In 1957, Eugene Kleiner and seven engineers left Shockley Semiconductor. With a $1.5 million investment, they started Fairchild Semiconductor and became the founders of Silicon Valley.
The “Traitorous 8” built more than one company. Their ideas led to Intel, AMD, and many more, creating a $2 trillion industry. In 1968, Kleiner made a major bet on Intel, founded by two other members of the group. Today, it is the largest semiconductor manufacturer in the world.
Kleiner was not just an engineer. He became a top investor, cofounding Kleiner Perkins, one of the most successful venture capital firms in history. KPCB backed over 350 companies, including Sun Microsystems, Compaq, Amazon, and Google.
He stayed humble, sharing lessons known as “Kleiner’s Laws”—a collection of pragmatic and sometimes culinary wisdom that became Silicon Valley folklore.
Kleiner’s laws
1. Make sure the dog wants to eat the dog food.
The technology may be groundbreaking and the team may be world-class, but if people don’t want to buy the product the company will be a failure. Product-market fit is a fundamental element of any start-up’s success, and some venture capitalists regard it as the controlling variable.
2. Build one business at a time.
Entrepreneurial ambition often outstrips reality. Founders may devote their attention to developing a scattered array of bells and whistles rather than to the core product. The appropriate time for sideshow experiments is once a company has scaled to maturity; in the early years of a company’s life, sustained, precise focus on a singular business mission is vital.
3. The time to take the tarts is when they’re being passed.
Venture capital exhibits a cyclical, seasonal quality. The strategic founder should take advantage of funding when it is available, and not attempt to time funding according to the business’ stage of development.
4. It’s difficult to see the picture when you’re inside the frame.
Boards of Directors and Advisory Boards aren’t a formality, they are a vital source of perspective and feedback on the direction of a business. Kleiner famously quipped that “a good board will give you better advice than your mother.”
5. Even turkeys can fly in a high wind.
In a similar vein, investors should factor in macroeconomic indicators when assessing the value of a company. Tailwinds of irrational exuberance often drive company valuations into artificially high ranges. The intelligent investor understands that few companies can really survive in such thin air.
6. After learning some of the tricks of the trade, some people think they know the trade.
Though entrepreneurs commit this fallacy, venture capitalists are more likely to mistake superficial knowledge for robust understanding. Both founders and financiers should beware dilettantism and make sure they have a deep grasp of the industries they deal with.
7. Venture capitalists will stop at nothing to copy success.
Second-rate investors will often attempt to replicate the strategies of top investors with catastrophic consequences. The winner-take-all dynamics of modern technologies — especially but not exclusively software platforms — mean that it’s usually better to fund companies with first mover advantages.
8. Invest in people, not just products.
To make good dog food, you need a good team. Kleiner famously maintained very close relationships with the founders he invested in, and he was always a source of patient guidance on operational issues. A great company will combine an excellent team, product, and market.
