Saturday, October 27, 2012

Stanford University's Amazing Contribution to Innovation & Entrepreneurship - and what we can learn from it

What do Hewlett Packard, Google, Yahoo!, LinkedIn, and Cisco have in common? Well, apart from being legendary companies in the IT industry, all of them had at least one Stanford University alumnus in their founding team. And though Stanford alumni’s prowess in technology is well known, their alumni have been co-founders of companies in a host of other domains including apparel (The Gap), financial services (Charles Schwab himself is a Stanford alum), and athletic shoes (Phil Knight of Nike is another Stanford alum).

A just released study of Stanford’s contribution to entrepreneurship and innovation by Charles Eesley and William Miller is based on the findings of a survey of Stanford alumni conducted in 2011 (see graphic below). They estimate that firms with links that can be traced to Stanford account for revenues of $ 2.7 trillion per year. Close to 30% of Stanford alumni have been involved at some time in founding an enterprise or a non-profit. And, about half the enterprises founded by Stanford alumni can be classified as moderately or highly innovative. These are impressive statistics for one university!

Entrepreneurship at the Heart of Stanford’s Founding

Stanford was created out of a forced entrepreneurial event. According to legend, Leland Stanford and his wife Jane wanted to make a sizeable contribution to Harvard after they lost their only son. But Harvard didn’t respond respectfully to Stanford, so he decided to set up his own university instead. Soon after, Senator Stanford died leaving his wife Jane to hold the fort. And, Jane Stanford had to struggle to keep the fledgling university going. This included pledging her jewellery to raise money to keep the University running!

Role of Fred Terman

The roots of Stanford University’s support for entrepreneurs and innovation are attributed to Fred Terman who successively headed the Electrical Engineering Department and the School of Engineering, and later became the Provost of the University. On the one hand, Terman used the post-Second World War expansion of the US government’s science funding programs to attract talented faculty and create outstanding academic research programs. On the other, he personally supported entrepreneurship by his students and alumni.

Terman was personally involved in helping Bill Hewlett and Dave Packard set up what is today HP, the highly respected global leader in information technology. His support included ideas for their first products, and a research assistantship that allowed Hewlett to move back to the west coast from a job at General Electric. As Dean, Terman encouraged faculty to get out of the University and learn about the creative things being done in industry, and, as Provost, Terman extended this thinking to departments other than Engineering. Stanford became famous for the porous boundaries between the university and start-ups emanating from ideas on campus. Today, the success of companies like Google underlines the importance of the seeds sown by Fred Terman sixty years ago.

Terman persuaded Stanford’s trustees to use the university’s large land bank to set up the Stanford Industrial Park. Terman focused on attracting high technology companies to the Park. These companies became the nucleus of what is today Silicon Valley. Some of Bill Shockley’s associates founded Fairchild Semiconductor, the parent of Intel and the semiconductor industry. Terman can thus take some credit for the growth and evolution of this industry as well.

Entrepreneurship at Stanford Today

Many of the ideas that get put into practice in firms started by Stanford students or alumni have their origins in research being done on campus. As Eesley and Miller document in their report, Google founders Page and Brin met as Computer Science graduate students at Stanford. They worked together on a National Science Foundation (NSF) project to find effective ways to search digital libraries. Their legendary “Page Rank” algorithm had its origins in the “BackRub” method they devised to search digital libraries efficiently. Their academic advisers at Stanford as well as the Stanford Office of Technology Licensing were closely involved in getting Google off the ground!

Stanford has several entrepreneurship courses, many of which are co-taught by successful Stanford alumni entrepreneurs and venture capitalists. The study indicates that a good number of Stanford alumni entrepreneurs attended these courses. A contemporary driver of innovation and entrepreneurship has been the Design School which promotes user-centric design thinking. The D-School’s course on Innovation for Extreme Affordability was the seed of Embrace, a company well known for developing low-cost infant warmers as a substitute for expensive incubators.

But, more than anything else, Stanford has the advantage of being located at the centre of one of the most innovative ecosystems in the world. Silicon Valley literally breathes ideas and new ventures, and it’s difficult to escape the infectious atmosphere. More creative and entrepreneurial types make a natural beeline for Stanford reinforcing the network effect.

What does this mean for India?

According to the IIT Alumni Impact Study of 2008, about 11% of IIT alumni are (or have been) in an entrepreneurial role (includes venture capital and private equity). Companies in which at least one IITian was a co-founder account for $171B revenues annually. Though obviously much smaller than Stanford’s numbers, these are not too bad considering that two thirds of the companies started by IIT alumni are in India. These include iconic names like Infosys (NRN did his MTech from IIT Kanpur; Nandan Nilekani his BTech from IIT Bombay; and Kris Gopalakrishnan did his Masters from IIT Madras). And this is in spite of the absence of anything like the Silicon Valley environment in India. Clearly the payoffs for the economy from good higher education are substantial.

In fact, the takeaway from all this was best expressed by Sanjay Anandaram (serial entrepreneur, investor and entrepreneurship evangelist) in an email he sent me recently: “When will our regulators learn that entrepreneurship, not crony capitalism and crony socialism, creates jobs and wealth and therefore create the necessary environment that stimulates entrepreneurship?”

[The part of this post referring to Fred Terman’s role draws on my article “Learning How to Innovate from Stanford,” Edu Tech, December 2009, pp. 54-55]

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