Imagine: How Creativity Works

  While this vertical system made it easier for Route 128 companies to protect their intellectual property, it also made them far less innovative. This is because the creativity of an urban area depends upon its ability to encourage the free fl ow of information — we need that knowledge spillover — as all those people in the same Zip Code exchange ideas and work together. But this didn’t happen around Route 128. Although the Boston area had a density of talent, the talent couldn’t interact — each firm was a private island. The end result was a stifling of innovation.

  The vertical culture of the Boston tech sector existed in stark contrast to the horizontal interactions of Silicon Valley. Because the California firms were small and fledgling, they often had to collaborate on projects and share engineers. This led to the formation of cross-cutting relationships, so that it wasn’t uncommon for a scientist at Cisco to be friends with someone at Oracle, or for a cofounder of Intel to offer management advice to a young executive at Apple. (We saw earlier how these horizontal interactions can trigger moments of insight.) These networks often led to high employee turnover as people jumped from project to project: in the 1980s, the average tenure at a Silicon Valley company was less than two years. (It also helped that noncompete clauses were almost never enforced in California, thus freeing engineers and executives to quickly reenter the job market and work for competitors.) This meant that the industrial system of the San Jose area wasn’t organized around individual firms. Instead, the region was defined by its professional networks, by groups of engineers trading knowledge with one another. Tom Wolfe, in a 1983 profile of Robert Noyce, described the informal “schmoozing” that defined Silicon Valley:

  Every year there was some place, the Wagon Wheel, Chez Yvonne, Rickey’s, the Roundhouse, where members of this esoteric fraternity, the young men and women of the semiconductor industry, would head after work to have a drink and gossip and brag and trade war stories about phase jitters, phantom circuits, bubble memories, pulse trains, bounceless contacts, burst modes, leapfrog tests, p-n junctions, sleeping-sickness modes, slow-death episodes, RAMs, NAKs, MOSes, PCMs, PROMs, PROM blowers, PROM burners, PROM blasters, and teramagnitudes, meaning multiples of a million millions.

  These casual exchanges — the errant conversations that take place in coffee houses and bars — are an essential engine of innovation. While Jane Jacobs might have frowned upon the sprawl of these California suburbs, the engineers have managed to create their own version of Greenwich Village. They don’t bump into one another on the crowded sidewalk or gossip on the stoop of a brownstone. Instead, they meet over beers at the Wagon Wheel, or trade secrets at the Roundhouse. It’s not the ballet of Hudson Street, but it’s still a dance, and it’s the dance that matters.

  The Homebrew Computer Club is a perfect example of the type of socializing that defines Silicon Valley. Founded in the spring of 1975 in a Menlo Park garage, the club began when a few “microcomputer enthusiasts” placed the following invitation on bulletin boards throughout Silicon Valley: Are you building your own computer? If so, you might like to come to a gathering of people with like-minded interests. Exchange information, swap ideas, help work on a project, whatever. Before long, the club outgrew the garage and was moved to an auditorium in the Stanford physics department. Although the meetings were informal, they typically followed the same basic structure. The session would begin with a mapping period that allowed people to shout out questions, speculate on rumors, and share their future plans. Then came a presentation featuring a club member discussing a recent invention. Finally, there was the random-access session, in which everyone wandered around the auditorium, networking with strangers.

  This engineering club played an important role in the development of Silicon Valley. According to Steve Wozniak, a cofounder of Apple, the first computers built by the company weren’t designed to be profitable consumer products; they were built to show off at the Homebrew Club: “The machines were meant to bring down [to the club] and put on the table,” Wozniak wrote in his memoir iWoz. “I wanted to impress people. Look at this, it uses very few chips. It’s got a video screen. You can type stuff on it. Personal computer keyboards and video screens were not well established then. Schematics of the Apple I were passed around freely, and I’d even go over to people’s houses and help them build their own.”

  The club was defined by these friendly collaborations, by the horizontal interactions of engineers meeting in their spare time. As Wozniak continued to develop the Apple I, he incorporated feedback from other members. They’d tell him about upcoming microprocessors and help troubleshoot his circuit board. They’d give him advice on working with floppy-disk drives and offer suggestions on negotiating with suppliers. According to Wozniak, the innovations of the first Apple computers depended entirely on this Homebrew culture: “Today it’s pretty obvious that if you’re going to build a billion-dollar product, you have to keep it secret while it’s in development because a million people will try to steal it,” he says. “If we’d been intent on starting a company and selling our product, we’d probably have sat down and said, ‘Well, we have to choose the right microprocessor, the right number of characters on the screen,’ etc. All these decisions were being made by other companies, and our computer would have wound up being like theirs — a big square box with switches and lights, no video terminal built in . . . It would have probably been a big failure.”

  But Wozniak’s machines were different. Instead of designing a machine like those of the Route 128 firms, he transformed the advice of his diverse social network into an inexpensive computer, just a twenty-dollar microprocessor shackled to 256 K of memory. It was still a limited device, but it represented an important breakthrough in usability. And then, in the spring of 1976, Wozniak started talking to another member of the Homebrew Club. This engineer was convinced that the Apple kit could be the foundation for a new kind of computer firm, one that would sell its products directly to consumers. Wozniak, however, wasn’t interested: he had a solid job at Hewlett-Packard and didn’t want to become an entrepreneur. But this pushy engineer refused to take no for an answer. After a few weeks, Wozniak was “worn down” by his arguments. And so, on April 1, 1976, Apple Computer was founded by Steve Wozniak and his friend from the club. His name was Steve Jobs.

  4.

  It’s four in the afternoon and Yossi Vardi is still in his pajamas. We’re meeting at his house, located in the Tel Aviv suburbs on a quiet street near the university. It’s the day after a national holiday, and it’s clear that Vardi has been out late. He apologizes for the yawns and sprawls across his couch, resting his hands on his rotund belly. He looks like he could fall asleep again at any moment.

  I’m here to talk to Vardi about the Israeli technology boom, which is unfolding largely in the suburbs of Tel Aviv. The place feels like Silicon Valley must have felt in the late 1970s, overstuffed with young entrepreneurs toting business plans. On the outskirts of the city, the tomato farms and olive groves are quickly being transformed into generic office parks. Consider the statistics: in 2008, Israel attracted nearly $2 billion in venture-capital (VC) funding; that is, investments made in small companies with high growth potential. (VC funding is widely regarded as one of the best measures of innovation; money chases good ideas.) This means that a country of seven million people attracted as much funding as France and Germany combined. It means that Israel — a tiny sliver of land on the Mediterranean, about the same size as Vermont — has nearly three times the amount of VC funding per capita as the United States and thirty times the average of Western Europe.

  But Israel was not always a tech center dense with successful start-ups. In the 1990s, the country was best known for military hardware and agricultural products; it built advanced radar systems and exported avocados. “There was very little civilian tech investment,” Vardi says. “Nobody talked about Israeli software or microchips or batteries. They talked about drip irrigation.” And yet, by 2009, Israel had more companies listed on NASDAQ
than Canada. Eric Schmidt, the CEO of Google, has said that Israel is the second-best place in the world for entrepreneurs, after the United States. Steve Ballmer, the CEO of Microsoft, has declared that “Microsoft is an Israeli company as much as an American company,” since much of its most important R & D now takes place in Tel Aviv. (The Kinect, for instance, was largely designed by Israeli engineers.) In the last decade, Israel has produced more successful high-tech start-ups than Japan, India, Korea, and the United Kingdom.

  Yossi Vardi is at the center of this boom. He has helped fund more than seventy technology companies in Israel and has taken twelve of them public. (Sergey Brin, the cofounder of Google, once said: “If there is an Internet bubble in Israel, then Vardi is the bubble.” ) Although Vardi has been a fixture in Israeli politics since the mid-1970s, his involvement in the tech sector began in November of 1996, when Vardi and his oldest son, Arik, launched ICQ, the first online chat program for Windows users. “This was all my son’s idea,” Vardi says. “I barely even knew what the Internet was.” Nevertheless, Vardi saw the potential in live chat and decided to fund the start-up. “So we release this program in November, and it starts to spread right away,” he remembers. “After a few months we had a hundred thousand members. And I thought that was amazing. Here was this brand-new tool, with a hundred thousand people using it! But then it just kept on going. By July [1997], we had one million users. September, two million. December, six million. I’d never seen anything like this. And it wouldn’t stop. When we got bigger than the AOL chat program, AOL bought us.” The price tag was more than $400 million.

  In recent years, Vardi has taken a leading role in building the Israeli tech sector, transforming an initial burst of enthusiasm — the sale of ICQ made the front page of every Israeli newspaper — into a genuine Silicon Valley rival. He has started cell phone companies, search engines, social networking sites, and solar-power plants. And yet, as Vardi notes, this success has been achieved despite seemingly impossible odds. Just think of the obstacles: Israel exists on an arid stretch of land surrounded on all sides by hostile neighbors. The nation spends approximately 10 percent of its GDP on defense, which is the highest level among developed nations. It has few natural resources, lurches from war to war, and has absorbed more than 1.5 million immigrants in the last twenty years.

  But Israel has turned all of these drawbacks into assets. Consider the small size of the country in terms of both its land and population. “The tiny scale of this country is extremely important,” Vardi says. “In Israel, the social graph is very simple: everybody knows everybody. And if you don’t know somebody, then they are probably only one degree removed. You can find them very easily.” (It also helps that Israel is the second-densest country in the developed world, with more than 91 percent of people living in urban areas.) The intimacy of Israeli social networks means that ideas circulate at an incredibly fast pace; the knowledge spillovers are nonstop. Just look at Vardi, who insists that he learns about all of his start-ups from casual conversations with other people. “What typically happens is a friend tells me about his friend, who has this interesting idea,” he says. “And so then I talk to some other people, who also think the idea is interesting. And maybe they talk to some other people, and before you know it we’ve got a funding plan. That’s how the process always works.”

  Vardi is referring to a very particular kind of social connection. It’s long been clear that the vast majority of people have somewhere between four and seven close friends, or what sociologists refer to as strong ties. This number is remarkably stable across all cultures and demographics, suggesting that we’re inherently limited when it comes to cultivating deep relationships. After all, there’s only so much time in the day for telephone chats and get-togethers. However, the same uniformity doesn’t apply to weak ties or those people seen only on occasion. The number of weak ties varies dramatically from person to person and can be deeply influenced by culture and place. Some people, like Yossi Vardi, cultivate a vast network of acquaintances; at one point, I watched as Vardi interrupted a cell phone conversation to take a call on his landline and then put both on hold to send a quick email. He attends nearly fifty conferences every year in an array of different subjects and rarely turns down a social invitation. “Most of my day is about making new connections,” Vardi says. “The more the better.”

  At first, it’s easy to dismiss such casual relationships. Why should the number of acquaintances matter? These are people we rarely see; their influence seems insignificant. Nevertheless, weak ties turn out to be an essential ingredient of creativity, which is why those cities that encourage an expanded social circle, such as Tel Aviv and San Jose, are more innovative. Martin Ruef, a sociologist at Princeton, has investigated the importance of these contacts for individual entrepreneurs. He began by interviewing 766 graduates of the Stanford Business School, all of whom had gone on to start their own businesses. Ruef was most interested in the structure of their social networks. He noticed that most entrepreneurs had a relatively limited circle of contacts. They might have plenty of good friends, but all of their friends came from the same place and were interested in the same things. Instead of forming weak ties with people at different companies, they invested in relationships with people who were close by. This isn’t particularly surprising: We all naturally self-segregate, choosing to spend time with people who are just like ourselves. (Sociologists refer to this failing as the self-similarity principle. In 2007, Paul Ingram and Michael Morris conducted a study of business executives at Columbia University. The executives were invited to a cocktail mixer, where they were encouraged to network with new people. Not surprisingly, the vast majority of executives at the event said their primary goal was to meet “as many different as people as possible” and “expand their social network.” Unfortunately, that’s not what happened. By surreptitiously monitoring the participants with electronic devices, Ingram and Morris were able to track every conversation. What they found was that people tended to interact with others who were most like them, so that investment bankers chatted with other investment bankers, and marketers talked with other marketers, and accountants interacted with other accountants. Instead of interacting with new people, the students at the mixer made small talk with those from similar backgrounds; the smallness of their social world got reinforced.)

  But not every entrepreneur had such a confining social network. In fact, Ruef discovered a small subset of businesspeople who cultivated a large number of weak ties and unexpected friendships. Instead of hanging out with colleagues and close friends, these entrepreneurs had social networks that were expansive and diverse, full of surprising interactions and “informational entropy.” (A system has entropy when it’s defined by the presence of disorder — think of a crowded sidewalk.) These businesspeople chatted with acquaintances at conferences and struck up conversations with random strangers at their local coffee places. In other words, they lived like Yossi Vardi, constantly exposed to a wide range of people. (According to Ingram and Morris, the only successful networker at the event was the bartender.)

  Ruef then analyzed each of these entrepreneurs using an elaborate metric of innovation. He measured the number of patents they’d applied for and kept track of all their trademarks. He rated the originality of their products and gave them bonus points if they’d “entered an unexploited niche” or pioneered a new marketing method. He then compared these innovation rankings to the structure of each entrepreneur’s social network. The results were astonishing: businesspeople with entropic networks full of weak ties were three times more innovative than people with small networks of close friends. Instead of getting stuck in the rut of conformity — thinking the same tired thoughts as everyone else — they were able to invent profitable new concepts.

  There is something unsettling about Ruef’s data. We think of entrepreneurs, after all, as creative individuals. If someone has a brilliant idea for a new company, we assume that he or she is inherently more creative tha
n the rest of us. This is why we idolize people like Bill Gates and Richard Branson and Oprah Winfrey. But Ruef’s analysis suggests that this focus on the singular misses the real story of innovation. The most creative ideas, it turns out, don’t occur when we’re alone. Rather, they emerge from our social circles, from collections of acquaintances who inspire novel thoughts. Sometimes, the most important people in life are the people we barely know.

  The unexpected strength of weak ties also helps to explain the Israeli tech boom. As Vardi notes, the connectedness of the country accelerates the pace of innovation: when strangers trade knowledge, new knowledge is created. For instance, after ICQ was purchased by AOL, there was an influx of young graduates into the tech space; everybody was chasing the same lucrative dream. “All of a sudden, it seemed like every kid with even the faintest idea for an Internet company was starting one,” Vardi says. “And even though most of these new ideas weren’t very good, and most of these companies failed very quickly, the competition was great for everybody. There was this big surge of new people, which allowed us to build a high-tech community in a very short period of time. And that meant we could all start learning from each other.” This was the real virtue of ICQ: it transformed a small clump of strong ties into a sprawling network of weak ones.