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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. 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. 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.
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September
12, 2001: