Which Founding Teams Succeed? Are Founders Born or Made? Can Innovation Be Crowdsourced? How Many Jobs Do MIT & Stanford Add to the Economy? Blockchain for the Supply Chain? Chuck Eesley, Stanford's Startup Prof Addresses These Questions and More.
Highlights include:
Introduction
The Traumatic Founding Experience
Shivang Dave, PlenOptika & Entrepreneurs in Poor Countries
How Chuck Eesley Ended Up at MIT Studying with Ed Roberts
The Economic Impact of MIT & Stanford: Millions of Jobs Created & Trillions in Economic Activity
“And the other big takeaway is that we had been looking at the impact of these universities in too narrow of a way previously.”
Robust Finding: Larger Teams Do Better; Startups Tend to Have Teams that Are Too Small
Chuck Gets a Great Idea for Research While Hiking with a Friend
Cooperative vs. Competitive Commercialization
“…, if the industry is high in the effectiveness of patent protection, and high in the importance of complementary assets ... you're motivated to go and talk to the big guys, because you need their complementary assets…”
“…low effectiveness of patent protection, low importance of complementary assets, that's where you tend to get competitive commercialization…”
“Are You Experienced, or Are You Talented?”
Sal Talks About the Impact of Portfolio Company Concrete Sensors
Evidence-based Entrepreneurship
Blockchain to Make it Easier to Finance Supply Chains
“And with that additional data, then we can also start to optimize more and more of the startup process, and do a better job of picking which ventures to invest in, and to devote resources towards.”
The Value of Thrift in Life and in Entrepreneurship
Chuck & Family Plan to Give Their Money to the Universities that Made Their Success Possible
“So, I think it [thrift] is an underappreciated value. And definitely in Silicon Valley…”
Early Google Investor David Cheriton Is a Role Model for Chuck
Chuck’s Parting Thoughts: (1) Entrepreneurs Can Change Their Luck, (2) If Chuck’s Projects Interest You, Reach Out, and (3) Be Frugal in Life and in Entrepreneurship.
Click here to read full episode transcript
Transcript of “Stanford’s Startup Prof”
Guest: Founder and Scholar, Chuck Eesley
Introduction
Sal Daher: Welcome to Angel Invest Boston. I am your host Sal Daher, an angel investor who delights in the fascinating tech companies being built in Boston's singular startup ecosystem. Because of the unique concentration of great universities here, Boston is a massive exporter of great ideas. The startups scene here is opportunity rich and cash poor. Lots of interesting ideas vying for scarce funding, this creates wonderful opportunities for me to invest early in companies that VCs and strategic players will be competing for in a few years. Case in point, Concrete Sensors. I'll tell you more about Concrete Sensors later, but now I'd like to introduce my exciting guest today, Charles Eesley, professor of entrepreneurship at Stanford University.
Chuck Eesley: Thank you very much Sal. It's great to be here with you.
Sal Daher: It's a little miracle that you're here, Chuck. This is tremendous.
Chuck Eesley: That's right.
Sal Daher: It's been an ambition of mine really since I interviewed Ed Roberts from MIT Sloan who was your thesis advisor, right?
Chuck Eesley: That's right, exactly.
Sal Daher: And Howard Stevenson of Harvard. Who was a-
Chuck Eesley: Yep, who I know as well.
Sal Daher: ... very early proponent of entrepreneurship education at Harvard. So it's been a running ambition. And when I was out on the West Coast recently, I wanted to interview you, but it was not possible at that time. And then you kindly contacted me and said, "Hey Sal, I'm going to be in Boston in August. Why don't you and I get together in the studio with my friend Sylvain Bureau?"
Chuck Eesley: Yep. I'm glad it worked out. I wish I could have been here at the same time with Sylvain.
Sal Daher: Yeah, it was supposed to be a three-way conversation, but Chuck was out sick.
Chuck Eesley: Yeah, unfortunately out sick, but I got my voice back at least for the most part, and really glad to be able to join now and talk about all things entrepreneurship. Yeah, I'm glad we were able to make it work. Sylvain happened to reach out to me because we were going to be here at the Academy of Management Conference, and so he and I have been working on these ideas around Art Thinking. And so he sent me this email and said, "Hey, is there anyone in Boston? we're going to present this paper of course and do all the academic stuff, but is there anyone in Boston that we should also talk with about Art Thinking?" Nothing came to mind at first, but then I recalled our email exchange.
Sal Daher: Of course, yeah.
Chuck Eesley: Where you kindly said, "Oh, I understand you're busy right now, but if you ever find yourself in Boston with an hour or two to spare, please drop me a line." And so I thought, I don't know what I'm going to say that might be interesting, but Sylvain's working on some cool stuff, and so I'm glad you were able to get him over here to share the Art Thinking ideas as well.
Sal Daher: That was Friday. We're going to have a whole Art Thinking episode. I'm thinking of maybe calling it Art Thinking. It was a great blessing. I mean, we missed out on the repartee between you and Sylvain. It must have been interesting, because I know you're old friends.
Chuck Eesley: That's right. He likes to tease me for being too American, and I like to tease him for having a bad French accent.
Professor Charles Eesley Bio
Sal Daher: Yeah, yeah. But it's great that it worked out. On Friday, things were looking grim. You had a sore throat and couldn't talk. And then Monday you're here, and seemingly in full health. But anyway, here's a short bio of Chuck Eesley. He completed his PhD at MIT Sloan School. As I said before, his thesis advisor was a Startup Prof himself. Ed Roberts, he's known here as a startup prof. Professor Eesley's work at Stanford focuses on the role of institutions and universities in creating high-growth technology companies. Charles, Chuck is at the Stanford Technology Venture Program, STVP, which is the home of the really famous Stanford eCorner podcast, to which I listen regularly.
Sal Daher: I highly recommend to anyone who's interested in entrepreneurship to have a listen. And had an occasion to visit the program while you were here in Boston, and to sit down with some of the folks there. And it's just amazing. It's another world. It really is. Welcome to the East Coast environment.
Chuck Eesley: Thank you. It's nice to be back here as always.
Sal Daher: Why don't you kind of map out the areas of entrepreneurship that you've studied and what led you to that?
Why Chuck Eesley Got Into Studying Entrepreneurship
Chuck Eesley: Sure. Sure. So, my focus academically has been on the relationship between the institutional environment; universities, and high tech, high growth entrepreneurship. So I've been studying that for now about 15 years, in a variety of different contexts. And I really got started because of my own entrepreneurial experience. So I joke sometimes that this has all been years of therapy over a failed venture.
Sal Daher: That's right. Psychiatrists become psychiatrists because they have to deal with some tragic flaw in their personality or something.
Chuck Eesley: That's right. Entrepreneur-
Sal Daher: And professors of entrepreneurship because of a tragic founding.
Chuck Eesley: Precisely. Yeah. So I had-
Sal Daher: What was Lobby 10? I know it was your first-
Working on Lobby 10 When He Should Have Been Working on His Dissertation
Chuck Eesley: Oh. Yeah, that may be the first one on LinkedIn, but chronologically, Sun Dance Genetics was a bit before that. So Lobby 10 was, while I was in the PhD program at MIT, when Ed Roberts probably would have preferred that I be focusing solely on finishing the dissertation and advising me to get the data analyzed, and the MIT economic impact report out and published, I was in my spare time doing the PhD program, in the evenings and weekends putting together this life sciences, technology and marketing, consulting firm with a bunch of other PhD students and MBA students from MIT, Harvard, and Boston University.
Chuck Eesley: So, it was a lot of fun. We did a bunch of consulting projects basically, and got to know a lot of the folks in the life sciences community. And I've kept in touch with a lot of those folks over the years. Ali has gone on and done a biotech startup, and sold that successfully and is on to biotech startup number two. And similar for a bunch of the other guys. While I was working on that, I got the opportunity to work with Flagship Ventures.
Sal Daher: Ah, okay.
The Traumatic Founding Experience
Chuck Eesley: So, I kind of turned Lobby 10 over to one of the other MIT guys to basically run, and then I started working with Flagship, looking at medical device deals and early seed-stage ventures there. But my whole interest really got started, I was a biology and neuroscience guy in undergrad, working in a lot of labs at Duke and at Duke Medical Center, and happened to have an opportunity to do a study abroad experience in India. And so, while I was there, I stayed with a village family, a remote three hours outside of Udaipur. And they were our hosts for three days. And while we were there, we realized the really tough situation they were living in, which was three plus years of drought.
Sal Daher: Oh wow.
Chuck Eesley: And the corn crop is all dried up. Everyone in the village is down to only eating one meal per day.
Sal Daher: Oh horror.
Chuck Eesley: Yeah. So we're trying to help. We brought in all the food and water for everyone. We're digging an irrigation ditch from the river to try to irrigate the crops a little bit more with what water is left in the river. So when you're out there in 125 degree heat all day digging an irrigation ditch, you start thinking that there's got to be a better solution to this problem. And so it took me a while to find it, but I got back to Duke, and my work study job was videotaping lectures for this markets and management class by Gary Gereffi there. And one of the first speakers that I recorded to put up on the web was a biology faculty member talking about how she had developed a drought resistant variety of corn.
Sal Daher: Oh wow.
Chuck Eesley: And how with global warming and climate change, there was going to be increasing drought across Africa and India, and so this was going to be a bigger and bigger problem in future years, and how she had developed a way to move groups of genes for traits like drought resistance or pest resistance, improved protein content, into the corn that's typically grown in our food supplies. I initially thought I would get involved in the lab, coming from this scientific background, and she said, "Oh, I'm tired of publishing papers about this. I want to get it out there into the world to help people."
Chuck Eesley: And I realized, oh, that's my motivation also, and so I happened to have seen a flyer on campus for the business plan competition at Duke. And so I said, "Oh, this is something. At least there'd be some deadlines, and maybe we'd win a bit of prize money, and we could enter it in." That was the first startup experience that I got involved with, and I just fell in love with it. And realized that I didn't have to wait until I was a 50-something year old biology professor to start a company, that there were opportunities out there with technologies at the university that could be commercialized, and where you could both solve a real world problem and help society, and potentially make a lot of money and support your family, and create jobs along the way.
Shivang Dave, PlenOptika & Entrepreneurs in Poor Countries
Sal Daher: That brings to mind, my guest here on the podcast, Shivang Dave, the founder of PlenOptika.
Chuck Eesley: Okay.
Sal Daher: He wants to eliminate the problem of people having the wrong prescription set of glasses worldwide. It's 1.5 billion people don't have the right prescription. And he's created basically a machine that does that first cut for diffraction, very effectively-
Chuck Eesley: Oh, that's great.
Sal Daher: ... very effectively. And then you could have a human being do the next step. And it's interesting. He pointed out that his inspiration was his blind grandfather in India, was an entrepreneur. He was blind, and yet he supported his family as a small-scale entrepreneur. And we forget very often that in these poor economies, there are not a lot of job opportunities. You have to kind of create your own. I mean, I've heard this from some of the Brazilian founders I had here as well. People are entrepreneurs not out of choice, but out of necessity, because it's the only way they can feed their families.
Sal Daher: So, they become small-scale entrepreneurs. And so there's a significant amount of that kind of entrepreneurship, which also used to exist in our economy here in the U.S., before industrialization. It was very common for people to have their own little business and so forth, but then mass production kind of made it much more profitable to work at a large factory that paid much more. But anyway, these patterns, these things go back and forth.
Chuck Eesley: Yeah. Yeah, that's right.
Sal Daher: And please continue if there's anything else you want to say on the mapping of your areas of study.
Chuck Eesley’s Experience Led to a Focus on Startups in the Developing World
Chuck Eesley: Oh, yeah. So a lot of the research that I've worked on has been inspired by this first startup experience. And so, there's one branch of my research that focuses more on these emerging economics, and the transition to high tech, high growth entrepreneurship in those emerging economies. And then there's another stream of my research that focuses more on this university, U.S. context, high tech entrepreneurship, and the kinds of founding team characteristics and early strategic decisions that lead to a greater likelihood of success.
Sal Daher: Well, let's follow those two streams in a little while. I just want to, I'm dying of curiosity. So what was the outcome of the startup?
Chuck Eesley: It's a sad story at the end of the day, unfortunately. Like many, this venture didn't work out. I put together the team, I put together a really strong group of advisors and mentors who helped us all along the way. We wound up winning the business plan competition, interviewed by Fortune and Forbes Small Business and all of these. $50,000 check for winning the prize. And then unfortunately, we proceeded to argue among the team, and with the faculty member about what to do with that prize money exactly. So some folks on the team wanted to use it for that next summer's worth of research to generate some more data and show the benefits of this variety of corn.
Chuck Eesley: I was talking with an angel investor in the Research Triangle area, who had sold his company to Microsoft, and was interested in investing in us. My preference was we wanted to live off of that prize money until we could close the angel round, and then start working toward the next milestone. For better or worse, I had recruited a team mostly of other undergraduates who then had job offers from Goldman Sachs and McKinsey, and various other places. And so instead of stay and fight this out, the team kind of fell apart as everyone graduated. So that was when I started hanging around the business school, and realizing that there were people studying in a more systematic way these issues. And that was my big insight that this is not just all about the technology.
Sal Daher: No. The technology-
Chuck Eesley: That's a scientist's point of view.
Sal Daher: The technology comes into it, but it's not necessarily the main driving factor.
Chuck Eesley: Yeah, yeah. So that really opened my eyes to all of these interpersonal dynamics and team issues, and business model factors, where as a scientist, I had this perspective of oh, inventing it's the difficult thing, and then everything after that that these business people do, that's the easy stuff. I realized from this experience that all of that, getting the technology out of the lab and actually forming a startup and getting it funded, creating the team, all of those are incredibly difficult tasks that require a lot of creativity and expertise as well.
How Chuck Eesley Ended Up at MIT Studying with Ed Roberts
Sal Daher: What drew you to MIT Sloan?
Chuck Eesley: Really, it was Ed Roberts, and it was the kind of research that they were doing on these topics. So at that time, strategy and innovation, those were established fields, but there were not that many people studying high tech entrepreneurship. So I had applied to all the top business schools, and a lot of the faculty that I was meeting with were studying innovation, but they were looking at patenting and patent data, and looking at how large companies innovate. And I had this very strong perspective that the real radical breakthrough innovations come from startups.
Chuck Eesley: And the issues are even more complex when you're dealing with this kind of highly uncertain, very early stage new startup technology. And so I really wanted to focus on that, and there weren't that many people that you could do a PhD with that had really been studying this in a systematic, deep, serious way. So I got the opportunity to come up and do an interview at MIT Sloan, and both MIT and Stanford were on my radar screen as clearly places with a good startup community that would be good places to be. And Ed Roberts was just talking about this data set that he had just gathered of MIT alumni entrepreneurs, and how they had data on something like 43,000 alumni, and a couple thousand that had started companies.
Chuck Eesley: And he was working on it with David Hsu at Wharton. And so Ed and I just hit it off from the beginning, and so it just felt like a natural fit. And so I was really excited to come up. I actually joined ... You usually start in the fall, and so I emailed Ed once I got into the program and got the good news, and said, "Hey, could I come up early in May or June and get started working?"
Sal Daher: Couldn't wait, huh?
Chuck Eesley: Yeah.
Sal Daher: I can see that. For those of you who have not listened to the Ed Roberts interview, it's one of the most popular podcasts that I have, one of the most popular episodes. Maybe the Chuck Eesley will compete with it-
Chuck Eesley: No.
Sal Daher: ... when it launches, but listen to the Ed Roberts episode. It is 89 minutes long, and it's worth it, because Ed is so enthusiastic, is so clever, and he has a generous, expansive personality. He's this irresistible person, just delightful, a delightful, long, 89 minute episode that we couldn't take anything out of it because there was just so much gold. It was just delightful.
Chuck Eesley: Yeah, yeah. So he was really wonderful as an advisor. And he was tough, as well.
Sal Daher: Oh yeah. Oh yeah.
Chuck Eesley: He was exacting in his standards, and-
Sal Daher: He's demanding, isn't he?
Chuck Eesley: Yeah, super sharp. And the other faculty in the department were great as well, so I got a chance to work with Fiona Murray and Diane Burton, and-
The Economic Impact of MIT & Stanford: Millions of Jobs Created & Trillions of Economic Activity
Sal Daher: Yes, I've heard of her, and yeah. So Chuck, since we're on the topic, listeners might be familiar with the study that you were referring to, the data from 46,000 alumni that they gathered. The statistic that sticks with me from that is that the total value of companies created by MIT alum that were still extant at the time, was comparable to the 10th largest economy in the world. And I understand that you did something similar at Stanford, so would you care to kind of compare and contrast the two studies and what you discovered?
Chuck Eesley: Sure. Sure. So Ed and I have continued this line of work. He's continued with some more recent surveys of the MIT alumni as well, and updating those numbers. I worked on convincing Stanford to do a similar alumni survey. So we sent, with the permission of John Hennessy, who was the president at the time, and Jim Plummer, who was the dean of the Engineering School. They were super helpful. We raised some funding from Sequoia Capital, and from the Kauffman Foundation, and sent a survey out to all 145,000 living Stanford alumni. So this covered graduates from the 1930s, up through graduates from 2010, and across all seven schools at Stanford.
Chuck Eesley: So, this is one of the big differences between the two universities. MIT is obviously very focused on engineering, and there's no law school, there's no medical school. Stanford has the School of the Environment, and the Law School, the Medical School, big arts and humanities area. It was actually a bit of a challenge at first, interestingly. Some of the schools were not sure that they were going to have entrepreneurs among their alumni, and so I had to do a bit of convincing. But fortunately, we got everyone on board. And it turned out, there was entrepreneurs across all of those departments.
Chuck Eesley: The nature of their companies differs, but that's all really interesting variation from a social scientist's perspective, from a researcher's perspective. So we did a similar economic impact analysis to what we had run at MIT, and basically we found that 29% of the Stanford alumni at some point in their careers participates in a startup venture.
Sal Daher: That's comparable to the MIT number as well, right? Which is about 30 something.
Chuck Eesley: Yeah.
Sal Daher: The low 30s, if I remember correctly.
Chuck Eesley: Yeah, that's right. Yeah. So it's pretty similar. And in total, the economic impact numbers in terms of the number of jobs created was about five million. And in terms of the total aggregate worldwide revenues, was just under three trillion. So those numbers were bigger than the numbers we had calculated for MIT, but of course, you have to adjust for the sample size. So Stanford is a much larger university, larger alumni population. The total alumni body for Stanford was about 145,000. For MIT at that time is about 105,000.
Sal Daher: Yes.
Chuck Eesley: So, you've got to adjust by about a factor of 1.4 to make the comparison fair. And once you do that, the numbers actually come out quite similar.
Sal Daher: About the same. About the same, yeah.
Chuck Eesley: Yeah, about the same.
Sal Daher: Which means that these institutions are incredibly valuable.
“And the other big takeaway is that we had been looking at the impact of these universities in too narrow of a way previously.”
Chuck Eesley: Yes. Yes, that's right. That's right. So I think that's the big takeaway. And the other big takeaway is that we had been looking at the impact of these universities in too narrow of a way previously. So a lot of people had focused on the Technology Licensing Office and faculty creating startups and creating new technologies and licensing them. And of course that's a very important channel through which the university impacts society in terms of its technology, but when you look at the number of faculty relative to the number of students-
Sal Daher: Students, oh yes.
Chuck Eesley: ... and alumni, it's dwarfed. We calculated something like 14 to one in favor of student and alumni startups relative to faculty startups. Some of those are years after they've graduated, but for many of them, they're learning those science and engineering skills, they're learning about new technologies, they're getting exposed to entrepreneurship. Even if it's indirect, there's an impact there as well that the university's having on getting technologies transferred out to the benefit of the world, and to the benefit of the economy through these alumni ventures as well.
Sal Daher: Good. Earlier on, you talked about the work that you're doing on teams.
Chuck Eesley: Mm-hmm (affirmative).
Sal Daher: I know that Ed Roberts, during his interview, one of the many things that he pointed out was that more founders increases the chances of success. The more founders there are, up to four, statistically significant data, that likelihood of success increases if you have additional founders with complementary skills. You're bringing in people with complementary skills. Like they said, they have an engineering team, and they bring in somebody with marketing expertise as a founder. And so would you kind of talk a little bit about your work that you've done on founding teams?
Robust Finding: Larger Teams Do Better; Startups Tend to Have Teams that Are Too Small
Chuck Eesley: Well, just one important note on the founding team size. This is one of the most robust effects, and one of the stronger effects, actually, is that larger teams tend to do better, and in general, people tend to have slightly too small of a team.
Sal Daher: Yes.
Chuck Eesley: So we found that not only among MIT alumni, we replicate that same finding among Stanford alumni, and even the international data sets that I've collected, in China of the Tsinghua University alumni, almost any entrepreneurship database out there, you see the same effect, that larger teams tend to do better. So then the question becomes, what other characteristics of the team are important? There's two main ones that I started drilling down upon. So one is, left MIT, the Sloan School, and joined the School of Engineering. So there, I became curious about, well, is there ever a time when an all-engineer team actually does better?
Sal Daher: So, you were at MIT Sloan, which is the Management School at MIT.
Chuck Eesley: Uh-huh (affirmative).
Sal Daher: And then you are now at the School of Management Science, in the Engineering School at Stanford?
Chuck Eesley: That's right. That's right. Management Science and Engineering.
Sal Daher: Right, which has more of a management science…. Right.
Chuck Eesley: Yeah.
Sal Daher: The old industrial engineering area.
Chuck Eesley: That's right. That's right. We're a merger of industrial engineering, operations research, engineering economic systems, and so this was-
Sal Daher: In which I have a degree. I have a degree in engineering economic systems, and it's been subsumed into your group.
Chuck Eesley: Oh, that's great. I didn't realize that. Oh, that's wonderful to hear.
Sal Daher: Yes, yes.
Chuck Eesley: So, I was actually out on a hike. One of the great things about the Bay Area is all the access to the outdoors and the redwood trees and everything.
Sal Daher: I read avidly your reports on your bike rides on LinkedIn.
Chuck Gets a Great Idea for Research While Hiking with a Friend
Chuck Eesley: That's right. That's right. So, it's a great place to get some creative ideas out on a bike ride or out on a hike. So I had a friend, and he was starting up a startup at the time, and so he was asking me, "Oh, what does the research literature say about the team composition?" And so I was telling him about some of these factors, that having a larger team, and having a functionally diverse team tended to be shown as an important success factor. So not just having an all-engineer team, but having some folks with marketing backgrounds and business experience on the team was important. And so he kind of surprised me, and he said, "Oh, that's interesting." But typical, overconfident entrepreneur, he said, "That's not what I'm going to do."
Sal Daher: He's going to do it all by himself.
Chuck Eesley: Well, he wasn't going to do it all by himself, but he was kind of pushing back and questioning on having the marketing co-founder, or having the business co-founder.
Sal Daher: Yeah, right.
Chuck Eesley: And he was saying, "At our stage, there's nothing for that person to do. I'm going to go recruit someone with an MBA, and they're just going to sit there and collect a big salary, and soak up lots of equity, until we can finish the technical development that we need to do before it's actually viable." So of course I'm hiking with him, thinking he's crazy and this is ridiculous, but also kind of thinking, I'm going to go back and look at the data. We've tended to look in general across industries and across time. Maybe there are certain circumstances where it actually is better to have a really strong technical team, and maybe this idea isn't completely crazy.
Cooperative vs. Competitive Commercialization
Chuck Eesley: So, he and I, the rest of the hike, we sort of started brainstorming along these lines, some things that I could test. I happened to have another co-author who had categorized different types of industries, that there were some industries, like biotech and medical devices, where you tend to have what they call cooperative commercialization. You develop the invention, and then you tend to either partner with a large pharma company or license it to them, and then they do the downstream sales and marketing, and help with the clinical trials and whatnot.
Chuck Eesley: And he contrasts those with industries that have other characteristics that tend to lead them to have competitive commercialization. And so this made a lot of sense to me, because the competitive commercialization industries, these are industries like software, or like eCommerce, where there's really two dimensions that define this. I don't know how nerdy we want to get in this particular podcast-
Sal Daher: No, no, go. Nerd out, nerd out.
Chuck Eesley: Okay. So if it starts to get too dry, just let me know, and we can switch back to more general topics. But I think it's important. So one dimension is, how effective is patent protection in this industry? So in biotech, in life sciences, patent protection is quite effective, because if you change the molecule to try to invent around the patent, either it's not going to be effective, or it's no longer going to be safe in the human body. So we know from earlier work that certain industries tend to have a strong effectiveness of patent protection as a means of protecting the technology from misappropriation. But in software, or in electronics even, it's much easier to invent around patents.
Sal Daher: Very easy. Patents, my brother-in-law is a prominent patent attorney in the micro fluidics area.
Chuck Eesley: Okay. So you know this.
Sal Daher: Often asked him, software patents. Forget about it, because people invent around them easily. They just take the original code, and then they create code that does the same thing, but it's just slightly different.
Chuck Eesley: Yep. Yeah. So it might help you raise money from VCs, but it's not going to help protect your technology.
Sal Daher: It's useless.
Chuck Eesley: So that was one dimension, and so-
Sal Daher: So, let's ... No, no, this is a really important point.
Chuck Eesley: Yeah.
Sal Daher: Because I see it, because I invest both in software companies, and also in biotech companies.
Chuck Eesley: Oh. Great.
Sal Daher: My portfolio's kind of a little schizophrenic in that way. And I see exactly what you're talking about. The biotech companies have strong patent protection, therefore, they have something to bargain with, with a strategic player. With a strategic player, they can say, "Look, you're not going to be able to do this really exciting thing." I'm thinking of one particular biotech company I'm involved with, which has a technology. They've been on this podcast. Savran Technologies. It can help a whole range of companies that already have established lines of business do their business a heck of a lot better, because these guys can actually capture living cells that are very rare in the body. And then they can be sequenced, they can do all kinds of things to that. So there's a lot of that. Now a piece of software that somebody writes, which is not patentable, is never going to have any value to Google, because Google can build that on their own.
Chuck Eesley: For the most part, yeah.
Sal Daher: Exactly. It makes perfect sense in retrospect.
Chuck Eesley: Yeah. Coming from Boston, when I was here, I was much more involved in the life sciences community, and I worked a bit with Flagship Ventures, and Lux Capital. And then coming out to the Bay Area, I was so much more focused on consumer internet. And the iPhone was just coming out and all that. The ecosystem was getting developed. So I was thinking a lot about these differences across these different types of industries in doing a startup. At that time, I was really just learning more the consumer internet and the tech side. It was really top of mind that there might be differences here, and the previous literature had just said, "In general, larger teams are better."
Sal Daher: More.
Chuck Eesley: Yeah, more is better, and functionally diverse, marketing backgrounds in addition to engineering. And that seemed a bit too superficial, given what I was learning about these industry differences. So one dimension was patent protection. And so, if you're in the life sciences and you have strong patent protection, and it's effective, then you're not afraid to go and talk to Biogen or Genentech or whoever.
Sal Daher: No.
Chuck Eesley: Especially if you have VC funding, and you could actually protect those patents. But if you're on the tech side, then you're much more cautious. If you're going to go and talk to Google about a potential partnership, and they've got-
Sal Daher: Oh, that's a nice software you have there.
Chuck Eesley: Right. And they've got a much bigger data set to run your machine learning algorithm on.
Sal Daher: Absolutely.
Chuck Eesley: And they've got 50 engineers sitting around looking for something to do. So that was one important dimension. And then the second important dimension was what's been referred to in the literature as complementary assets.
Sal Daher: Ah, okay. Complementary assets. Okay.
Chuck Eesley: Yeah. So going back to the biotech or the medical devices example, a complementary asset might be having a factory to produce this drug, or-
Sal Daher: Ah, okay.
Chuck Eesley: ... having expertise in how to navigate the clinical trials process. And so those kinds of things are complementary assets in the sense that they add value to your invention, and you need them to commercialize that invention. In industries like pharma and medical devices, these complementary assets are pretty important. But once you have a mobile app, once you have something on the web, you don't necessarily need those factories. You don't need the regulatory expertise and approvals.
Sal Daher: Right, right.
“…, if the industry is high in the effectiveness of patent protection, and high in the importance of complementary assets ... you're motivated to go and talk to the big guys, because you need their complementary assets…”
Chuck Eesley: So complementary assets are much less important in those industries. So putting all this together, the typical business school two by two, if the industry is high in the effectiveness of patent protection, and high in the importance of complementary assets-
Sal Daher: The assets, okay.
Chuck Eesley: ... you're motivated to go and talk to the big guys, because you need their complementary assets. You don't want to have to replicate all that yourself. And you're at least a bit less afraid to go and talk to them, because the patent protection is there. So then you're going to tend to get this cooperative commercialization.
Sal Daher: And they have a reason to cooperate with you because of the patent.
“…low effectiveness of patent protection, low importance of complementary assets, that's where you tend to get competitive commercialization…”
Chuck Eesley: Right. Exactly. In the bottom left hand corner, low effectiveness of patent protection, low importance of complementary assets, that's where you tend to get competitive commercialization, that we typically associate with the tech industry in Silicon Valley. You don't need to talk to the big guys so much, because there's no complementary assets that you need to recreate, and you're a bit afraid to talk to them because the patents are not there, and they may not need to talk to you so much.
Chuck Eesley: So, if you're in that competitive commercialization environment, then you're going to be developing your startup and competing in the product market against the large companies. Then you need the full suite of functions. Then the larger team and the functionally diverse team helps a lot more, because you're going to eventually need to get into the marketing, and then bring someone on that knows about digital marketing-
Sal Daher: Yes, yes.
Chuck Eesley: ... downstream distribution, and various things. But if you're in the cooperative commercialization industries, then you're not competing in the product market so much. You're competing more against other startups to supply those innovations to the larger companies.
Sal Daher: Right, right.
Chuck Eesley: So, then it can actually be helpful to have a more-
Sal Daher: A technical focus.
Chuck Eesley: Right.
Sal Daher: A more engineering, technical focus.
Chuck Eesley: Yeah. Yeah. And then get the invention built, and hit more of those development milestones more quickly, and then you can partner with a large company to do the marketing and all of these other downstream services.
Sal Daher: The extent to which you need a marketing person, you need someone who really understands the players in the industry to help you develop your strategic partnership.
Chuck Eesley: Right. Yeah. So it may even be a different functionality, and you-
Sal Daher: It's a strategic partnership kind of person instead of someone who's marketing either to enterprises or to consumers.
Chuck Eesley: Right. And so then it may be fine to hire that person as an early employee, but you don't necessarily need them on the founding team. So that was one study that we published in Strategic Management Journal looking at the team composition, and some contingencies both with the technical characteristics of the industry, and also with the innovation strategy. So that was one dimension of the founding teams that I drilled down upon a bit more. And then the other that I've looked at in a similar way is the prior startup experience on the team.
Sal Daher: Ah, yes.
“Are You Experienced, or Are You Talented?”
Chuck Eesley: So, I've got this paper that's got its title kind of inspired by the Jimi Hendrix album. Are You Experienced, or Are You Talented?
Sal Daher: Yes.
Chuck Eesley: And so there I look at when is prior startup experience more helpful, and when is it actually a hindrance? And so this was, going back to my earlier startup experience, one hypothesis I had about myself was, well, maybe we failed because none of us had done a startup before. We didn't have that experience. And looking at the MIT alumni and Stanford alumni data sets, I was amazed to see that there was a fairly high percentage of these serial entrepreneurs, who had not just started one company, which seemed heroic enough to me, but who had started multiple companies over the years. Bob Langer at MIT kind of being a prototypical one.
Sal Daher: Yes. I've invested in a couple of his companies, yeah.
Chuck Eesley: Yeah? Ah, okay. Great. So I started looking at that. And in particular, I was teaching more at that time, and so I had in mind my students, who were coming out and graduating from Stanford, and lots of them getting excited about dropping out even and doing their first startup. And so I wondered, what can I tell them about, okay, if you're a first time entrepreneur, are there certain types of opportunities, or certain types of industries where you're going to have more of a level playing field against these experienced serial entrepreneurs?
Sal Daher: And what was the result?
Chuck Eesley: So basically, it turns out that if the industry is pretty stable, and the technology is not too radical, then, unsurprisingly, prior experience helps you.
Sal Daher: Okay.
Chuck Eesley: But if it's a brand-new industry-
Sal Daher: It's revolutionary, and so forth.
Chuck Eesley: Revolutionary technology. Then it's more of a level playing field, because no one has prior experience in that area. So you can think about social networking at the time when Zuckerberg was getting started.
Sal Daher: Yeah. Experience helps with the customary, it doesn't help with the new.
Chuck Eesley: That's right. That's right. And among the serial entrepreneurs, those that stay in the same industry, they get the most benefit out of it. But if you change industries, or after a big disruption to the industry, then you can actually do worse, because you become overconfident. You think you know the answers, but actually, the industry’s changed, or the technology is so radical it needs a different business model. And so the prior experience can actually become a hindrance if you're in an environment that's more novel relative to where your prior experience was.
Sal Daher: Awesome. Awesome. Coming up next, I will ask the professor if people are born to be entrepreneurs, or if just anyone can be taught entrepreneurship. I know this is a hot topic with Ed Robert.
Chuck Eesley: Fair enough. We'll see if I contradict him or not.
Sal Talks About Portfolio Company Concrete Sensors
Sal Daher: Yeah, yeah, yeah. But first, I just want to tell you a bit about Concrete Sensors, a company which I'm an investor. Concrete Sensors, as the name suggests, is about sensors that go into concrete at the time it's poured. These sensors are able to speak to a smartphone app or to a web interface and tell project managers the state of the concrete. This is my background in construction engineering coming through here. This technology is getting fast adoption, because it can save project owners a lot of money and time. For example, if you can take down formwork, that's the stuff that supports the concrete until it's completely cured.
Sal Daher: Or if you can put down flooring, that depends on how wet the cement is, and curing and drying are different things. You can save a lot of money. One week of having all this machinery operating, all this, salaries and everything else, is really expensive. Plus, if you can lease the property earlier, you can start generating revenue. It's a huge win. So the surprising thing about, the most enthusiastic supporters of Concrete Sensors have turned out to be bankers, because they're astonished. "Wow, why was this project done three weeks early?" A construction loan is high risk for a bank. Once the construction's done, they can lease out the property, and the risk goes way down. It's much more like a bond. And so bankers are eager to get out of the risky time. Horrible things can happen to a construction site.
Chuck Eesley: Yeah. I actually have some exposure to this world, because we're fairly close to the Civil and Environmental Engineering Department at Stanford.
Sal Daher: I got a master's there as well, in addition to EES, so.
Chuck Eesley: Oh, okay. Yeah. So all of these ideas around lean startup, and rapid prototyping, and being more agile, they're starting to incorporate those models into the construction business for exactly these kinds of reasons that you're talking about.
Sal Daher: Well, it's about time. I mean, this is IoT technology. I've interviewed the founder, Brendan Dowdall. If you're interested, you can listen to the podcast.
Chuck Eesley: Oh, cool.
Sal Daher: So, it's really fun.
Chuck Eesley: Cool.
Sal Daher: And it's also an example of the kind of company that I come across to invest here. As I mentioned earlier, Boston is really an idea rich and cash poor environment, whereas the Bay Area is idea rich and cash rich. There's a lot of investor money out there. Here, it's skewed a little bit towards a lot of ideas, and there's a lot of stuff bubbling around. Well, what happened with these guys, they ended up going to the West Coast. They got funded by the Bechtel, a group associated with Bechtel, and so on. And they're off to the races, but started here in Boston. We see a lot of interesting opportunities. But anyway, let's get back here to the question at hand. So Chuck, nurture or nature for entrepreneurship?
Nature versus Nurture in Entrepreneurship
Chuck Eesley: Yeah. So I think it's really a bit of both. So there's evidence from Scott Shane and co-authors have done actually genetic twin studies. And you have twins, some of whom are separated at birth, raised in different areas. I mean, this is kind of the gold standard methodology coming from medicine for disentangling in diseases, how much of it is genetic and how much of it is due to upbringing and various things. So that study shows there is some portion of the variation in entrepreneurial activity that can be explained by genetic factors. And basically, it operates through the impact that your genetics have on your personality.
Sal Daher: Ah.
Chuck Eesley: So, psychologists study the big five personality characteristics. And so in particular, out of those, the openness to experience tends to be more associated with entrepreneurship. So it's not going to explain 100% of the variation, so then the nurture side of it comes in. And so then we've got increasingly more and more studies showing that things like entrepreneurship education, things like your early work experiences, things like social influence from mentors and from others, also have an impact in both the likelihood that someone's going to become an entrepreneur, and increasingly, we're getting more evidence on the side of performance, that it can influence performance as well.
Sal Daher: It's saying that born entrepreneurs perform better?
Chuck Eesley: It's saying that it's both, that you can't just say, oh ... I mean, I know some people like to say, "Oh, either you're an entrepreneur or not. You either have that fire and that creativity and that internal motivation and charisma, or you don't, and there's nothing you can do to change that." I know Randy Komisar has this interview on eCorner, and he says, "Yeah, there's some aspects to the entrepreneurship process. You can learn about accounting, and you can raise your entrepreneurial IQ, but then there are other things that just can never be taught." And as an educator, I kind of take that as a challenge, like oh, you think that the mindset can't be taught? Let's think about that some more then.
Sal Daher: Bill Aulet at the Sloan School really believes that it can be taught. I mean, he has a book of just a user's manual of how to be an entrepreneur.
Chuck Eesley: Yeah, Disciplined Entrepreneurship?
Sal Daher: Exactly.
Chuck Eesley: Yeah. Yeah. So I think it's both. I mean, the genetic side explains a little bit of it, but I think nurture can really do a lot. And I think we're still in the early days of this field, and of understanding how to train entrepreneurs. There's this great idea that Will Baumol had about education for incremental innovation versus education for-
Sal Daher: William Baumol the economist?
Chuck Eesley: That's right, exactly. Versus education for breakthrough. And I think our current education is set up very much for education for incremental innovation. Sylvain was talking about Art Thinking. I think that's a good innovative thing to try and to be working on to reorient the education system towards education for breakthrough.
Sal Daher: Yes.
Chuck Eesley: Because of all of the reasons that Sylvain I'm sure talked about with the rise of AI and machine learning, and the competition going forward in the future is going to be to come up with those more breakthrough ideas, those more creative ideas. This is what excites me about the field in this area. And I'm not sure that we're doing enough to stem the tide of what's going to be coming with the rise of AI and machine learning, but I think if we can, then everyone is going to have to become much more entrepreneurial, regardless of whether you're starting a company or working at a large company, or even working in the nonprofit sector or academia or government for that matter. So I'm much more focused on, how do we teach people to be more entrepreneurial and have more of an entrepreneurial mindset? How can we increase their chances of success? And I don't worry too much about how much of it is genetic or due to nature.
Sal Daher: Let's talk a little bit about the work you're doing in corporate venturing.
Chuck Eesley: Sure. Sure.
Sal Daher: So, can you expand on that a little?
Chuck Eesley: Yeah. Yeah, definitely. I've mainly been focused on independent entrepreneurship. And I think like a lot of folks who work the early stages in entrepreneurship, there tends to be a little bit of a bias against corporate entrepreneurship or corporate venture capital. So-
Sal Daher: We've all read The Innovator's Dilemma.
Chuck Eesley: That's right. That's right. So yeah, unfortunately, there's the stereotype that that's the dumb money, and they come in later and overpay, and then acquire the company, and the bureaucracy takes over and screws it up. I had always been-
Sal Daher: Well, no, no. Clayton Christensen doesn't say that in The Innovator's Dilemma, but there is also that bias.
Chuck Eesley: Yeah. Yeah.
Sal Daher: It's just then they can't innovate. It's very hard to innovate in a large enterprise.
Chuck Eesley: That's true. That's true. We should be precise.
Sal Daher: Yes.
Chuck Eesley: The actual Innovator's Dilemma and the disruptive innovation model is more precise to a particular problem about large companies innovating. But I got started thinking about this because I got a chance to chat with Steve Blank, who's one of our adjunct lecturers at Stanford. I went out to his ranch, and he was telling me that he was starting to work on this. And I was expressing a similar sentiment to, "Oh, it's hopeless for these big companies. We should just focus on the startups." He sort of stopped in his tracks as we were hiking around the ranch, and said, "But Chuck, think about the amount of resources that we have in these large companies. If we could move the needle on them and help them to become more entrepreneurial or to work better with the startup community, that's going to potentially have a huge impact on the economy and on the world."
Evidence-based Entrepreneurship
Chuck Eesley: And I got an opportunity, I was doing some executive education in Thailand, of all places, and working with a couple of large companies there. And so they were interested, and they felt like they were getting value out of the program with Stanford, and wanted to continue to do more. And so we said, "Okay. If you want to have a longer term engagement, then it's got to be based around some research." Because at the end of the day, we're a research university. So they were interested in this exact problem. They had started up corporate venture capital groups a couple years before, they were starting up accelerator programs, internal venturing.
Chuck Eesley: And then they were starting to realize, we don't know how effective this is. We don't know what metrics should we be looking for to manage this portfolio of activities. Should we be putting more money into the corporate venture capital group? Should we be allocating more resources to the accelerator? Which of these particular ventures should we keep going, and which ones should we shut down? And so I had an idea that perhaps we could use data to start to shed some light on that. There's a lot of early stage VC firms that have also been starting to focus on more data-driven decision making in their portfolios. So I had worked with a colleague, this is part of the great thing about being in the School of Engineering. You have folks around that can actually build platforms and create software. So I'd been working with a colleague. We had started up a company called NovoEd, which was an online education platform.
Sal Daher: Oh yeah, the MOOC, the MOOC, yes.
Chuck Eesley: Yeah, exactly. And so I had taught my entrepreneurship class as a MOOC via this platform, and they had gone on to work with a lot of large companies on helping them with these innovation issues, not just using my course material, but developing a lot of other classes and a lot of other material. So that was kind of one piece of the puzzle then to me. Okay, could we use that? And then I happened to see a couple of other colleagues at Stanford in the Computer Science Department, Michael Bernstein, and in our department, Melissa Valentine. They had developed some software called the Foundry, which allows you to create a flash team.
Chuck Eesley: The idea of flash team is basically a crowdsourced team, sourced from Upwork on the backend. And the idea was, if you're an engineer, or you're someone that has an idea on the back of a napkin one day, you could potentially crowdsource a team to then go out and create the first landing page, test that idea with a small scale experiment in the market. If it doesn't work, fine, you dissolve the flash team. If it does, then you could either-
Sal Daher: You had something really fast and cheap.
Chuck Eesley: Right, really quick, much cheaper to experiment. So this is what we're going to try to bring together in this context. We're going to deliver some entrepreneurship education and training to these internal intrapreneurs and accelerator entrepreneurs through the NovoEd platform, then walk them through the various steps that we go through, design thinking, customer feedback, landing page, rapid experiments-
Sal Daher: Okay, so you're incorporating design thinking into NovoEd?
Chuck Eesley: Yeah.
Sal Daher: Excellent.
Chuck Eesley: Yeah. And then create the bridge then to this flash team functionality, so that these guys, because they're in a small emerging economy, a lot of the top type talent winds up going overseas. So just like we do actually in Silicon Valley, fuel constant war over talent, and it's hard to recruit the skills and the people that you need. So that's where we're going to test the hypothesis that perhaps giving them access to flash team functionality might enable them to much more cheaply, much more quickly, test these different ideas in different business models.
Chuck Eesley: We can then gather the data all along the process on all of these things, run some statistics and some machine learning algorithms to be able to pick up on what are those signals at the earlier stages that predict future success, and then enable them to have better, more data-driven ways to manage that portfolio of new venture activity. And then the final piece of it is, we should be able to then also have data on the individuals within those teams. So even if their startup idea doesn't pan out, we'll know, oh, this person and this person, they're real stars. Give them another shot to go through the program with a new idea, or recruit them in and hire them full time. And these other folks, we can shut down these ideas and focus the resources somewhere else.
Sal Daher: Wow. This is really fascinating.
U First Capital – Venture Capital as a Service
Chuck Eesley: Yeah, so this is what we're going to try. I'm also talking with a couple of folks that used to be at Intel Capital and have a lot of experience with these kind of corporate venturing programs from their days at Intel Capital. So they started off doing venture capital as a service-
Sal Daher: Oh.
Chuck Eesley: ... through a new startup called U First Capital, where I'm also kind of exploring these ideas with them about this could be a potential additional feature set. We could gather a bigger data set, which would help us be more precise with our metrics. So I'm pretty excited about this project.
Sal Daher: But the idea of doing data-driven evaluation of the effectiveness of the entrepreneurship programs, that's really valuable. That's really important, and it's going to start pointing in the direction of what works and what doesn't work, and then we can replicate that effectively. Wonderful.
Chuck Eesley: Right.
Sal Daher: I also understand that you're doing work in supply chain finance using distributed ledger technology.
Chuck Eesley: That's right. That's right.
Sal Daher: So, would you care to talk about that a little bit?
Blockchain to Make it Easier to Finance Supply Chains
Chuck Eesley: Yeah. So this is another one of the early stage research projects that I'm working on. And so this is in collaboration with a few other partners. Dan Boneh, who's in the Computer Science Department at Stanford, he's focused a lot on blockchain. And Dan Iancu, who's in the Business School at Stanford, he's focused a lot on supply chains. Then we've got these industry partners, both in Thailand and in China, who are seeing what's coming down the line with innovations in fintech and in blockchain, and thinking about, what is some of the first applications that we could use this for where we could do something that wasn't possible before?
Chuck Eesley: And so, supply chain financing is the first of those ideas that we think has a lot of potential. And the idea is, in the old offline world, if you're a small supplier to say an auto manufacturer out in rural China or rural Thailand, you can maybe get a loan from the bank based on whatever assets that you have. But increasingly, a lot of these suppliers and a lot of these small and medium enterprises are more asset light. They're more in the world of the internet and digital technologies and platforms, or they're finding ways to not need so much in assets. And then it becomes difficult for them to get a traditional bank loan.
Sal Daher: Yes.
Chuck Eesley: But they have invoices from the large companies that they're supplying to. The problem that banks have with making a loan based on an invoice, especially in an emerging economy environment, is you start making loans based on invoices, and everyone starts faking the invoices. Then you get eight different orders of the same size. And so the bankers have a hard time with this idea of making a loan based on the invoice, because it then becomes much more easy to counterfeit or to fake. So the idea is, if you can then move these transactions onto the blockchain where it's more secure, then you can potentially make loans based upon those.
Sal Daher: Ah, okay.
Chuck Eesley: And so, we want to try to quantify, one, does this idea all work out technically? And then two, what's the benefit to those startups and small and medium enterprises? How much faster can they grow as a result? And the suspicion is that we can really boost the economic growth in these emerging economies, and especially in the rural areas with this kind of technology. And so this is something that I feel quite strongly about, because I think the wonderful thing about what's going on in Silicon Valley and all the other places that are replicating Silicon Valley is really fast growth in the urban areas, where you have these new digital ventures. But these rural areas are getting left behind, and not everyone can move to the cities.
Sal Daher: No.
Chuck Eesley: So, can we develop new technologies and new platforms where we can extend those market opportunities and market access to people that happen to be living in rural areas, and maybe we can start to address these inequality issues.
Sal Daher: This is interesting, because the authenticity of invoices, and also letters of credit I could imagine. Bank to bank, they have ways of authenticating letters of credit, but the invoices from one company to another is not so easy. I could imagine having a traditional system where there's a platform, and someone has a central registry of invoices, but I can also easily imagine a distributed ledger with the invoices being put on this and being indelible. It all becomes transparent. That is cool. It's a use of blockchain that I have not thought about.
Chuck Eesley: Yeah. Yeah.
Sal Daher: It's a new one.
Chuck Eesley: It's very promising. Yeah, it's-
Sal Daher: Mind expanding, yeah.
Chuck Eesley: It's easier to trust the larger companies, but a lot of these guys have invoices from small companies, and then they all have different formats. So these are a couple of examples of the direction that I'm trying to head in, and that I think more broadly, this kind of theme of the digital startup, more and more of the startup process can now be digitized. And as it becomes digitized, we can gather data on more and more aspects of the startup process, where it was not possible to gather data before.
Sal Daher: Excellent.
“And with that additional data, then we can also start to optimize more and more of the startup process, and do a better job of picking which ventures to invest in, and to devote resources towards.”
Chuck Eesley: And with that additional data, then we can also start to optimize more and more of the startup process, and do a better job of picking which ventures to invest in, and to devote resources towards.
Sal Daher: I wish I could spend as much time as I had with Ed Roberts, but you've got a plane to catch. Too bad.
Chuck Eesley: That's right. That's right.
Sal Daher: Before we wrap up, first I want to ask you about thrift, which is kind of a little bit of a hobby horse of mine.
Chuck Eesley: Oh, sure.
Sal Daher: And I see you share things on the … in that direction. And then I'll open up to whatever you want to say, touch on, or whatever kind of message you want to get across to listeners, founders, and angels, the people who work in startups.
Chuck Eesley: Sure.
The Virtue of Thrift in Life and in Entrepreneurship
Sal Daher: So, I've noticed some of your shares on LinkedIn. You have an interest in thrift, which I do as well. And I think it's an underappreciated value that people don't understand. They think that thrift means being greedy, being stingy, and so forth. It's quite the opposite. It's a much more noble thing. It's really about the wise use of scarce resources. And actually, Thomas J. Stanley of “The Millionaire Next Door” fame, points out in his book that thrifty people tend to be much more generous. They tend to give. They tend to tip more at the golf club, and they tend to give more to needy causes than people who are spendthrifts, who are not thrifty, and who spend beyond their means, because they have money. And the people who spend beyond their means don't have money to tip.
Chuck Eesley: Exactly.
Sal Daher: They don't have money for anything, because they're up to their necks in debt, and so forth.
Chuck Eesley: Exactly.
Sal Daher: So, would you care to talk a little bit about thrift, its connection to entrepreneurship?
Chuck Eesley: Sure.
Sal Daher: If you could?
Chuck Eesley: Yeah, happy to. So I really came to this through a couple of different angles. So one was, I always think it's important to have role models in life and in business. And so I started to look around for, who are the role models? And of course Ed Roberts was a great one.
Sal Daher: Oh yes.
Chuck Eesley: And I know he's made a number of philanthropic gifts as well. One of my other co-authors at Stanford, Bill Miller, who's the former provost, he gave away half of his income before there was ever a giving pledge or anything-
Sal Daher: Oh wow.
Chuck Eesley: ... and supported a lot of wildlife conservation causes, and so on. But the biggest role models in this area for me that I always tend to keep in mind are Warren Buffett and Bill Gates. And Warren Buffett in particular, I started studying quite closely, and the more I learned about him, the more I respected him. Not just for his stock picking acumen, but for his whole approach to life.
Sal Daher: For the absence of 58,000 square foot houses?
Chuck Eesley: That's right. Precisely. Exactly. And thinking about my own life, I started to realize that acquiring things was not making me very much happier.
Sal Daher: No.
Chuck Eesley: At all. And it's a small example, but going from being a PhD student to being a faculty member, your income suddenly goes up 10 times.
Sal Daher: Right, right.
Chuck Eesley: And I knew I was not 10 times happier.
Sal Daher: No. No.
Chuck Eesley: So that was the first thing that kind of brought me to this. And Warren Buffett and Bill Gates doing the giving pledge, I don't anticipate that I'm going to have that level of wealth one day, but you start to run some calculations. And I think the younger generation of financial independents retire early. Bloggers, like Mr. Money Mustache, and various others, have done a really nice job of laying out the math of okay, start to calculate. What are your expenses on a yearly basis, and how much can you generate from your investments? And once those two lines cross, you basically have enough to maintain your standard of living.
Chuck & Family Plan to Give Their Money to the Universities that Made Their Success Possible
Chuck Eesley: I've been very fortunate in life, in the parents that I was born to, and the schools that I had a chance to go to, and even without any of the startups that I have worked on having a huge success, just having moderate success, I realized we've reached a point where we basically have enough. We don't need to necessarily keep working. And what to do with those resources at the end of our lives. So we as a family have made a decision that we're going to give our money back to the universities that have provided us with the educations that-
Sal Daher: Wow.
Chuck Eesley: ... we have, and the opportunities that have been in front of us. To me, I mean I get a lot of joy just going for a bike ride, just hiking around the campus, working with students on new ideas. A big yacht or the next Tesla is not going to do it very much for me.
Sal Daher: I don't know who came up with this saying, but the happiest day in the life of a yacht owner is when they buy the yacht. The second happiest day is when they sell the yacht, because it's so much work.
Chuck Eesley: Right. Right. I think we can maximize the amount of good that our family does in the world by giving it to the right causes. And in the connection to entrepreneurship, I mean everyone talks about the Lean Startup. And the aspect of this that's gotten focused on has been the kind of pivoting and the rapid iteration, which is important, but it's called Lean Startup for a reason.
Sal Daher: Doing a lot with a little, yeah. With little, yeah.
Chuck Eesley: Exactly. Exactly. And so this is something that I really try to reinforce to my students. The more frugal that you are in your venture, the more experiments that you can run until you find something that works. And the less money that you have to raise, the less equity you have to give away. But that this idea doesn't just apply to their startups. It's incredibly useful in your startup, but if you can apply it to your home life as well, it also makes it much less stressful to be an entrepreneur in the first place, once you can save up some resources of have a-
Sal Daher: You have a cushion to-
Chuck Eesley: The cushion, exactly, to-
Sal Daher: Yeah, not to be worrying where things go if things don't go right.
“So, I think it [thrift] is an underappreciated value. And definitely in Silicon Valley…”
Chuck Eesley: Yeah. So I think it's an underappreciated value.
Sal Daher: Entirely agree.
Chuck Eesley: And definitely in Silicon Valley, where everyone-
Sal Daher: Oh, the ostentatious expenditure, yeah.
Chuck Eesley: Exactly. Exactly. So I just find that we participate in a lot of philanthropic events, cycling events around the Bay Area. These are the kind of people I want to be with, and these are the kind of values that I want to have reinforced.
Sal Daher: When I think about it… I drive a 2004 Sienna. Everything works. It's perfectly safe. And I think about all the startups that I can invest in that, if I were to buy a new car, if I were to buy a Tesla, like four, five startups I could invest in with the price of a Tesla.
Chuck Eesley: Makes it less fun to think about.
Sal Daher: Much less fun. And then on the other hand, this perfectly good car is maintained for now 15 years. Everything works. Imagine how much waste and destruction of the environment I've saved by keeping the car on the road all this time.
Chuck Eesley: Exactly. Yeah.
Sal Daher: It gets pretty good mileage, over 20 miles a gallon. Doesn't pollute. So people-
Chuck Eesley: Yeah, there are so many benefits. The environmental benefits are there as well.
Sal Daher: Absolutely. Yeah. Yeah, yeah, yeah.
Early Google Investor David Cheriton Is a Role Model for Chuck
Chuck Eesley: Yeah, the other great example of this is I had a chance to interview David Cheriton from the CS Department at Stanford who of course... He'd done a few startups before that with Andy Bechtolsheim, but he wrote the first angel investment check out to Google, because Larry and Sergey were-
Sal Daher: Oh wow.
Chuck Eesley: ... students there at the time.
Sal Daher: He's got a few to give away.
Chuck Eesley: So, he's got a few to give away. But he lives incredibly frugally, and gets joy out of teaching and research and helping young people and the next generation at Stanford. And so he's another great role model in this area as well.
Sal Daher: Tremendous. So, Chuck, as we wrap up this, really interview that I wish could be twice as long, please share with us the thoughts that you think would be really valuable for us to take away from the experience you've had.
Chuck’s Parting Thoughts: (1) Entrepreneurs Can Change Their Luck, (2) If Chuck’s Projects Interest You, Reach Out, and (3) Be Frugal in Life and in Entrepreneurship.
Chuck Eesley: Yeah, sure. So I think the most important thing that I want to convey is that entrepreneurship is not just all about luck. That if you're a young person and you're aspiring to be an entrepreneur, you can improve your chances through education, through starting to understand how the startup world works, finding the right mentors. And so I hope that young people don't feel like it's just a matter of getting lucky and having the right idea.
Sal Daher: Although luck has a role.
Chuck Eesley: Luck certainly has a role, but there are things that you can do to-
Sal Daher: There's a lot that you can do.
Chuck Eesley: ... improve your chances. Yeah. So I hope some of this provides some inspiration to young folks that are thinking about their careers, and thinking about entrepreneurship, and thinking about their education as well. And then the second thing is, if any of these ideas that I've talked about are of interest, at Stanford and in the Stanford Technology Ventures Program, we're always looking for interesting partners and collaborators to work on these ideas. So whether it's the idea of being more data-driven in entrepreneurial decision making, or whether it's the idea of applying crowdsourcing, or crowdsourced teams, or new digital technologies, this idea of the digital startup.
Chuck Eesley: If any of those ideas are of interest, we're always looking to work with like-minded people and partnership and collaborations to gather data and do good research and teaching, and push the boundary forward on optimizing the startup process and learning more about it. Because I think this is really what we need in the future for improving society, solving problems, and economic growth. So I think those are the main two messages. And then focus on the thrift or frugality and your values in entrepreneurship. I think that's a good set of three.
Sal Daher: Awesome. Awesome. Professor Charles Eesley, I'd like to thank you for the considerable effort you made to be here in our studio.
Chuck Eesley: Sure. Thank you for having me, Sal. It's really been a pleasure to be here with you, and I've enjoyed the conversation a lot.
Sal Daher: That's tremendous. I'd like to invite our listeners who enjoyed this really scintillating podcast to review it on iTunes. It gets us more listeners. This is Angel Invest Boston, conversations with Boston's most interesting angels and founders, sometimes also scholars from the West Coast.
Chuck Eesley: Well, having done my degree at MIT, there's still a close connection.
Sal Daher: You still have the Boston connection. You remember the Boston wintah.
Chuck Eesley: I still have the Boston connection, that's right.
Sal Daher: The Boston wintah. I'm Sal Daher.
I'm glad you were able to join us. Our engineer is Raul Rosa. Our theme was composed by John McCusick. Our graphic design is by Katharine Woodman-Maynard. Our host is coached by Grace Daher.