
The Stanford Startup and the MIT Startup - grinich
http://fpgacomputing.blogspot.com/2013/11/the-stanford-startup-and-mit-startup.html
======
dsr_
One of these companies has developed something new, interesting, and
economically useful.

The other company has great marketing.

One of them is playing a positive-sum game. The other is playing a zero-sum
game: [http://en.wikipedia.org/wiki/Zero-
sum_game](http://en.wikipedia.org/wiki/Zero-sum_game)

I don't know that one of these really represents MIT and the other really
represents Stanford, but I can tell you that the technology company is adding
value to the world in a way that the marketing company is not.

~~~
thatthatis
Marketing is real and economically useful.

Think about it like this: In economics it's useful to assume perfect
information so the market prices and clears and generally works. In the real
world perfect information is extremely false, there's a cost to getting new
information, a maximum processing speed for humans to digest new information,
and a maximum amount of information humans can store (at or below max
processing speed * hours lived).

Marketing (the advertising side) is the mechanism by which information is
disseminated to consumers.

Marketing (the product-design side) is the mechanism by which information is
gathered by producers.

Marketing is the mechanism by which the market attempts to overcome the lack
of perfect information.

Marketing (ceteris paribus) reduces transaction costs, and thereby adds real
value to the world.

~~~
nsomaru
That's a nice perfect scenario.

Marketing (in its current form) does not attempt to overcome a lack of
information. It exploits the lack of information.

See: The consumer driven debt-march of the American people.

"When I walk past a shop, I am amazed at all the things that man can do
without"

~~~
thatthatis
Exploiting the lack of information _is_ overcoming the lack of information.

It might not be the most efficient net outcome, as a better solution might
otherwise exist, but if there is an exploitable lack of information that is
exploited then by definition the information in the system has increased.

~~~
marshray
Only if we believe that "exploiting a lack of information" necessarily
involves increasing true (and useful) information in the system. I certainly
don't believe that's true, much less "by definition".

~~~
thatthatis
If you mean lying then I have to agree. Perhaps I need to qualify the above
statement.

------
nkurz
It's a wonderful telling, and whether or not this was the author's intent, I
think the Stanford model is much more likely to make the founders rich. But
while the MIT team may or may not achieve commercial success, but at least
they are tackling something worthwhile.

    
    
      Costs for sustainably produced chemicals are higher, but 
      the founders maxed out their credit card buying a 
      wholesale shipment and were able to sell a premium retail  
      product at a small profit.
    

At heart, the Stanford company in the story is greenwashing and repackaging a
product that's already available. I have trouble getting excited about getting
more people to pay more for a product that's already available. Isn't this
just a zero sum game?

~~~
d4nt
It's not really a zero sum game because marketing costs money. If you can
figure out how to do marketing for less money per new customer than the other
guy then you have freed up money that would otherwise have been spent on
marketing... Or, if that money wasn't currently being spent on marketing then
the value of that product was not being passed on to the market and you are
unlocking that unrealised value. Either way, innovating around marketing is
quite valid.

------
fsck--off
The story told to you was clearly an adaptation of Richard Gabriel's "Worse is
Better". Amusingly, in "Worse in Better" Stanford and MIT are actually on the
same side while the "get X out quickly" mentality is attributed to
Berkeley/New Jersey (where Bell Labs was).

In the original story the "New Jersey" guy (but from Berkeley) was Bill Joy
and the MIT guy was Daniel Weinreb (who was an HN user). If you're interested,
you should see his blog post about it:

[http://web.archive.org/web/20121107034606/http://danweinreb....](http://web.archive.org/web/20121107034606/http://danweinreb.org/blog/the-
worse-is-better-idea-and-the-future-of-lisp)

EDIT: Changed second paragraph for clarification.

~~~
chubot
I always thought the New Jersey guys were Ken Thompson and Dennis Ritchie.
Thompson and Ritchie worked at Bell Labs in NJ, and then Thompson brought Unix
to Berkeley, where Bill Joy picked it up. I don't think Bill Joy ever lived or
worked in NJ.

------
alokv28
Just want to point out that Stanford does have its fair share of "MIT
startups".

Here's a small subset:

* Alveo Energy

* Amprius

* Blue River Technology

* C3Nano

* Momentum Machines

* QuantumScape

* Solum

Although if the OP's simple model had a category for startups simultaneously
validating customer demand _and_ driving technological advantages, most of
these companies would be there.

~~~
amirhirsch
i'm the author... just wanted to point out that it's stereotypes for the sake
of nomenclature.

------
dakrisht
Great little read. Uniquely portrays the cultural differences between the two
schools but more importantly, shows just how different the West vs. East Coast
mentality is when it comes to technology startups, products, innovations, etc.

Not saying there isn't much "pure technology" coming out of Stanford (there
most certainly is) but you get the feeling that Boston-area startups are wired
to find, as Peter Thiel would say, the 0 to 1 markets vs. the 1 to n markets
of globalization (the West Coast).

In Boston, there appears to be a bigger emphasis on hi-tech vs. the latest
subscription service or cloud provider coming from SV. But the SV culture
encourages that, VC's cut checks for products with "traction" and more often
than not, skip pure technology (be it medical devices, therapeutics,
chemicals, hardware, and hard/expensive/timely ventures).

This is rather unfortunate since we are in need of better startup companies
and technologies, and they are in need of funding. There are many reasons for
this (one being the "easy way out biz model replication" phenomenon used in
the ammonia subscription model example in the post). And another is the lack
of talent, particularly great talent going to well-funded SnapChat #4 and
other similar, non-groundbreaking companies.

Unfortunately, I don't see the face of venture capital changing much with
regards to funding innovative and risky technologies. They of course are wired
to big returns on 1/100 social company exits (most at least) and "technology"
doesn't really matter (again, to most).

Can you imagine SV putting money into Fairchild Semiconductor or Intel today?
Won't happen.

Don't let the excuses of "we infested in Barracuda and Cisco" fool you - the
focus is on "how many users do you have for the latest hype driven app on the
App Store."

I think the major problem is the lack of risk being taken on great technology
vs. the easy way out. AKA, some VCs should grow some balls and invest in the
future vs. the very-near future. Being an MBA out of a top-10 school and
having check writing power to fund "startups" is also a negative since a lot
of these guys know the spreadsheets - NOT the silicon.

But I digress.

Both schools are unique in their culture but share similarities in brilliance.
The best outcome is too see great business as marketing intersect with
powerful technology. Then we can have real great companies on the horizon
again. As a West Coast founder myself, it's actually an honor and a humbling
experience to be working with people from both schools and it's clear as day
just how different the mindset is.

~~~
grinich
Venture Capital didn't actually exist when Fairchild was founded. The company
was named Fairchild Semiconductor because the main funder was Sherman
Fairchild of Fairchild Camera and Instrument. They were connected by a
twentysomething named Arthur Rock who'd recently ditched corporate finance in
NY. Rock also later invested in Intel.

Much of VC actually grew out of Fairchild. Eugene Kleiner of KPCB was one of
the Fairchild founders, and Don Valentine was a Fairchild sales+marketing exec
before starting Sequoia. Those two firms essentially invented modern day VC
investing, and you could say Fairchild was the first experiment that worked.

It's also worth noting how much VC has grown since then. Intel only raised
2.5MM before going public. Technology is now _much_ more broad, and there's
more money to fund diverse companies. Back then, tech was a niche industry.

Hard science is certainly still getting funded out here -- see Counsyl,
LightSail Energy, etc. -- but I think lots of investors are now looking at
existing industries that can be flipped via software (cue pmarca's "software
is eating the world" neo-adage). The "Stanford startup" that Amir describes is
moreso a tech-enabled company, rather than a hard tech company. They're both
valuable, but should be seen as apples and oranges.

Maybe it's because I went to MIT and am perhaps foolishly ambitious, but I
personally get frustrated when I see super talented people go after easy
industries. The one that comes to mind is house cleaning services. It's
possible I just don't get the potential, but it's disheartening to see ultra-
educated young people trying to figure out how to disrupt a low-margin
industry dominated by mostly illegal immigrant workers. Not something I'd want
in my epitaph I guess.

The sweet spot is probably somewhere in the middle. Work with wicked smart
people, have audacious goals, and focus on shipping and being relevant today.

As an aside, I don't know why everyone is hating on Snapchat. They are riding
a massive wave -- the social behavioral shift in how people share online --
which is really not to be underestimated. It's strategic for them to fly under
the radar and be disregarded as a stupid toy right now. But if you look at the
team they've gathered, see their metrics, or actually talk to Evan, you
immediately know that it's something special on the order of YouTube or
Twitter.

~~~
thaumasiotes
> As an aside, I don't know why everyone is hating on Snapchat.

It's the same reason people hate on claims of perpetual motion machines. Their
entire selling point is known to be impossible.

~~~
Mvandenbergh
A hard guarantee of privacy that prevents any snapchat message being copied is
obviously impossible, but for a lot of people messages which are resistant to
casual forwarding by ordinary users is valuable.

The analogy which is usually made with DRM for media is flawed because of the
mass audiences for ripped films and music. If one person of the hundreds of
thousands who pays for a DRM protected music track cracks the protection off
and posts the raw file, the protection is substantially devalued. A snapchat
sent to a few people will not be forwarded unless one of the recipients has
put forethought into doing so.

~~~
fragmede
All it takes is for one enterprising programmer to write and sell) a snapchat
recorder, which would automatically saves all the snapchat photos, while
bypassing whatever mechanism snapchat uses to detect picture saving.

~~~
grinich
In practice, this is actually pretty difficult to do. They can send you cease
and desist, block you via the ToS, threaten legal action, add stronger crypto,
etc. It's different than DRM because Snapchat owns the entire system.

Also, once your friends realize you're using the "Snapchat recorder" they'll
stop sending you snaps entirely.

~~~
fragmede
> It's different than DRM because Snapchat owns the entire system.

That's strange, I'm pretty sure I own my own phone.

~~~
grinich
s/system/service

they read bits from the camera api, transmit them, and draw them on the
recipients screen. they don't need to be compatible with any 3rd party like
DRM-restricted systems.

~~~
fragmede
> draw them on the recipients screen

Which means it's available, unencrypted, at the framebuffer.

~~~
grinich
It's going to be a cat-and-mouse game. In this case, the mouse is pretty far
ahead an has $80MM in the bank.

~~~
fragmede
Cat and mouse for sure, but have some links:

[https://itunes.apple.com/us/app/snaphack-pro-for-
snapchat/id...](https://itunes.apple.com/us/app/snaphack-pro-for-
snapchat/id716560946)

[https://play.google.com/store/apps/details?id=de.innovationz...](https://play.google.com/store/apps/details?id=de.innovationz.snapcapture.noroot)

------
redschell
_" The MIT startup has no sales to customers, but possibly a DARPA grant to
develop their technology. The team has 9 PhDs and just hired an MBA to start
finding customers."_

That sounds like an exciting setup to me. Also gives me hope for all the fresh
PhDs you hear about lamenting their career options outside of academia. Then
again, I suppose these ventures are quite limited, and risky, so you can't
expect "MIT Startups" to serve as sanctuaries for Ivory Tower escapees.

------
cjo
This seems to parallel The Rise of Worse Is Better

[http://www.jwz.org/doc/worse-is-better.html](http://www.jwz.org/doc/worse-is-
better.html)

------
mtdewcmu
Next chapter: "Eco-conscious" stickers start showing up on store-brand ammonia
in the Bay Area, and the Stanford start-up quietly lays off two employees and
liquidates.

More seriously: what these two companies need to do is merge. One has no
product, and the other is just intellectual property assets no one is selling.
Together, they'd make a mean business.

------
001sky
[http://www.theatlanticcities.com/jobs-and-
economy/2013/06/am...](http://www.theatlanticcities.com/jobs-and-
economy/2013/06/americas-top-metros-venture-capital/3284/)

As a side note, Boston is about to be overtaken by NYC as the leading VC
market on the East Coast.

~~~
sisk
Do you have a source for that? That article makes no mention of NYC trending
upwards.

~~~
001sky
_Yet over the past 10 years, greater New York’s share of the nation’s start-
ups funded by venture capital has more than doubled, from 5.3 percent to 11.4
percent_

[http://www.theatlantic.com/magazine/archive/2013/10/the-
boom...](http://www.theatlantic.com/magazine/archive/2013/10/the-boom-towns-
and-ghost-towns-of-the-new-economy/309460/)

------
nether
Makes me think of the multiple coffee brewing devices out of Stanford:
Aeropress, Clover. Can't imagine something like that arising at MIT.

~~~
psuter
It's almost as if they were trying to prove the OP's point :)
[http://www.blossomcoffee.com/](http://www.blossomcoffee.com/)

~~~
nkurz
Could you explain your comment? I'm guessing that you are pointing out that
Blossom has origins in/has funding from MIT, and is doing hardware development
aimed at producing an expensive product targeted at a very limited market? If
so, I'm not sure how to distinguish their approach from Clover.

------
Oculus
In my mind, the ideal startup would be middle-shifted towards MIT. Following
the author's story, the only advantage the Stanford startup has is first to
market vs. the MIT startup which has a technological advantage over
competitors.

~~~
pcrh
Furthermore, if their new process is truly innovative it can be patented and
may end up being adopted by their competitors in exchange for royalties.
Similar to the story of Pilkington Glass, which invented the float glass
process for making large sheet of plate glass. Pilkington made as much money
from royalties and license fees as from manufacturing glass.

[http://en.wikipedia.org/wiki/Pilkington](http://en.wikipedia.org/wiki/Pilkington)

------
jermaink
Knowing some MIT startups pretty well for some time, I can only partly confirm
the comparison for the past. Since the school pushed some entrepreneurship
activities across campus (100k, Idea Lab, Beehive, Martin Trust Center for
Entrepreneurship, MediaLab) and departments, lots of things changed. It might
be true that the school tries to learn from the West in terms of marketing and
communications. I might agree that the talent of the East is still more on the
engine while the West is better at chassis. It might also be true that the
average MIT student rather enjoys being defined as a product magician solving
a complex problem than a salesman wo re-invents the way how the product is
packaged and communicated (both deserves its credit). However, the focus is
merely on the product solution where thinking about the end-consumer often
flows in a little later, sometimes too late. But as some successful examples
show, the ugly duckling often bears a beautiful swan inside, once someone puts
hands on user experience. Also, there are a few collaborative startups coming
up in the recent two years, where founders join from different coasts and try
to match the best of two worlds. At least that was my observation.

Last but not least, the YC embassadors in the Boston area and alumni (Dropbox
etc.) did a great job in sharing their experiences.

------
AnonJ
> I have trouble getting excited about getting more people to pay more for a
> product that's already available.

This so-called "Stanford model" looks more likely something about old
companies. I think for most older generation of people, for whom "marketing"
is really what's it's all about(most of the executives in old companies back
in the 70s 80s were promoted from marketing I believe), that is their view of
"starting a new business". However, they didn't innovate, not exactly because
they didn't want to, but because they didn't know how to, in an already
stagnant field. This is why I don't really believe this is the case for
today's tech-oriented companies. In Peter Thiel's terms(I don't really like
him, just using a reference here) this would not even be a "startup" at all(0
to 1). I mean, I don't believe there exist more tech startups which make
themselves big by just extensively marketing existing technologies, than those
which lead the innovation of new ones. Correct me if I'm wrong. I don't know a
lot about these things anyways.

------
alexrson
If the MIT technology described in this story actually existed, its effects on
the world population would be incalculable. A third of the worlds population
is sustained by fertilizer produced by the Haber process. Half the nitrogen in
your body was "fixed" (pulled out of the air) in this way. Half a billion tons
of ammonia is made in this way each year. I recommend this article on the
hundred year history of the Haber-Bosch process:
[http://www.theguardian.com/science/2013/nov/03/fritz-
haber-f...](http://www.theguardian.com/science/2013/nov/03/fritz-haber-
fertiliser-ammonia-centenary).

My point though is this. Even if these MIT PhD's don't understand marketing
and can't raise enough to keep their company afloat, this hypothetical
technology would be worth many many billions of dollars to a deep-pocketed
chemical supply company. So the comparison is a bit lopsided.

~~~
tanzam75
Here's an alternative scenario --

The technology is 20 years ahead of the need, or it takes 20 years to work out
the kinks in the process. So the patent expires just as it becomes valuable.

But once the patent expires, no company can get a sustainable advantage. Thus,
the net incremental producer surplus gets competed down to zero. _However_ ,
consumer surplus is increased by zillions of dollars, because the technology
has effectively been "donated" to humanity through patent expiration.

But this would be a terrible story for VCs, because they didn't make any money
off of it. Instead, 100% of the benefits went to humanity.

~~~
alexrson
Forget about the VCs. How much would Potash Corp pay to be 20 years ahead of
their competition?

~~~
tanzam75
In a industry with high capex and low margins, access to capital is often the
deciding factor in competition. Especially for something, as posited in the
original article, that "merely" improves process efficiency by 10%. (Order of
magnitude would be a different matter.)

Big Chemical might make a huge capex investment to build a new plant. And then
some Chinese company eats their lunch, because that Chinese company has access
to low-interest loans from a state-owned bank.

This happened in batteries. This happened in solar panels. What's to say it
won't happen in ammonia?

~~~
alexrson
Fertilizer actually has pretty decent margins, especially lately what with
cheap natural gas. In any case, I suspect it would behoove whichever company
had the necessary access to capital to invest in such tech.

~~~
tanzam75
That's temporary. The United States has huge quantities of gas, and cannot
export it. Thus, the price of natural gas remains depressed. Everybody else is
using expensive gas, so the price doesn't drop.

If enough LNG export terminals get built, that advantage goes away. Our prices
will go up, and their prices will go down.

The oil refining industry demonstrates how bad things get in a capital-
intensive industry when both the inputs and outputs are fungible. They had
flush times, too, in the mid-2000s. That was also temporary.

------
nraynaud
Funnily enough, I worked for a french "MIT startup", and I my main task was to
"dumb down" the product so that non-PhD could use it. I was one of the few
non-doctors in the room (no, my girlfriend is not catholic).

In a twist ending, they later decided to enter the US market starting by
Boston (but it might be for geographical reasons).

------
acomjean
As someone who works at a startup with 3 MIT graduates (CEO and CTO among
them), I'm going to say fun read, but not really grounded in reality. We have
way more marketing than engineering and no phds. I guess we run like the
'Stanford' startup.

The difference is more of a function of the nature of business being built.

Some fields require a lot of investment to come up with the product to sell. I
worked at IBM research years back, They spend a lot of money on a lot of
things that didn't pan out to get the profitable invention. Labs are
expensive.

------
somberi
Sun Microsystems. (Sun stands for Stanford University Network) Google
(Stanford project) Bill Hewitt + Dave Packard (Stanford)

I understand the author's intent. Just stating...

------
tux
It took me two seconds to open and close this blog/article my eyes... I can
never understand why people keep using horrible themes and tiny font like
that.

~~~
thu
Some people with a bad sight would take a glass magnifying lens to read the
newspaper. All you had to do was hit ctrl-+.

~~~
tux
That not the point, I just refuse to read ugly sites :)

------
davecap1
What about the drop-out's startup?

~~~
objclxt
That's the Harvard start-up.

~~~
amirhirsch
People ask me if they should drop out of MIT to do a startup. I tell them to
transfer to Harvard first.

------
rayiner
I think the characterization is a cheap jab. I worked at a Stanford startup
(founder was a PhD at Stanford), and we were overrun with PhDs and worked on a
DARPA contract instead of taking VC.

Stanford does pure tech too. Look up SRI.

------
tgebru
So what about Google, Yahoo, Cisco, SUN, VMware and all the other technology
based companies that came out of Stanford?

~~~
notacoward
1982 Sun 1984 Cisco 1994 Yahoo 1998 Google, VMware

Rightly or wrongly, I interpreted the article as being about _current_
startups, e.g. since the last bubble. It seems a lot more accurate in that
context. Of course there are exceptions - "MIT" startups on the west coast and
"Stanford" startups in the east - but the more important point is about the
models themselves rather than the catchy monikers.

------
jalopy
Interesting thesis. Which one is Google? :)

~~~
untilHellbanned
good point. I'd have to say Google was an MIT startup.

------
michaelochurch
Boiled down:

MIT approach, according to OP: we're smart, so let's do something badass and
hard where being smart is maximally advantageous (because dumbasses wouldn't
even understand the problem or the work).

Stanford approach, according to OP: we may be smart, but most people are self-
important morons, including many of the gatekeepers we have to impress, so
let's do easy shit so we can focus 100% on the marketing.

I'm not going to make better vs. worse comparisons, as both approaches have
value, but I think that adept engineers (which most of us are, or want to be)
fare better under the MIT approach. Under the approach ascribed to Stanford by
the OP, engineers are just commodities of low importance-- it's the
connection-peddlers and marketers who actually matter. (And that's what we
actually see in the VC-funded incarnation of the Valley.)

