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How a Bad Boss Kickstarted Silicon Valley... from Business History · What's Your Problem?

• 0:15
  Speaker 1: Hey, it's Jacob. As you may know, I also host
• 0:23
  Speaker 1: a show called Business History. And a lot of the
• 0:26
  Speaker 1: time when we're making episodes of Business History, I think
• 0:29
  Speaker 1: people who listen to What's Your Problem would like this
• 0:31
  Speaker 1: episode of Business History. So starting today, we are going
• 0:35
  Speaker 1: to run some of those episodes in this feed, in
• 0:38
  Speaker 1: the What's Your Problem feed. If you already subscribe to
• 0:41
  Speaker 1: Business History, thank you. Welcome to Skip These. And if
• 0:44
  Speaker 1: you don't already subscribe, I hope you like them. Hope
• 0:47
  Speaker 1: you like these episodes. We're going to start with one
• 0:49
  Speaker 1: that is about really the origin of Silicon Valley, how
• 0:54
  Speaker 1: Silicon Valley came to be. I hope you like it.
• 1:08
  Speaker 1: Imagine you're just starting out. in your field. And one
• 1:12
  Speaker 1: day out of the blue, you get a call from
• 1:14
  Speaker 1: this guy who basically invented the field, this guy who
• 1:17
  Speaker 1: is a giant in the field. And he says, I
• 1:20
  Speaker 1: want you to come work for me. Dream come true.
• 1:22
  Speaker 1: So of course, you go, you work for him. But
• 1:25
  Speaker 1: he turns out to be an absolute nightmare. This is
• 1:30
  Speaker 1: what happened to young Robert Noyce in 1956. And I'm
• 1:35
  Speaker 1: going to argue on the show today that this chain
• 1:37
  Speaker 1: of events is is actually what led to the creation
• 1:40
  Speaker 1: of Silicon Valley. One bad boss, Silicon Valley. One bad boss,
• 1:45
  Speaker 1: a couple geniuses, the right mix of technology and historical facts,
• 1:50
  Speaker 1: Silicon Valley.
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  Speaker 2: Let's do it.
• 1:52
  Speaker 1: So, Robert Noyce, the guy who got the call, he
• 1:57
  Speaker 1: was a golden boy. He was a real corn-fed Iowa
• 2:01
  Speaker 1: American golden boy. He grew up in Iowa in the
• 2:04
  Speaker 1: 1930s and 40s, went off to Grinnell College in his hometown.
• 2:09
  Speaker 1: When he was there, he sang in the choir, he
• 2:12
  Speaker 1: was a champion diver, and he played the leading man
• 2:15
  Speaker 1: in a local radio soap opera.
• 2:18
  Speaker 2: Heartthrob.
• 2:18
  Speaker 1: Heartthrob. A few decades later, the great Tom Wolfe wrote
• 2:22
  Speaker 1: a profile of Noyce in Esquire. Yeah, why don't you
• 2:24
  Speaker 1: give us a little hint, Robert?
• 2:25
  Speaker 2: Let me read this. While he looked at you, he
• 2:28
  Speaker 2: never blinked and never swallowed. He absorbed everything you said
• 2:32
  Speaker 2: and then answered very lovely in a soft baritone voice,
• 2:35
  Speaker 2: And often with a smile that showed off his terrific
• 2:38
  Speaker 2: set of teeth. He also had a good dentist. Look
• 2:40
  Speaker 2: at that.
• 2:40
  Speaker 1: Yeah, Wolf said it was like he had a halo
• 2:43
  Speaker 1: floating on his head. And, kind of annoyingly, he was
• 2:48
  Speaker 1: a genius. Yeah. Got into transistors before anybody really knew
• 2:51
  Speaker 1: what transistors were. Went off to MIT. Got a PhD.
• 2:56
  Speaker 1: And then he got a job at this little electronics
• 2:59
  Speaker 1: company in Philadelphia. And... He got bored. Suddenly, he's in
• 3:03
  Speaker 1: his 20s. He's a golden boy. He's working at this
• 3:05
  Speaker 1: kind of second-tier place, and it's just not going that well.
• 3:10
  Speaker 1: And then one day, Noyce is at his office, and
• 3:13
  Speaker 1: the phone rings, and he picks up the phone, and
• 3:17
  Speaker 1: hears this voice on the other end. The voice says,
• 3:19
  Speaker 1: Shockily here. Noyce later said this was like picking up
• 3:23
  Speaker 1: the phone and talking to God. Three months later, Noyce
• 3:29
  Speaker 1: moved to Mountain View, California to work.
• 3:31
  Speaker 2: Middle of nowhere.
• 3:32
  Speaker 1: At the time.
• 3:33
  Speaker 2: Yeah.
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  Speaker 1: Turns out God, William Shockley, is a horrible boss, a
• 3:38
  Speaker 1: paranoid micromanager. Cruel, really. Cruel. And the fact that he
• 3:45
  Speaker 1: was such an asshole wound up having profound consequences for
• 3:49
  Speaker 1: the world. I'm Jacob Goldstein.
• 3:51
  Speaker 2: And I'm Robert Smith. And this is Business History, a
• 3:53
  Speaker 2: show about the history of business. Today on the show,
• 3:56
  Speaker 2: the invention of Silicon Valley, a place that is an
• 3:59
  Speaker 2: actual place, But it's more a state of mind, a
• 4:02
  Speaker 2: culture where restlessness is a virtue and quitting your job
• 4:07
  Speaker 2: is heroic.
• 4:09
  Speaker 1: Yeah, I mean, Silicon Valley, it's this agglomeration, right? It
• 4:13
  Speaker 1: is the most important agglomeration in the history of agglomeration, perhaps.
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  Speaker 1: It has created the most important technologies of the 21st
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  Speaker 1: century and truly the most valuable companies in the history
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  Speaker 1: of the world.
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  Speaker 2: And it started with an asshole, William Shockley, and a
• 4:28
  Speaker 2: golden boy, Robert Noyce.
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  Speaker 1: So let's start with Shockley. He really comes first in
• 4:33
  Speaker 1: the story. Shockley was roughly a generation older than Noyce.
• 4:38
  Speaker 1: He grew up in Palo Alto in California in the
• 4:40
  Speaker 1: 19-teens and 20s when it was, you know, a little
• 4:43
  Speaker 1: college town surrounded by farms and orchards.
• 4:46
  Speaker 2: Yeah, think Grapes of Wrath, East of Eden, right? These
• 4:49
  Speaker 2: classic books about farm workers. That's what Silicon Valley was
• 4:52
  Speaker 2: at the time. Yeah, yeah.
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  Speaker 1: Right over the hill from Salinas, right? Not far. Shockley
• 4:57
  Speaker 1: was a difficult child. He bit his mother a lot.
• 5:00
  Speaker 1: He bit multiple babysitters. He didn't go to school. He
• 5:04
  Speaker 1: was homeschooled until he was eight. His parents were high achievers.
• 5:09
  Speaker 1: His dad had a Ph.D. from MIT. His mom graduated
• 5:12
  Speaker 1: from Stanford. Was one of the first people to solo
• 5:14
  Speaker 1: climb Mount Whitney. I believe the highest mountain in the
• 5:17
  Speaker 1: continental United States. And, you know, Shockley eventually went to
• 5:21
  Speaker 1: school and turned out to be a brilliant student. Got
• 5:24
  Speaker 1: a Ph.D. from MIT. And in 1936, he went off
• 5:29
  Speaker 1: to work at Bell Labs in New Jersey.
• 5:32
  Speaker 2: We haven't really talked about Bell Labs yet on the show,
• 5:35
  Speaker 2: and we should do a whole episode about it because
• 5:36
  Speaker 2: it was really critical for all the development of the
• 5:38
  Speaker 2: technologies of the 20th century. It was set up as
• 5:41
  Speaker 2: AT & T' s research lab in the early part of
• 5:44
  Speaker 2: the century. And AT & T, of course, had a
• 5:46
  Speaker 2: monopoly on the phone system. So, you know, they had
• 5:49
  Speaker 2: a ton of extra money. But more than that, bringing
• 5:52
  Speaker 2: all these geniuses together to work on technology was wasn't
• 5:56
  Speaker 2: just about phones. It was about any hard problem that
• 5:58
  Speaker 2: they could think of. They developed the first solar panels, right?
• 6:02
  Speaker 2: The first cell phone system, the quartz clock. They found
• 6:07
  Speaker 2: evidence of the Big Bang. The creation of the universe
• 6:12
  Speaker 2: was discovered by the phone company, which is amazing. And
• 6:16
  Speaker 2: the main part of this was this idea that if
• 6:20
  Speaker 2: geniuses just interact, they will come up with solutions that
• 6:23
  Speaker 2: they could not come up with alone. And if you
• 6:26
  Speaker 2: want to picture it, one of the Bell Labs, there
• 6:28
  Speaker 2: were several of them, one in lower Manhattan, a couple
• 6:30
  Speaker 2: in New Jersey. One of the Bell Labs is the
• 6:32
  Speaker 2: building they use for the show Severance.
• 6:35
  Speaker 1: Is that true?
• 6:36
  Speaker 2: That giant hall, you know, the outside shots of it,
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  Speaker 2: that's what Bell Labs look like.
• 6:41
  Speaker 1: I didn't know that. So Shockley is hired and, you know,
• 6:45
  Speaker 1: there is all of this incredible creative work going on,
• 6:47
  Speaker 1: but Shockley is hired, frankly, to work on A more
• 6:51
  Speaker 1: practical problem for AT & T. A more phone company-centric problem.
• 6:56
  Speaker 1: And that is this. Vacuum tubes. Vacuum tubes were these
• 7:02
  Speaker 1: little glass tubes, kind of like an elongated light bulb.
• 7:04
  Speaker 2: The size of your thumb, maybe a little taller.
• 7:06
  Speaker 1: Okay. And the fundamental thing they did was amplify electric signals.
• 7:12
  Speaker 2: Which is a huge problem in technology at the time, right?
• 7:17
  Speaker 2: If you speak into a microphone or, say, a telephone headset...
• 7:21
  Speaker 2: The electricity your voice generates is tiny. The signal is
• 7:24
  Speaker 2: very small. How do you get that into wires that
• 7:27
  Speaker 2: go across the United States? You have to amplify it
• 7:29
  Speaker 2: along the way. And they use these little tubes to
• 7:32
  Speaker 2: do it. Now, the problem is these tubes are fragile,
• 7:35
  Speaker 2: like they are glass tubes, and they used a tremendous
• 7:38
  Speaker 2: amount of energy. They would heat up. In fact, you
• 7:40
  Speaker 2: had to like let them heat up before you could
• 7:42
  Speaker 2: even turn on the tube radio at the time or
• 7:44
  Speaker 2: the tube amplifier.
• 7:45
  Speaker 1: You're really speaking as a man who is familiar with
• 7:48
  Speaker 1: vacuum tube technology, Robert.
• 7:50
  Speaker 2: I have spent some time with old radios where you
• 7:52
  Speaker 2: have the vacuum tubes and, of course, the audio professionals
• 7:55
  Speaker 2: who say, Those were the golden days.
• 7:57
  Speaker 1: You are that audio professional.
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  Speaker 2: I love a vacuum tube, but go on.
• 8:01
  Speaker 1: So, okay, so it's the 30s. Long-distance calling is growing fast,
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  Speaker 1: but the vacuum tubes, for the reasons you're describing, are
• 8:09
  Speaker 1: a nightmare. And also, by the way, they burn out, right?
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  Speaker 1: They are like incandescent light bulbs. It's very hard to
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  Speaker 1: scale a company on this technology that's expensive and unreliable,
• 8:20
  Speaker 1: and you have to keep sending people out to put
• 8:22
  Speaker 1: in new vacuum tubes, right? Right. So Shockley is put
• 8:24
  Speaker 1: in charge of this team that's trying to find a
• 8:28
  Speaker 1: better replacement for the vacuum tube.
• 8:30
  Speaker 2: Something that is solid state that doesn't break. Yeah, yeah,
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  Speaker 2: that doesn't break, that's cheaper, that scales.
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  Speaker 1: So, you know, Shockley at a fundamental level is thinking
• 8:38
  Speaker 1: about electricity and specifically how electrons move through materials. And,
• 8:42
  Speaker 1: of course, there is this spectrum where on one end
• 8:44
  Speaker 1: of the spectrum you have insulators like glass and rubber
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  Speaker 1: where electrons don't flow easily through them. On the other
• 8:51
  Speaker 1: end of the spectrum you have conductors like copper and
• 8:54
  Speaker 1: Where electrons flow right through them.
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  Speaker 2: If only there was something in between, you know, not
• 8:58
  Speaker 2: an insulator, not a conductor, sort of a quasi-conductor?
• 9:12
  Speaker 1: And people were starting to understand that you could maybe
• 9:16
  Speaker 1: control them so that their behavior would change under different settings.
• 9:20
  Speaker 1: And that if you could do that, if you could
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  Speaker 1: get it to switch from basically an insulator to basically
• 9:25
  Speaker 1: a conductor, you could use that as a way to
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  Speaker 1: amplify an electric signal.
• 9:31
  Speaker 2: You could put a tiny electrical signal in there and
• 9:33
  Speaker 2: it would be boosted by like a hundred times is
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  Speaker 2: the way it works. Yes.
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  Speaker 1: And the dream is it would be, you know, a cheaper,
• 9:39
  Speaker 1: more reliable version of the vacuum tube. So Shockley's working
• 9:43
  Speaker 1: on this in the late 30s. And then Hitler invades Poland.
• 9:48
  Speaker 1: Damn it. World War II comes along, and Shockley and
• 9:51
  Speaker 1: every other high-powered nerd in America gets reassigned to go
• 9:55
  Speaker 1: work on the war effort. Side note, I feel like
• 9:58
  Speaker 1: we should do a show or a series sometime of, like,
• 10:01
  Speaker 1: how the nerds beat the Nazis. I feel like there's
• 10:04
  Speaker 1: a lot there.
• 10:04
  Speaker 2: Yeah, yeah.
• 10:05
  Speaker 1: I mean, one obvious one is the first sort of
• 10:07
  Speaker 1: modern style computer was built as part of the war effort.
• 10:11
  Speaker 2: Using vacuum tubes.
• 10:11
  Speaker 1: Using like 18,000 vacuum tubes in a room that was
• 10:15
  Speaker 1: like 1,500 square feet, right?
• 10:16
  Speaker 2: Yeah.
• 10:17
  Speaker 1: Bigger than, you know, your apartment. You know, a million
• 10:20
  Speaker 1: times weaker than an iPhone or whatever. But yes, that
• 10:22
  Speaker 1: was a computer. It was used to calculate the trajectories
• 10:25
  Speaker 1: of artillery, which I love. Shockley, for his part, was
• 10:30
  Speaker 1: working on tactics for Navy convoys to fight subs, which
• 10:35
  Speaker 1: is dear to my heart because my own grandfather was
• 10:38
  Speaker 1: on a Navy convoy in the North Atlantic fighting Nazi subs. Okay,
• 10:42
  Speaker 1: so the nerds beat the Nazis.
• 10:44
  Speaker 2: Good news.
• 10:44
  Speaker 1: Thank you, nerds. And then Shockley goes back to work.
• 10:48
  Speaker 1: trying to figure out a replacement for the vacuum tube.
• 10:51
  Speaker 1: And it is hard to get it to work, right?
• 10:53
  Speaker 1: It's classic leap from theory to practice is quite hard.
• 10:57
  Speaker 1: They can't get it to work. They can't get it
• 10:58
  Speaker 1: to work. But then finally, in November of 1947, two
• 11:05
  Speaker 1: researchers on Shockley's team, they start to figure it out.
• 11:08
  Speaker 1: They have what comes to be called the miracle month.
• 11:12
  Speaker 1: And the next month in December, they get this slab
• 11:15
  Speaker 1: of germanium with a little bit of, like, jerry-rigged foil
• 11:19
  Speaker 1: on it to work, to amplify an electrical signal by
• 11:23
  Speaker 1: a factor of 100. And they call it the transistor.
• 11:28
  Speaker 2: And Shockley, William Shockley, is not throwing them a party,
• 11:33
  Speaker 2: is not entirely psyched. Here, let me read his quote.
• 11:37
  Speaker 2: My elation with the group's success was tempered by not
• 11:40
  Speaker 2: being one of the inventors. I experienced some frustration... that
• 11:45
  Speaker 2: my personal efforts started more than eight years before had
• 11:49
  Speaker 2: not resulted in a significant inventive contribution of my own.
• 11:54
  Speaker 1: Not a lovable guy, Shockley. Not a team player, right? He,
• 11:58
  Speaker 1: in fact, goes to the lawyers at Bell Labs and
• 12:02
  Speaker 1: is like, you guys should put my name on the patent.
• 12:04
  Speaker 1: I know I didn't actually do the work, but come on,
• 12:06
  Speaker 1: it's my team. I've been working on it. The lawyers
• 12:08
  Speaker 1: don't actually agree to do this. They don't do it.
• 12:11
  Speaker 1: And so Shockley goes off in secret And starts working
• 12:16
  Speaker 1: on a better way to make a semiconductor, basically. Take
• 12:19
  Speaker 1: this work and improve upon it. And remember, he is
• 12:21
  Speaker 1: a genius, right? He is a very talented engineer. And
• 12:25
  Speaker 1: so he succeeds.
• 12:26
  Speaker 2: Obviously, we're making fun of Shockley a little bit. But this, like,
• 12:30
  Speaker 2: monomaniacal resentment that he had, and had his entire life,
• 12:35
  Speaker 2: leads to all of these breakthroughs.
• 12:37
  Speaker 1: Yes, well, not only does it lead to these breakthroughs, right?
• 12:40
  Speaker 1: So he's acting like a jerk at Bell Labs. He's
• 12:42
  Speaker 1: acting completely... contrary to the ethos of the place, right?
• 12:46
  Speaker 1: Which is supposed to be everybody comes together. And so
• 12:49
  Speaker 1: once he does this, nobody wants to work with him anymore.
• 12:52
  Speaker 1: He gets passed over. And so he decides, and here's
• 12:56
  Speaker 1: the quote, he decides, the hell with that. I'll go
• 12:59
  Speaker 1: set up my own business. I'll make a million dollars
• 13:01
  Speaker 1: that way. So in 1954, Shockley leaves Bell Labs, leaves
• 13:07
  Speaker 1: New Jersey, moves home to Palo Alto, California.
• 13:10
  Speaker 2: Still remember, Kind of the middle of nowhere.
• 13:12
  Speaker 1: Kind of the middle of nowhere. Still known for its
• 13:15
  Speaker 1: annual prune festival. Although, to be fair, I mean, Hewlett
• 13:19
  Speaker 1: Packard was there by this time. It's a legit company.
• 13:21
  Speaker 1: Stanford was growing. They had just set up their industrial park.
• 13:24
  Speaker 1: But yes, far from the center of the technological action, right?
• 13:28
  Speaker 1: Bell Labs was the center of the tech world. MIT
• 13:31
  Speaker 1: was the center of the tech world. The East Coast
• 13:32
  Speaker 1: was where all the action was, not California. Shockley is
• 13:36
  Speaker 1: moving to Palo Alto because it's home. And two years
• 13:39
  Speaker 1: after he moves home, he starts a company that he
• 13:41
  Speaker 1: calls Shockley Semiconductor with the idea of making transistors ubiquitous.
• 13:48
  Speaker 1: And he writes in his journal something I actually find
• 13:50
  Speaker 1: kind of poignant. He writes, idea of setting world on fire,
• 13:55
  Speaker 1: father proud.
• 13:56
  Speaker 2: We're already seeing the very beginnings of the Silicon Valley ethos, right?
• 14:01
  Speaker 2: The person who doesn't really get along with others, the resentment,
• 14:03
  Speaker 2: you know, the focus, right? But also this other thing
• 14:07
  Speaker 2: that like, I can change the world, the universe.
• 14:10
  Speaker 1: Yes, yes. He is a very smart engineer with a
• 14:14
  Speaker 1: lot of ambition and some tragic flaws, right? And all
• 14:18
  Speaker 1: of those are important in the story and classic Silicon
• 14:21
  Speaker 1: Valley traits. So Shockley gets there. He is, in fact,
• 14:25
  Speaker 1: a visionary. He sees the future and he is right, right?
• 14:28
  Speaker 1: He sees that semiconductors, the transistor, is going to be
• 14:31
  Speaker 1: useful in a lot of ways, not just for the
• 14:33
  Speaker 1: phone company, right? Like transistor radio's are starting to be
• 14:37
  Speaker 1: a thing around this time. Hearing aids. It's clearly going
• 14:40
  Speaker 1: to be really important for military applications.
• 14:43
  Speaker 2: Because until this time, anything electronic had to stay in
• 14:46
  Speaker 2: one place. So he's seeing this world where you can
• 14:50
  Speaker 2: move electronics. Yes.
• 14:51
  Speaker 1: And they won't break.
• 14:52
  Speaker 2: Yeah.
• 14:52
  Speaker 1: Miniaturization, right? Things getting smaller. This is a huge theme
• 14:56
  Speaker 1: that is going to be key to the whole 20th century.
• 14:58
  Speaker 2: And I remember in the 1970s, getting a transistor radio,
• 15:00
  Speaker 2: it was so important that they had it in the name.
• 15:03
  Speaker 2: You got a transistor radio that Because people were still like,
• 15:07
  Speaker 2: I can't believe a radio can be held in my hand.
• 15:10
  Speaker 1: Robert Smith, am I right that you actually bought a
• 15:13
  Speaker 1: transistor radio a year ago or something?
• 15:16
  Speaker 2: I bought 10 of them for my students. Just so
• 15:18
  Speaker 2: they could see what it was like. They could move
• 15:20
  Speaker 2: the dial. And yes, you could still buy them on Amazon.
• 15:22
  Speaker 1: Does it have the pull-out antenna?
• 15:24
  Speaker 2: It does have the pull-out antenna.
• 15:26
  Speaker 1: We had one at home. We used to listen to
• 15:27
  Speaker 1: the baseball game. We used to listen to the Padres
• 15:30
  Speaker 1: games on a transistor radio.
• 15:31
  Speaker 2: I still have one in my shower. I listen to
• 15:33
  Speaker 2: it every morning.
• 15:34
  Speaker 1: I love that. So Shockley has this vision. He is
• 15:37
  Speaker 1: right about the future of the world. He is a
• 15:39
  Speaker 1: genius who has been central to the invention of the transistor.
• 15:44
  Speaker 1: He started his company, and now he needs a team.
• 15:46
  Speaker 1: And so he calls his, you know, engineers from Bell Labs.
• 15:49
  Speaker 1: He's like, hey, let's do this. They're like, no, I
• 15:52
  Speaker 1: know you. There's no way I'm leaving the center of
• 15:54
  Speaker 1: the world to move out to the middle of nowhere
• 15:57
  Speaker 1: to work for you.
• 15:58
  Speaker 2: So he has to find people who don't know him.
• 16:00
  Speaker 1: Who don't know him, but who know of him. That's
• 16:03
  Speaker 1: the sweet spot for him. This is how he finds
• 16:06
  Speaker 1: Robert Noyce, this golden boy engineer we talked about at
• 16:09
  Speaker 1: the beginning of the show, right? Noyce had actually gotten
• 16:12
  Speaker 1: a hold of an early transistor when he was in college,
• 16:15
  Speaker 1: before anybody really, you know, knew what they were. He
• 16:18
  Speaker 1: was really excited about it. And by the time Noyce
• 16:21
  Speaker 1: gets this call, he's working at this second tier electronics
• 16:25
  Speaker 1: company in Philadelphia. And suddenly out of the blue, William Shockley,
• 16:29
  Speaker 1: the great genius, calls him on the phone. And as
• 16:32
  Speaker 1: Noyce said later, It was like he whistled and I came.
• 16:36
  Speaker 1: Shockley is a good spotter of talent. He hires like
• 16:39
  Speaker 1: a dozen, by all accounts, extremely talented engineers, young guys
• 16:43
  Speaker 1: in their 20s. Another key we're going to talk more
• 16:46
  Speaker 1: about is Gordon Moore of Moore's Law. And so they
• 16:50
  Speaker 1: get out to California. And at first, it's great. Noyce
• 16:56
  Speaker 1: and Moore and these other young engineers are living the dream, right?
• 17:00
  Speaker 1: Working hard. for this guy who founded their field, who
• 17:03
  Speaker 1: helped discover the transistor. And he's got this former apricot
• 17:08
  Speaker 1: shed in Mountain View that's the headquarters.
• 17:12
  Speaker 2: Which is probably worth $ 10 million. Yeah.
• 17:14
  Speaker 1: Shockley really is talented, right? He has this breakthrough idea
• 17:19
  Speaker 1: right at the beginning of the company, which is this.
• 17:22
  Speaker 1: The transistors that he'd been working on at Bell Labs
• 17:25
  Speaker 1: were made of germanium. But germanium is hard to work with.
• 17:28
  Speaker 1: It's brittle. stops working at high temperatures. And so he
• 17:33
  Speaker 1: decides to use silicon, of course, another semiconductor.
• 17:36
  Speaker 2: It would have been weird if it were Germanium Valley, right?
• 17:39
  Speaker 1: I like Germanium Valley. They call themselves germies or something.
• 17:43
  Speaker 1: Silicon's cheaper. It's easier to work with. But, you know,
• 17:47
  Speaker 1: it's hard to get things to work. It's hard to
• 17:48
  Speaker 1: produce them economically at scale. It's hard to make hardware.
• 17:51
  Speaker 1: But it's a problem they think they can solve, which
• 17:53
  Speaker 1: is the sweet spot, right? If you're a young, ambitious engineer,
• 17:57
  Speaker 1: it's where you want to be. They all know it's
• 17:58
  Speaker 1: going to be big. this very ambitious thing they're trying. And,
• 18:02
  Speaker 1: you know, every morning at 8 a.m., the team shows
• 18:05
  Speaker 1: up at the headquarters in the former apricot shed. And
• 18:10
  Speaker 1: Shockley conducts what Tom Wolfe, the journalist, calls the arcane
• 18:15
  Speaker 1: symphony of, you know, getting all these engineers to work together.
• 18:19
  Speaker 1: And Shockley apparently had this incredible intuition for engineering and
• 18:24
  Speaker 1: for physics. One of the engineers who worked with him said,
• 18:28
  Speaker 1: His intuition for experiments was so good, it was like
• 18:31
  Speaker 1: he could see individual electrons. He just saw what was
• 18:36
  Speaker 1: going to happen. Isn't that great? Isn't that beautiful?
• 18:38
  Speaker 2: If only he could have seen individual human beings, he
• 18:42
  Speaker 2: would have been much better off. Yes, yes.
• 18:45
  Speaker 1: A classic kind of problem. And soon, this sort of
• 18:48
  Speaker 1: monstrous side of Shockley starts to show itself. He gets paranoid.
• 18:54
  Speaker 1: There's this moment when a secretary cuts her hand on
• 18:57
  Speaker 1: a doorway. There's like a little pin or something sticking
• 18:59
  Speaker 1: out of the doorway. And Shockley becomes convinced that an
• 19:03
  Speaker 1: employee is trying to sabotage the team, demands that everybody
• 19:07
  Speaker 1: take a lie detector test, which they refuse to do.
• 19:12
  Speaker 1: He doesn't get over it, stays paranoid, winds up splitting
• 19:15
  Speaker 1: the engineers into different teams and not telling one team
• 19:18
  Speaker 1: what the other is doing, hiding information, which is like
• 19:22
  Speaker 1: as far as you can get from the dream, from
• 19:24
  Speaker 1: the Arcane Symphony, from Bell Labs, right?
• 19:26
  Speaker 2: And at this point, it's starting to sound like mental illness. Yeah.
• 19:30
  Speaker 1: It really is. Yeah. Something is wrong with William Shockley, right?
• 19:35
  Speaker 1: And around this time, in 1956, he actually wins the
• 19:39
  Speaker 1: Nobel Prize, shares the prize for his work on semiconductors,
• 19:44
  Speaker 1: on transistors, and it only makes him worse. He has
• 19:48
  Speaker 1: this paranoid idea that there were people who were trying
• 19:51
  Speaker 1: to keep him from getting the prize he writes to
• 19:54
  Speaker 1: the Nobel Committee saying like tell me the names of
• 19:57
  Speaker 1: my enemies.
• 19:58
  Speaker 2: After he won the prize.
• 19:59
  Speaker 1: He's won the prize. Like, take the win, William Shockley.
• 20:03
  Speaker 2: Unbelievable.
• 20:04
  Speaker 1: And then he does one more thing. And, you know,
• 20:06
  Speaker 1: you can get away with a lot if you're managing
• 20:08
  Speaker 1: a team of engineers. But there is one thing, if
• 20:11
  Speaker 1: they're ambitious and talented, that you cannot get away with.
• 20:15
  Speaker 1: And that is becoming less ambitious, scaling back the vision.
• 20:20
  Speaker 1: And that is what he does around this time. He
• 20:21
  Speaker 1: decides that rather than making a silicon transistor that can
• 20:26
  Speaker 1: be used for anything, but that's quite hard to make
• 20:29
  Speaker 1: that they haven't really figured out yet. Instead of doing that,
• 20:31
  Speaker 1: he decides that they're going to make something that has
• 20:33
  Speaker 1: a clear, defined, limited use case. And that is a
• 20:38
  Speaker 1: semiconductor that can do mechanical switching in telephone exchanges.
• 20:43
  Speaker 2: Oh, he wants to revolutionize the phone company?
• 20:45
  Speaker 1: Yeah, like Come on, man, right? Like, we came out
• 20:49
  Speaker 1: here to the apricot warehouse to change the world.
• 20:52
  Speaker 2: And you want to make calls clearer. Okay.
• 20:54
  Speaker 1: So this is, like, the last straw for a lot
• 20:57
  Speaker 1: of the young, talented engineers. But remember, this is not
• 21:01
  Speaker 1: an era where if you're, like, a young, talented engineer
• 21:03
  Speaker 1: on the forefront of technology, you can just quit and
• 21:06
  Speaker 1: go do your own thing, right? Like, that doesn't exist yet.
• 21:09
  Speaker 1: You know, sure, Shockley started a company, but he was, like,
• 21:11
  Speaker 1: this very senior guy. He invented the industry. He was
• 21:13
  Speaker 1: about to win the Nobel Prize. And crucially, right, There's
• 21:17
  Speaker 1: no money for them. Nobody's going to give them money.
• 21:21
  Speaker 1: There's no venture capital industry. That is not a thing.
• 21:24
  Speaker 1: So one of these young engineers, a guy named Eugene Kleiner, thinks,
• 21:29
  Speaker 1: who can I call? He thinks, I'll call my dad's
• 21:31
  Speaker 1: stockbroker back in New York.
• 21:32
  Speaker 2: That guy knows money.
• 21:33
  Speaker 1: That guy knows about money. And he calls him. And
• 21:37
  Speaker 1: the broker puts him in touch with another guy at
• 21:39
  Speaker 1: the firm, this 30-year-old Harvard MBA named Arthur Rock.
• 21:44
  Speaker 2: Knowing 30-year-old MBAs, it was almost like they were pushing
• 21:46
  Speaker 2: him off on the young guy. Like, you understand this stuff.
• 21:50
  Speaker 2: Let the young guy handle it. Yeah, I mean, Rock
• 21:52
  Speaker 2: did like.
• 21:52
  Speaker 1: You know, kind of more interesting, more risky ventures. And
• 21:55
  Speaker 1: so Rock and another banker, they fly out to San
• 21:58
  Speaker 1: Francisco and they meet with Kleiner and Moore and a
• 22:03
  Speaker 1: few other disgruntled young engineers from Shockley Semiconductor. And Rock
• 22:09
  Speaker 1: is talking to them and he's like, well, these guys
• 22:11
  Speaker 1: are smart and I believe that transistors... are going to
• 22:14
  Speaker 1: be a thing. And he's like, look, you guys are smart.
• 22:17
  Speaker 1: You've got the pocket protectors and the thin ties. You
• 22:19
  Speaker 1: see the future. I'm like, I don't want to say
• 22:23
  Speaker 1: you're a bunch of nerds, but like, is there somebody
• 22:26
  Speaker 1: you work with who's like, got some charisma, who walks
• 22:29
  Speaker 1: into a room and people want to follow him? And
• 22:32
  Speaker 1: they're like, yes, yes. As a matter of fact, our buddy,
• 22:35
  Speaker 1: the former Soap opera starred diving champion. With the perfect teeth.
• 22:41
  Speaker 1: With the perfect teeth. He's just chilling back in Palo
• 22:43
  Speaker 1: Alto right now.
• 22:45
  Speaker 2: They thought of Noyce.
• 22:45
  Speaker 1: They thought of Noyce.
• 22:47
  Speaker 2: Noyce.
• 22:48
  Speaker 1: So they go back and they convince Noyce to go
• 22:53
  Speaker 1: talk to Arthur Rock, essentially to join them. And I
• 22:55
  Speaker 1: believe it's the very next day. Noyce goes with these
• 22:59
  Speaker 1: seven other engineers and Rock sees Noyce and he's like, yes,
• 23:03
  Speaker 1: this is the guy we need.
• 23:05
  Speaker 2: I love that the money guys are already like, I
• 23:07
  Speaker 2: need someone who looks like a president of a company.
• 23:10
  Speaker 1: And is a genius, right? Not trivially. And Rock agrees
• 23:13
  Speaker 1: to work with them. And these eight make a pact
• 23:15
  Speaker 1: that if they get the money, if they can, they're
• 23:17
  Speaker 1: going to leave Shockley Semiconductor. And I want to make
• 23:22
  Speaker 1: the case in a slightly overdetermined, but I think fundamentally
• 23:25
  Speaker 1: accurate way, that this moment when these eight engineers and
• 23:30
  Speaker 1: this banker make this agreement. This is the moment when
• 23:35
  Speaker 1: Silicon Valley is born.
• 23:37
  Speaker 2: Not when the first company has started, the Shockley Semiconductors.
• 23:41
  Speaker 2: It's when there's a revolution and they leave to start
• 23:45
  Speaker 2: a second company. And that really is the spirit of
• 23:48
  Speaker 2: Silicon Valley. That's why they're all located in the same place,
• 23:52
  Speaker 2: because they can do this. That's the promise.
• 23:54
  Speaker 1: Yes, you can do it even if you have no
• 23:57
  Speaker 1: intellectual property. No money, no customers, right? Just guts and
• 24:03
  Speaker 1: a dream and some amount of raw talent and a
• 24:05
  Speaker 1: banker who is willing to help you find the money.
• 24:07
  Speaker 2: That's a key part, right? So you have money and
• 24:10
  Speaker 2: ambition and talent. And like that is Silicon Valley.
• 24:14
  Speaker 1: Yes.
• 24:15
  Speaker 2: Love it.
• 24:15
  Speaker 1: Yeah. In fact, these eight guys, they become legends in
• 24:19
  Speaker 1: Silicon Valley and they become known as the traitorous eight
• 24:24
  Speaker 1: because they're, you know, being traitors to Shockley, to Shockley Semiconductor.
• 24:27
  Speaker 1: And I want to just dwell for a sec on
• 24:29
  Speaker 1: that word traitorous, right? Because it is a word that
• 24:32
  Speaker 1: has a very negative connotation as a general matter. A
• 24:35
  Speaker 1: traitor is a bad person.
• 24:36
  Speaker 2: Yes.
• 24:36
  Speaker 1: But in the context of Silicon Valley, it is heroic.
• 24:39
  Speaker 1: These guys are leaving this company because it has a
• 24:42
  Speaker 1: bad boss who lacks vision. They're being traded for the
• 24:45
  Speaker 1: greater good to start this company. And that is the core.
• 24:48
  Speaker 2: They're pirates.
• 24:49
  Speaker 1: They're pirates. Very good.
• 24:51
  Speaker 2: Yeah.
• 24:52
  Speaker 1: Now, at this moment, I believe 1957- This whole thing
• 24:56
  Speaker 1: that we're talking about is not a thing, right? There
• 24:59
  Speaker 1: is not this spirit of doing this. This is not
• 25:01
  Speaker 1: a known thing. There is not an ecosystem of capital
• 25:04
  Speaker 1: ready to support them. And so Rock, the banker, he
• 25:08
  Speaker 1: starts calling around, seeing if there's some company, basically, that
• 25:11
  Speaker 1: wants to support these guys. And everybody says no, because
• 25:15
  Speaker 1: why would they say yes, right? They're like, if we
• 25:18
  Speaker 1: wanted to make semiconductors, we'd just hire a bunch of engineers. Like,
• 25:21
  Speaker 1: why would we give it to some random guys? But
• 25:24
  Speaker 1: after a few months... Somebody tells Rock he should call
• 25:28
  Speaker 1: this guy named Sherman Fairchild. Great name. Interesting guy. Son
• 25:35
  Speaker 1: of one of the founders of IBM.
• 25:38
  Speaker 2: Nepo baby.
• 25:38
  Speaker 1: Nepo baby, but also talented and successful on his own.
• 25:43
  Speaker 1: I guess not on his own. That's the Nepo part.
• 25:45
  Speaker 1: But a talented and successful guy. He got into photography
• 25:48
  Speaker 1: early in his life. started this company Fairchild Camera that
• 25:52
  Speaker 1: wound up making a lot of the like aerial cameras
• 25:55
  Speaker 1: used in World War II. Also loves to take a risk,
• 25:59
  Speaker 1: never got married, loves to spend money, built himself this
• 26:02
  Speaker 1: glass house in Manhattan, goes out to the clubs every night.
• 26:05
  Speaker 1: So really the perfect guy to fund the Trader Sate.
• 26:10
  Speaker 1: So he ends up agreeing to put up $ 1. 5 million.
• 26:14
  Speaker 1: Went a lot farther back then. But, you know, it's
• 26:17
  Speaker 1: not like a start-up like we would know it today,
• 26:19
  Speaker 1: because people didn't make those deals. Instead, what he's creating
• 26:22
  Speaker 1: is this semi-autonomous division of Fairchild Camera. The trader estate
• 26:28
  Speaker 1: will get some equity, but Fairchild will have an option
• 26:33
  Speaker 1: to buy the project, the company, outright for $ 3 million
• 26:37
  Speaker 1: if it succeeds. So they agree to the deal. This
• 26:41
  Speaker 1: is going to be the deal. Now the trader estate
• 26:43
  Speaker 1: are ready to leave Shockley. Now they've got their exit.
• 26:47
  Speaker 1: And on September 8th, 1957, Gordon Moore broke the news
• 26:52
  Speaker 1: to Shockley. And it's interesting because Shockley was clearly paranoid,
• 26:57
  Speaker 1: and yet he didn't see this coming. He was shocked.
• 27:01
  Speaker 1: He staggered out of the room. He felt completely betrayed.
• 27:04
  Speaker 1: And the company, Shockley Semiconductor, it never recovered. It never
• 27:08
  Speaker 1: recovered from these guys leaving. Kind of staggered on for
• 27:10
  Speaker 1: a while, never did anything great. And Shockley himself became
• 27:15
  Speaker 1: a professor of engineering at Stanford And then his story
• 27:18
  Speaker 1: gets kind of more grim, like he gets obsessed with
• 27:21
  Speaker 1: race and IQ and eugenics. It gets kind of bleak.
• 27:25
  Speaker 1: And frankly, that's enough, I think, about Shockley. That's the
• 27:28
  Speaker 1: end of Shockley in our story today.
• 27:30
  Speaker 2: Because the people we care about are the pirates. The
• 27:32
  Speaker 2: eight engineers who left to start something new in 1957
• 27:36
  Speaker 2: are heroes of the Traitorous Eight. And we'll hear more
• 27:39
  Speaker 2: about them after the break.
• 28:07
  Speaker 1: And we're back. Trader Estate have just left Shockley Semiconductor.
• 28:11
  Speaker 1: And on October 1st, 1957, they found Fairchild Semiconductor, a
• 28:18
  Speaker 1: semi-autonomous division of Fairchild Camera and Instrument. Three days after
• 28:23
  Speaker 1: they started the company, the Soviets sent Sputnik into orbit.
• 28:29
  Speaker 2: Amazing. An amazing confluence of events. Amazing, right?
• 28:33
  Speaker 1: I mean, the U.S. is completely surprised by this, right?
• 28:35
  Speaker 1: This is the first satellite to orbit the Earth ever.
• 28:38
  Speaker 1: And it's terrifying for the Americans, right? I mean, you know,
• 28:42
  Speaker 1: America is afraid of the spread of communism. It has
• 28:45
  Speaker 1: gone from the Soviet Union to Eastern Europe to North Korea.
• 28:49
  Speaker 2: To the skies above your home.
• 28:51
  Speaker 1: Literally, it is now flying over your head, right?
• 28:54
  Speaker 2: And they think we need a lot more electronics that
• 28:57
  Speaker 2: are portable and we can put on planes and rockets
• 29:00
  Speaker 2: and satellites of our own. Yes.
• 29:02
  Speaker 1: And to be clear, this is extraordinarily lucky timing for...
• 29:08
  Speaker 1: Noyce and Moore and the rest of the trade restate, right?
• 29:10
  Speaker 1: Like their geniuses, there's a good chance they would have
• 29:12
  Speaker 1: succeeded anyway. But a useful lesson, it is great to
• 29:16
  Speaker 1: have lucky timing in business.
• 29:18
  Speaker 2: And a desperate customer, which was the U.S. government.
• 29:21
  Speaker 1: Yeah, right. There is now suddenly this space race. This
• 29:24
  Speaker 1: is a thing now. The Soviets are winning the race.
• 29:27
  Speaker 1: The U.S. has to catch up. And so, you know,
• 29:29
  Speaker 1: it's like Sputnik went up and billions of dollars in
• 29:32
  Speaker 1: government funding rained down on Fairchild Semiconductor and labs around America.
• 29:38
  Speaker 1: Because you can't fit many vacuum tubes in a satellite,
• 29:43
  Speaker 1: in the nose of a rocket, in, you know, a
• 29:47
  Speaker 1: fighter jet. You know what you can fit a lot of? Transistors.
• 29:51
  Speaker 1: So now there is essentially unlimited demand from the government
• 29:56
  Speaker 1: for Fairchild to build transistors.
• 29:58
  Speaker 2: But they still have to make it work. It is
• 30:01
  Speaker 2: not easy to do. It is a very hard technical
• 30:04
  Speaker 2: problem because it's not just you put some silicon on
• 30:08
  Speaker 2: and put some wires on it. Even a speck of
• 30:11
  Speaker 2: dust on one of these early transistors could short it out,
• 30:15
  Speaker 2: could create a problem. Right.
• 30:16
  Speaker 1: And it's, you know, we think of breakthroughs as binary.
• 30:19
  Speaker 1: It's like, oh, they figured out how to make a
• 30:21
  Speaker 1: silicon chip, done. But production and scale and efficiency are
• 30:26
  Speaker 1: these endless problems, right? And they are extremely inefficient. They
• 30:30
  Speaker 1: have an extremely high failure rate. And so they're trying,
• 30:34
  Speaker 1: trying every day, how can we make this better? How
• 30:36
  Speaker 1: can we make it faster? How can we have fewer
• 30:38
  Speaker 1: of them fail? And to that end, one of the
• 30:43
  Speaker 1: engineers at Fairchild had this idea, and that is, okay,
• 30:47
  Speaker 1: so the fundamental problem is the silicon is super finicky
• 30:50
  Speaker 1: and fragile. What if we protect it by leaving a
• 30:54
  Speaker 1: layer of silicon oxide on top of the chip, and then...
• 30:59
  Speaker 1: We just put little tiny windows in that silicon oxide
• 31:02
  Speaker 1: layer wherever you need to access the silicon directly.
• 31:06
  Speaker 2: It's like painting a house.
• 31:08
  Speaker 1: Sure, right, where the paint is protecting the house and
• 31:10
  Speaker 1: then there's like a window. Is that the metaphor? Okay,
• 31:12
  Speaker 1: I buy it. So he takes this idea to Noyce.
• 31:15
  Speaker 1: And Noyce loves the idea. Noyce has his own metaphor.
• 31:18
  Speaker 1: He says it's like wrapping the silicon in a cocoon,
• 31:21
  Speaker 1: which I like. And he takes the idea to Fairchild's
• 31:24
  Speaker 1: patent lawyer. And the patent lawyer, being a good patent lawyer, says...
• 31:29
  Speaker 1: I love it. Let's patent the hell out of it.
• 31:32
  Speaker 1: Don't just tell me this one use. Spend a few
• 31:35
  Speaker 1: days and think of all the possible uses that we
• 31:38
  Speaker 1: can make of this little idea so that we can
• 31:41
  Speaker 1: build as big a patent moat as possible. So Noyce
• 31:44
  Speaker 1: starts thinking about it, starts talking to Moore, you know,
• 31:47
  Speaker 1: doing stuff on the chalkboard. And he's like, OK, the
• 31:49
  Speaker 1: problem isn't just that the silicon is finicky, right? Like,
• 31:52
  Speaker 1: These little transistors, they're complicated. And on every one, we've
• 31:56
  Speaker 1: got to put like little wires. We actually have to
• 31:58
  Speaker 1: solder by hand wires into every chip. Yeah, because you
• 32:01
  Speaker 1: have to get the signal in there and then you
• 32:03
  Speaker 1: have to pull the amplified signal out. And just imagine
• 32:05
  Speaker 1: just hundreds of little tiny wires, right? And they think, well,
• 32:10
  Speaker 1: wait a minute. What if we can sort of etch
• 32:13
  Speaker 1: this cocoon a little bit?
• 32:15
  Speaker 2: And essentially... Print the wire on top of the silicon
• 32:20
  Speaker 2: oxide on top of the silicon. So basically the wires
• 32:23
  Speaker 2: are in the little thing.
• 32:25
  Speaker 1: Yes, yes. And now that he's got this, he goes
• 32:28
  Speaker 1: even bigger, right? He thinks about an even bigger problem
• 32:32
  Speaker 1: that he and the industry are facing, and that is
• 32:34
  Speaker 1: the uses of transistors are multiplying and getting more complex, right?
• 32:39
  Speaker 1: People are starting to build computers with transistors instead of
• 32:43
  Speaker 1: vacuum tubes, and they have all these little components, right?
• 32:47
  Speaker 1: These complex circuits with not just transistors, but capacitors and resistors.
• 32:53
  Speaker 1: And there can be thousands of connections among the components.
• 32:57
  Speaker 1: And people are wiring them all together by hand for
• 33:01
  Speaker 1: every computer, right? Which is a total nightmare for manufacturing,
• 33:04
  Speaker 1: extremely hard to scale. And so Noyce is thinking about
• 33:07
  Speaker 1: this transistor in a cocoon. And he's like, wait, it
• 33:10
  Speaker 1: doesn't just have to be a transistor and the wire. Like,
• 33:15
  Speaker 1: We could use this idea to put all kinds of
• 33:17
  Speaker 1: things on one piece of silicon, right? Like we could
• 33:20
  Speaker 1: put an entire circuit, all the components on this one
• 33:24
  Speaker 1: piece of silicon. This idea is the integrated circuit. This
• 33:31
  Speaker 1: is Robert Noyce inventing the chip.
• 33:34
  Speaker 2: Love it.
• 33:36
  Speaker 1: He's not the only one. He's not the only one.
• 33:37
  Speaker 1: You know, when there is a technological frontier and a
• 33:40
  Speaker 1: ton of money and lots of smart people working, one
• 33:41
  Speaker 1: of the great things about competition and the world, is
• 33:45
  Speaker 1: lots of people are right at the edge thinking similar thoughts.
• 33:48
  Speaker 1: So as Noyce is doing this, in fact, slightly earlier,
• 33:51
  Speaker 1: a thousand miles away, another engineer, a guy named Jack
• 33:54
  Speaker 1: Kilby at Texas Instruments, is also inventing the chip.
• 33:58
  Speaker 2: Texas Instruments, famous for their calculators. In the 1970s, that
• 34:01
  Speaker 2: to me was high tech, a Texas Instrument calculator.
• 34:04
  Speaker 1: Yes, yes. Also a chip pioneer. And in fact, Kilby
• 34:09
  Speaker 1: came up with the idea just before Noyce, maybe Noyce's
• 34:12
  Speaker 1: idea is a little more elegant. There's, of course, a
• 34:14
  Speaker 1: patent case, Kilby v. Noyce. But in the end, the
• 34:18
  Speaker 1: important thing about this moment in history and this story
• 34:20
  Speaker 1: is the government is going to pay for all the
• 34:23
  Speaker 1: chips everybody can make. There's enough to go around. And
• 34:27
  Speaker 1: Fairchild and Texas Instruments agree to share the intellectual property.
• 34:30
  Speaker 2: Amazing. They decide not to destroy each other. Right.
• 34:33
  Speaker 1: Like in the Cold War. So Fairchild and Texas Instruments
• 34:37
  Speaker 1: are making chips. They're selling them to the government for
• 34:40
  Speaker 1: ballistic missiles, for Apollo rockets. coming along. And, you know,
• 34:46
  Speaker 1: think of this moment, right? This is like peak nerd
• 34:50
  Speaker 1: in a short sleeve buttoned down with the like heavy
• 34:52
  Speaker 1: rimmed glasses doing the space race, right? This is peak
• 34:56
  Speaker 1: military industrial complex. And I think of the chip as
• 35:00
  Speaker 1: the little hyphen between military and industrial. It's like the
• 35:03
  Speaker 1: center of the military industrial complex.
• 35:05
  Speaker 2: Very Tom Wolfe of you.
• 35:07
  Speaker 1: So all this government demand is driving more scale. It's
• 35:13
  Speaker 1: pushing more Fairchild and Texas Instruments to come up with
• 35:17
  Speaker 1: more efficiencies, right? And one key thing they're doing is
• 35:22
  Speaker 1: they're figuring out how to put more and more transistors
• 35:26
  Speaker 1: and other components on each piece of silicon, on each chip,
• 35:30
  Speaker 1: so that it gets more powerful and cheaper. And they're
• 35:34
  Speaker 1: pretty good at doing this. They're pretty good at doing this, right?
• 35:36
  Speaker 1: We know this. The price falls from $ 1, 000 in the
• 35:40
  Speaker 1: late 50s to $ 25 by 1963. And this moment, the mid-60s,
• 35:49
  Speaker 1: is when we come to what I'm going to call
• 35:51
  Speaker 1: the most unlikely great moment in business history that we
• 35:56
  Speaker 1: have yet encountered in the young life of our show.
• 35:58
  Speaker 2: All right, bring it.
• 35:59
  Speaker 1: That is the moment in 1965 when the editors of
• 36:02
  Speaker 1: an electronics trade magazine ask Gordon Moore, one of our
• 36:06
  Speaker 1: Traders 8, to write an article. This is the great moment,
• 36:10
  Speaker 1: writing an article for a trade magazine. This electronics trade
• 36:14
  Speaker 1: magazine is called, wait for it, Electronics.
• 36:17
  Speaker 2: I love when they have a simple title.
• 36:19
  Speaker 1: Business History, a show about the history of business. And
• 36:21
  Speaker 1: Electronics Magazine asks Moore to predict where the integrated circuit
• 36:25
  Speaker 1: business is going to be in 10 years.
• 36:27
  Speaker 2: Could be a puff article. But he actually thinks about it.
• 36:30
  Speaker 1: He thinks about it. He sees that Fairchild and Texas
• 36:33
  Speaker 1: Instruments are have gotten much better at making integrated circuits
• 36:37
  Speaker 1: that they can put more and more components on each
• 36:39
  Speaker 1: little piece of silicon. And he does the math. He
• 36:42
  Speaker 1: actually makes a little graph and he sees that the
• 36:46
  Speaker 1: number of components on each ship has been basically doubling
• 36:49
  Speaker 1: every year. And at the point he's writing this article,
• 36:53
  Speaker 1: there's somewhere around 60 components. So he figures that's likely
• 36:56
  Speaker 1: to continue. And he just extrapolates. He does the math.
• 37:00
  Speaker 1: He extrapolates out his graph, actually makes a little dotted
• 37:02
  Speaker 1: line 10 years out into the future. And he says, OK,
• 37:04
  Speaker 1: we're making 60 or so components on a chip today.
• 37:08
  Speaker 1: In 10 years, it'll be 65,000 components on a chip.
• 37:13
  Speaker 1: The magic of doubling, the magic of compounding.
• 37:16
  Speaker 2: I feel like this is the point in business history
• 37:18
  Speaker 2: where we see what happens when you have exponential growth.
• 37:21
  Speaker 2: Thomas Edison made the light bulb better, of course. Everyone
• 37:24
  Speaker 2: made inventions better, but not doubling every year or two years.
• 37:28
  Speaker 1: No, this is the central fact about the chip, right?
• 37:34
  Speaker 1: And Moore knows it, crucially, right? Crucially, a huge testament
• 37:37
  Speaker 1: to him and his vision. Here, read this paragraph from
• 37:40
  Speaker 1: this article. He knows what this is going to mean.
• 37:42
  Speaker 2: Integrated circuits will lead to such wonders as home computers,
• 37:47
  Speaker 2: or at least terminals connected to a central computer, automatic
• 37:50
  Speaker 2: controls for automobiles, and personal portable communications equipment.
• 37:56
  Speaker 1: Wild science fiction-like claims. 1965.
• 38:01
  Speaker 2: He's writing this.
• 38:02
  Speaker 1: And he's right.
• 38:03
  Speaker 2: He's 100% correct.
• 38:04
  Speaker 1: So this is the birth of Moore's Law, which Moore
• 38:07
  Speaker 1: himself did not call Moore's Law, which is not a law,
• 38:11
  Speaker 1: but which basically was right, right? In 1975, 10 years later,
• 38:17
  Speaker 1: the year he was predicting out to, he went and
• 38:19
  Speaker 1: looked at how things were going. He was pretty close
• 38:21
  Speaker 1: to right. He realized that progress was slowing down a little.
• 38:24
  Speaker 1: He figured doubling two years or so, one of his
• 38:27
  Speaker 1: colleagues was like, no, it's more like 18 months. And
• 38:29
  Speaker 1: so Moore's law was adapted, right? That's what it became.
• 38:33
  Speaker 1: It became the number of essentially transistors eventually on a
• 38:37
  Speaker 1: chip Doubles 18 months. In fact, the rate of increase
• 38:39
  Speaker 1: has started to slow in the past decade or so.
• 38:41
  Speaker 2: It's reaching the limit of physics itself.
• 38:44
  Speaker 1: Right. There's like, you're at like weird quantum things are
• 38:46
  Speaker 1: happening with the atoms, right? Jensen Wong from NVIDIA basically
• 38:49
  Speaker 1: said Moore's law is dead. Maybe, maybe not. But the
• 38:53
  Speaker 1: key thing here is this doubling and doubling and doubling
• 38:57
  Speaker 1: over many decades that Moore predicted from, you know, 60
• 39:00
  Speaker 1: or so components on a chip to billions of Of
• 39:05
  Speaker 1: transistors on today's chips. Like, this was, I think clearly, right,
• 39:10
  Speaker 1: certainly the most important business trend of the last hundred years.
• 39:14
  Speaker 1: It enabled, obviously, the computing revolution, cell phones, the internet, AI. Like,
• 39:18
  Speaker 1: these key drivers of our world come out of Moore's Law.
• 39:22
  Speaker 2: And if you understood Moore's Law, then you could predict...
• 39:27
  Speaker 2: what something could do in 18 months, in three years,
• 39:30
  Speaker 2: in five years, in 10 years. You could start to
• 39:33
  Speaker 2: invent things that literally were not possible today, knowing that
• 39:37
  Speaker 2: the chips will be there when you finish in a
• 39:40
  Speaker 2: year or two.
• 39:41
  Speaker 1: Yeah. You see smart entrepreneurs catching onto this and doing this. Like,
• 39:45
  Speaker 1: I mean, the example that comes to my mind is Netflix, right?
• 39:48
  Speaker 1: Which started out as DVDs by mail, which was a
• 39:52
  Speaker 1: great service, but they did not call themselves DVDs by mail,
• 39:56
  Speaker 1: even though when they started Most people didn't have broadband.
• 39:59
  Speaker 1: Streaming video was not a thing. But they knew that
• 40:01
  Speaker 1: because of Moore's Law, it was going to be a thing.
• 40:04
  Speaker 1: They knew that would happen, and they planned around it,
• 40:08
  Speaker 1: and it happened. And Gordon Moore basically.
• 40:11
  Speaker 2: Saw it coming.
• 40:12
  Speaker 1: But, interestingly, around the time he wrote that famous piece,
• 40:16
  Speaker 1: around 1965, Moore and Noyce, our golden boy, were starting
• 40:22
  Speaker 1: to get restless again. You know, they like to shake
• 40:25
  Speaker 1: it up, these guys. They're fundamentally kind of nerd pirates.
• 40:28
  Speaker 1: And they are about to make one more big move
• 40:32
  Speaker 1: after the break. That was the break.
• 40:58
  Speaker 2: And now we're back. The story of Silicon Valley.
• 41:02
  Speaker 1: So Sherman Fairchild at Fairchild Camera and Instrument, remember our
• 41:08
  Speaker 1: investor in Fairchild, he had exercised his option to buy
• 41:13
  Speaker 1: Fairchild Semiconductor outright in 1959.
• 41:16
  Speaker 2: Very shrewd man.
• 41:17
  Speaker 1: Shrewd man. Noyce and Moore and the others kept working there.
• 41:21
  Speaker 1: You know, they got some money. They kept working there,
• 41:23
  Speaker 1: kept figuring out how to put more components on a chip.
• 41:25
  Speaker 1: selling all they could make to NASA and the military.
• 41:29
  Speaker 1: But Noyce and Moore start to get this feeling that
• 41:32
  Speaker 1: would really become a classic feeling among Silicon Valley founders
• 41:36
  Speaker 1: who have sold their companies, right? They got a bunch
• 41:39
  Speaker 1: of money.
• 41:40
  Speaker 2: Great.
• 41:41
  Speaker 1: They weren't really in it for the money, right? What
• 41:43
  Speaker 1: they wanted was to be doing big, important work. They
• 41:46
  Speaker 1: wanted that feeling of, you know, being free out there
• 41:49
  Speaker 1: on the technological frontier like nerd cowboy.
• 41:52
  Speaker 2: Yeah, inventing the chip is great. Putting more things on
• 41:55
  Speaker 2: the chip is great. But then it's just scale. It's
• 41:58
  Speaker 2: going from 100 components to 1,000 components to 65,000 components.
• 42:01
  Speaker 1: And even that might be fun if you're, like, doing
• 42:04
  Speaker 1: it on your own, right? Yeah. The problem for them
• 42:06
  Speaker 1: was they weren't, right? They were no longer pirates, like
• 42:10
  Speaker 1: you said.
• 42:10
  Speaker 2: They were.
• 42:11
  Speaker 1: middle managers at a division of Fairchild Camera, right?
• 42:15
  Speaker 2: They were going to be the next Bell Labs.
• 42:17
  Speaker 1: Yeah, yeah. No, now they're working for a company that
• 42:19
  Speaker 1: makes movie cameras and stamp machines. And they're like, hey, listen...
• 42:24
  Speaker 1: We're going to give stock options to the engineers. And
• 42:26
  Speaker 1: the company in New York is like, no, you're not. Why? Yeah, why?
• 42:30
  Speaker 1: And they're like, okay, but at least we're going to
• 42:32
  Speaker 1: take our profit and put it back into development, right?
• 42:35
  Speaker 1: Because things are going so fast. Why?
• 42:37
  Speaker 2: Your business, you produce money for the investors.
• 42:39
  Speaker 1: Yeah, like the point is to make money for the shareholders.
• 42:41
  Speaker 1: Just be quiet and keep making chips.
• 42:44
  Speaker 2: It's so funny, still a 1950s view of what a
• 42:46
  Speaker 2: business was.
• 42:47
  Speaker 1: Yeah, that's right. This very kind of man in the
• 42:50
  Speaker 1: gray flannel suit corporation.
• 42:51
  Speaker 2: Yeah.
• 42:52
  Speaker 1: And so Noyce and Moore don't like this. In 1968,
• 42:56
  Speaker 1: they go back to Arthur Rock, the banker who had
• 43:01
  Speaker 1: helped them get set up with Fairchild about a decade earlier.
• 43:05
  Speaker 1: And crucially, the world is really different now, in large
• 43:10
  Speaker 1: part because of the work that these guys have done, right? Rock,
• 43:14
  Speaker 1: over this time, had gotten into this idea of connecting
• 43:16
  Speaker 1: East Coast capital with these, you know, new companies out
• 43:20
  Speaker 1: on the West Coast. And he'd kind of built on
• 43:23
  Speaker 1: this old tradition that like old money East Coast families had,
• 43:26
  Speaker 1: where like with a little bit of the money on
• 43:29
  Speaker 1: the side, they would sort of play around with what
• 43:31
  Speaker 1: they called adventure capital.
• 43:34
  Speaker 2: Adventure capital, yes.
• 43:35
  Speaker 1: Right. It's just a little too, can you just tighten
• 43:38
  Speaker 1: that up a little bit? Just a little bit.
• 43:39
  Speaker 2: Right.
• 43:40
  Speaker 1: So, you know, around this time, Rock and a few
• 43:44
  Speaker 1: other finance types are creating venture capital, right? This is happening.
• 43:49
  Speaker 1: It's going from being a rich man's hobby to into
• 43:51
  Speaker 1: a more formal part of the financial system. And so remember,
• 43:55
  Speaker 1: the first time Noyce and Moore went to rock, it
• 43:58
  Speaker 1: took him months to find the money. And in part, well,
• 44:03
  Speaker 1: obviously in part because Noyce and Moore are way more
• 44:05
  Speaker 1: legit now and they've made the success at Fairchild, but
• 44:07
  Speaker 1: also because finance and capital allocation has developed and venture
• 44:10
  Speaker 1: capital is becoming a thing. Instead of two months this time,
• 44:14
  Speaker 1: he raises the money in two days.
• 44:16
  Speaker 2: And remember, this is 1968, right? So the entire... culture
• 44:22
  Speaker 2: of the United States has sort of shifted to the
• 44:24
  Speaker 2: West Coast, not just in terms of technology, but in
• 44:26
  Speaker 2: terms of music and fashion and lifestyle, right? And there's
• 44:31
  Speaker 2: this excitement out there, finally. It's not just farm fields.
• 44:34
  Speaker 2: It's people doing amazing, weird stuff. And I picture these,
• 44:38
  Speaker 2: you know, stuffy, rich people on the East Coast going, hmm,
• 44:42
  Speaker 2: how do we get a little bit involved in what
• 44:44
  Speaker 2: the kids are doing out there on the coast?
• 44:46
  Speaker 1: So that's why they raised the money in two days
• 44:48
  Speaker 1: this time. And, you know, the core idea is still
• 44:50
  Speaker 1: this breakthrough that they've had at Fairchild, right? It is
• 44:53
  Speaker 1: the integrated circuit. It is integrated electronics. They know this
• 44:58
  Speaker 1: is going to be huge. And so they're founding their company.
• 45:01
  Speaker 1: It's 1968. And they're like, what if we call it
• 45:04
  Speaker 1: integrated electronics?
• 45:05
  Speaker 2: Very nice. Very little nerdy.
• 45:07
  Speaker 1: A little long.
• 45:08
  Speaker 2: Do it.
• 45:09
  Speaker 1: Intel.
• 45:10
  Speaker 2: Intel. Beautiful.
• 45:12
  Speaker 1: So they create Intel, right? They create Intel. And now,
• 45:15
  Speaker 1: crucially this time, there's no East Coast camera company that
• 45:18
  Speaker 1: can tell Noyce and Moore what to do. Now they
• 45:20
  Speaker 1: can build this engineer's paradise they've been dreaming of. And
• 45:24
  Speaker 1: they do. They build a company where all the engineers
• 45:27
  Speaker 1: get stock options, where it's very non-hierarchical, right? No reserved
• 45:30
  Speaker 1: parking spaces, no fancy offices for the boss. Everybody has
• 45:33
  Speaker 1: the same The plain gray aluminum desks. And remind you,
• 45:38
  Speaker 1: this is 55 years ago and all the pieces are
• 45:41
  Speaker 1: in place.
• 45:41
  Speaker 2: Yes. All the things that we think of now as
• 45:43
  Speaker 2: cutting edge Silicon Valley culture, the people going out there
• 45:46
  Speaker 2: now to do AI, right? Yeah. 55 years ago, that's
• 45:49
  Speaker 2: when this got solidified. Yes.
• 45:51
  Speaker 1: And it worked, right? They were like, let's build this company.
• 45:54
  Speaker 1: Let's make it centered on engineers and let's have everybody
• 45:57
  Speaker 1: come in every day and try and invent the future.
• 46:00
  Speaker 1: And they succeed, right? Very quickly, they... have a new
• 46:04
  Speaker 1: technological breakthrough that propels them ahead, and Intel remains the
• 46:09
  Speaker 1: dominant chipmaker in the world for decades to come. And interestingly,
• 46:14
  Speaker 1: it's not just Noyce and Moore. Other members of that
• 46:18
  Speaker 1: original traitorous eight also continue to be these kind of
• 46:23
  Speaker 1: restless pirate types. People actually talk about Fair Children, companies
• 46:28
  Speaker 1: that came out of Fair Childs. One of them started AMD,
• 46:31
  Speaker 1: which today is also one of the biggest chip companies
• 46:34
  Speaker 1: in the world.
• 46:35
  Speaker 2: And they didn't just start companies. They also, because they
• 46:38
  Speaker 2: made money, became the money people themselves.
• 46:41
  Speaker 1: Yeah, yeah. Eugene Kleiner, the guy who called his dad
• 46:43
  Speaker 1: stockbroker when they were originally looking for money, he started
• 46:48
  Speaker 1: a venture capital fund called Kleiner Perkins, which you've probably
• 46:52
  Speaker 1: heard of, because it funded companies like Netscape and Google
• 46:56
  Speaker 1: and Slack.
• 46:57
  Speaker 2: Meaning.
• 46:58
  Speaker 1: that, you know, these original guys, they didn't just start
• 47:01
  Speaker 1: this company. They didn't just create the model. They actually
• 47:03
  Speaker 1: brought the money to fund generations of people who were restless,
• 47:08
  Speaker 1: who wanted to go out on their own and try
• 47:11
  Speaker 1: a new thing.
• 47:11
  Speaker 2: Yeah, if you were a golden boy in the last
• 47:15
  Speaker 2: 55 years, you did not have to work in Philadelphia
• 47:18
  Speaker 2: for an electronics firm. You didn't have to wait for
• 47:20
  Speaker 2: the phone call from anyone, even God, because you knew
• 47:24
  Speaker 2: there was a place that respected your genius and ambition
• 47:28
  Speaker 2: and restlessness, right? And that would overlook whatever personal flaws
• 47:32
  Speaker 2: you might have. There was a place that was on
• 47:35
  Speaker 2: the edge of everything, and it was called Silicon Valley,
• 47:39
  Speaker 2: and you could just go there and make your fortune.
• 47:42
  Speaker 1: Next week on Business History. One more guy from Fairchild
• 47:47
  Speaker 1: was the head of sales, starts his own VC firm,
• 47:51
  Speaker 1: and his very first investment was He's in a company
• 47:54
  Speaker 1: full of stoners that's doing business out of an abandoned
• 47:57
  Speaker 1: roller rink.
• 47:58
  Speaker 2: It's like the apricot shed of the 70s.
• 48:01
  Speaker 1: That company is Atari. And it's the story of the
• 48:04
  Speaker 1: birth of the video game industry.
• 48:06
  Speaker 2: Our producer is Gabriel Hunter Chang. Our engineer is Sarah Bruguier.
• 48:09
  Speaker 2: And our showrunner is Ryan Dilley.
• 48:11
  Speaker 1: I'm Jacob Goldstein.
• 48:12
  Speaker 2: And I'm Robert Smith. We'll be back next week with
• 48:14
  Speaker 2: another episode of Business History.
• 48:17
  Speaker 1: A show about the history.
• 48:19
  Speaker 2: Wait for it. Of business.