Web Exclusives:Features
a PAW web exclusive column

September 12, 2001:
Moby-Dick: The Story of a Start-Up
By August J. Moretti '72

When I recently reread Moby-Dick, I was struck by the fact that it was a powerful allegory about entrepreneurial ventures with thought-provoking analogies to and differences from 21st century technology ventures.

For those of you who have forgotten the story line of this great American novel, here is a synopsis: the whaler Pequod sails from Nantucket, the world capital of the immensely profitable whaling trade, on a four years' commercial whaling voyage under the command of Captain Ahab, a 40-year veteran of the commercial whaling industry.

The crew is composed of a polyglot representing every nation, color, and creed who have been drawn to Nantucket by the risk and the potential reward of the whaling trade. All of the crew, including the captain, work without pay and for an individually negotiated share of the profits of the voyage.

Once out of port, Ahab tells his crew that the real purpose of the voyage is not commercial gain but Ahab's need to revenge himself on the white whale, Moby-Dick. The Pequod sails half way around the globe, catches a number of whales, and finally encounters the white whale. Moby-Dick destroys the entire ship and crew, save one sailor, Ishmael, who narrates the story. 21st-century technology startups are not life and death affairs, but the circumstances of the Pequod provide useful lessons for participants in entrepreneurial ventures.

Nantucket: Precursor of Silicon Valley -- Whale oil was one of the most important and valuable commercial commodities of the 19th century. It provided the fuel for most lamps and the raw material of most candles in the developed world. The whaling industry in the 19th century was dominated by America, although a large number of other seafaring nations participated. According to the narrator, the American whale fleet caught in a day what the English whale fleet caught in a year.

No other nation compared to America in the number of whale ships or the skill of its whalemen. The analogy to today's technology market seems quite apt when one considers the number of countries in the world today that participate in the technology revolution and the dominance of the U.S. in terms of number of companies, employees, capital deployed, and results.

The center of the 19th century whaling industry was Nantucket, a small island off the coast of Massachusetts. New Bedford, a close neighbor on the mainland, was the second city of the whaling trade. These towns had developed over many years the infrastructure necessary to outfit and finance the specialized ships and crews required to successfully compete in the whaling industry. Would-be seamen who were attracted to the danger and the potential reward of the whaling trade were drawn to Nantucket from all parts of America and the world. Substitute "technology" for "whaling" and "Silicon Valley" for "Nantucket."

You could set sail for whales in the 19th century from any one of a number of seaports, and today you can set up a technology start-up anywhere you can hire the technical talent. But if you wanted a chance at the real prize in the 19th century whaling industry you shipped from Nantucket or New Bedford. It was only there that you found the necessary assembly of resources and talented personnel to make a truly successful commercial whaling venture.

Today if you want to participate in a technology start-up you go to Silicon Valley or Boston or a very few other places. It is only in these centers of excellence that you can find all of the infrastructure and talent you need to create a successful technology venture; the management talent, the university programs, the venture capital, the pool of technical talent, the service providers and the array of "job shops" capable of making prototypes and small production runs.

Equity: the Lifeblood of Entrepreneurial Ventures -- The apportionment of "equity" among the crew members on the Pequod was the result of hard bargaining by the individual members of the crew with the owners. The scene in which the Pequod's owners enter into a "good cop" "bad cop" negotiation with Ishmael is hauntingly familiar to negotiations with employees in start-ups, with the exception that the whalers understood that percentage ownership was everything. This point seems lost on many of our current engineering talent who are quick to request 100,000 shares of common stock without asking what percentage of the company that absolute number will represent.

As in our 21st-century start-ups, talent was recognized in the whaling industry, and the star players, the harpooners, received many multiples of the participations of the ordinary seamen. The Pequod's four year "cliff vesting" system seems harsh to our modern sensibilities. The voyage was a minimum of four years, and the participants only received their equity share if they completed the entire voyage.

The Crew: Work Without Visas -- The composition of the Pequod's crew was also reminiscent of today's start-ups. The captain and three officers, Starbuck, Stubb, and Flask, were all Massachusetts men and veterans of many previous whaling voyages. Promotion to the rank of ship's officer was based on a combination of time in grade and merit, but unlike the polyglot nature of the crew, the ship's officers were a very homogenous lot; all white Protestant males of similar background.

The roll of the harpooners, on whose skill the voyage depended, reads like the technologist roll of many Silicon Valley start-ups: Quequeg, Fedallah, Tashtego, and Dagoo. They were selected solely on merit and were brown, black, red, and yellow, Muslim and pagan. Time in grade and common background meant nothing. The parallel to today's start-ups is overwhelming. The success of most technology start-ups is heavily dependent on the skill of its technologists and the strength of its technology. Marketing comes later. The technical people are hired for their scientific capability and are not expected to participate in "road shows" or otherwise interface with the public. It doesn't matter if they speak fluent English or are presentable to investors. All that matters are skill and results. If they have the skill and deliver the results, all personal foibles and eccentricities are forgiven.

One other thought provoking aspect of the Pequod's crew was the fact that all of the crew, including the harpooners, were expected to perform a range of tasks from masthead lookout to oarsman in the whale boats. Again the parallel to today's start up is clear.

Personal Commitment -- Participation in the whaling trade involved tremendous personal sacrifice and individual risk. Voyages of three to four years' duration placed an enormous strain on, and in many cases eliminated the possibility of, family life. Work throughout the voyage was a consistent eight hours on duty and four off. Our 21st century ventures require less risk to life and limb but do require the long hours and time away from family that were central to long distance whaling.

The Captain: 19th century CEO -- The captain of a whaling ship was an absolute dictator. The captain was appointed by the ship's owners, but once out of port he was able to operate without any outside interference. He (and it was always a man) determined the ship's course and was responsible for its continuing seaworthiness and the safety of all aboard. As surely as in men-of-war, there was no room for split command. In the words of Ahab, "There is one lord that rules over the universe, and there is one captain that rules over the Pequod."

Modern day CEO's generally do not hold such absolute authority, but their importance to the success of a venture cannot be overstated. Particularly in the early stages of a venture, there is no part of the operations, from recruiting necessary personnel, to securing necessary financing, to setting the goals of the enterprise, that do not bear the CEO's personal stamp. The venture capital community has an aphorism that acknowledges this reality: "You bet on the jockey not the horse."

One of the most chilling and thought-provoking aspects of Moby-Dick is the fact that the seamen undertook their perilous voyage that depended in so many ways on the vision, commitment, and skill of the captain without ever setting eyes on Ahab. Indeed, Ahab remained in his cabin for a number of weeks after the Pequod left port. Only after the ship was in the midst of the limitless sea with no opportunity to turn back did the crew meet him and learn of his personal goal of destroying the white whale.

Ahab was a skilled seaman, but he lacked the psychological fitness for his job. His personal goal was dramatically and disastrously at odds with the commercial intent of the enterprise.
How many of the participants in today's start-up ventures are able to take the measure of their CEO? Yet the success of a 21st century start-up is no less dependent on the leadership and decision making of the CEO than was that of a 19th century whaler. The principal tasks of the board of directors of today's start-up are selection and evaluation of the CEO. He or she makes and oversees the execution of the significant decisions on which the fate of the venture depends. Usually irreparable damage has occurred before the board of directors becomes sufficiently aware of a problem to replace a CEO.

Lack of Clear Commercial Focus -- At the end of the day, the Pequod sank and ruined her crew and owners because she had a flawed CEO and lacked a clear commercial focus. All of the necessary elements for success were assembled, but instead of pursuing the sperm whales that would assure the profitable conclusion of the voyage, the ship and crew pursued the captain's individual goal with disastrous results.

It is an axiom of 21st century start-ups that a venture needs clear focus on a commercial goal if it is to succeed. Start-ups do not have the capital or the management bandwidth to pursue a broad range of interesting technologies. Loss of focus usually results in commercial disaster.

The Lessons -- Reflecting on Moby-Dick leaves the reader with a number of compelling lessons that apply to today's start-ups.

First and most humbling, commercial ventures are difficult enterprises and can fail for any number of unforeseen reasons. Necessary talent, sufficient capital, seasoned management, market opportunity, hard work, and preparation are necessary but insufficient factors for the success of a commercial venture.

Second, and perhaps most important for American policy makers, talent knows no national boundaries. The inability of American universities and industry to provide sufficient technical and management talent to staff our technology ventures and the consequent need of American industry for large numbers of foreign born workers are realities of the 21st century. Without the critical contribution of legions of foreign-born technologists and management personnel, Silicon Valley and most of our technology centers would quickly grind to a halt. If we do not allow sufficient numbers of these talented workers to emigrate to the U.S., our industry will lose and that of other countries will benefit.

Third, and perhaps most important for the participants in 21st century entrepreneurial ventures, steady, visionary, inspiring leadership is critical to success. The absence of such leadership is a shortcoming unlikely to be overcome, and may lead to disastrous results. Employees should evaluate a company's leadership (as well as its technical talent, market opportunity and financial strength) before making the investment in time, energy, and opportunity cost required to participate in a start up venture.

A Final Thought on Discontinuous Change -- One unrelated but important issue that jumps out at the reader from the pages of Moby-Dick is the impact of unanticipated and discontinuous change. Nantucket had held center stage on the world's whaling industry for over 50 years at the time of the last voyage of the Pequod. Whale oil had been a central commercial commodity for even longer. The whale oil industry was soon to be made obsolete by the wholly unanticipated discovery of kerosene (distilled from petroleum) in 1859 and the invention of the electric light in 1879. Today, Nantucket is more famous for tourism than industry.

When we ponder the many technologies that have powered our current centers of technology excellence, we need to be mindful of the unanticipated discontinuous change that is certainly lurking unsuspected over the horizon. What we know will surely end, we simply don't know when or why. Trees don't grow to the sky.

August J. Moretti is chief financial officer and general counsel of SurroMed, Inc., a privately held biotechnology company. You can reach him at amoretti@surromed.com.