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Wednesday, August 19, 2015

The Rock of the Silicon Valley

William Shockley shared a Nobel Prize with John Bardeen and Walter Brattier in 1956 for inventing the transistor at Bell Laboratories about a decade earlier. By that time, personality conflicts had split the team, with Shockley taking a sabbatical to teach at Cal Tech in 1953. The early transistors were made of germanium. Shockley believed that silicon was better. He convinced Arnold Orville Beckman, the inventor of the pH meter, to set up a research department at Beckman Instruments. However, Shockley's mother was ill and living in Palo Alto, California. He set up the Shockley Semiconductor Laboratory and recruited young, enthusiastic physicists to work on his projects.

But Shockley was autocratic and within a year, eight researchers went over Shockley's head (or behind his back) and demanded Beckman fire Shockley. They quickly learned their place in the world was several hundred steps below that of a Nobel laureate. Beckman canned them.

The Traitorous Eight mulled their next step. One of the eight, Eugene Kleiner, had  father who had an account at Hayden, Stone and Company in New York. Kleiner's father wrote a letter to his broker seeking aid in setting up a research facility. The broker shared the letter with Arthur Rock, who headed the company's efforts to raise money for small high-technology companies.

Rock rolled into the Silicon Valley. Armed only with a Harvard MBA, he changed the direction of science in the second half of the 20th century. Intel and Apple Computer owe their lives to him. He once made Steve Jobs cry.
The name Silicon Valley came in the 1970s when journalists finally caught on to what was happening in Palo Alto. Before that, everyone referred to it as the Peninsula. The Silicon Valley was an outgrowth of cutting edge 19th century technology: the steam locomotive. Former California Governor Leland Stanford headed the Central Pacific Railroad which along with the Union Pacific built the first transcontinental railroad. Like many millionaires of his day, Stanford used his money for the public good, founding in 1885 the college that is now Stanford University. Its first student was Herbert Hoover. Another student was Shockley's mother, who like Hoover was a mining engineer. Hoover became a president, she became the first woman to serve as a U.S. deputy mining supervisor.

Born on August 19, 1926, Rock attended public school in Rochester, New York.

"My father operated a little candy store, and I started working in the candy store when I wasn’t in school. I was a sales clerk and stocked the shelves. It was a very small operation. I was an only child so it was just my father, my mother, and sometimes me working there. I guess that started me off in a business career. I also peddled magazines from door to door when I was quite young," Rock said.

After a year in the Army, he entered Syracuse University, graduating in 1948. He earned an MBA from Harvard three years later. The letter from Kleiner fascinated Rock.

"I had previously done a transaction for a company called General Transistor, which made germanium transistors, and so I had some knowledge of the semiconductor market. The initial use for semiconductors was in hearing aids because previous ones used vacuum tubes and you can imagine how cumbersome that was. But as I did some research into it, it appeared to me that semiconductors could take the place of all vacuum tubes, and that’s how it turned out. They weren’t used in computers at first, but it was perfectly evident to anyone who studied the subject that it wouldn’t be long before they were," Rock said.

Getting private backers for the Traitorous Eight was a tough sell.

"We had about thirty-five companies, all of whom had expressed an interest in going into new fields. We talked to each of these thirty-five companies. I personally visited most of them. And their reply was, well, this is a great idea, but if you set up a separate company, then what will our other employees think; it will just upset our organization, so we don’t want to do it. So we crossed out all thirty-five and were at our wit’s end when somebody introduced me to Sherman Fairchild," Rock said.

Fairchild's empire of eponymous companies were involved in aviation and photography. Fairchild's father had been the first Chairman of IBM. Fairchild had a keen interest in technology. He agreed to form Fairchild Semiconductor after one of the men, Robert Noyce, made an impassioned plea. Noyce later co-founded Intel with Gordon Moore -- another member of the Traitorous Eight -- formed the company, hiring Andrew Grove as their first employee. During Noyce's life, people referred to him as the Mayor of the Silicon Valley.

If Noyce was the mayor, Rock was the banker. Not the only one. Kleiner and others became venture capitalists as well. But Rock invented the term "venture capitalist." Within a decade, not only had he convinced Sherman Fairchild to invest his money in research, but Rock had enough to invest his own money in technology. In 1961, Rock and Thomas Jefferson Davis Jr. formed an investment firm in San Francisco. They invested early in Teledyne, Intel and Apple.

Davis had served in World War II in the Office of Strategic Services, the forerunner to the CIA. He served behind Japanese lines.

"In 1961 I met Tommy Davis, who was at that time a vice president of Kern County Land Company, and Kern County Land Company collected royalties on all their oil properties in the Bakersfield area. And they wanted to put some of these monies to work. They hired Tommy to try to invest their monies; he did one deal and then he came to them with several others. And they said, wait, wait, wait, we want to wait a few years to see how this one deal turns out. Tommy, of course, wasn’t happy with that. So someone introduced us and we decided to form a partnership in 1961 and I moved out to California.

This was a great partnership. But it was Mike Markula, vice president of marketing at Intel, who introduced Rock to Apple. They attended a convention of homebrew computers -- hobbyists -- in San Jose in the mid-1970s. They could not get near the Apple booth, it was so crowded.

"Then I met Steve Jobs and Steve Wozniak. They kind of turned me off as people. Steve had a beard and goatee, didn’t wear shoes, wore terrible clothes, hair down to his collar, and probably hadn’t had a haircut in twenty years. But because Mike was so interested, and he had by that time bought a third of the company, I decided that I’d make an investment. And it turned out to be a pretty good investment. Steve’s rhetoric, and he had plenty of rhetoric, was that everybody would use a personal computer eventually. I didn’t think it would be quite as big a market as it turned out to be. But I could see people spending $2,000 and $3,000 to buy computer for their own use," Rock said.

In another version of his recall of meeting Jobs for the first time, Rock said, “He looked as if he had just come back from seeing that guru he had in India, and he kind of smelled that way too.”

But Rock did not merely invest in the company. He made sure he got his money's worth. He brought in John Sculley to run the company as Rock feared, quite rightly, that Jobs was too visionary. Jobs helped recruit Sculley who was president of Pepsi at the time. Jobs told him, “Do you want to be making soft drinks for the rest of your life? Is that the kind of contribution you want to make to society? I’m giving you this great opportunity to contribute something.”

Sculley quit Pepsi and took over Apple in 1983.

However, while Apple sales took off under Sculley, that may have had more to do with the ideas of Jobs and Wozniak coming to fruition. Rock told biographer Walter Isaacson, “Sculley was so eager for Steve’s approval that he was unable to stand up to him.”

Isaacson told Time magazine things came to a head in 1985, “At the board meeting on April 11, Sculley officially reported that he wanted to ask Jobs to step down as the head of the Macintosh division and focus instead on new product development. Arthur Rock, the most crusty and independent of the board members, then spoke. He was fed up with both of them: with Sculley for not having the guts to take command over the past year, and with Jobs for 'acting like a petulant brat.' The board needed to get this dispute behind them, and to do so it should meet privately with each of them.”

This crushed Jobs.

“Arthur had been like a father to me,” Jobs told Isaacson. “He took me under his wing.”

Yes, they were close. Rock taught Jobs about opera and architecture, but Rock was not Jobs's father. Rock was the capitalist fed up with the navel-gazing socialism of Jobs. They are personal computers, not collective computers.

And capitalism changes the world for the better.

"Looking back, I think my biggest accomplishment was starting the venture capital business if, in fact, I did that. If I have to go down in history for doing one thing, I guess that’s it. But success for me is in helping to build great companies. That’s how I get my kicks. Having money is nice. Being able to travel and do the things I want to do is all very nice. But I would give up some of that for the feeling of success, of having created jobs. I helped create jobs. I helped create companies. I helped create wealth for a lot of people. That gives me a great deal of satisfaction," Rock said.

Shockley knew the physics, but not how to manage people. Rock -- and Jobs -- learned both.

My first collection of "Exceptional Americans" is available here. And the Kindle version is here.


  1. "...a U.S. deputing mining supervisor." Got boggled on "deputing"; I'm guessing you meant something else.

    "Sculley quit Pepsi and headed for [insert words here] took over Apple in 1983."

    1. Thanks.
      There are days when I just want to hide in teh corner.