, Arthur Rock. He flew out West to meet the scientists.

MOORE: Because these people were working for Shockley, and he had his choice of anyone he wanted to work for him. So I kind of figured they must be pretty bright.

SYDELL: Rock introduced the second ingredient: those brilliant minds should start their own business.

It was you who said you guys should start your own company.

ARTHUR ROCK: Yes.

SYDELL: That was not something you did in those days.

ROCK: That's correct. Very unusual.

SYDELL: They still needed a third ingredient, and in those days, it wasn't easy to find: money. In his office today, Rock lifts up a piece of lined yellow paper with faded ink.

Now, what is this? This is just a...

ROCK: This is a list of all the companies we went around to talk to about investing a million-and-a-half dollars. And none of them were interested.

SYDELL: Forty-one companies, among them Motorola, General Mills, Chrysler, Westinghouse. The investor would get the option to buy, but the founding eight scientists would each get a share of the company.

ROCK: None of them would do it because they were afraid that people in their company would then wonder about: Why can't we get some action? They didn't know what to make of it.

SYDELL: Rock was almost ready to give up, but he finally found an investor willing to take a chance on a group of scientists who wanted to start a company. Sherman Fairchild, the owner of Fairchild Camera and Instrument in New York, and an inventor himself, liked risk.

ROCK: If he had not decided to do this, I think the eight of them would have gone their own ways, gone to work for somebody else, and there would have been no Silicon in Silicon Valley.

SYDELL: The group was dubbed The Traitorous 8. They founded Fairchild Semiconductor in 1957, not far from their old boss' lab in Palo Alto. Fairchild developed the first commercially successful integrated circuit, or microchip, by placing several transistors on a small piece of silicon. It became the industry standard. NASA used Fairchild chips in computers for its Apollo space program. But a fourth ingredient was needed to make Silicon Valley into the tech hub of the world: a total break from the East Coast mentality. When Fairchild's investors back East took the option to buy the company, its executives didn't understand things like giving stock options to employees.

ROCK: Their attitude was much like everyone else on the East Coast. Companies could give out a few options, but only to the top executives - very staid and white-shoe.

SYDELL: One executive called the idea of stock options creeping socialism.

ROCK: They did things the way their fathers did them.

SYDELL: The West Coast Fairchild executives got frustrated. They were ready to make the break from the East Coast. So when Gordon Moore and another member of the Traitorous 8, Robert Noyce, set out to start their own company, they had everything: the cluster of brilliant scientists who wanted to be entrepreneurs, and money that didn't tie them to the East Coast. Their old friend, Arthur Rock, was now a venture capitalist in Northern California, and they turned to him for investment.

ROCK: It was easy. Everybody knew them. I got together a memorandum of probably a page and a half and made some telephone calls. And so it took me a whole day and a half to put together the financing.

MOORE: My wife was getting phone calls at home with people wanting to put money into the operation, and so forth. We didn't need any more. We had enough to get started.

SYDELL: With $3 million, Moore and Noyce founded Intel in 1968. And by now, many scientists had left Fairchild to start their own companies. Leslie Berlin says there was a new mindset among scientists.

BERLIN: In 1969, there was a conference for semiconductor companies, and more than 1,000 people attended a seminar called something like Startup Companies: The Engineer Becomes Entrepreneur. They were sitting in the aisles. They were having it broadcast on closed-captioned TV. This was the time and the place to start a company.

SYDELL: Two years later, in 1971, a series of articles in a trade newspaper was titled: "Silicon Valley USA." It was the first time the name had been used in print, and it stuck. Intel would become the world's leading chip-maker. Its chips became the guts inside most of our PCs. Gordon Moore believes the computer revolution might have taken longer if research and development had been trapped inside an old company bureaucracy.

MOORE: If we had stayed at Shockley, we never would have made the radical kinds of changes that we were able to make by leaving and starting over.

SYDELL: But Moore says crucial to the birth of Silicon Valley was a new kind of funding. Tomorrow, we'll look at how the birth of modern venture capital began alongside the digital revolution. Laura Sydell, NPR News, San Francisco.

(SOUNDBITE OF MUSIC)

MONTAGNE: And you can scroll through a Silicon Valley timeline, complete with photos, at npr.org. Transcript provided by NPR, Copyright NPR.