Professor Ed Roberts ’57, SM ’58, SM ’60, PhD ’62
Professor Ed Roberts ’57, SM ’58, SM ’60, PhD ’62, joins Christopher Reichert, MOT ’04, for a wide-ranging interview that covers his time as a student at MIT and how he joined the MIT Sloan faculty. They also discuss Professor Robert’s most recent book, Celebrating Entrepreneurs: How MIT Nurtured Pioneering Entrepreneurs Who Built Great Companies, and his predictions for the future of entrepreneurship at MIT.
Christopher Reichert: Welcome to Sloanies Talking with Sloanies, a candid conversation with alumni and faculty about the MIT Sloan experience and how it influences what they're doing today. So, what does it mean to be a Sloanie? Over the course of this podcast, you'll hear from guests who are making a difference in their community, including our own very important one here at MIT Sloan.
Hi. I'm your host, Christopher Reichert and welcome to Sloanies Talking with Sloanies. Today, I'm with Ed Roberts, the David Sarnoff Professor of Management of Technology, and the founder and chair of the MIT Entrepreneurship Center, now renamed the Martin Trust Center for MIT Entrepreneurship. He is a longtime expert on entrepreneurial endeavors and he was the co-founder of my particular program at Sloan, the Management of Technology program, for which I'm very grateful. He is a legend in my class and a legend at MIT. So, welcome, Professor Roberts.
Ed Roberts: Thank you very much for being the host. Given that you're an MOT graduate, I am going to entrust myself entirely into your capable hands.
Christopher Reichert: You know, I sent an email to my class saying that I was doing this podcast today and I got some very jealous responses back, so great to have you on board.
It's one of those things, when we talk about back in 2003, when I started, the news broke that the MOT program was being merged with the Sloan Fellows program.
Ed Roberts: Right.
Christopher Reichert: And there was some gritting of teeth here and there amongst my classmates. But I reminded them that the headline is MIT. After that it's Sloan and after that it's your program. So, don't worry. We're all going to be okay in the end of this. So, as we described it as a ‘reverse takeover,’ seeing as many Sloan Fellows who traditionally were, and still are probably sponsored by their organizations, were looking for more entrepreneurial experience and potentially eyeing the whole entrepreneurial ecosystem outside of whichever organization they were coming from, whether it was the Army or GM or all those sorts of traditional, larger organizations. So, we viewed it as a reverse takeover.
Ed Roberts: Without being asked yet, I would agree with you and in fact, for years I was thesis supervisor of the ‘secret’ Sloan Fellows who weren't really sponsored by some major company, who had to do theses in those days and were doing theses relating to entrepreneurship. And so, I knew all of those Sloan Fellows who then became a very major part of the program and are now a very major part of the program and of the EMBA program as well. So, it's great. I'm glad Sloan has moved more in that direction.
Christopher Reichert: I think one of the hallmarks that I think there was, that I've noted over the years since having arrived at Sloan and now being a graduate, is the constant change. And I think that that's something that you've noticed over your 50-plus years at MIT. So, I just want to step back to where you started at MIT. I wasn't aware of this, but when I read your book and when I read more about your bio here, was your involvement with ARPA back in 1964 was it, that started out?
Ed Roberts: In 1964? What was I involved with in '64?
Christopher Reichert: Wasn't it the ARPANET that you were involved with? You were fresh out of MIT and you were taken down to Washington and...
Ed Roberts: Oh, with ARPANET?
Christopher Reichert: Yes.
Ed Roberts: No, we didn't work with ARPANET. We worked with the space program directly, with the Office of the Administrator.
Christopher Reichert: That's right, with Kennedy. The Kennedy administration.
Ed Roberts: ARPANET was very important to the formation of the internet, and MIT worked heavily with ARPANET in the earliest days of what became the internet. That's discussed in my chapter on the internet, which I think is chapter nine. But in the very beginning, in 1961, either just before or just after President Kennedy announced that we were going to indeed launch something that was going to take us to the moon and safely return astronauts to Earth, several of us ended up getting appointed consultants to the administrator of NASA to determine, did NASA have researchable management problems? And we spent the summer, it was very exciting summer, interviewing Jim Webb, the head of NASA; interviewing Wernher von Braun, interviewing all of the key people, traveling to Huntsville, traveling to Cape Canaveral then—pre-Kennedy assassination—it was Canaveral.
And it was very exciting, and at the end of the summer, we wrote a proposal for what ended up becoming the very first research center in the Sloan School, and that was the NASA Organization Research Center Number One. There had been no research center at Sloan prior to that.
Christopher Reichert I love it. They had the number one at the end of it.
Ed Roberts: Number one, because they basically were saying, and they did follow up, not quickly, but followed up over the next several years, establishing comparable organization research centers at other universities. Two years later, they created NASA Aerospace Research Center Number One in the ERO Space Department at MIT. And again, they did the same thing, that they later started to replicate that at other places. And indeed, the relationship between those two centers was instrumental to my getting into entrepreneurship.
Christopher Reichert: I read your book since we spoke a few days ago and I was, well, simultaneously overwhelmed, pleased that I can recognize so many of the players and names and the stories, and that at least I had them straight in my head, at least I knew where it was. But I was also struck by how the role you played ever since you were at MIT and since staying at MIT, sort of being at the right place at the right time. And so, I guess my question to you is how much is that you creating your future and your opportunity, and how much is it just kind of luck and timing and circumstances and having the right people around you?
Ed Roberts: I think both things are the case. The fact that I got into working with Jay Forrester in the founding of the System Dynamics group was aggressiveness on my part. I was an undergraduate, electrical engineering. I was overloading at the Sloan School. It wasn't the Sloan School. It was the School of Industrial Management. Heavily overloading. I was taking, on average, two overload classes a semester and being yelled at by my Course VI advisor. But I was doing it anyway. And in a Sloan course, the instructor said, 'You guys,’ meaning probably the bulk of the students who were engineering students, not management students, ‘You guys think you're hot shots. We just brought in the guy who invented the computer as one of our faculty.’ And I'm sitting there next to another Course VI guy and nudging him and saying, ‘What the hell would von Neumann want to come here?’ Because we would have credited John von Neumann at Princeton as being the person who invented the computer.
Well, being as aggressive as I have always been, I raised my hand and I said, ‘Who is this person who invented the computer that's coming here?’ And he said, ‘Well, Jay Forrester.’ I said, ‘Oh, okay. Thank you,’ And turned to my buddy next to me and laughed because we knew who Jay Forrester was. Jay Forrester had the patent on the magnetic memory core. Jay Forrester had developed the Whirlwind computer. Jay Forrester was in charge of Division Six of Lincoln Lab, which was the systems division for the SAGE system. Jay Forrester was a famous technical guy at MIT and I was astonished that this guy would be leaving Lincoln Lab and his career as a great technologist and coming to the Management School? Didn't make sense to me.
So, it happened. I had an hour free at the end of that class and I, with my unaccustomed boldness, went up to the fourth floor of E52, into the Dean's office and said to the secretary who greeted me, ‘I understand that Professor Forrester is now here. Could you tell me where he is located?’ and she said, ‘Sure, young man. He's just down the hall. Four offices and you'll find him down there.’ I walked down the hall, then greeted by another secretary who said, ‘What can I do for you?’ And I said, ‘Well, I'm in electrical engineering and I just heard that Forrester is going to be here. Is there any way I can meet with him?’ And she said, ‘Well, what do you want to talk to him about?’ I said, ‘Well, I really want to understand better why he's here.’ She said, ‘Well, just a moment,’ and she knocked on the door, opened the door, went behind it, closed the door, came out a few minutes later and says, ‘Professor Forrester will see you.’
Well, I walked in and met the great man and introduced myself, and he was very pleasant. ‘How can I help you?’ And I say, ‘Well, I'm trying to understand. Are you here to bring computers to management?’ And he said, ‘Well, no. I'm here to bring systems to management.’ I, of course, smiled and nodded, not having a clue as to what he meant. But it didn't matter. I nodded. I said, ‘Oh, really? That's great.’ And he said, ‘Well, how are you doing in Course VI?’ And I said, ‘Oh, I'm doing fine,’ and in the meantime, I'm trying to think about, what in the world is systems that has anything to do with whatever he's going to do here? And he then does the terrible thing of asking me, ‘Well, what kinds of courses are you taking over there?’ And I said, ‘Well, I'm taking this course on...’ And it had the word 'systems' in it and it was digital systems or something or other. ‘Oh, that's by my old friend, somebody named...’ And I said, ‘Oh, yeah. That's my professor.’ ‘How are you doing in that class?’ And I said, ‘Well, I think I'm getting an A.’ He said, ‘Oh, that's good. Why don't you go tell him when you next see him that I sent my regards to him? Very nice person. What else can I do for you?’
I said, ‘Well, I'm a junior and a year from now, I'll have a double assignment in electrical engineering co-op with GE and by that time, I may want some advice as to what would be interesting to do, especially if I were interested in working with you. Could I come back and see you?’ And he said, ‘Be glad to see you.’
A year later, I showed up and chatted with him. He said that one of the things... Well, I had two offers from GE. One was to do software development and advanced software in small aircraft engines in Lynn. And the other was to join the new General Electric computer division in Tucson, Arizona. And if I did that and took a double semester assignment, they would pay for my airfare. That was extraordinary.
Christopher Reichert: The big win.
Ed Roberts: This was 1957 and I said to Forrester, ‘Does it matter which job I would take?’ He said, 'Well, either one would be fine, I'm sure, but we're probably going to do some software development if you are really still interested in doing things with us. So, having software skills would be good.' I immediately went back to the headquarters office for electrical engineering co-op and said, 'Jay Forrester says I really ought to take this software assignment in Lynn.' Now, what was my real motivation? My real motivation was I didn't want to leave my girlfriend, now my wife of over 60 years, by going out to Tucson, Arizona. And I didn't want to leave all my clubs or everything else. I was fraternity vice-president. I was head of the Activities Council of MIT. I was head of the Debate Society. I didn't want to give up on all those things to be spending time out there.
So, Gene Blainey, I remember the name, was head of the office for electrical engineering co-op and said, 'I will call the people at GE and I'm sure they will respect your desire to have this assignment in Lynn.' Now, there was me pushing.
Christopher Reichert: Yes.
Ed Roberts: Getting into this task force to work as a consultant to the head of NASA was a total surprise.
Christopher Reichert: You were quite young. You were 27, right?
Ed Roberts: I was not. I was 25 in the summer of '61. Yes, I was going to be 26 in November. So, this was the summer of '61 and I suddenly get a call from the Dean's office. 'Ed, we'd like you to join a meeting of us tomorrow morning at whatever it is.' Without being told what kind of a meeting it is. I walked in and there's the Dean, and the Dean was Howard Johnson, and there is Don Marquis. Don Marquis was a previous department head of psychology at Yale and at Michigan, very distinguished scientist. You know, strange for Sloan because he really didn't seem to fit. Then there was Bernie Mullertine. Bernie Mullertine was a very senior ex-McKinsey consultant who taught the Sloan Fellows organizational strategy, and I knew who he was, but I never talked to him. And the third person was John Wynn, who was an ex-Sloan Fellow, was Deputy Dean and I knew, because I had done some teaching with the Sloan Fellows, I knew he had been an ex-Air Force Systems Command Sloan Fellow.
So, these three guys, the Dean and me, and I don't have a clue why I am in this room. And the Dean says, 'I just came back from Washington, where I had a meeting with Jim Webb and the president of MIT, James Stratton. Jay Stratton, called me and told me I should get down there and see him right away and that he wants to find a relationship to MIT. Just make sure you tell him we don't do consulting. We do research.'
Christopher Reichert: [affirmative]
Ed Roberts: And this is Johnson bringing us up. He says, 'I met with Webb and we decided that we're going to appoint a group of a task force to study the researchability of NASA's management problems. And if you guys accept this task, you're it.' Now to me, I have, to this day, no knowledge of why I was in that room. I don't know who sent me. I don't know whether Don Marquis, who was my maybe-boss, sort of, because I was interested in R&D and he was nice guy. Or Jay Forrester, who I would have thought could have been a great member of that. Forrester could have decided. Nobody ever told me why I was there and I was the punk. Three senior guys and me, and the next week, we're on a plane to fly to Washington to meet with the head of NASA.
And we go in and we're waiting in the outer lobby and we're greeted by a guy named John Young, who tells us that he was the McKinsey guy who wrote the organization report for the creation of NASA, on how it was going to be pulled together. And he introduces us to a guy sitting in the room, in the waiting room, for his turn. I don't remember his name, but it was a very strong German name. And he says to him, 'These gentlemen from MIT are here to advise Mr. Webb on how the organization of the space program should be handled.'
Christopher Reichert: Very grandiose.
Ed Roberts: That isn't exactly what we thought we were supposed to do. This guy leaps to his feet and makes a speech about Wernher von Braun and how Wernher, in the old days, only wanted to get to the moon, and Wernher wanted to always get to the moon. It turns out this was yet another of the Peenemunde. Those people who are young don't know what Peenemunde was. Peenemunde was the place of the V2 rockets being developed by Germany, which half-destroyed London.
Christopher Reichert: [affirmative]
Ed Roberts: And Wernher von Braun was the head of the group, and they now all had been grabbed by the United States and were in Huntsville, Alabama, as part of the Army. And this guy is now selling us on why Wernher von Braun... And John Young laughs and says, 'No, no, no, no, no. I don't really mean that he's going to pick the one to run this. He's going to give him some guidance about issues of management and organization.' And he said, 'Oh, okay.' And he sat down.
So, right away, the picture was set that, hey, whatever we're going to do must be seen as very important. And we then get called in to Webb's office. Well, NASA was located in an old, beautiful building on K Street. It had been converted into space and in his office, with a big desk, he had a full wall window behind him and you look past Webb and you saw the White House lawn and the White House across the street. I said, 'Oh, my God.' Remember, I'm a 25-year-old kid. I don't know anything about this stuff.
Christopher Reichert: You're in center of power.
Ed Roberts: Yes. Webb is banging on the table and saying, 'I charge you (us four) with the responsibility for determining how we should move forward to this new adventure. The space program is not the last of this kind of thing, the coming together of government, industry and academia to launch and to cope with the major problems of society. This is just the first time it's going to be done.' Pounding on the table. Well, you can imagine how I felt, and then spending the whole summer? We spent the summer. When we went to interview von Braun, Webb said to us, 'I don't want you flying down to Huntsville on your own. I want you flying to Washington and then you will fly to Huntsville in my private plane. I want those guys to understand where your role is coming from.' Wow.
Christopher Reichert: Optics matter.
Ed Roberts: Oh, yeah. So, we spent the summer meeting everybody, talking to everybody, learning from the mouths of those people who were now trying to evolve a space program, what this was all about. And we ended up writing a report, and the report recommended the kinds of research we could be doing at the School of Industrial Management. We might have been Sloan by then, since Johnson was Dean. Later, Johnson became president of MIT. And we submitted that and it was approved by MIT and it was sent to NASA. And then, in August, I get a telephone call from Howard Johnson. 'Ed, come on down to my office.' Okay.
I come down and Howard says to me in August... I mean, we started in June. This is August. Howard says, 'Ed, I understand you're doing a wonderful job of helping in the work that's going on in this task force.' I said, 'Well, thank you, Howard. Appreciate that. It's really fun. It's really enjoyable.' He said, 'Well, my understanding is you're making a lot of contributions.' I said, 'Well, that's great. You know, I appreciate that. Maybe I understand a little bit more about engineers and engineering than the other guys do, just from being in electrical engineering and a co-op student at GE four semesters.' He says, 'Well, in any event, we've decided to make you an assistant professor.'
I looked at him. I said, 'What? What are you talking about?' He said, 'Well, we've decided to make you an assistant professor.' I said, 'But, I'm a doctoral student now.' He says, 'Yeah, yeah. But you're about to finish, aren't you?' I said, 'Well, Howard, I mean, I hope I'm going to finish by the end of this coming year, but I'm not even sure of that.' And he puts his hand on his chin, thinking a little bit, and then he's made up his mind. He now turns back to me, grabs my hand, shakes it and said, 'We're delighted to welcome you in as a faculty member.’
So, I mean, if one checks carefully my resume, my resume has this clear question mark because it says I became a faculty member in 1961 and I got my PhD in 1962.
Christopher Reichert: [affirmative]
Ed Roberts: People have said to me, 'You got a typo in your resume.' And right away, I know what the typo is. I say, 'No, it's not a typo. It's true.'
Christopher Reichert: That reminds me of... My father tells of getting into Harvard Graduate School of Design. He arrived in September of 1956, I think it was, in Cambridge, from Germany.
Ed Roberts: Yes.
Christopher Reichert: Off the boat on a Fulbright Scholarship and walked into the Dean's office and asked if he could start and he had his credentials in front of him. He had been city planning director in Germany and the Dean said, 'Well, I mean, the classes have already started.' And meanwhile there was drinks passed around and they had long conversations and the Dean happened to be German and two and a half hours later and handshake and, in my father went to classes the next day. That doesn't happen very much anymore these days.
Ed Roberts: Right. People say that to me about the notion of a Dean shaking your hand and saying you're an assistant professor. To this day, I have no clue as to the process that they... One doesn't share that kind of information.
Christopher Reichert: Right. Right. There probably is no direct answer.
Ed Roberts: Did I go through personnel committee meeting? How do I know?
Christopher Reichert: Right.
Ed Roberts: A, there is no question. I know what the process is. I've been part of the process for years and years and years. Was the process similar? If so, somehow, I was vetted and processed through a process of multiple faculty making judgements that, despite the fact that I didn't yet have my PhD done, that it was okay to make me a faculty member. So, there I neither knew about nor pushed nor had a role of aggressiveness in becoming a member of the task force. I performed my job. I was part of that and liked it.
Ed Roberts: The mix of things between. Things that you make as opportunities and things that somehow accrue.
Christopher Reichert: [affirmative]
I was thinking about, people look at Bill Gates and then you have Steve Jobs and whatnot and think, 'Wow. What geniuses they were to foresee the future and be at the right place to do it.' And I look at it and say, 'Well, they made the future.' Right? So, in some ways, they had the first advantage because they had a vision for what they wanted to create and whether or not the world would embrace it or not was, remained to be seen. So, I have a question for you about when, over the years in the stories that you told in part one of the book, and then the company is in part two of your new book, which by the way, is Celebrating Entrepreneurs: How MIT Nurtured Pioneering Entrepreneurs Who Built Great Companies, out on Amazon, and hardback as well. When you're listening to students who come to you for advice, or you listen to entrepreneurs or companies that maybe started something and are looking for the next phase of growth or even a direction in where to take the company, how do you discern whether you think that they've got what it takes to either get themselves out of the thicket that they're in now or, grow rapidly in the space they've created?
Ed Roberts: I don't know about growing rapidly, growing is enough of a challenge, but growing rapidly is a super challenge.
Christopher Reichert: I was thinking most about first mover advantage.
Ed Roberts: Right. I could tell you very different kinds of things. The first thing I would tell you is if I were in the situation of making an evaluation of some individual or group of individuals, to me, may be quite different from other people. My first focus is on who those people are and I'm going to really work hard at trying to identify their primary personal characteristics. What I want is straightforward. Number one, I want dedication and motivation to beat the band. I want somebody who can stand up to being argued with, told that it's a lousy idea. I want somebody who has such strong motivation that I can sense this person has the possibility of lasting long enough.
Because I know the data, the data says to build a great company, it's going to take a decade or more to build a great company. Now to build a company. You may have a company out of the way in a few months. You may be operating in it. You might even get funded in a year or so or sooner, but to build a great company, to build a great company—that's what the book says “Pioneering entrepreneurs to build great companies”—to build a great company, you need a decade as a minimum. Are you going to be able to last a decade?
First question becomes motivation, persistence, resilience. Resilience is a little different, resilience to me means can you get up after being knocked down and continue what you were trying to do? That's different from ‘can you persist to trying to hold the course?’ But that's a person. Second thing is, if I'm now looking at the person or group of persons, I'm going to ask questions about trustworthiness.
Is this somebody that I can believe in when I hear that person say something, related to that is the other side? Will this person take criticism? Because you're going to have a lot of problems. Are they going to be able to cope with someone that is a mentor, a board member, an investor and take criticism and turn it into something that's positive to meld it into the base of the company? Can you take criticism?
Then for me, if I'm going to relate, if I'm going to invest in this as an angel investment, I made 150 angel investments and I've been on 30 Boards, if I'm going to relate, then my question is, can this person and me have an honest, open relationship that is sustained over an extensive period of time where we're going to encounter differences of opinion, Duke's agreements, arguments, and the like where I'm a tough guy?
So, I want to state my opinion openly and I want somebody to state back a responsive opinion. That's not to say, I want them to agree with me. That'd be stupid because this supposed to be smart people who understand better what they're doing in terms of their fields, their opportunity than I do. I want them to say, ‘Hey, what about this?’ and they're going to come back. So, if you don't have that, then I'm not interested in anything else you have.
Now beyond that, we start looking at the objective things that a typical venture capitalist is going to look at, which are all the characteristics of the company itself. And I got my whole list of those, but one of the key things about this is, lasting long. The second key thing about this is, being innovative. What do I mean by being innovative?
Again, the book title says “pioneering entrepreneurs.” Pioneering entrepreneur isn't a copycat. Pioneering entrepreneurs is somebody adding an increment of advance. A pioneering entrepreneur is one who is laying the groundwork to do something new and novel. Now how novel and in what ways? Number one, MIT, Hey, the largest number of novel, pioneering MIT companies, pioneering in technology. They should be. The technologies pouring out of every department at MIT. Okay. Are they merely looking for an advance? If so, okay that's fine. They may be able to last, but who cares? It's not going to be a great success as a company doing that. Are they now saying they've got a view of how to come up with a very different perspective on this that is quite different? I'll give you an example that relates it today to COVID-19.
I've been an investor from the beginning in Flagship Ventures. Flagship Ventures was founded by Noubar Afeyan. Noubar Afeyan was the first PhD student in biotechnology processing from MIT. In the last semester of his doctoral year, he says, and in the book, I'm quoting everybody exactly as to what they said. He says, ‘I snuck over.’ I always have raised questions with him about those words. ‘I snuck over to Sloan to take the only course that related,’ and that was Ed Robert's course in Corporate Entrepreneurship with the MOT test, we're usually required to take. And persistence. You had to apply to me to get into the course because we have massive overload and you have to write an application. So, he comes in, excuse me, I interview him in depth and I say, ‘Well, Noubar, it's terrific that you're so highly motivated, but I'm rejecting you for the class.’
And he says, ‘why, what?’ I said, ‘you don't know enough about management to be able to do the final project in this course, the final project you have to get into at least one company or an industry, and do a really in-depth analysis relating to some aspect of corporate entrepreneurship. You don't understand enough about businesses and management to be able to write that report. So, you would flunk the course.’
‘No, no, no, no, no. This is really important. I need to take this course.’ And I said, ‘okay, okay, okay. The answer is no, because I would flunk you in the course and that's irresponsible, bye.’ Goes away. He comes back a week later, makes an appointment to see me. He has now read everything in the entire syllabus of the course and he is ready, ready to go hunting beer. And he is arguing with me as to why he's going to be able to do this and why he can handle it.
Everything's great. And I finally keep pushing and I start laughing. I say, okay. I say, ‘okay, tell you what I'm going to admit you to the class. I'm admitting you on one thing only you are so motivated and so dedicated. It's conceivable. You might do something plausible, but in general, my thoughts are, you're still going to flunk the course, but it's now your responsibility.’ The end of the story is I gave him an A-plus in the course and rated him higher than any of the other 80 students in the class. And that began 30 years of friendship. So, I've invested in every one of his venture funds over the years. Three weeks ago, not three weeks ago, three months ago, he has an announcement. They released things, whenever they're spinning out a company out of their work, of a company called Moderna, and the words that he uses about Moderna are the most extreme words I've ever seen him use.
And talking about one of their companies as to how spectacular they are and how unique their capabilities are, and the light. Well, three weeks ago, Moderna was announced as being ahead of everybody else in the development of a vaccine to cope with this COVID-19 virus. And the next announcement that comes in next week, is that the federal government is going to put up $500 million to provide manufacturing capabilities, to have Moderna be the first into the market of being able to produce a vaccine. And yesterday, Dr. Fauci, mentioned Moderna as being the principle reason why he believes we will, in a relatively short period of time, come up with an effective vaccine. And yesterday they also announced the approval of Moderna for finishing phase two. Okay. Now, from my point of view, there it is. It's technology. It's merely MIT, but it's technology that is really staking new crowns.
If we depended only on companies whose innovation was technology, we would leave out a lot of other companies. So what else could you innovate in? Well, how's it about innovating in the market? We have a lot of students that go home to the foreign countries and are copycats of U.S. companies that have never been in their country, such as, zoho.com. I co-founded Zoho with Charles Jiang, a PhD in physics, whom I never met until he came to my office to tell me he wanted to go home to China and start an internet company. We spent six months discussing it, going through all the fundamentals of my getting to the point of feeling good about him. And now he's a copycat. What is he going to copy? He's going to copy Yahoo, which has done all these things in the United States, but there is no internet company in China.
Everybody says to me, ‘Hey, you're out of your mind. What the hell are you doing involving yourself with that Chinese company? They don't have a rule of law. They don't have any marketplace. Why are you doing that?’ And I said, ‘Because I've done stupider things in my life and I believe in this guy who said to me as when I was pushing him and I kept pushing, why do you really want to go home to China?’ 1996, he says to me, ‘China is going to become a great nation and I want to be part of making it great.’ I mean, he knows the words, and then to walk over and say ‘no’ I either believe it. In which case, this guy is a phenomenon or he's just full of bull. And so of course I pound and pound and pound. And then I conclude and he means it, okay, so he copied, we could go check the history of Zoho in China.
It essentially looks like a Yahoo replication one after the other, except Yahoo was smarter than we were. They stopped moving into new areas where Charles Jiang thought he could be everything to everybody, and he went into many areas and we ended up not having adequate focus. Now having said it, we grew to be a multi-billion dollar company and raggedly fell apart. Well, it's starting now to rebuild again. I was on the board for 20 years as co-founder, by the way, and a Chinese company, the oldest person in the room is the one who gets most respect.
Christopher Reichert: Yes.
Ed Roberts: The fact that I was co-founder, all board meetings carried out internationally, were carried out in English. I was the only one of the board who was an American. All the rest became Chinese, once we went public, the board meetings were carried out in English with translation for the Chinese people, until somebody would just all of a sudden holler out in Chinese, some message, and then I knew I'm supposed to just be quiet until they finished. And then the CFO who was from Hong Kong and spoke perfect English would say, ‘Ed, let me tell you what he said,’ and he would explain it to me. We would discuss that for a moment and we would return to our all-English meeting. So, I mean, there's a case, the market was totally new for something that was already well-defined and well-developed. Okay, I'll give you a third kind of thing.
Christopher Reichert: Let me just ask you two questions on that, before we get off that. In your book, you talk about building great companies and you also mentioned “patient capital” and you talked about sort of a 10-year time span for really creating a company is easy, sort of speak. Sustaining it over many years is another. So, my question to you is this. There's been a lot of criticism over the last, let's say 10 years of the huge companies like Facebook and Apple and Google and Amazon, who see flooded building companies with promising technology, snap them up, take them off the market. And in some ways, they stunt the growth of that company as a separate company. But of course, they grow through acquisition in and of themselves. Kiva, I think as an example for Amazon, and there are many, many other examples, I guess my question is…
Ed Roberts: PillPack is Amazon.
Christopher Reichert: PillPack, exactly. So, what do you think that impact has on kind of the next generation of entrepreneurs? Well, first of all, their motivation might be for a quick exit and their thinking might not be longer term foundational growth. And the second one is they themselves are taken out of a leadership position, relatively speaking to running a company versus the division. And how does the entrepreneurship bug keep broadening at that quick chopping pace?
Ed Roberts: Those are very good questions. So first you need to be confronted with some fact. It has always been fact, that more companies were successful when purchased as opposed to when public, fact. All of our naive students don't understand that. But that's fact. In all generations, purchase of the company, as opposed to IPOs and independence of the company has been the primary—IPO has been secondary— been present. Okay. Having said that, I agree with you that the aggressiveness today for growth strategies, by the large firms through very aggressive acquisition strategies is a very important and maybe increasingly important thing. I don't think we've yet assessed whether or not that has acted in a meaningful stifler [sic] of those aspirations to grow a great firm. Depends on what you define as a great firm. How big do you have to be before you're great?
If you want to be independent and be multi-billion, significant multi-billion in size, you may well get grabbed up by somebody who sees you. Now, if you remember what I taught in my corporate entrepreneurship class, I taught three things for large corporations to consider as entrepreneurship first was internal entrepreneurship. How do you cause people inside your firm to have greater degrees of independence in coming up with a standalone in the light?
Secondly, I talked about aggressive acquisition strategies. How do you acquire companies primarily to amplify what you have internal capability to do? And the primary area that I thought was opportune was technology. Why? Because, younger companies have more advanced technology than older companies do. So, I was arguing that what's happening today is precisely what ought to happen if you were running a corporation.
And the third thing was the slightly back off one lessor, which was alliances, and alliances were always to be with younger companies that have complimentary technology, where you have marketing capabilities to market the products and capabilities of the firm, and that was an alliance. They were still independent, still developing product. You weren't absorbing the technology. You were adding it to your product capabilities, installing it in the market. And the like you were growing as a large corporation.
Now, in the latter case, the large company was still growing, in the middle of case, the small company was absorbed, and their lifetime stop. Now I'll tell you the end result of being absorbed. You run the company maybe for a year, maybe for two, on rare occasions you become a major executive of that firm and you go up and you are in charge of that. And if you're really good, you may become very significant to the company and eventually take over the leadership of the company. So, you transform from on entrepreneuring the creation, to now entrepreneuring while you are taking over somebody else's company.
In the other cases you leave, what do you do after you leave? Well, you may take a rest for six months because you've got a lot of money in your pocket. And you're really tired after all those years. And then you're going to start an X company. And guess what? The data says second companies do better than first companies. Third companies do better than second companies. That's our data. Now, something had to have happened with the first company for it be a second company. Either it fell apart or it got bought by somebody, or it went to IPO and you were kicked out or pushed out or, or decided to leave and do it again on your own. Now we have new data.
The new data that was in our last report that we released is about a category that we never used to talk about. We call them joiners, not founders, joiners. A joiner is somebody who coming out of Sloan or MIT, deliberately seeks a young company to join. Despite the fact that she or he is thinking about becoming an entrepreneur eventually and decides they want to sample the experience first, and simply experience while getting paid. They may not be getting paid as much as they would if they were working for a big firm, but they're getting paid. And they're learning a lot by being part of a relatively small, relatively young firm, our data say, and this is now already data because we don't know whether it eventually will be, already in our sample then 38% of the companies of the people who joined as joiners of the alumni, not as founders, form their own companies afterwards, and, the company formed by a joiner outperformed the companies that were formed by somebody who had never had the joining experience. Namely, it's a very good learning experience. You have founded the first company, you could have joined through the first company and for you, your second company, this is the first one you founded. The first one, is the first one you experienced.
Christopher Reichert: So how do you see graduate level business education at Sloan evolving from here? I guess there are two contexts that I'm thinking about. One is, in one of the threads that I noticed in your book was the rubbing of shoulders, so to speak, that the entrepreneurs met each other. They knew each other, whether, socially or professionally, but the point is that they kept rubbing shoulders with each other until they decided to do something together.
Ed Roberts: You just said something very important, because now you're saying that the formation of the relationship between individuals preceded the specific idea that led to the company. I agree. That's one of the ways by which cohorts come together, they come together on relationships. They have usually the same values, the same priorities. They believe in the same things. They may be very different in complementary sets of skills. The coming together of that relationship causes marriage. In two ways, the marriage we know about usually under that name and the marriage I know about when I talk about co-founders coming together, deciding, they want to do something together, they then spend their time trying to figure out ‘what do we want to do together?’ And they will now go into search mode of trying to think about what would be an interesting company. I'll give you an example. MassChallenge.
Christopher Reichert: John Harthorne?
Ed Roberts: John Harthorne was a star at Sloan. John Harthorne was in the E&I track and was one of the students I admired most in his second year at Sloan. John Harthorne won the 100K [competition] as a second year Sloanie. John Harthorne chaired the Global Startup workshop, running 100K tutorials all around the world. Okay. John was wonderful. John came to see me in my office six weeks before graduation to tell me that he wanted to talk to me and to tell me that he has decided, he cannot go ahead and start a company. And I said, ‘well, I would have assumed you thinking about it. Why can't you start it?’ He said, ‘Ed, I have a wife. I have a baby at home. And I have student debt of over a $100,000. It would be irresponsible of me to go out now and start a company where I'm drawing no money or trivial money. I need to get a job where I can make some big money and at least start to pay off my big debt. So someday you will see me, but not now. Okay. Guess what his problem was? His problem was he graduated in 2008.
Christopher Reichert: Two problems, debt and the economy.
Ed Roberts: Oh okay, so consequently, he went to work. He was a real hot shot. He went to work either for BCG or at Bain. I don't remember which, and in the Boston office, there was another Sloanie. Well, obviously it must've been a hot shot to have been hired directly by them. And they had very little work to do because they weren't generating a lot of revenue in those days. They didn't have a lot of clients. They were bored as could be, and they hated the work they were doing. And John said to me that they used to grouse with each other every day about how miserable their life was sitting there and that they ought to get the hell out of there. And he said, ‘one day we finally said, okay, today is it.’ And the two of them went to the head of the office and said ‘we quit.’ They went out. And the first thing they did was to sit down and start to think about, think about what kind of accompany can we start together?
And they went through all kinds of ideas and then Harthorne said, ‘Hey, wait a minute.’ He won the $100K. He knows what it takes to win something like that. He ran the Global Startup workshop. He knows how to deal with people all over the world about assembling a competition like this. Why don't they go into that as a business? And they came up with the idea of the MassChallenge as a for-profit organization. And they tried to raise money and they couldn't raise a penny in that financial market to do a for-profit thing that was so crazy, so different, so unique, so pioneering. Nobody wanted to give them money. In the course of conversations, someone said to them, ‘you know, if you were a nonprofit, this is such a neat thing to do. I'd probably throw in some money to help you guys out.’
And they rethought the question and decided, okay, they're going to start MassChallenge as a nonprofit and lo and behold [MIT’s] Deshpande gave them money to help them get started. Someone sent them to an Office of the Secretary for Economic Development of the Commonwealth of Massachusetts, who said what a wonderful thing to do to help in our recovery and gave them a grant of $100,000. And lo and behold MassChallenge was underway as a nonprofit organization. And they grew like crazy to be one of the greatest accelerators in the world globally, and the like.
Christotpher Reichert: Yeah, they've had a great success story.
Ed Roberts: And by the way, John Harthorne last year left and this year as formed a venture capital firm.
Christopher Reichert: Yeah. So, I'm conscious of time. I want to ask two more questions of you. You know, normally I ask recent alumni what their favorite memory from Sloan is or what their favorite professor was, or if they had to do over? But, the two questions I have for you is what are you most excited about right now in the entrepreneurship space and what excites you most say over the next 12-18 months?
Ed Robert: Okay. So, I would say that the last chapter of our book expresses my and Bill Aulet, and Bill Aulet is a phenomenal partner as Managing Director of the Trust Center, I would say that the last chapter expresses our hopes for more than the next 18 months, but rather for a much longer period of time than that. That hope is that we've been seeing as trend continues and becomes more dominant the trend clearly, and we can document it, has been that over the past 10 years we have slowly steadily been seeing meaningful growth of female entrepreneurship. That's the clear trend that's visible in our counts. We counted. We counted in the enrollments in the E&I track, we counted in the participant group in the delta V, which is our best measure of real excellence. We counted in the people that are succeeding in the $100K.
Women at MIT at all levels, grad students, post-grads, undergraduates, at all levels. Women are trending upward in a meaningful way. And in the book, I report that the one disappointment of our prior studies was the fact that we were not yet seeing meaningful trend and in the last chapter, I'm saying we're seeing it.
Secondly, other minorities, racial minorities, we have again been seeing growth of racial minorities as entrepreneurs. I would suggest to you that in some ways a racial minority is like an immigrant. The data on immigrant role in entrepreneurship is very impressive and it says that somebody who has come from a particular situation where they in a way had to prove themselves and where they had to go into somebody else's turf to succeed seems to be a very important motivating thing. And immigrants are extraordinary performers and are very over-represented among entrepreneurs of all sorts. I begin to think that we're beginning to see that thing happening in United States, especially in the Black and Hispanic communities, but in other immigrants as well.
Now I think we do have some problems in the country these days, besides COVID-19, we have problems of how we deal with immigrants of all sorts and how we deal with people from other countries and the like, and I think in the book, I say specifically that if we looked at our data, there are things we would do that would really dramatically help our own economy while we're also in the process of helping everybody else's economy as well. Because a good, substantial part, increasing of our foreign students are going home.
Christopher Reichert: Yes.
Ed Roberts: And going home more likely to be entrepreneurs than to take conventional jobs because they don't have good conventional jobs available to them, especially if they come from a developing country. So, in the last chapter we take and we put together four examples of companies that we see as foretelling a future. Now I'll tell you the terrible data that we have, three of the four are headed by women. In the fourth company, women are active within the co-founding group.
Number two, that we tell you, three of the companies are located in Africa as their headquarters base. Now one has a new headquarters in California as well, cause they're going on a global market so they decided they're going to have a U.S. headquarters as well as an African headquarters.
The fourth company is headed by a black guy and the only company headed by a male is headed by a black [guy]. If you look at his co-founders, his co-founders looked like the United Nations. I mean, they are all ethnic minorities from very different areas in the like. Three of those companies are working what I would call social agendas. They are working social entrepreneurship agendas. The fourth one is not, it's a straightforward logistics play and a software applied to logistics. Be very impressive as to what they're doing and the like.
So, I take that set of vignettes and say, I am hopeful that we are going to be able to strengthen those trends as we move forward. At the same time, I don't want to minimize the number of Sloanies, in particular, who are coming towards MIT Sloan School from the outset saying they want to be entrepreneurs. Rod Garcia is my best source of data. I don't have access to the data. I don't know what applications say. I only know what ends up in the pot. Rod Garcia says better than 50% of the applicants to the Sloan school talk about entrepreneurship as being the or a primary attraction to the coming to the Sloan school. I think that's terrific.
Christopher Reichert: That is amazing.
Ed Roberts: We have four ages, from the beginning really, the E&I track has had overflow of people from the very beginning. And our problem has been, I believe we've been overly rough on them, largely because we haven't been able to settle down with lesser demands and lesser requirements. In a way I plead guilty; lesser demands that I make of the people that I work with myself.
Christopher Reichert: That's excellent.
Ed Roberts: We're asking them to do things that aren't being asked of them in the Finance or Ops management track, and maybe we're wrong. Maybe we ought to be lessening the demand set, or maybe somehow, we ought to make those extra demands voluntary instead of required. But you know, I'm a hardass, and I have always been. In part because I was groomed initially by Jay Forrester and Jay Forrester was a hardass. To please him, you couldn't please him by being hesitant about undertaking a lot of work, tough work and the like.
Christopher Reichert: Well, on that note, I'm conscious of the time, and I want to thank Professor Ed Roberts, the David Sarnoff Professor of Management of Technology and the founding chair with the Martin Trust Center for MIT Entrepreneurship for your time today. And I would encourage people to apply to Sloan, to take advantage of the challenges that Professor Roberts is throwing out just there at the end about new entrepreneurs and social entrepreneurship. And if you in any way can be part of his orbit, then that will be a great benefit to your life. So, thanks very much, Professor.
Ed Roberts: Thank you so much for giving me this opportunity to talk with you and hopefully through you, to talk to a large number of others as well. And I am a Sloanie, both with a regular master's degree, when you had to do a thesis by the way, as well as having been a faculty member at Sloan for longer than any other faculty member of the Sloan school to this day, really, I love the place as a place to be. And it gives me such an opportunity of working with people, the likes of you. Thank you.
Christopher Reichert: Thanks very much. Thanks to you.
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