February  2013 
Volume 8

NO 2

 Terry Cross KeynoteAt  ACE' 13 
















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In Silicon Valley "collaboration" is defined as something you do with another colleague or company to achieve greatness - something to be praised. In the good sense, it means "colleague. In Silicon Valley, great "collaborators" are prized.  It is that word that has defined the successes of Silicon Valley for the past 35 years.  It is that sense that Michigan needs to use collaboration to create a renewed sense of pride as we continue our early-phase quest of finding out what Michigan needs to do next to maintain the new road to renewal and growth of the nascent rejuvenation we seek.

So it was with great pride that I listened intently at ACE 13 last week to Terry Cross, the accomplished investor, Michigan native and longtime technology executive  discuss why he believes Michigan can build on current momentum to become better, invent and achieve more and rebuild our growth path.  Here are some excerpts from his address to some 1,000 people at Burton Manor.

Larry Eiler

Let us now draw some comparisons between Silicon Valley and other places. But, these will be cultural differences, because their unique business culture is the driver of most everything that happens there!


1. Rules

Silicon Valley is a place where rules are what may charitably be called lip service. Breaking the rules is the leading edge of risk taking and innovation, and it trickles down through the food chain of the entire culture. I refer to this as the willingness to dream! We in Michigan are finally beginning to break some rules, and I think that is a wonderful thing. The more the better, but it is not easy to get away with and survive. At Google, you get a bonus for breaking the rules. One day a week is devoted to breaking the rules. Breaking the rules leads to success and more often, failure. We all have some fantasy of what success looks like, but let's look at failure, cultural difference number 2.


2. Failure

In Silicon Valley, failure is a merit badge. It is not a scarlet letter. Fail fast and fail forward. Practice lean development, and pivot. On drive  Sand Hill Road up from Palo Alto, we will see many offices of the most renowned VCs on the planet. They write the checks. How do they feel about failure? Serve 'em up. The more merit badges, the more likely that next big opportunity with more stock options. They are wise enough not to parse experience between good and bad. They recognize that experience is a good thing across the board. They take that experience and mentor it and mould it into success the next time around. They want serial entrepreneurs much more than beginners. And what happens here in Michigan? Assuming you are lucky enough to survive the fight for a college degree, and when you tell your parents that you are going to start a business, they say "Are you nuts? Over my dead body. You will get yourself over to Fords and get a job, and work thirty years never breaking the rules (especially the UAW's rules) and get your retirement and free health care for life". What kind of a merit badge is that? OMG, who moved my cheese? Times have changed!


3. Diversity and openness

The Valley owes a lot of its success to government contracting in its early days. With that, came diversity, especially friendly to immigrants, and that culture of diversity has expanded and blossomed and been leveraged like no other place I know of. Of course NYC is probably more diverse, but the diversity has not been a road to higher achievement as it has in the Valley. The Valley has opened its doors and listened, and they have profited mightily from it. There is a huge respect for intelligence there

irrespective of where you came from; it approaches a religion! And this brings us to a next big difference: Hard Work.


4. Hard work.

Most people in The Valley work at a fanatical and frenzied pace. Words you will never hear in The Valley are: "I am going to take my break now". Fortunately, here we can diverge a bit. In The Valley, people work almost as long and hard as they do in Michigan! While we all appreciate hard work, families and marriages have paid a huge price in The Valley, and that is a bad thing. Regrettably, in the world of the 3D-Hurricane [that would be demography, debt and deficits] there probably is little chance for this changing. And one of the great things about Michigan is that families are paramount even though we work as hard or harder than The Valley. Michigan trumps the Valley for raising a family, so score one for The Mitten!


5. Collaborate, collaborate, collaborate, but first comes trust. In many respects, this is the most defining characteristic of The Valley. The first arena where this is felt is that of intellectual property. While the Valley has respect for IP but they don't often sign NDAs, they respectfully try to find a way of working together. I call it making love and not war. They may meet in a lawyer's office, but it is to sign a mutual cooperation or development agreement rather than for a deposition in a lawsuit. This is huge. You see, long ago they learned that 1 plus 1 can equal more than 2, it can often equal 6. Rather than seeking an advantage, they seek fairness. . Victor Hwang, author of The Guide to Building the Next Silicon Valley puts it so clearly when he said: "In any interaction, the hard part is having the courage is to give trust first. The common saying "business is business" implies taking advantage of the other side and is an acceptable way to do business in many other places. This behavior, however, can kill innovation. Business must be suffused with trust, and violations of trust penalized, for the system to work. This concept, while seemingly nave to outsiders, is fundamental to why replicating The Valley is so difficult. Although trust has a cost to the individual, the absence of trust has an even higher cost for the whole system This is a major strategic advantage for The Valley. Another example of collaboration is teamwork in the workspace. Valley employees seem willing to experiment together. This is not easy in most of the world where business is about winning at all costs. However, a sense of unfairness among team or business partners can lead to a rapid breakdown in trust and cause resentments to build together. And know this: in The Valley, Team members make life difficult for untrusted team members. Think of it this way. Trust is the enabler of collaborations. To get a sense of the real meaning of all of this, I would recommend an article dated March 22, 2012 at entitled The opposite of Goldman Sachs is Silicon Valley. You will find it quite prescient.


6. Aligned Incentives

In The Valley, it is ingrained in the culture that social and economic incentives are aligned so that everyone is committed to building greatness. Members of startup teams get generous stock options or equivalent, but in most other places, this is a rarity. Seeing others around you who have cashed out their stock options when their start-ups were acquired-and then do it again and again-is both a motivator and reminder that the entrepreneurial spirit is all about the hunt!


7. The Ultimate Tool: The Network

I refer to networking in The Valley as a great miracle. Suffice it to say, everyone there is separated by one degree. It is asset number one on the road to success. If you are not in the network, you're essentially DOA in Silicon Valley. Some of the successful VCs have admitted that they spend 40% of their time building and maintaining their networks. Insofar as networking, they have become masters of that universe. To fully understand the value, you must first understand the context. Networking, in this context refers to Metcalfe's Law. While you have all heard of Moore's Law, you also need to know about Metcalfe's Law. Robert Metcalfe is the co-inventor of Ethernet. Take it as an article of faith that he gets this stuff. Metcalfe's Law says: The value of a network is proportional to the square of the number of connected users in the system. Contemplate that for awhile! And, in my opinion, nobody

does it better than Sand Hill Road.


8. The biggest secret of Silicon Valley

Public relations and telling the story is the greatest secret of The Valley. They totally get it. And The Valley gets the PR people. In any solidly financed company in The Valley, there is substantial budget for PR. The order of hiring generally goes something like this. CTO, CEO, PR firm, etc. They understand that part of the wealth creation chain is creating the buzz. How many blogs have that word "buzz" in their name? The wealth creation chain goes something like this: observe a problem and develop an idea for a solution, identify the addressable market, do a proof of concept, tell the world, create the buzz.


THEN raise the funding, productize the idea, tell the world again, pump up the value, repeat that process 2-3 times, sell it or take it public, make a fortune, do it again. When we hear that the A round was done at a pre money valuation of $4.0 mil and the B round was done at a pre-money valuation of $ 40.0 mil., we gasp and often wonder how that happens. Creating the buzz and PR go a long way to making that happen! And, it is probably the largest contributor to the valuation disparity between Silicon Valley and everywhere else. The biggest fear of the VCs in The Valley today isn't the fear of not finding a great deal, it is the fear of not being part of a great deal that is getting a lot of press, because the great press gets an increasing valuation, and an increased valuation gets great press. How do you lose? The great VCs and Super Angels have mastered this process to the ultimate degree and the play it like a Stradivarius. If you want to be a hot start-up in Michigan, be the first to include a top-notch PR adviser in your start-up budget from the get-go. If you change direction, it doesn't matter, because that can be a great press release also.


9. First things first:

In many places in the high tech world, technology, science, and engineering are number one! In Silicon Valley, not so much. I have an idea, there is a need, I can solve it, I can build it or get it built [details to follow], but will customers buy it? So customer discovery is certainly on equal footing with science, technology and engineering. In other words, Sales and Marketing are on equal footing with designing and building the product. In the Valley, ideas are sold and then products are designed, built and delivered. It is not "if we build it, they will come. It's we will build it and we already know they will come! The financial consequences of this business strategy are earth shattering, and in a startup they make the difference between success and failure. So, we have reviewed some of the primary differences between Silicon Valley and other places and there are many additional differences, but in my mind these are the differences that are the most important drivers of success in The Valley.  


 So now let's talk about Michigan. And let's start out on a realistic plane. We will never recreate Silicon Valley in Michigan, or anywhere else for that matter, nor do we want to. What we need to do is adopt the useful stuff, and never let loose of our greatness. You see, in the end, the real question is, can they become as good as we are in the areas where we are great -- easier than we can adopt their great business ideas and become greater than them?


When I returned to Michigan, I was asked hundreds of times why did you return to Michigan from San Francisco? My consistent answer was, because I wanted to be with real people with real values. Those are two things that are really hard to find in California. I could give countless examples, but ask most anyone who has lived there for awhile, and I don't think you will get much disagreement. You see, in The Bay Area, it is all about me. It is not about you nor is it about us. On the business level, I will collaborate with you and network with you, but on most other l levels it is "what is your name again" and "please explain again why I need to know you"? There is more to life than a value prop or the burn rate!


After 13 years in California, Kim and I made a list of those people who we could really count as strong friends. Two were from California, and six were from Michigan and other Midwestern states. There are certain characteristics and qualities that folks from the Midwest and Michigan have that are hard to find in other places. They are hard to identify and quantify, but most of us know them when we see them. I call them real people with real values. A moment ago, I mentioned working hard, and we are definitely at parity with The Valley in that. What about raising a family? Most anyone who has lived in The Valley knows that families implode there by the hour. My observation was that raising the family was a spousal duty. Remember, it's all about me! Look, it is never a great idea to generalize, nor is it fair. But living and working in The Bay Area taught me this about The Valley. It is not a pre-conceived notion.


The really hideous part of it is that people there actually do take the time to consider work-life balance, and they consciously vote for the enterprise. Is this the way you want to live your life? A person once told me that in business, a team of 50 well-balanced families would always out produce 50 worker drones? So which of the aforementioned Valley skill sets to you want in exchange for raising a great family? My bet is that we can learn how to network, use a PR firm to our advantage, collaborate, etc. -- faster, better and cheaper than they can understand how to raise a great family and why that's as

important as the next TechCrunch headline! Things are not always what they seem, and often it takes a long time for the truth to surface. I could cite many other examples of what I refer to as the value gap, but I already know you "get it", and fortunately for you, I am time constrained this evening. Finally, I try very hard to look around and try to observe changing trends. I think I see a big change coming in the concept of making THINGS. In the past 40 years or so, making things has become a capital offence in our country. But, I get the sense that this is changing. Big changes coming leave small snippets of evidence. It is becoming evident that we cannot survive on apps alone. There has to be something for an app to interact with, though sometimes one begins to wonder. There is an organization called Tech Shop, and while this is an oversimplification, one can join a Tech Shop and be granted access to a first rate rapid prototyping shop with a full complement of all kinds of Cad design tools, 3-D printing tools, and other machines and equipment to make things! Michigan has one of these in Allen Park, and I am told that while new, it is a big success. But guess what; the largest and most successful one to date is in the midst of Silicon Valley in Menlo Park CA. Such heresy! I think our society is finally waking up to the idea that people like and use things. You can't make a lawn mower by thinking about it. You have to make it! As we re-awaken to this realization, it will partially tilt the game in Michigan's favor. The big question for Michigan is how they should address and respond to these opportunities. If you have a forest, you think about harvesting wood and making wood-products. What Michigan must do, and what they are the very best at, is making the tools that will facilitate the next big trend of making things. By the way, it's not all hardware. Its algorithms for injection molding optimization, it's the IT for 7 axis machine tools, it is laser controlled cutters that allow for the clean slicing of semi-conductor wafers, it's robotics, it is artificial intelligence, it's nanotechnology, it's synthetic biology! These things are happening here and now. But, we entrepreneurs and funding providers must re-focus and pay attention to these things. The world cannot and will not survive on virtual farm animals, college dorm gossip, and Angry Birds. It is becoming a much larger and clearer canvas now, and it is writ large and bold across the map of Michigan. In the 19th and 20th centuries, people like Henry Ford, C. S. Mott, William E. Upjohn, Alfred P. Sloan, Engine Charlie Wilson, and many others implanted in Michigan an entrepreneurial spirit that became what I call the Entrepreneurial Soul of America. It encompassed great knowledge and values. Say what you will about the New England mill towns. The never got mass production until they learned it from us. It is now our calling and duty to take all the native modern knowledge and tools which we have developed over several generations and bolt them together with the lessons that The Valley has to offer and build the next generation of greatness with sound values. This nation needs our leadership in this task. My bet is that we can and will do just that. And one last thing. Don't Mess With the Mitten!


Thank you.

Terry Cross


Eiler Communications 900 Victors Way, Suite 180 Ann Arbor, Michigan 48108 Map
Phone: 734-761-3399 Fax: 734-761-3724