The Secret Sauce of Successful Startups
Known to many in Silicon Valley as Alex, Sikandar Naqvi attended the Government College of Lahore and studied engineering at the University of Engineering Technology, or UET. Before he could work, he was recruited by the Army to fight in the 1971 war but was let go couple of months into the war. He joined the biggest technical company he knew of, Carrier Telephone Industries (CTI). CTI was a Siemens-T&T joint venture and they made boxes for T&T, Pakistan telephone department.
A few years later, his friends at Pakistan Television Corporation, the state-owned and sole broadcasting television network in those days, hired him to plan the TV network for Pakistan – He was on the team that did a lot of the feasibilities for the booster stations around the country. But that didn’t last for more than a year because he got offered a job with NESPAK at four-times the salary, and he left to begin designing an irrigation control system for the left bank of the Tarbela until a friend came calling.
He was going to America for his Masters and insisted Sikandar should also apply. “He kept insisting, ‘We’ll be back in 18 months’. I filled out a xeroxed copy of the application and he dispatched it to a University in Oregon. Four weeks later, I got the i20 to travel and an acceptance letter. Somehow I gathered the funds and we got on a plane and landed in the US. That’s when everything changed.”
When Sikandar landed in the United States, the original plan was to learn about power systems and go back to apply it in Pakistan. “But we also started taking some courses in Computers and Semiconductors, and the more we studied about semiconductors, the more exciting it got. So if you have a Masters in semiconductors what do you do in Pakistan? Even today, such qualifications don’t have a lot of scope there, and we’re talking about the landscape 30 years ago. That became the turning point. He began working in Silicon Valley with National Semiconductor, now a part of Texas Instruments. “I had no plans to live in the US.”
Sikandar Naqvi arrived in Oregon with a suitcase and figured out the rest as he went along.
At the time when Sikandar came to Oregon State, at the Masters level you have the choice of a thesis or an 8-hour exam. “When my examination result came out, they had to change the scale because I had broken it. I was at least 90 marks above the highest score they had ever had and that encouraged them to accept more students from Pakistan. At one time, I think we had as many as 30 plus students, which was a huge number! Our foundation of education in Pakistan was so good, we broke records here.” That was a surprise to everyone, including Sikandar.
Sikandar comes from a family of 9 siblings where all his brothers were civil engineers and sisters were teachers, and he laughs at how he chose his field. “In Pakistan there were only two choices: you either become an engineer or a doctor and initially, the idea was to become a doctor until I dissected a frog in my high school and that was it. But I would be lying if I said I had an aptitude for engineering. It was simply the only option I could choose.” Even today, including his own children, he has 36 nieces and nephews and most have either completed their Masters or PhDs. So the culture continues.
In the 1960s and 70s, Pakistan was a very different country than the one it is today. “Those of who are in the US still dream of that same Pakistan. In many ways we are probably more frustrated about the situation than the average Pakistani because we did not see the gradual transformation of the deteriorated place it has become. When I visit, the direction and rate at which I see change happening is disappointing.”
“Progress occurred at a slow pace but at least there was semblance of progress .”Many expatriates compare today’s situation with the resilience of a people way back in those days. “If we could be so progressive back then, why not now?” And that’s a tougher question to answer when you add the fact that the same Pakistanis who came to Silicon Valley have done so incredibly well, why couldn’t the same people and progress be retained and nurtured back home?
Sikandar recalls back in the 90’s when he went on a recruiting drive to Pakistan, because there was a shortage of software engineers for his company in the US, and hired 20. “They had no prior exposure and became my best employees within 6 months. And this was just a small sample of what a large chunk of the population is capable of doing. Many of these guys are still working at blue chip companies in the Silicon Valley.”
How did Sikandar find talent in Pakistan for technology that they had never been exposed to? “Of course I needed engineers who were willing to adjust in a new place, which by itself is a motivation. They understood that having a chance to come to Silicon Valley on a work visa could be life-changing; those who were willing to take the risk were the ones who stood out. That motivation within itself was the differentiator.” The motivation that Sikandar refers to is not far from the motivation to take a leap of faith – whether to work in a new job or establish a startup, the motivation is always the differentiator.
The Beginning of Startups
It was 1977 when Sikandar joined National Semi Conductor but quickly realized that he needed to look for a company that was more challenging. He found an opportunity and joined Intel within a year. In 1978, while there was no guarantee that Intel would grow to be a leader, Sikandar liked the vibe he got from the work he was doing.
“I honestly think my life would have been significantly different if I hadn’t made the decision to join Intel when I did.” Almost 6 years later, a friend who had left Intel, Gordon Campbell, was starting up a company and contacted me to join him. “Everyone I conferred with, including my wife, thought I was crazy, but I kept thinking, ‘what’s the harm? If I don’t try, I will never know and if it doesn’t work out, I can always go back to Intel’. In 1985 Sikandar joined Chips and Technologies, perhaps the first fabless semiconductor companies, a model developed by Gordon Campbell.
The company did well and even now, stands as one of the fastest growing semiconductor companies in the whole Silicon Valley. Sikandar became Vice President of the business unit for building semiconductors that would change technology. Chips and Technology went public in a record 18 months and was acquired by Intel. Despite not knowing anything about startups or stock options, Sikandar had never imagined doing so well and having his efforts be rewarded. “I’m sure if I hadn’t taken the risk to leave Intel, I would have probably still been working behind a desk. Here, I had an incredible opportunity to work at a company that had just been set up and become Intel’s competition. After this, startups became an addiction.”
After acquisition, Sikandar joined Mylex as Vice President. The CEO, Akram Chowdry had acquired Mylex after his own high-tech startup, and had been after Sikandar to join him since he was a Chips and Technologies’ customer. The agreement they had was Sikandar would run the business and Dr. Chowdry would remain the CEO.
Mylex needed some serious re-engineering. The company was already public and losing $4 million each quarter and their stock was at 50 cents. “I joined and changed the entire product line, strategy, laid off almost half the staff, hired different talent and over the next 4 years, we increased the stock price to the extent that IBM made a bid to acquire Mylex for about $500 million”. Dr. Chowdry retired and Sikandar went looking for what he should do next.
Startups are fresh. A company like Mylex that had much baggage, is very difficult to revamp without extremely drastic measures that can backfire. “But it was still a very good experience for me.” So after running two startups and running an insane schedule, Sikandar and his wife had two kids, and his family encouraged him to join a big company. As exciting as a startup is, it’s extremely high pressure on the family support system. “I didn’t want to, but with the family growing, joining a company was the only way I would keep decent hours.”
He got the opportunity to startup a new business unit at a large company called IDT, and they managed to generate some serious revenue because of it, but after a few months it became obvious that IDT was not ready to incubate a startup culture within it. Three years later, Sikandar left.
Insights into Addiction 101
Startups are about applying technology to an unmet need and making a business out of that. “The startups I was working in were doing things that had never been done before, which makes it even more exciting.” Each time you push the boundary of what can be done and either meet the need or create a need such that people wonder what they did before your innovation. Everything is based on trend forecasting and predicting what the future will be.
“At Chips and Technologies, we competed with Intel by creating chips in a more economical manner. Enabling other companies like Toshiba, Compaq and NEC and others who were competing with IBM in a big way, to build more affordable PCs.” The impact you make will have a ripple effect that makes for a collective benefit, which is what the objective of technology and innovation is in the first place.
“Believing in your idea and your plan has a big role to play in the success of your startup.” When Chips and Technologies first started fundraising, they were unable to get even one VC interested. “They thought we were crazy people who were trying to take on IBM. And it didn’t make sense to them that we just wanted to create components that would enable other people to take on IBM. We got our first investment from a bank in Japan and a real estate tycoon who wanted to see where we were headed.” They raised less than $5 million, but after 18 months, when the products started to ship, they were quite literally swimming in money.
Young startups need to understand that there is always a work around. “Even with less money, we still had to realize our vision, so if component manufacturing costs were high in the US, we outsourced. Chips and Technologies enabled ‘Taiwan-Inc.’, and the older engineers there will validate that. Taiwan had smaller companies who moved very fast and with the support of their government, they uplifted the entire economy.
But one of the biggest lessons Sikandar shares about running a company is the fact that you have to network in the industry. “Networking is very important. If people don’t interact with you, customers or peers, your brand will never have any traction.”
Find the best people based on merit. “The Valley is driven by a strong workforce that is non-white and they are successful in this environment because the ecosystem is not biased towards nationality or skin color. “And because there are so many engineers who come from Pakistan, India and Taiwan, many also go back and take a little bit of the Valley culture back with them to create companies and become the catalysts driving those companies.”
Onwards to a Startup
A friend of Sikandar’s was setting up Marvell and offered to have him join as vice president Marketing and Business Development. Until this point in time, CMOS was only applicable to digital circuits while bipolar technology, which was more expensive and less reliable, was used to design analog circuits. Marvell was working on introducing an innovation in chip design: they were applying CMOS to Analog designs and in 1997, they were the first company to do so. 15 years later, developing analog circuits using CMOS had become the industry standard and today, Marvell Semiconductor is a multi-billion dollar company.
With the experience of startups and his contributions at Marvell, Sikandar felt it was time to leap into his own startup and he setup Luminous Networks in late 1998. The idea was simple: as the internet speeds become faster, there needed to be a more efficient way to deliver data packets from a device to its corresponding switching station, across the network and through the rest of the world. Luminous Networks came up with a new technology that solved this problem and they introduced Resilient Packet Ring into the market.
“I had some 12 PhD graduates from Stanford and MIT who had written various theses in this area but without any practical application. Collectively we developed the idea, added the practical application and got funded quickly. I had recruited 20 engineers from Pakistan for this startup.”
It took Luminous three years to get the product into the market and despite the fact that the Internet bubble was beginning to burst, customers were still taking an interest… and then 9/11 happened. “All telecom service providers along with three-fourths of our customers, all froze their budgets. Luckily we had raised about $200 million but had no customers.” Using his experience in making things work, Sikandar looked to China.
“It took 3 more years to set up the infrastructure and revenues started trickling in. China was a very nascent market and we were only able to generate $50-60 million in annual revenues. We needed $200 million to survive and we couldn’t survive.” By 2006, they had to sell the assets to Cisco and shut down.
Six and a half years spent setting up the startup and nothing to show for it in in terms of business or investor returns. “But the learning experience was phenomenal. With the benefit of hindsight, there are perhaps many things I could have done differently, but the timing of both the Dotcom crash and 9/11 didn’t give us much of a fighting chance.”
But he was set to come back with a vengeance. A startup is usually established by two kinds of people: one who develops the idea, the vision and manages the team while the other builds the idea and executes it. That’s the combination that co-founded Sikandar’s present startup, SandForce.”
The idea behind SandForce, again, was solving a problem and leading the market towards the new trend. “The idea was to use Flash technology to build storage. The challenge was that Flash technology is very expensive and didn’t start off being very reliable. But if we could solve the problem, the flash storage would run 100 or even a thousand times faster than what was available in the market with hard disc drives.”
Very simply put, SandForce increased the reliability of the Flash drive from just being durable for 10 days and making it last upto 5 years using complex design algorithms. “We raised money in less than 3 weeks though every VC we went to told us this: if we can deliver, we have a goldmine, and even though they invested in us, they didn’t believe we could. The problem was so complex, nobody had been able to solve it.” The company did very well and within four years of inception, SandForce was acquired by LSI Logic for about $400 million in 2010.
So, the successful secret sauce is, build a core technology and develop a market for the technology. When the volume builds and revenues start coming in, either get acquired or go public through an IPO “Initial Public Offering”. “The rule of thumb with a semiconductor company is, if you can make it successful in 4 years with $50-60m of capital investment, you’ve done a good job.”
As for the future, Sikandar thinks there is still a lot of potential to make Flash technology more economical and powerful than it is today. “Storage will continue to be a very competitive and exciting space where it’s all about increasing performance and affordability. And the industry will continue to thrive with innovation as Internet becomes faster and more content-rich.”
But without people to power ideas, countries will be left behind. “Innovation is run by people who constantly question the norm, and people who build things. Today, even India doesn’t have as many hardware engineers as China and Taiwan. I remember a company we were outsourcing with in Islamabad, Palmchip, needed 50 hardware engineers. Despite serious efforts to hire them in Islamabad, they were unable to find more than 10 or so.”
Today, China produces about 400,00 engineers every year; India about 250,000 engineers every year, U.S.A. about 250,000 engineers per year, and Pakistan produces less than 10,000 per year. “At the end of the day, you need workforce. We will all keep coming up with ideas, but we need to put people behind those ideas to make them real. “
Sikandar’s situation when he landed in the US is almost symbolic when you see how far he has come. He came to the US with a suitcase and a plan to return back to Pakistan in 18 months. He shed the plan and forged ahead with a passion to excel in areas of technology that were still being weaved into the fabric of the world as we know it today. He took risks and made decisions with the belief that the worst thing that could happen was failure and after everything he has been through, it has not been all that bad.