The Innovation Ecosystem – John Hennessy, President of Stanford



so usually when I get introduced I get introduced as the president of the university that helped start Google and Yahoo and Cisco and Sun Microsystems and Silicon Graphics but today I'm the president of the university that trains the best coaches for the 49ers so the nobody asked me to talk something about the the innovation ecosystem and what I want to do is talk about what I think is key to that system and what continues to work well and then I want to touch a little bit on some of the challenges and then we'll throw it open for questions so that the universities are sort of at the front end of the innovation ecosystem they're the place where people try things which you wouldn't even guess would be successful technologies and invent those new technologies the corners started that whole process really begins with people it really is about people and the amazing thing about the history of Silicon Valley is you just go down and look at these companies that have spun out of the universities you limb Packard both one student one staff member that started that company Sun Microsystems a group of students three students Andy Bechtel Sean bill joy from Berkeley and of course the node Silicon Graphics a bunch of faculty and students Cisco two staff members time and timing in Yahoo Jerry and Dave two graduate students and Google obviously Larry and Sergey two graduate students so the cornerstone of getting that innovation ecosystem started is really great people and really what the university serves as is a giant magnet for bringing those people in we bring them in from around the world I think the good news is that we're still attracting incredible talent from around the world both in terms of faculty that serve a mentorship role that create an umbrella where people can be invented and also students we as a country stumbled a bit after 9/11 we were losing students in fact there was a sign up outside Chinua in China that said to the UK for graduate school visas in 90 days right this was a really bad thing for the u.s. so I got a picture of that I took it to the Secretary of State and said this is a really bad thing for us and we got the whole visa situation resolved if you look at the numbers the attractiveness of the US as a destination for great talent is back up but I'll come to our long-term challenge in a minute so the first thing is we get those great people they are the second thing is we give them incredible freedom to pursue interesting new ideas if there's anything we've learned over time it's that there's a tremendous amount of serendipity of all the companies that I've seen spin out of the university only perhaps one of them was ever planned from the beginning and that was Silicon Graphics because Jim Clark came to Stanford with the vision to recast the way in which graphics was done but all the others Sun Microsystems and the inspiration when Andy started designing the first Sun were a set of collaborations that came from my colleague forest basket we looked at this rocks Alto and said you know I'd like one of those in my desk but I need one that costs $20,000 not one that costs $100,000 Andy who I think by the way if you've never met Amy Bechtel Sean of all the hardware designers in the world that I have ever met Andy is mr. magic he can design something that achieves a level of functionality and a level of cost that's truly astonishing so when Andy said yeah well we can we can do something that costs $20,000 and figure out how to do that and that was the beginning of what led to the son prototype and eventually of the company but it took nodes good ideas to turn it into a company because in the beginning Andy didn't know what to do and he was out licensing it and doing all kinds of other things but it took her it took some good insight how to build that into a great company perhaps the the story there's two other great stories I'll just mention to you because I think they're indicative of this when Jerry Yang and Dave Philo were working on the prototype of Yahoo at Stanford a their advisor was on sabbatical in Japan it's a good time to do something different than work on your thesis when your advisor is in Japan they were working on Yahoo at night and it be their own pet project and it was driven simply by the insight that the internet was growing and they felt they needed a way that they and their friends could record interesting websites so that they could build them and they started building at night I remember going over to their office which was in a trailer which proves that some of the best work has done not in fancy offices but in trailers and they were sitting in a trailer and I walked in their office there's stacks of empty pizza boxes empty coke cans everywhere and a sleeping bag on the floor and they were doing this as a nighttime project and of course they figured out how to turn it into an interesting company Google the roots of Google were not had nothing to do with internet search they were funded to work on digital libraries well a key problem in digital libraries if you want to build an old digital library get all the information in books online is how do you search it and of course in books you have a great thing you have citations so if you want to if you want to look up a book you want to see you put Hennessy in there what book will what book will it pick out of that digital library for Hennessy well good insight is pick the book that more people reference than any other book because that's probably the most important work that's the key insight you just take that insight you applied to Google references turn into net link it links in the internet from websites and you do a fancy computation which Sergey was the one that figured out how to do that computation fast you do that computation and that's backrub the initial google search algorithm okay nothing to do with internet search but of course an incredible application of that technology could then apply to internet search so getting those great people in place is key ensuring that the rest of the ecosystem works well is also crucial and I think there we've actually made some progress in the last twenty years or so we all the universities not just Stanford Stanford Berkeley University of Texas Cornell University of Illinois now do a much better job of educating young people about how to be entrepreneur we started now 15 years ago with an entrepreneurship program in the engineering school business schools do it regularly I want if if I have a young person who's gonna go out and start a company I want them to know something before they walk in to that presentation with the venture capitalists I want them to know something about financing about a balance sheet about what kinds of money they need how they should think about structuring what kind of individuals they want on their board all those kinds of things we do a better job of that now than we did 20 years ago so that's good news and I'd say the rest of the infrastructure is overall pretty healthy we've seen a rise of angels and smaller venture firms filling in the gap with many venture firms now not wanting to look at deals where they're not investing five million dollars out of on day one but we've seen a rise of angels who are willing to invest time and energy to help a young group really develop their ideas and go the next step so I think those parts of the infrastructure in good shape what are our challenges I think we have three big problems we we potentially face first of all there is increasingly a global race for talent and it is just gonna get tougher and tougher and tougher people talk a lot about China and you look at China's numbers they're still quite small but in terms of degrees research achievements publications they're still small but the rate of growth is ten times faster than it is in the US and you just multiply that over time and you realize that that's going to be a real challenge we're going to have to fight to get the best people here I by the way I'm in the Tom Friedman class of thought so the minute a student graduates I'd staple a green card to their diploma and attach it right there at that moment and that is one of the things I think that there was when the group of CEOs from the valley met with President Obama that was the one thing there was absolute unanimity on that we should be retaining these people after all if you think what it costs how much money we've invested in somebody who finishes a PhD degree in science and technology u.s. we've invested between a quarter and a half a million dollars in that person to think that we wouldn't do everything to encourage them to stay here it's really short-sighted it's thinking but that race for talent will get tougher and tougher and we're gonna have to stay on top of it secondly I worry about research funding long term I think everybody is aware of the crisis we have in the national budget all the research funding funding is a tiny sliver in the federal government a tiny sliver we spend most of the discretionary money that's in the federal budget on national defense and everything that goes into universities and research is a tiny sliver over in the corner but it's easier to cut that sliver than it is to cut national defense or to cut entitlement programs and the real danger we have is our inability to grapple with the structural budget issues we have in this country could really cost us in the long term and the the nightmare story for the u.s. is we stop investing in research and education we have a less qualified less innovative workforce that results in a lower level of GDP growth which results in less taxes which causes us to further cut the budget and you go around that loop a few times and you become a country in Europe with a GDP growth rate is half what it is in the US and the standard of living begins to flatten out over time that is a real disaster scenario for the country the third problem I worry about is what is sometimes called the valley of death namely the challenge of getting innovation from its source to its to the market successfully we've been able to overcome that valley of death in the IT sector for a couple key reasons one is in the information technology sector you can usually build and demonstrate a prototype in a university research setting that gets the bugs out of the core concept you can do the experiment you can make it work and that is critically important to demonstrating and if you look at the what happens with information technology companies most of them do not fail because the technology doesn't work they fail because customers don't buy it they fail because they miss a market window or they let somebody else beat them to it they rarely fail because the technology just doesn't work but two of the most critical areas in which we need innovation to improve our quality of lives and to improve society or energy and healthcare and both of those have major challenges getting over this valley of death there are different kinds of challenges in the energy sector it's simply that the scale you need to get to to change the problem you've got to take something that perhaps begins with a research project you've got to figure out how to manufacture it at a reasonable cost you've got to figure out how to scale it up far beyond that prototype i watch my colleagues working on new battery technologies the difference between building a prototype in the lab with a few cells that works and actually manufacturing tens or hundreds of thousands of batteries that work that stay within temperature spec that that have a sufficiently long lifetime charge in discharge cycles is a completely different problem figuring out how we bridge that for battery technologies for all kinds of new solar cell technologies some of you probably saw that the company Sun power was recently acquired or a major position was acquired by a French company that company spun out of Stanford in 1983 that's how long it took that company to go from that to the scale it is today long complex evolutions now partly driven by changes in the energy sector and what happened with the price of energy over time but it just reminds you of how difficult it is as hard as it is in energy it's even harder in healthcare by the time you finish a research project in the university you've usually demonstrated not done no more than demonstrate in effect to go from that through a set of clinic trials through a very complex system to actually get to an end stage where you have a drug that can be demonstrated can change lives save lives is a very difficult problem as a result many young potential startups in the biotech sector get acquired quite early on they get acquired when they're often little more than a laboratory demonstration with the result being that they that product may never see the light of day because it may not be big enough to change the needle inside a large pharma and this is one of the challenges we face about how we're going to link those together and move those products more quickly in summary wall I think we face some challenges there's a lot of optimism we should have about the whole innovation sector we are getting great people we've got a faculty that's more turned on to entrepreneurship that sees it as a way of making a different kind of impact in the world different than just publishing papers but equally important and in some cases actually actually more important so as we can build that and strengthen that ecosystem I think we'll see a continuing source of innovation coming out of our coming out of our research universities so let me stop there and maybe we can take some questions or software innovation one key aspect about is the inherent long long-term nature of it and a huge upfront investment in the value of death that's gonna go through do you have a view on how us ability to bet in such a long term versus say China which appears to have inherently an ultra perspective and yeah well I think you're right that China has an inherent long-term perspective is willing to see for example changes in the energy sector as critical to the long-term evolution of the country both as a business opportunity and as a solution for their environmental problems which they will desperately need if they continue to burn the amount of coal they're burning we've had some success in the current administration with the reengagement and an understanding that things going on in the energy sector are important parts of national policy it's not just about economic growth but it has other important contributions to make whether or not we'll be able to maintain that will be the key if you were to look at the history of funding for energy research in the u.s. you'd see really stupid moves being made by the government and I call them stupid because I can't think of a better word for it if you look at the history though how many people remember the oil shock crisis of the late 1970s many of you are too young but a bunch of us remember waiting in lines Yetta wait in lines for an hour for gasoline literally you have to wait in lines an hour long right after that the u.s. put in place a set of new research programs on alternative energy by 19 then that was like 1979 by 1985 the level had fallen back down to what it was before the oil shock crisis and from 1985 to 2005 the US investment in energy research grew no faster than inflation over that 20-year period all the work all the research went away because of course if you're not funding it you're not you'll get a few people here and there working on little parts of the problem when we restarted are starting to grow our energy research efforts again the first money came from industry from a consortium of industry companies and until about two years ago the government that was giving the most money for energy research at Stanford with the Saudis they were funding more than the US government was funding on energy research why were they doing it they're doing it because they're thinking about making investments for when they eventually have to face the shortage of oil that's a complete a rather long-term perspective obviously but one which I think is important to have in mind when you think about things as critical as energy yeah it's a good question yet so the question is what can we learn from the semiconductor industry which is also capital intensive that we could carry over you know this is the question that perhaps Pierre should be answering Madame atha than I should but I think some of the things we can learn is that some of the innovations came around pieces of the problem by sectoring it down right lots of the innovation that successfully came out of the universities was around CAD tools a key part of the problem some of it around manufacturing technologies and various things that could be done but often by focusing on a new technique whether it was ion implantation or a new etching technique so you were able to do it that way what the universities can't do is pilot an entire lawn there is no way we just can't do it when I was running the mips research project at Stanford the the integrated circuit facility Stanford decided they wanted to try to build a prototype of the chip it almost killed the entire lab the level of quality control and precision they needed to match what a company could do almost destroyed them because it was just so hard to maintain and after they did it they said well that's the last time we're ever gonna try to make something that matches what the production levels that get done in industry so they receded back to making small things we can make small single devices and I think lots of the most fundamental work now will have to go on in the universities thinking about quantum effect devices or organic semiconductors and that's where the university belongs sort of it that far end of the spectrum thinking about new effects and so we I think that's probably where the key is and and knowing where the University can't make a difference but we've got to find other ways to invest and build the infrastructure up we do have I think we have an example of this very successful collaboration though in the semiconductor Research Corporation I think there is a successful example of where the industry has matched up with the universities both to do important research but also to train a talent base for the semiconductor industry so there are some good examples who can source you being able to make that kind of contribution John I have a question about Stanford just finished a negotiation with Stanford recently licensed technology why does Stanford care about a royalty with when something's being spun out why not just get an equity stake do what Vinod does and just focus on creating the next Google and next Yahoo and forget about the you know the nickel and diming and royalties yeah well sometimes they ask for a royalty because they have a short term perspective of what they have to do in order to maintain a revenue flow obviously equity is a tends to be a bimodal distribution in terms of its value so sometimes the team will focus on on royalty rather than equity but of course there's always a price for which they'll take more equity and zero royalties it's just a question of finding that that appropriate mix what our philosophy about our philosophy about the technology licensing office is to get a fair return for the university but to ensure the technology always gets transferred because if what happens is that we become the blockage to the technology getting transferred then we failed completely right then we then we're not doing our job and I think that's what we don't want to that's what we don't want to become and we we do try to take a bigger picture in fact I'm often asked to give advice to university presidents about their technology licensing office and so I start I tell them the story I said think of the largest royalty you could have ever charged youlet and Packard for their little invention that they did a Stanford do people know what they invented they invented a temperature compensated resistor that actually worked by in its prototype by using a light bulb filament to build a temperature compensated resistor which allowed them then to build the world's most accurate audio oscillators which then got used to make fantasia and that was the first product from the company the seven audio oscillators that were sold at Disney but I say think of the most you could have charged them in royalties and now multiplied by a hundred thousand times and that's roughly the amount in personal philanthropy that the families and you let Packard Gate so one has to keep that bigger picture in mind over time while still trying to think about doing something that's fair and reasonable for all the parties they're coming with a microphone Jeff Brown Nordic windpower how do you determine the technologies of all the different ideas that that come to you that the university will work on is it is it simply what the professor's can go get funding for or is it more sophisticated than that yeah well when Eric when Eric mentioned before the chaotic way in which universities operate themselves and manage themselves right there are 1,500 bosses at Stanford University and none of them have the title president Provost or Dean they have the title professor associate professor or assistant professor and they really are running the show and that kind of freedom for them to pick where they think the biggest opportunity is is absolutely crucial now that doesn't mean that we don't look sometimes for new areas where we think there are distinctive opportunities because they've been technology shifts we see a global problem we see a strategic issue for the country or the world or perhaps we even see individuals who might be willing to help jumpstart a field so we will do that and we we raised over a period of about six months a hundred million dollars to build up the Precourt Institute for energy research because we believe that energy was going to be a crucial long-term problem and if i sat I could sit there and wait for the federal government to start pouring research in but the problem with that is you have to start recruiting graduate students and you have to start recruiting faculty universities have a very slow slope to get up to speed on a new research area the individual faculty can move but really to build a team you need a half-a-dozen graduate students you need a few faculty members so we have a slow ramp to get there once we get going we're pretty good at keeping the momentum up so we raised that hundred million dollars really so we can make an investment recruit faculty recruit graduate students and then get started with the whole process and that was our that was our goal in doing that so we pick out strategic areas like that the bioengineering the intersect intersection between the engineering disciplines and the biological sciences biomedical sciences where we saw real opportunities for taking discoveries in the Biosciences and turning them into clinical applications I think that's an area where we saw a great opportunity as well so when we see that we'll try to the president the provost the deans will try to position some resources and encourage people to move there you can't tell faculty what to do it's like herding cats and by the way if you ever want to see how hard it is to herd cats there's a great video go online to youtube look up herding cats you'll have the best laugh you've ever had in a long time but it is like herding cats and what I tell people is the president has a little cat food in his pocket and he can put it out in interesting places and if the cat food is high enough quality then the cats may decide to go over there and do something interesting in that field thank you for now

3 Comments

  1. FSBN TV said:

    So profound

    June 30, 2019
    Reply
  2. Ri3m4nn said:

    VMware is another one from Stanford.

    June 30, 2019
    Reply
  3. inspirational entrepreneur said:

    This is very true! But I have to admit, I am an 18 year old entrepreneur and innovator, and the best source i learned from was mentors. People that I always saw walk pass me but never talked to, they are serial entrepreneurs, so to sum up, Success isn't about school its about Education, and learning from OPE. (Other People's Experiences)
    Very great talk. Thank You

    June 30, 2019
    Reply

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