I don't know that one of these really represents MIT and the other really represents Stanford, but I can tell you that the technology company is adding value to the world in a way that the marketing company is not.
Think about it like this: In economics it's useful to assume perfect information so the market prices and clears and generally works. In the real world perfect information is extremely false, there's a cost to getting new information, a maximum processing speed for humans to digest new information, and a maximum amount of information humans can store (at or below max processing speed * hours lived).
Marketing (the advertising side) is the mechanism by which information is disseminated to consumers.
Marketing (the product-design side) is the mechanism by which information is gathered by producers.
Marketing is the mechanism by which the market attempts to overcome the lack of perfect information.
Marketing (ceteris paribus) reduces transaction costs, and thereby adds real value to the world.
Exploiting the lack of information _is_ overcoming the lack of information.
It might not be the most efficient net outcome, as a better solution might otherwise exist, but if there is an exploitable lack of information that is exploited then by definition the information in the system has increased.
Only if we believe that "exploiting a lack of information" necessarily involves increasing true (and useful) information in the system. I certainly don't believe that's true, much less "by definition".
It's actually not zero-sum unless their marketing is misleading customers into buying products they actually would want less given perfect information. If their marketing introduces new customers who prefer their product, then it's positive sum. Even if those customers are spending money on this instead of something else, they are spending it on this because they derive more utility (of some type) and therefore there's more economic value. Economists don't consider marketing zero-sum - read the article you linked more closely.
In a mature market, marketing/advertising is zero-sum because it shifts demand from one supplier to another without altering the overall demand or supply.
The obvious case is a commodity, like wheat or soybeans or oil, where nobody bothers branding it at all until they get to a retail product. In the retail marketplace, the primary differentiation between one kind of cleaning product and another is the marketing, advertising, and associated superficial differentiations: coloring, fragrance, and so forth. That's why the largest advertising budgets are for companies with similar competitive products: GM/Honda/Ford/Nissan/Toyota/Hyundai; Procter&Gamble, L'Oreal, Estee Lauder; Samsung/Sony/HP; Progressive/Allstate/State Farm.
They aren't advertising to get new customers into the market: they're advertising to shift customers to competing suppliers.
Samples pulled from adbrands.net list of top 100 US advertisers. There are many, many more clusters there to illustrate the point.
you make good points but I think you are over-simplifying great marketing companies down to companies that spend a lot on advertising.
Going back to the stanford example, great marketing companies understand user problems and design products that solve that problem in a scalable way. Awareness (via advertising) is only one aspect of marketing.
So while advertising in a commodity market might be a zero sum game, I contend that true marketing is not.
I'm pretty sure that is an artifact of the fact that this is a blog post--it's easy to think of a hypothetical example of an innovative product in the MIT mold ("existing production process, but much better/cheaper!") and difficult to give a hypothetical example of an innovative product in the Stanford mold. We know we want to produce things more cheaply--we didn't know, before Facebook, that we wanted Facebook.
As pg puts it, writers who need to come up with startup ideas "come up with an idea that sounded plausible, but [is] actually bad."
It's a wonderful telling, and whether or not this was the author's intent, I think the Stanford model is much more likely to make the founders rich. But while the MIT team may or may not achieve commercial success, but at least they are tackling something worthwhile.
Costs for sustainably produced chemicals are higher, but
the founders maxed out their credit card buying a
wholesale shipment and were able to sell a premium retail
product at a small profit.
At heart, the Stanford company in the story is greenwashing and repackaging a product that's already available. I have trouble getting excited about getting more people to pay more for a product that's already available. Isn't this just a zero sum game?
It's not really a zero sum game because marketing costs money. If you can figure out how to do marketing for less money per new customer than the other guy then you have freed up money that would otherwise have been spent on marketing... Or, if that money wasn't currently being spent on marketing then the value of that product was not being passed on to the market and you are unlocking that unrealised value. Either way, innovating around marketing is quite valid.
> At heart, the Stanford company in the story is greenwashing and repackaging a product that's already available. I have trouble getting excited about getting more people to pay more for a product that's already available. Isn't this just a zero sum game?
It is, but it's worth noting two important aspects here:
1. Unlike most of the audience of Hackernews, most of the people to whom you pitch a product don't know what a zero-sum game is, and learning about it is well beyond their abstract reasoning abilities.
2. Even if they knew, they would simply continue to unconsciously hope they'll end up with one of the positive terms.
> "but at least they are tackling something worthwhile"
Impact should be measured after companies have existed for years, not based on what they first set out to accomplish (company goals inevitably change). The Stanford company built a marginally improved product, and became sustainable. Since marginally improved products aren't really defensible (without a strong brand name), they'll likely continue to iterate on their product and in the long run will improve the tech drastically. Whether the intention or not, essentially they make money and use profits to invest in long term R&D, while the MIT company takes investor money up front to invest in R&D.
I think both approaches are suitable for different circumstances (based on background of founders, current state of market, whether radical or incremental improvements are needed to solve the core problem, etc). I don't like how people call something more or less worthwhile to work on, because wide distribution for a marginally improved product is better for the world than poor distribution for a revolutionary technology that never leaves a research lab.
The story told to you was clearly an adaptation of Richard Gabriel's "Worse is Better". Amusingly, in "Worse in Better" Stanford and MIT are actually on the same side while the "get X out quickly" mentality is attributed to Berkeley/New Jersey (where Bell Labs was).
In the original story the "New Jersey" guy (but from Berkeley) was Bill Joy and the MIT guy was Daniel Weinreb (who was an HN user). If you're interested, you should see his blog post about it:
I always thought the New Jersey guys were Ken Thompson and Dennis Ritchie. Thompson and Ritchie worked at Bell Labs in NJ, and then Thompson brought Unix to Berkeley, where Bill Joy picked it up. I don't think Bill Joy ever lived or worked in NJ.
Just want to point out that Stanford does have its fair share of "MIT startups".
Here's a small subset:
* Alveo Energy
* Amprius
* Blue River Technology
* C3Nano
* Momentum Machines
* QuantumScape
* Solum
Although if the OP's simple model had a category for startups simultaneously validating customer demand and driving technological advantages, most of these companies would be there.
Also, I believe the core of the Google self-driving car team was hired from Stanford after they won the DARPA challenge. At the very least the lead was: http://en.wikipedia.org/wiki/Sebastian_Thrun (I know, not a startup, but it's relevant.)
Great little read. Uniquely portrays the cultural differences between the two schools but more importantly, shows just how different the West vs. East Coast mentality is when it comes to technology startups, products, innovations, etc.
Not saying there isn't much "pure technology" coming out of Stanford (there most certainly is) but you get the feeling that Boston-area startups are wired to find, as Peter Thiel would say, the 0 to 1 markets vs. the 1 to n markets of globalization (the West Coast).
In Boston, there appears to be a bigger emphasis on hi-tech vs. the latest subscription service or cloud provider coming from SV. But the SV culture encourages that, VC's cut checks for products with "traction" and more often than not, skip pure technology (be it medical devices, therapeutics, chemicals, hardware, and hard/expensive/timely ventures).
This is rather unfortunate since we are in need of better startup companies and technologies, and they are in need of funding. There are many reasons for this (one being the "easy way out biz model replication" phenomenon used in the ammonia subscription model example in the post). And another is the lack of talent, particularly great talent going to well-funded SnapChat #4 and other similar, non-groundbreaking companies.
Unfortunately, I don't see the face of venture capital changing much with regards to funding innovative and risky technologies. They of course are wired to big returns on 1/100 social company exits (most at least) and "technology" doesn't really matter (again, to most).
Can you imagine SV putting money into Fairchild Semiconductor or Intel today? Won't happen.
Don't let the excuses of "we infested in Barracuda and Cisco" fool you - the focus is on "how many users do you have for the latest hype driven app on the App Store."
I think the major problem is the lack of risk being taken on great technology vs. the easy way out. AKA, some VCs should grow some balls and invest in the future vs. the very-near future. Being an MBA out of a top-10 school and having check writing power to fund "startups" is also a negative since a lot of these guys know the spreadsheets - NOT the silicon.
But I digress.
Both schools are unique in their culture but share similarities in brilliance. The best outcome is too see great business as marketing intersect with powerful technology. Then we can have real great companies on the horizon again. As a West Coast founder myself, it's actually an honor and a humbling experience to be working with people from both schools and it's clear as day just how different the mindset is.
Venture Capital didn't actually exist when Fairchild was founded. The company was named Fairchild Semiconductor because the main funder was Sherman Fairchild of Fairchild Camera and Instrument. They were connected by a twentysomething named Arthur Rock who'd recently ditched corporate finance in NY. Rock also later invested in Intel.
Much of VC actually grew out of Fairchild. Eugene Kleiner of KPCB was one of the Fairchild founders, and Don Valentine was a Fairchild sales+marketing exec before starting Sequoia. Those two firms essentially invented modern day VC investing, and you could say Fairchild was the first experiment that worked.
It's also worth noting how much VC has grown since then. Intel only raised 2.5MM before going public. Technology is now much more broad, and there's more money to fund diverse companies. Back then, tech was a niche industry.
Hard science is certainly still getting funded out here -- see Counsyl, LightSail Energy, etc. -- but I think lots of investors are now looking at existing industries that can be flipped via software (cue pmarca's "software is eating the world" neo-adage). The "Stanford startup" that Amir describes is moreso a tech-enabled company, rather than a hard tech company. They're both valuable, but should be seen as apples and oranges.
Maybe it's because I went to MIT and am perhaps foolishly ambitious, but I personally get frustrated when I see super talented people go after easy industries. The one that comes to mind is house cleaning services. It's possible I just don't get the potential, but it's disheartening to see ultra-educated young people trying to figure out how to disrupt a low-margin industry dominated by mostly illegal immigrant workers. Not something I'd want in my epitaph I guess.
The sweet spot is probably somewhere in the middle. Work with wicked smart people, have audacious goals, and focus on shipping and being relevant today.
As an aside, I don't know why everyone is hating on Snapchat. They are riding a massive wave -- the social behavioral shift in how people share online -- which is really not to be underestimated. It's strategic for them to fly under the radar and be disregarded as a stupid toy right now. But if you look at the team they've gathered, see their metrics, or actually talk to Evan, you immediately know that it's something special on the order of YouTube or Twitter.
> I don't know why everyone is hating on Snapchat.
What is the possible business models? Just because something is popular doesn't mean it is a good business. No one has figured out how to effectively monetize chat going all the way back to the IRC / ICQ days (or even farther back to BBS systems). Chat has always been very popular, but no one has figured out how to make a business out of chat. If snapchat was working on that problem, it might be more respected in the startup world.
But now, the key part of Line’s massive revenue growth now is in gaming. The games part of Line’s business now makes up 60 percent of their revenue, followed by stickers, which make up another 20 percent of their sales. Then there are sponsored accounts and merchandising, which is pretty minimal.
A hard guarantee of privacy that prevents any snapchat message being copied is obviously impossible, but for a lot of people messages which are resistant to casual forwarding by ordinary users is valuable.
The analogy which is usually made with DRM for media is flawed because of the mass audiences for ripped films and music. If one person of the hundreds of thousands who pays for a DRM protected music track cracks the protection off and posts the raw file, the protection is substantially devalued. A snapchat sent to a few people will not be forwarded unless one of the recipients has put forethought into doing so.
All it takes is for one enterprising programmer to write and sell) a snapchat recorder, which would automatically saves all the snapchat photos, while bypassing whatever mechanism snapchat uses to detect picture saving.
In practice, this is actually pretty difficult to do. They can send you cease and desist, block you via the ToS, threaten legal action, add stronger crypto, etc. It's different than DRM because Snapchat owns the entire system.
Also, once your friends realize you're using the "Snapchat recorder" they'll stop sending you snaps entirely.
they read bits from the camera api, transmit them, and draw them on the recipients screen. they don't need to be compatible with any 3rd party like DRM-restricted systems.
Although you are correct in your assertion that Fairchild was basically the "mother" of VC, that does not invalidates the OP's point. Take this example: Do you know any VC firm today that would invest in a company like Apple, ran by a smelly barefoot hippie followed by two other nerds holding some weird circuitry machines?
Mike Markkula did, and that's the classic story of VC as in Venture Capital: He provided critical funding in a very risky business attached to also very specific conditions (part of the funding was a loan, for example), and in exchange he asked for a high return.
What we have today is NOT venture funding: We have funding without risk. And that's the OP's point.
If you're saying VCs won't fund semiconductor companies today, you're wrong, they will and they do. VCs aren't as clueless as HN comments make them out to be. They still make risky investments, not because they like risk but because those are the investments that typically give them good odds on the type of returns they seek.
Less technical, consumer-focused startups from Stanford tend to get more press. But there are a lot of successful, high-tech startups from Stanford (often founded by engineering PhDs and professors) that you will never read about on TechCrunch, HN or any of the mainstream "tech news" sites.
VCs take a bigger chunk at a lower price, because the risk/reward equation is different and they may need a lot of money, whereas unless you're racing for the scale of Facebook or Twitter, your mobile app doesn't need to raise that kind of money.
... and this important little element from PG's essay on 'Inequality & Risk' [1] from 2005:
"... reducing investors' appetite for risk doesn't merely kill off larval start-ups, but kills off the most promising ones especially. Startups yield faster growth at greater risk than established companies. Does this trend also hold among startups? That is, are the riskiest startups the ones that generate most growth if they succeed? I suspect the answer is yes. And that's a chilling thought, because it means that if you cut investors' appetite for risk, the most beneficial startups are the first to go..."
Understanding this could mean a lot to SV VCs but then I'm sure they understand it already.
"The MIT startup has no sales to customers, but possibly a DARPA grant to develop their technology. The team has 9 PhDs and just hired an MBA to start finding customers."
That sounds like an exciting setup to me. Also gives me hope for all the fresh PhDs you hear about lamenting their career options outside of academia. Then again, I suppose these ventures are quite limited, and risky, so you can't expect "MIT Startups" to serve as sanctuaries for Ivory Tower escapees.
Next chapter: "Eco-conscious" stickers start showing up on store-brand ammonia in the Bay Area, and the Stanford start-up quietly lays off two employees and liquidates.
More seriously: what these two companies need to do is merge. One has no product, and the other is just intellectual property assets no one is selling. Together, they'd make a mean business.
Yet over the past 10 years, greater New York’s share of the nation’s start-ups funded by venture capital has more than doubled, from 5.3 percent to 11.4 percent
Could you explain your comment? I'm guessing that you are pointing out that Blossom has origins in/has funding from MIT, and is doing hardware development aimed at producing an expensive product targeted at a very limited market? If so, I'm not sure how to distinguish their approach from Clover.
In my mind, the ideal startup would be middle-shifted towards MIT. Following the author's story, the only advantage the Stanford startup has is first to market vs. the MIT startup which has a technological advantage over competitors.
Furthermore, if their new process is truly innovative it can be patented and may end up being adopted by their competitors in exchange for royalties. Similar to the story of Pilkington Glass, which invented the float glass process for making large sheet of plate glass. Pilkington made as much money from royalties and license fees as from manufacturing glass.
Knowing some MIT startups pretty well for some time, I can only partly confirm the comparison for the past. Since the school pushed some entrepreneurship activities across campus (100k, Idea Lab, Beehive, Martin Trust Center for Entrepreneurship, MediaLab) and departments, lots of things changed. It might be true that the school tries to learn from the West in terms of marketing and communications. I might agree that the talent of the East is still more on the engine while the West is better at chassis. It might also be true that the average MIT student rather enjoys being defined as a product magician solving a complex problem than a salesman wo re-invents the way how the product is packaged and communicated (both deserves its credit). However, the focus is merely on the product solution where thinking about the end-consumer often flows in a little later, sometimes too late. But as some successful examples show, the ugly duckling often bears a beautiful swan inside, once someone puts hands on user experience. Also, there are a few collaborative startups coming up in the recent two years, where founders join from different coasts and try to match the best of two worlds. At least that was my observation.
Last but not least, the YC embassadors in the Boston area and alumni (Dropbox etc.) did a great job in sharing their experiences.
> I have trouble getting excited about getting more people to pay more for a product that's already available.
This so-called "Stanford model" looks more likely something about old companies. I think for most older generation of people, for whom "marketing" is really what's it's all about(most of the executives in old companies back in the 70s 80s were promoted from marketing I believe), that is their view of "starting a new business". However, they didn't innovate, not exactly because they didn't want to, but because they didn't know how to, in an already stagnant field. This is why I don't really believe this is the case for today's tech-oriented companies. In Peter Thiel's terms(I don't really like him, just using a reference here) this would not even be a "startup" at all(0 to 1). I mean, I don't believe there exist more tech startups which make themselves big by just extensively marketing existing technologies, than those which lead the innovation of new ones. Correct me if I'm wrong. I don't know a lot about these things anyways.
If the MIT technology described in this story actually existed, its effects on the world population would be incalculable. A third of the worlds population is sustained by fertilizer produced by the Haber process. Half the nitrogen in your body was "fixed" (pulled out of the air) in this way. Half a billion tons of ammonia is made in this way each year. I recommend this article on the hundred year history of the Haber-Bosch process: http://www.theguardian.com/science/2013/nov/03/fritz-haber-f....
My point though is this. Even if these MIT PhD's don't understand marketing and can't raise enough to keep their company afloat, this hypothetical technology would be worth many many billions of dollars to a deep-pocketed chemical supply company. So the comparison is a bit lopsided.
I like how troll-baiting it is to use MIT and Stanford stereotypes in this article. The sustainable ammonia technology in this example is audaciously important, but convincing people to buy sustainable fertilizer is also important too. I think that too many technology startups have an entitled disdain for literally putting shit in a box and selling it profitably---with a hand-signed note.
Even if a technology company can raise funding and grants, sustainable revenue from licensing or contracts should be the first priority for the company or it won't be able to stay together.
The technology is 20 years ahead of the need, or it takes 20 years to work out the kinks in the process. So the patent expires just as it becomes valuable.
But once the patent expires, no company can get a sustainable advantage. Thus, the net incremental producer surplus gets competed down to zero. However, consumer surplus is increased by zillions of dollars, because the technology has effectively been "donated" to humanity through patent expiration.
But this would be a terrible story for VCs, because they didn't make any money off of it. Instead, 100% of the benefits went to humanity.
In a industry with high capex and low margins, access to capital is often the deciding factor in competition. Especially for something, as posited in the original article, that "merely" improves process efficiency by 10%. (Order of magnitude would be a different matter.)
Big Chemical might make a huge capex investment to build a new plant. And then some Chinese company eats their lunch, because that Chinese company has access to low-interest loans from a state-owned bank.
This happened in batteries. This happened in solar panels. What's to say it won't happen in ammonia?
I had a roomate who was getting his Master's in industrial process chemistry. He once mentioned that, in fact, in that industry a 10% efficiency improvement was considered a rough standard for which an innovation could become a viable business.
Fertilizer actually has pretty decent margins, especially lately what with cheap natural gas. In any case, I suspect it would behoove whichever company had the necessary access to capital to invest in such tech.
That's temporary. The United States has huge quantities of gas, and cannot export it. Thus, the price of natural gas remains depressed. Everybody else is using expensive gas, so the price doesn't drop.
If enough LNG export terminals get built, that advantage goes away. Our prices will go up, and their prices will go down.
The oil refining industry demonstrates how bad things get in a capital-intensive industry when both the inputs and outputs are fungible. They had flush times, too, in the mid-2000s. That was also temporary.
Funnily enough, I worked for a french "MIT startup", and I my main task was to "dumb down" the product so that non-PhD could use it. I was one of the few non-doctors in the room (no, my girlfriend is not catholic).
In a twist ending, they later decided to enter the US market starting by Boston (but it might be for geographical reasons).
As someone who works at a startup with 3 MIT graduates (CEO and CTO among them), I'm going to say fun read, but not really grounded in reality. We have way more marketing than engineering and no phds. I guess we run like the 'Stanford' startup.
The difference is more of a function of the nature of business being built.
Some fields require a lot of investment to come up with the product to sell. I worked at IBM research years back, They spend a lot of money on a lot of things that didn't pan out to get the profitable invention. Labs are expensive.
It took me two seconds to open and close this blog/article my eyes... I can never understand why people keep using horrible themes and tiny font like that.
I think the characterization is a cheap jab. I worked at a Stanford startup (founder was a PhD at Stanford), and we were overrun with PhDs and worked on a DARPA contract instead of taking VC.
1982 Sun
1984 Cisco
1994 Yahoo
1998 Google, VMware
Rightly or wrongly, I interpreted the article as being about current startups, e.g. since the last bubble. It seems a lot more accurate in that context. Of course there are exceptions - "MIT" startups on the west coast and "Stanford" startups in the east - but the more important point is about the models themselves rather than the catchy monikers.
MIT approach, according to OP: we're smart, so let's do something badass and hard where being smart is maximally advantageous (because dumbasses wouldn't even understand the problem or the work).
Stanford approach, according to OP: we may be smart, but most people are self-important morons, including many of the gatekeepers we have to impress, so let's do easy shit so we can focus 100% on the marketing.
I'm not going to make better vs. worse comparisons, as both approaches have value, but I think that adept engineers (which most of us are, or want to be) fare better under the MIT approach. Under the approach ascribed to Stanford by the OP, engineers are just commodities of low importance-- it's the connection-peddlers and marketers who actually matter. (And that's what we actually see in the VC-funded incarnation of the Valley.)
The other company has great marketing.
One of them is playing a positive-sum game. The other is playing a zero-sum game: http://en.wikipedia.org/wiki/Zero-sum_game
I don't know that one of these really represents MIT and the other really represents Stanford, but I can tell you that the technology company is adding value to the world in a way that the marketing company is not.