The last decade has been one of incredible technical tumult. And like an earthquake centered in Silicon Valley, the hundreds of new companies spawned there have added hundreds of billions of dollars to today's thriving economy. Behind at least five of those startups stands Jim Clark, mastermind behind the Geometry Engine chip that brought 3-D graphics-and virtual reality-to the world.
Most of the Valley's venture capitalists saw Clark's new chip as a useless toy, and companies like Apollo Consumer Products Inc., Digital Equipment Corp., Hewlett-Packard Co. and IBM Corp. all turned down the opportunity to license his invention. But Clark managed to attract some of the world's finest technical talent from Bell Labs, HP, MIT, Stanford University and Xerox Corp.'s Palo Alto Research Center because they saw the possibilities in Clark's silicon chip. In 1981, he founded Silicon Graphics Inc. (SGI), and before long, Steven Spielberg and George Lucas were among his first customers.
A dozen or so years later, Clark left Silicon Graphics and called on a team of young programmers at the University of Illinois who had written the popular Internet software tool called Mosaic. Collaborating with Marc Andreessen, Clark cofounded Netscape Communications Corp. to help commercialize the World Wide Web, and the Internet economy was born. Netscape's success was eventually seen as the catalyst for the creation of other companies like At Home Corp., eBay Inc., Excite Inc. and Yahoo Inc.
In 1996, Clark created the ambitious Healtheon Corp., which he hoped to use to tap in to the $1.5 trillion-a-year U.S. heath-care industry. His latest endeavors include Healtheon/WebMD Corp., myCFO, Shutterfly and DNA Sciences, the world's first consumer-focused genetics company that is working to discover treatments for diseases through research on the Human Genome Project.
Clark is full of ideas that change from one moment to the next. Visionary, sailor, self-professed "venture entrepreneur"-such simple labels inadequately describe the man who has successfully guided three companies from inception to IPO with more than $1 billion in market capitalization.
He arguably set off the Internet stock boom by taking Netscape public at an early stage-reputedly so that he could pay for his huge, computer-controlled sailboat. Clark was also one of the early instigators of the government suit against Microsoft, although he has now become a defender of (and investor in) the company. Clark is probably best understood as a one-man adventure story. In The New New Thing (W. W. Norton & Co., 2000), author Michael Lewis paints Clark as someone who leads people into places they would not otherwise have gone, at least not willingly. "Most people don't enjoy making huge gambles on the future," writes Lewis. "They would just as soon have someone else tell them what to do. And that is what Jim Clark did. From the moment Netscape made him a billionaire, he acquired a new form of power: the power of being Jim Clark. Half the engineers in the Valley wanted to work for whatever company he started, on the assumption that if anyone was going to predict the future it was Jim Clark."
The question is now: What will he do next? To find out, Tom Davenport, director of the Andersen Consulting Institute for Strategic Change in Cambridge, Mass., and distinguished scholar in residence at Babson College, caught up with the elusive Clark at his offices in Mountain View, Calif., for this exclusive interview for Darwin.
Tom Davenport: You've fathered a lot of companies. How are your progeny doing?
Jim Clark: I have nothing to do with Silicon Graphics anymore and don't even know what's going on there, so I won't comment on it. Netscape is out of my hands as well. But I think myCFO has a bright future. And I am still a very big believer in Healtheon/WebMD, although the health-care environment is very complicated.
Is the marketplace more complex than you had originally believed?
Much more so. It's very convoluted. And it's tough to make any difference at the level of the consumer. Most people think it's that level where change is really necessary, but you can't really make money over the Internet with consumer health care. People aren't willing to pay for the information. In general, it's difficult to make money with consumer-based network services; very few people have done it.
So you're focused on the business-to-business side of health care?
Mostly on physicians. We're trying to make it easier for them to run their businesses. Through our acquisitions we already do about 90 percent of the Internet-based health-care transactions in the U.S., but that's only about 30 percent of the total. There's a lot of growth possible with the other 70 percent. Also, there are a lot of businesses that would like to reach physicians and other health-care audiences over the Internet, and we think we can play a role in helping them. Overall, I think Healtheon/WebMD will have a major impact, but it will take a while.
I got the feeling from reading Michael Lewis's book that you get bored with the details in the businesses you start. Do the daily details of reforming the U.S. health-care system interest you?
It's a misinterpretation of my life that I get bored easily. It's simply that working out the details isn't my role. It's the CEO's role. If you disagree with the CEO on the direction of the company, that's a big problem. Because of the nature of my personality-I'm very opinionated-when I get involved on a day-to-day basis, I make pronouncements that will undoubtedly conflict with those of the CEO. I learned at Silicon Graphics that the founder has to let the CEO do that job. So in the post-SGI phase of my life, I don't get heavily involved with the companies I start.
Do you think you could be a good day-to-day CEO again?
I could. I did it at Netscape for a while. But I don't want to now, and I have enough money so that I don't have to. It takes a huge amount of commitment, and I've got other things I want to do...sail my boat once a month and live in Florida.
Is the day-to-day role of the CEO as important, for example, as your own?
It's certainly important. But the probability that the CEOs of the companies I've founded would have gone into the businesses on their own is practically nil. I have the initiative. I'm good at starting companies, and I understand the formula for making them successful.
What do you look for in the CEOs you recruit?
A leader. A good manager. Someone who is trusted by others. Someone who is stable and organizationally minded. Someone with experience. Someone who is financially practical. Someone who is comprehensive in scope because CEOs have to be able to understand how all the pieces fit together. Someone who inspires the employees within the organization. But CEOs aren't the only thing that matters. You need a great CFO too.
How would you describe your own role in the companies you founded?
Well, in some ways I'm like a venture capitalist. But there are some differences between me and the average VC. For one, most VCs have not started companies. They just look at business plans. For another, most VCs have never really worked in companies or been a real part of a startup. Some seasoned VCs, like Don Valentine at Sequoia Capital, have seen lots of examples and know what it takes. But the VCs who are just out of business school don't know anything about starting or running a company, and they shouldn't be in the business. They'd be much better off working in companies, say in business development. There are some other differences-VCs use other people's money, and I use my own. They have staff, and I am on my own. Usually I'll bring in some VC participation in my companies, but a lot of it is my own money.
It seems that one big difference would be that you are the instigator-you have the ideas. That isn't usually the role of a venture capitalist.
That's right. At SGI, Healtheon, Netscape and myCFO, I thought of the business. With Shutterfly it really wasn't my idea; I just decided to invest and help out.
I guess one thing you have in common with VCs is that you help find the people to run the company. True?
Yes, but I don't invest in people I don't know. Most of the companies I get involved with are run by people who I've worked with before. VCs couldn't afford to do that-there wouldn't be enough companies like that.
Is there a name for what you do? And do you know of anybody else who does it?
One name might be a venture entrepreneur. I'm not sure anyone else does what I do. But I could only see it in startups.
In a way it seems odd to think of you as a variation on a venture capitalist, since you are well-known for limiting their involvement and their equity in the companies you've founded. Do you think you've been a supporter of the technical and managerial people in your companies at the expense of VCs?
I think I am known as someone who defends the interests of the technical people and makes sure that they get their fair share, and consequently I get approached by many of them when I start a new company. I am a technical guy and I start technically oriented companies, so I tend to need technical people at an early stage. Because they come in early and take a lot of risk, they get rewarded pretty well. Not that the managers don't get rewarded too. But maybe not as much as in some companies.
Do you feel that the senior managers in a lot of the Internet companies receive too much of the equity?
Absolutely. And I won't invest in them if I think the top team is taking too much. I was recently offered a deal in which the top three managers would own half of the company. I said no way am I going to be involved with that kind of equity distribution.
Do you have a pretty good sense of how much equity to give to whom?
More than that, I have a spreadsheet. I've built models that specify a "hierarchy of equity distribution," as I call it. And it works very well.
What do you think the implications are of a broader distribution of equity?
It's not just broader, it was nonexistent before. You didn't see employees below the very highest level of senior management owning stock in Standard Oil or General Motors (Corp.) or Ford (Motor Co.) or General Electric (Co.). But today it's everywhere, at least in Silicon Valley. And there's no going back. It's good for the companies, and it's good for the economy.
Do you think the widespread distribution of stock to employees is inevitable around the world?
This "capitalistic socialism," as I call it, is going to be everywhere. There's no going back. It's at least going to happen anywhere that you have a hard time recruiting employees.
Has the recent decline in technology equities affected your companies much?
Yes, it has. The bloom is off the startup rose. The companies will probably have a much tougher time getting the money they need for later-stage financing. So I may have to decide whether I want to own a bigger piece myself.
You did that with Healtheon, didn't you?
I did, and I will probably do it again with some of these other companies if the valuations are too low.
Do you feel at all responsible for the inflated value of equities for technology companies? After all, you're widely credited with being the first company-at Netscape-to go public before you had any earnings. And Lewis's book suggests that it was because you needed money to buy your boat. Was that true?
Well, it's true that we were among the first to go public without earnings, and it did lead to a wave of companies going public without any earnings. Maybe the boat had a little bit to do with it. But one person can't decide to take a company public by himself. It takes a lot of people. And we needed the money to do battle with Microsoft (Corp.).
Do you feel responsible for the Internet bubble?
We may have been the first to go out so early, but we had solid prospects. We grew from $75 million to $375 million in the year before we went public, and we had positive cash flow in the quarter before we went public. Many of the other companies that did it didn't have our growth and our cash flow, and they shouldn't have gone public. It wasn't our fault that so many other companies adopted the model without the underlying financials. It all got out of hand, but it wasn't because of us.
So what do you think really caused the excessive valuations?
Well, the Internet itself caused it. People started day-trading on the Internet and exchanging stock tips over it, and everything just went wild.
Would you say that the Internet hasn't been good for the economy?
No, of course it's been good for the economy. It's been the major factor in the economy's growth and in the country's productivity improvements. I read this morning in some government statistics that it's been responsible for half of the productivity improvements over the past several years.
I read that too, but I wonder if you can really measure it. For years, economists said that there was no productivity effect from IT. Now they're saying it deserves all the credit. I don't think the measures are very good, and I don't buy this magical turnaround in such a short time.
Well, it's absolutely true. It's because of the Internet. You can just look at how it's helping productivity. Answering customer questions on the Web, for example, is much more efficient than doing it in a call center. It's like the telephone-nobody would say that you could do business today without it.
I just think it's very difficult to measure. There are undoubtedly some positive effects, and judging from the statistics about how people use the Web, I'm sure there are some negative ones as well. It's like telephones-while it would be nuts to get rid of them, there's no doubt that we waste a lot of time on them. And nobody ever did a good job of measuring their productivity impact, either.
The Internet's effect would be a lot easier to measure, because it has been put in place in a much shorter period of time.
Where do you think we are in terms of our economy's transition to the Internet?
I think we're just beginning. There are all these companies that still have antiquated systems built around old IBM computers. And all those will have to be replaced.
Would you put ERP [enterprise resource planning] systems in that category?
I don't think they'll disappear very soon. There's nothing on the Internet that has their functionality.
There may not be today, but there will be.
So what do you think is coming next? Where will you invest your energies in the future?
Well, I am already saturated given the companies I'm involved with, but if I were to do something else it would be in the areas I'm involved with now. I'm working with SmartPipes, an Internet service provider that deals with voice-over-IP [telephone over the Internet] and that unifies IP offerings from multiple communications carriers. I'm also working with DNA Sciences, a biotechnology company.
So your interests are in both Internet-related companies and biotechnology?
A little narrower than that. Anything involved with improving bandwidth, wireless connectivity or services related to them. You can take three words, ubiquity, wireless and bandwidth, and put them in parentheses, and then put them next to services or applications that utilize them. Anything involving the broader dissemination of the Internet will, I think, be big.
Do you think biotechnology is ready to be invested in? You gave a big gift to Stanford University for "bioengineering."
I do think that the whole area of biotechnology and genetics has enormous commercial potential. Companies like Celera Genomics (Inc.) and others are going to be a major force in the economy. The Stanford project is broader than genetics or biotechnology, though. We call it "Bio-X" because it's the combination of biology and a lot of other scientific disciplines-computer science, engineering, physics, chemistry. The center will bring all of these people together. We'll have laboratories with no walls so that there will be no barriers to collaboration. We want to have a physical facility that leads people to share what they're up to with each other.
It sounds as if you believe that universities still have an important role to play in the economy.
They're one of the few places where you get the right combination of talent-in both the young people and the professors who are willing to work with them. Sparks fly in universities that don't fly elsewhere.