THE HISTORY ISSUE
The chief financial officer reinvented compensation.
The CEO ushered in the industrial age.
The venture capitalist opened up the New World.
__MATTHEW BOULTON, Chief Executive Officer __
It's the most oft-told startup tale in the wired world: A genius invents the next big thing but can't commercialize it. His original investors go so deeply into debt trying to support his efforts that they have to declare bankruptcy. Then a savior arrives in the form of a talented manager, a frontman who knows how to both inspire the genius and get his product into the world. At the dawn of the steam age, the geek genius was James Watt, and his savior was the British entrepreneur Matthew Boulton.
Watt would have fit seamlessly into the engineering quads lining Highway 101 in Silicon Valley. He was, as his friend Mary Anne Galton observed, suited to "the contemplative life of a deeply introverted and patiently observant philosopher... his head was generally bent forward or leaning on his hand in meditation; his shoulders stooping, and his chest fallen in; his limbs lank and unmuscular, and his complexion sallow." Boulton was Watt's polar opposite, an urbane CEO who inherited a buckle business from his father and transformed it by designing and building a centralized, vertically integrated factory. In his spare time, Boulton led an informal Birmingham salon called the Lunar Society, which met on the nights of the full moon to discuss scientific advancement. Mostly, Boulton exuded leadership. He was, said Galton, of "tall and noble appearance... he took the lead in conversations, and with a social heart, had a grandiose manner like that arising from position, wealth, and habitual command."
During the 1760s, while Watt toiled away on his "atmospheric" steam engine, a mutual friend introduced him to Boulton, who quickly became eager to invest in Watt's new idea. Steam engines had existed for decades, but they were wasteful contraptions that consumed huge amounts of fuel in exchange for scant horsepower. Based on a design by Thomas Newcomen, these engines used steam to alternately heat and cool a cylinder to drive a piston. Watt's great innovation was to introduce a separate condenser around the cylinder that captured the excess steam, reducing the energy required to drive the piston by as much as three-quarters.
But Watt already had an investor, James Roebuck, who offered Boulton only a manufacturing license, not ownership. Boulton refused the deal. Like any good CEO, he knew what he wanted, and he was willing to wait until the opportunity was right. He also knew how to keep Watt on the hook with sweet talk. "I presumed that your engine would require money," Boulton wrote to Watt in 1769, "and that the best means of keeping up the reputation and doing the invention justice would be to keep the executive part out of the hands of the multitude of empirical engineers who from ignorance, want of experience, and want of necessary convenience would affect its reputation."
Roebuck's management weaknesses soon proved apparent, and he was forced in 1773 to sell his assets. Boulton pounced. With Watt's approval, Boulton, as one of the creditors, claimed Roebuck's piece of the engine patent. He launched an immediate turnaround project. First, he persuaded Watt to standardize plans and parts in order to speed engine production. Then he lined up subcontractors who could supply the materials - foreshadowing the outsourcing movement of the 20th century. By the early 1780s, the Boulton and Watt partnership had turned profitable and gone international.
Watt knew just how valuable Boulton was to the steam engine's success. After Boulton's death, Watt explained why their partnership worked. "His conception of the nature of any invention was quick," Watt wrote in 1809, "and he was not less quick in perceiving the uses to which it implied and the profits which might accrue from it."
__P. T. BARNUM, Vice President, Marketing __
Every product needs a pitchman, someone who understands positioning and spin and consumer trends. And no one understood how to sell better than Phineas Taylor Barnum.
Vaporware was his stock in trade: His first big success came in the 1830s with Joice Heth, a black slave Barnum claimed was the 161-year-old former nurse of George Washington. But Barnum was much more than a confidence man. Born in Bethel, Connecticut, he began his career managing a country store in his hometown, built a lucrative business selling lottery tickets, and later launched a weekly newspaper. When Connecticut outlawed lotteries in 1834 and his income ran thin, he reinvented himself as an impresario.
Barnum was self-taught in all the tricks we associate with modern marketing and public relations. He understood press release journalism before it was born, befriending reporters so he could feed them items for their columns. At times he even skipped the middleman: To promote his Fejee Mermaid, he had accomplices send letters to New York newspapers postmarked from distant cities. Written by Barnum himself, the letters contained genuine local news - along with triumphant stories about the mermaid - and were often published. Barnum was also a shameless master of advertising placement: In a theater inside his museum - which he promoted to the temperance-minded as a teetotaling haven - he sold space on the drop curtain to New York's wine and liquor merchants. "By the 1850s," wrote historian Bluford Adams in his 1997 study of Barnum, "the latest innovations in marketing were commonly known as Barnumisms."
As a victim of several failed startups of his own, Barnum would have easily adjusted to the boom-and-bust cycles of early 21st-century entrepreneurialism. He saw his first wife and two of his four children die, experienced personal bankruptcy in his mid-forties, and had businesses repeatedly destroyed by fire. Inevitably, however, he rebounded from every low point.
In our pop culture memories, Barnum is a huckster, a flimflam artist waiting for the next sucker to be born. It's an image he cultivated through an alter ego named Barnaby Diddleum, the fictional narrator of a tale called The Adventures of an Adventurer. "I was all things to all people," wrote Barnum as Diddleum in 1841, "studying character and playing upon the folly and credulity of mankind." Barnum was fond of comparing himself to the man who would "rather be kicked than not noticed at all" - a philosophy that still lives today on Madison Avenue.
__HENRY OLDENBURG, Vice President, Research and Development __
He never worked in a lab. He never patented an invention. He never felt the rush that comes with discovering something on his own. But Henry Oldenburg was an expert consensus builder, a skilled communicator, and a man who could inspire scientists to high achievement. All of which makes him perhaps the best technology manager who ever lived.
As one of the first secretaries to the Royal Society for the Improvement of Natural Knowledge, Oldenburg was at the vortex of pioneering research in 17th-century Europe. When members of the Royal Society had a discovery to announce, they sent a letter to Oldenburg, who would disseminate the news far and wide in his own missives. In this way, Oldenburg became a flesh-and-blood predecessor of the email Forward button, the host of a borderless, worldwide exchange of public messages among scientists.
Communications across frontiers were often difficult, and censors frequently intercepted mail at the border. But Oldenburg, who had befriended many of Europe's leading intellectuals in his early career as a tutor for the sons of nobles, was able to use his diplomatic contacts to safely ferry mail to international correspondents, including Newton, Spinoza, Boyle, Leibniz, and Leeuwenhoek. In 1665, he began to regularly publish a collection of these letters as thePhilosophical Transactions - making him in essence the founding editor of the first scientific journal.
The son of a university professor, Oldenburg was born sometime between 1615 and 1620 in Bremen, then an independent city-state near the German coast. He was a true globalist, fluent in French, Italian, English, and his native German. Oldenburg's wide-ranging experience was so impressive that in 1653, Bremen, whose seaport economy depended on overseas trade, appointed him envoy to Oliver Cromwell's government in London. His mission: Negotiate protection for local ships from the English navy.
The overseas posting served him well. "This Curious German," wrote Samuel Sorbière, who met Oldenburg in London in 1661, "having ... rubbed his Brains against those of other People, was upon his Return into England entertained as a Person of great Merit." He earned membership in the Royal Society when it was chartered in 1662. There, it was his management skills as much as his science savvy that made him stand out. As secretary, Oldenburg proved adept at brokering disputes between brilliant but difficult researchers. When the crotchety British astronomer Robert Hooke argued with his French counterpart, Adrien Auzout, over the design of telescope lenses, Oldenburg, ever the diplomat, managed to appease both.
Patrick Linstead, a 20th-century successor to Oldenburg as Royal Society secretary, identified the qualification that perhaps best served Oldenburg in his quest to foster new knowledge: "unremitting zeal."
__QUEEN ISABELLA, Venture Capitalist __
As business plans go, this one wasn't particularly compelling: Christopher Columbus wanted to crew out three ships, find a westward sea passage to Asia, and open up a direct trade route. But in the go-go years of the late 1480s, there were dozens of me-too ideas for reaching the Far East by sea. Compared to the success of explorations down the African coast by the Portuguese, Columbus' voyage seemed a long shot. Making matters worse were doubts about the accuracy of his maps. Still, he approached two of the most prominent venture capitalists of the late 15th century, Queen Isabella of Castile and her husband, Ferdinand, the king of Aragon. I need, said Columbus, 2 million maravedis in startup financing. The monarchs convened an investment committee, which rejected Columbus' proposal not once but twice.
Isabella and Ferdinand weren't opposed to laying out big sums for a pet project. About the time that Columbus approached them, for example, they agreed to pay the rulers of Granada 24 million maravedis to clear out of the country. And Isabella, a devout Catholic, was always intrigued by ideas, even bad ones, that might help her spread the faith. (She did, after all, sponsor the Inquisition.)
Isabella's status as senior partner had been sanctified in a marriage contract that dictated Ferdinand would fight for her causes first. Knowing Isabella came from Portuguese royalty, Columbus, a former resident of Lisbon, networked his way into her affections, peppering his Spanish with Portuguese phrases that must have reminded the queen of her childhood. When he schemed to finance his voyage privately, Isabella began paying him stipends in 1486 so he wouldn't take his plan elsewhere.
During the next five years, Isabella's confessor, the bishop Hernando de Talavera, led an ongoing due-diligence investigation, chairing a panel of industry experts who reviewed Columbus' plan. But it was only when Columbus tried to play Isabella against another investor - Charles VIII of France - that she and Ferdinand finally agreed to provide the funding. Talavera concocted a deal to use debt financing to do it, borrowing against the monies raised to pay the Castilian rural militia.
Isabella and Ferdinand grew rich thanks to Columbus' discoveries. A 1494 treaty gave them command of half the New World (Portugal got the other half), and soon conquistadors brought the Aztec and Incan empires under Spanish control. Even so, the monarchs soured on the entrepreneur, casting him aside when the project outgrew him. In 1500, they stripped Columbus of his colonial authority, citing his mistreatment of Native Americans. Their investigator ordered him hauled home from the New World in chains. Today's VCs might be jealous.
__EIICHI SHIBUSAWA, Vice President, Business Development __
In Silicon Valley, the highest accolades go to so-called serial entrepreneurs - men who have launched two, three, even four successful startup companies. So imagine how the Valley would revere Eiichi Shibusawa, the Japanese financier who is linked to more than 500 companies in the late 19th century.
Raised among Japan's elite, Shibusawa was schooled by his merchant father in the basics of business and accounting. In the tradition of biz dev, he spent much of his time on the road. His epiphany came at age 27, when he joined a Japanese delegation to the Paris Universal Exposition. The European tour gave him a firsthand look at Western banking and industry. "The progress of Western civilization is nothing short of amazing," he wrote from France. "Where the momentum of the times will take us is truly beyond man's imagining."
When the ruling shogun was overthrown, Japan began a crash program in economic modernization. The new regime ordered Shibusawa to join the Finance Ministry shortly after he returned home in 1868. But his European tour had convinced him that government alone couldn't improve Japan. In 1873, he resigned and launched Japan's first modern bank, Daiichi Ginko, which was one of the country's earliest publicly owned companies. It used its capital to underwrite commercial loans for startup businesses and served as Shibusawa's home base for the next 40 years.
While Shibusawa isn't renowned for a particular idea or invention, he was a skilled negotiator who refined the art of the deal. Even before joining the finance ministry, he converted a government loan to his home district of Shizuoka into seed capital. Then he pushed the city to make private investments that would generate profits, which in turn could be used to pay back the principal. "Once the leading merchants see how convenient and profitable this arrangement is," he told city fathers, "they'll ... form similar companies of their own."
Like Masayoshi Son, the contemporary Japanese mogul whose company, Softbank, has holdings in dozens of firms, Shibusawa played a role in founding a wide range of startups. Among them: Oji Paper Company, Tokyo Marine Insurance, Tokyo Gas, Tokyo Electric Light, Tokyo Chemical Fertilizer, Shinagawa Glass, and the Ishikawajima Shipyard. He launched cotton-spinning factories and railroads; he helped establish the Tokyo Stock Exchange and Chamber of Commerce.
The secret of Shibusawa's success: As a banker and onetime government official, he had influence over funding and national policy. Talk about taking care of business.
__LOUIS KELSO, Chief Financial Officer __
There were the foosball tables, the dogs in the office, the 18-hour workdays. But nothing defined the dotcom bubble better than stock options.
Today, 84 percent of public high tech companies offer employees options as part of their compensation, according to PricewaterhouseCoopers, though a lot of those options have ended up being worthless pieces of paper. But don't blame Louis Kelso, the man who hatched the scheme to distribute capital to the working class by making stock grants a part of overall salary. Born in 1913, Kelso was a writer, an investment banker, a university professor, and an amateur economist. But his claim to fame is as the father of employee ownership, which set the tone for the option armies of the Internet economy.
Kelso coauthored a series of books and articles in the 1950s and 1960s with the philosopher Mortimer J. Adler. Written during the heart of the Cold War, Kelso and Adler's titles - including The Capitalist Manifesto and The New Capitalists - lobbied for uniting labor and ownership in ways that would defeat Marxism while improving capitalism. One of their obsessions was technology's role in the process. "Capitalism gives maximum encouragement to technological improvements that progressively make the production of wealth more efficient and at the same time transfer more and more of the burden of it from men to machines," the two wrote in 1958.
Over the next two decades, Kelso ran his own San Francisco-based investment bank, where he crafted employee-sponsored buyouts of public companies. Constantly promoting his ideas in books, articles, and speeches, he drew the attention of US senator Russell Long (D-Louisiana), the powerful chair of the Senate Finance Committee in the early 1970s. Long sponsored a 1974 law that made employee stock ownership plans viable by giving companies a tax deduction on stock grants made to employees as part of compensation. Propelled into the limelight, Kelso promoted the value of ESOPs in union halls and boardrooms until his death in 1991. (United Airlines is among the companies whose corporate structure is based on his ideas.)
In his frequent media appearances, Kelso would prove himself a master of another Silicon Valley skill: overheated rhetoric. "The Roman arena was technically a level playing field," Kelso told Bill Moyers in a 1990 television interview for the PBS World of Ideas series. "But on one side were the lions with all the weapons, and on the other the Christians with all the blood. That's not a level playing field. That's a slaughter. And so is putting people into the economy without equipping them with capital, while equipping a tiny handful of people with hundreds and thousands of times more than they can use." Let the gains begin.
