01 Dec 1997

A Piece of the Action

by Susan Young


There is electricity in the air at 7:00 a.m. at Il Fornaio, Palo Alto's hottest breakfast spot. The cappuccino maker runs nonstop, the energetic waitstaff hustles to and from the kitchen, a steady stream of Silicon Valley celebs walk in and out the door, and every weekday morning until 9:30 a.m. there is an audible buzz—the sound of deals being made. Over coffee and fresh bread, someone with an idea and someone with the knowledge, money, or connection to turn that idea into a reality are hatching a deal that might just change the way much of the world communicates, alter how airplanes are manufactured, or improve the way doctors perform surgery.

HBS Takes Root in Silicon Valley

While the Il Fornaio staff serve up French toast and fresh fruit, the patrons volley the big ideas that have turned Silicon Valley into a global capital of entrepreneurship, venture funding, and technological know-how. It was here in Santa Clara County that the idea of venture capital was born when Arthur Rock (MBA '51) funded the invention of the silicon-based semiconductor that would give the Valley its name and its identity. It was in a garage in this neighborhood that two Stanford students, William Hewlett and David Packard, made their first product, an audio oscillator. And it was here that Scott D. Cook (MBA '76) [click here to see a profile on Scott Cook from the February 1997 HBS Bulletin] created the world's most popular personal financing software—Quicken.

While other regions—Boston, Denver, Seattle, for example—are also centers of technological advancement, none has been able to duplicate the accelerated pace, the technical expertise, the outrageous dollar figures, the continued double-digit growth, or the extensive networking that is found in Silicon Valley. Following the lead of their predecessors (Intel, Apple, and Oracle, to name a few), in the last fifteen years, Valley startups such as Sun Microsystems, Netscape, Yahoo!, and Adobe have changed the way the world works, thinks, plays, communicates, and does business. It's no wonder that about half of the nation's venture capitalists call the Valley home.

This fertile ground that just a few decades ago was covered with orchards now bears fruit of a different variety—one that is ripe for study. The distinctive nature of Silicon Valley ventures and the lessons they hold for businesses all over the world has inspired HBS to establish its own startup here. Last summer the School's California Research Center (CRC) opened its doors in Menlo Park at 3000 Sand Hill Road, an address at the hub of the venture capital community. As the first such center to emerge from Dean Kim B. Clark's initiative to create off-site facilities around the world, the CRC's primary function is to facilitate and encourage faculty research.

"Silicon Valley is one of the world's best research sites," says HBS professor and senior associate dean William A. Sahlman, who has been instrumental in setting up the Center. Sahlman has identified four characteristics that make the area unique: the rapid pace of change, a highly evolved infrastructure, a culture of entrepreneurship, and extraordinary efforts by and rewards for employees. "By being a member of the local community, we will be able to greatly increase our knowledge of the region and develop a deep understanding of business practices that cut across functional boundaries, from finance to human resource management to strategy," says Sahlman.

Plugging HBS In

Hundreds of research topics are flourishing in the Valley, some of which HBS faculty are already studying. While one faculty member, for example, might look at the role that stock options played in a company that failed after it went public, another might investigate how a medical device company marketed a new heart surgery technology. At a different level, a useful research project could focus on the role of venture capital in financing and nurturing high potential ventures in the Valley.

Presently staffed with a director and a full-time senior researcher, the Center will provide nuts-and-bolts help for faculty interested in doing research in the Valley: office space; telephone, fax, and e-mail lines; and even a place to stay. With links to an extensive network of key players in the Valley, the CRC will also help researchers find their subjects—be they companies, individuals, or ideas.

"We have a strong base of alumni in Silicon Valley, many of whom have encouraged the School to get more deeply involved in understanding the unique nature of this community," noted Dean Clark at a CRC steering committee meeting held in October. "We really need to be plugged in to the area in order to fully study it."

To lead the Center, Clark and Sahlman called on veteran Valleyite Christina L. Darwall (MBA '75). For more than two decades, Darwall has been a player in the Valley's business community, working first for McKinsey & Co., where she became a principal, and then as senior vice president and chief financial officer of Impell, a public engineering software and services company. The CRC is not her first startup: in 1986 Darwall cofounded ViewStar Corporation, a software company serving Fortune 500 clients that was eventually acquired by Mosaix. At the same time, Darwall has maintained close ties to Soldiers Field, serving as president of the HBS Alumni Association Executive Council, as a member of the HBS Visiting Committee, and (currently) as a member of the HBS Publishing Corporation's board of directors.

A Research Bonanza

The Center is still new, but it has already taken on a hefty research agenda. Darwall is working closely with Michael Roberts, who is the primary liaison between HBS and the CRC. Roberts, an experienced teacher and case writer who is executive director of entrepreneurial studies at the School, will spend about one week a month at the Center.

The Center will augment the School's research efforts by serving three primary functions. First, Darwall, Roberts, and Center senior researcher Nicole S. Tempest (MBA '92) will identify potential case studies that might be of interest to HBS faculty members. Some of these cases will be written by CRC staff: Roberts and Tempest, for example, are now working on one about the Valley's "Band of Angels," a group of entrepreneurs who are recycling their capital and energies into new ventures. This month the Center's first two intellectual products will make their debut in Sahlman's Entrepreneurial Finance class: a case written by Darwall that examines "Interactive Minds," a venture fund launched by two HBS grads, as well as a case written by Roberts about a medical devices company.

Of the cases they identify, CRC staff plan to write about ten each year, but much of their time will be spent laying the groundwork for other HBS researchers. In October, for example, HBS senior researcher Laurence E. Katz visited the Center to begin working on several cases for the School's Entrepreneurial Finance course. One such case involved David P. Perry's (MBA '97) attempt to start an Internet-based distributor of specialty chemicals. Having identified Chemdex.com (an entrant in last year's HBS Business Plan Contest) and several other situations as solid research topics, Darwall and Roberts gathered information and lined up contacts for Katz so that he could "hit the ground running," as Darwall puts it, when he arrived. With a constantly expanding network in the Valley, Darwall and Roberts have a long list of potential case studies.

A second key mandate for the Center is to assist faculty who are already working on projects in the Valley. While some might spend several weeks at the Center, or, in the case of Assistant Professor Henry W. Chesbrough, most of the summer, others will just use it as a satellite office for a day or two. Assistant Professor Jeffrey L. Bradach, for example, is currently studying the use of temporary personnel as high-level employees, and the Valley provides rich examples for his research. "The mobility of people through firms is much greater in Silicon Valley than anywhere else I've seen," says Bradach. Already a frequent traveler to the Bay Area, Bradach, with the CRC, now has a home base and a wider network.

Similarly, Associate Professor Anita M. McGahan, who spent last semester at Stanford University conducting research and who already has several California contacts, says the Center will still be of great service. "Chris is really plugged in," says McGahan. "She has one foot in the business community and the other in the academic world, so she can help both groups connect to and learn from each other." Other faculty members who have research projects in the Valley—including M. Diane Burton, Srikant M. Datar, Walter Kuemmerle, and Richard F. Meyer—also praise the new California outpost.

To explain what he finds useful about the Valley, Datar, who studies management control and communications in high-tech companies, compares the benefits of studying the Valley to those that scientists gain when studying fruit flies. "There are very short life cycles in this area, so you can learn a lot in a short amount of time," says Datar, who is a member of the CRC steering committee.

A third way that the Center will facilitate research involves those faculty members who are not yet doing research in the Valley but whose work might be enhanced with data from the region. Thus a faculty member might call the Center and give the parameters of a situation she is interested in studying—an entrepreneur who has had some success with three different patent-based ventures, for instance—and Darwall will see if she can find a subject that fits the bill.

An HBS Outpost

While research is the primary function of the CRC, there is also an opportunity and a temptation for the Center to become involved in the School's career services, executive education, and alumni efforts. Despite a limited budget, Darwall, in her typical can-do style, hired Susan Breyer (MBA '92) to work part-time with the Career Services Office to make the most of events such as the "Wes-Trek," a trip organized for the first time last year by two HBS student clubs. The trek brought 150 second-year students to the Valley to explore career opportunities during winter break. Darwall, who notes that fewer than twenty members of her class moved to California upon graduation in 1975, points out that there has been an explosion of interest in the West Coast: more than one hundred members of the Class of 1997 (13 percent) are now working in the Bay Area.

As head of the School's first outpost, Darwall's tasks have been diverse and occasionally surprising. In addition to hiring research staff, investigating potential research projects, and talking to faculty members about their research interests and how the Center can help them, she has also found herself drawing maps for out-of-town visitors and being asked to conduct a videotaped interview with a Valley CEO for an HBS faculty member. Together with Sahlman and Clark, Darwall also put much effort, with excellent results, into assembling the CRC steering committee. The thirty members of the committee, all but three of whom are HBS alumni, are a high-powered group comprising leaders from the venture capital and academic communities, as well as the entrepreneurial and corporate vanguard.

With such a topnotch group of advisors volunteering their time and sharing their expertise, the California Research Center is off to a good start. The Center, which Dean Clark has called a "three-year experiment," has received financial support from steering committee chairman Arthur Rock as well as from several members of the Class of 1952. Other committee members have also helped with donations: Robert B. Zider (MBA '76) is sharing his Sand Hill Road office space with the Center, and Ken Hakuta (MBA '77) has offered his guesthouse in nearby Woodside to Center visitors.

Silicon Valley seems a smart choice for the School's first research outpost. It is teeming with the ideas, raw data, alumni support, and energy necessary to make the CRC a successful venture. As Rock puts it, "I think Harvard can learn a lot from being here. It's more than just writing cases, it's really being a part of the community. The best way to understand a place is to be a real part of it, and the School is doing just that by establishing the California Research Center."


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