Rocket Science: the Cambridge way

Success breeds success and what we are seeing in Cambridge now is the coming of age of a regional hi-tech cluster that has become one of the best known in the world, ranked alongside those centred on Boston, Massachusetts and Palo Alto, California, writes CSR co-founder, Phil O’Donovan.

Factors that have contributed to this success include a large pool of experienced staff, a culture of entrepreneurship, availability of local risk capital, local business accelerators, a vibrant business community and the attractiveness of the greater Cambridge area. 

Cambridge University has very much played its part with a good number of students and staff becoming company founders. It is, of course, no coincidence that MIT, Harvard and Stanford Universities are, like our own Cambridge University, at the focal point of their own clusters.

Whilst it appears that the existence of a university is necessary for the birth and growth of a cluster it takes decades before growth reaches criticality. Depending upon how you measure them, there are some five hi-tech clusters in the UK out of a total world number of around 30.

The role of tech consultancies

The technical consultancies have acted as a catalyst in the stimulation of Cambridge hi-tech businesses. The oldest technical consultancy company is Cambridge Consultants which was founded in 1960 by three Cambridge graduates and was, until recently, owned by Arthur D. Little, itself founded in 1886. 

Arthur D. Little was the world’s first management consultancy and for many years one of the largest and most diversified consulting companies in the world. Other Cambridge-based technical consultancies include The Technology Partnership (TTP), PA Consulting, Sagentia (formerly Scientific Generics), Cambridge Design Partnership and Plextek. 

A significant and profitable business stream in these technical consulting companies is the design and development of high volume consumer products for global blue-chip clients. Consequently, the consultancies have been instrumental in spinning out product companies including CSR, Xaar and Inca, TTP Com, Sphere Medical and Domino Printing. 

Although the technical consultancies have helped generate a significant proportion of new companies and trained staff who have joined the Cambridge workforce, there are many companies including Abcam and Autonomy, which were founded by individuals on leaving Cambridge University. 

It is interesting to note that staff from pure management consulting companies have not been instrumental in founding new product companies. The Centre for Entrepreneurial Learning (CfEL) at Cambridge University’s Judge Business School has produced a series of interesting charts showing the evolving relationships between companies and people in the Cambridge cluster. (See figure 2).

Hi-tech cluster sustainability

The UK’s knowledge economy is too new for us to know how long hi-tech clusters might survive. Judging by the past (not always a reliable approach) this hi-tech driven economic cycle may well last one hundred years or so. On the other hand, if the speed of acquisition of UK companies by non-UK buyers continues apace then this period might well be much less. 

In the past, clusters developed organically in regions where, for example, coal, steel, ships and pottery were produced. Then clusters were driven by brawn and the availability of raw materials – now the drive comes from brains and computing power. 

Although central government claims that it is able to seed and accelerate the growth of clusters, this is not in the gift of politicians who are driven by short-term exigencies. Regional government, however, may well be be better placed to affect change. 

Growing a cluster to critical mass non-organically is possible and it only takes will, capital and time. One approach to aiding and accelerating the growth of hi-tech clusters has been proposed by Hermann Hauser in his report to government outlining how Fraunhofer Institutes, after the successful German model, could aid the UK economy as well as help cluster growth. [Ref. 1] Each institute would be focused on a specific area of expertise and would be partially funded by government. The institutes would perform research advanced or pre-product development work and would serve industry on both a paid and unpaid basis by undertaking work requiring equipment or expertise that clients do not themselves own. 

The Institute for Manufacturing in the University of Cambridge’s Department of Engineering is an excellent  model of how such Institutes might work.

Challenges to growth

One of the biggest challenges for emerging companies is to grow whilst surviving acquisition by predators – both domestic and foreign, but mostly foreign. Wolfson Microelectronics, a spin-out from Edinburgh University and formerly CSR’s comparable company in the UK, succumbed in April of this year when it was acquired by Cirrus Logic of California. 

Autonomy was acquired in October 2011 by HP  who, after a number of management changes, experienced buyer’s regret; lawyers in the USA will benefit from this deal for a long time. 

The company that has signally demonstrated success and staying power is the Marshall Group of Cambridge which not only remains one of the largest employers in the region but has been in existence for over 100 years. Whilst most mature companies strive to remain independent it continues to be a mystery to me as to why the founders of startups think that being acquired should be a goal in its own right and is a preferred trajectory for investors. I believe that aiming for an early exit demonstrates a paucity of ambition by founders which is quite disappointing.

The power of telecoms

In the 1970s, 80s and 90s the PTTs (Post, Telephone and Telecommunications authorities) of many countries decided to split themselves into their constituent parts including postal services, local telecoms and cellular. 
In the late 1970s, the big three UK manufacturers of telecommunications equipment were STC (part of the global ITT corporation), GEC and Plessey.  These three manufacturers supplied the UK General Post Office and British Commonwealth countries on a buggins’ turn basis. Similarly, France, Sweden and the USA also had their own incumbents. Today, China and other developing countries are producing low-cost equipment which, when taken together with web-based services, will soon change the telecommunications landscape.

The University of Cambridge is playing its part here in educating a generation of engineers from around the world who will return home to help produce the next generation of communications equipment.

In 1978, I made a career choice and joined Standard Telecommunications Laboratory (STL) in Harlow, which was the principal research laboratory of ITT, the second largest telecoms company in the world after AT&T. STL was a powerhouse of telecoms research, having been responsible for the invention of optical fibre communications, pulse code modulation, and the single chip VHF radio pager as well as digital cordless telephony. Unfortunately, in the mid 1980s, ITT decided that there was no future in telecoms and sold its telecoms interests which then passed through a succession of hands resulting in STL’s closure following the demise of the Canadian company, Nortel, in 2009. 

ITT was the world’s largest conglomerate and, besides telecoms, defence and industrial products companies, owned Avis Car Rental, Sheraton Hotels, the Hartford Fire Insurance group and the Rayonier forestry and pulp company. Interestingly, Nokia also had its origins in forestry products before it became the world’s largest mobile phone manufacturer in 1998.

Financial fashion dictates that the day of the conglomerate have passed and the best companies today are rigorously focused. ITT, however, was a successful conglomerate for many years until its British born CEO, Harold S Geneen retired in 1977 after nearly 20 years as CEO. His successor, Rand V. Araskog, steadily sold off parts of the business and the company is now a shadow of its former self. 

Harold Geneen was a larger than life character and was known for his aphorisms, a few of which have lodged in my mind:- 

• “Better a good decision quickly than the best decision too late”
• “You cannot run a business, or anything else, on a theory”
• “You can know a person by the kind of desk he keeps. If the president of a company has a clean desk then it must be the executive vice-president who is doing all the work”

And, my favourite –

• “in business deliver no surprises.” 

During this period, here in the UK, Arnold Weinstock was successfully building the rather more focused GEC.

The birth of CSR

I joined CCL in 1991 and in 1998, James Collier, Glenn Collinson and I co-founded Cambridge Silicon Radio, the fabless semiconductor company, together with six founding engineers. We spun out of CCL in April of the following year. CSR raised $85 million pre-flotation and became the largest global market supplier of Bluetooth chips. CSR plc listed on the London Stock Exchange in March 2004 and became a FTSE 250 company in July of the same year. As a technology start-up, CSR is one of the UK’s great commercial success stories of the past decade. 

I am proud to be a member of the team that grew the company from a startup of nine in 1999 to over 1,000 staff around the world in a highly successful publicly listed company headed by CEO John Hodgson, which delivered $705m in revenue and $154m in pre-tax profit in 2006 when I left to become an angel investor.

The founders spent much time and effort in recruiting John who was British but had spent all his working life with global semiconductor companies following his emigration to the USA in the 1970s. He was a Brit with a British sense of humour but acted like an American: A winning combination.

In the late 1990s, James Collier had been working on CCL-funded lightweight and licence-exempt radio technology. When the Bluetooth standard was announced, he rapidly migrated his technology to the Bluetooth standard which positioned us ahead of the large established semiconductor companies who had not seen the potential of this new radio technology. I approached 12 VCs both in the UK and USA in late 1998 and eight expressed a strong interest in investing in our fledgling company. We delivered our corporate presentation to most of the eight VCs and eliminated those who either wished us to decamp to the USA or who wanted too large a stake in the company. 

Eventually, we received a joint term sheet from Hermann Hauser at Amadeus Capital together with its partner investor, Gilde in Holland, and including 3i in Cambridge in late December 1998. These three VCs were CSR’s first investors and three months later, after having produced a business plan, we spun out of CCL who then became a shareholder in CSR in exchange for the assignment of patents, some licensed patents and goodwill. Ian Vance who had been responsible for the single chip pager and cordless telephony work at STL was employed by the VCs to undertake technical due diligence on CSR.

CSR created, under the technical direction of James Collier, the world’s first Bluetooth device on a single piece of silicon at 2.4GHz (a licence-exempt frequency band) incorporating the XAP processor core, which was licensed from CCL, digital logic and analogue radio frequency electronics – all on one very small piece of silicon. 

CSR’s first product, BlueCore1, was launched at a time when even the established global semiconductor companies did not have design models for silicon that worked at such very high frequencies. CSR, however, was able to design chips at 2.4GHz because James Collier had developed the necessary design models at CCL for use in customer projects. For this world-first development, five of us at CSR were awarded the prestigious Royal Academy of Engineering MacRobert Gold Medal in 2005.

Glenn Collinson brought much to the party as CSR’s first marketing director due to his unusual combination of vision and strong focus. CSR rapidly established headway as the company first to market with a low-cost single chip Bluetooth product. Our BlueCore1 single-chip Bluetooth product won more customers in more product segments than any of our competitors. Before BlueCore1 hit the market I remember that while Glenn Collinson and I were presenting, in 2000, our single chip product plans to a large audience in California, one wag in the audience shouted out that he did not believe that it was possible that CSR could deliver on our promises.

What he actually meant was that his very large sclerotic semiconductor company believed that it would take another three years before they could develop such a product and, in fact, that proved to be the case and they never did manage to achieve any traction in the marketplace! This comment from the audience did not trouble Glenn and I as we knew that James’ test results showed that commercially available silicon worked satisfactorily at 2.4GHz.  I understand that, as a processor core intellectual property licensing company ARM, in its early days, also experienced the same prejudice concerning being headquartered in Cambridge and achieving success as a newcomer in its chosen market.

Fabless and fabulous

The challenge for chip companies is to produce a design with a small silicon footprint, given that silicon is costed in cents per square mm. CSR sells its chips in dollars and delivers its financial results in dollars because this is the common currency of the semiconductor world. James and his team also incorporated significant on-chip testing and re-configuration circuitry into CSR’s products such that the performance and functionality of CSR’s chips met the evolving Bluetooth standard without major redesign.

Delivering the best product is crucial but, as consumer electronics is a game where the prizes go to the swift and first to market, the challenge is also to avoid becoming a bureaucratic, inefficient and slow moving company; characteristics which, like the increase in entropy over time, are part of the natural order and must be continuously combated.

CSR was originally named Cambridge Silicon Radio, a name which for some customers, was difficult to remember and to spell. We needed a shorter and more memorable domain name. A few years after we launched the company, therefore, we managed to beat the Australian ‘Colonial Sugar Refining’ company to the purchase of the CSR.com domain name which was then owned by an ailing company in the USA. 

This acquisition, together with our logo and corporate colour scheme, helped cement our powerful presence in the marketplace. Our strong lean and mean start-up culture had enabled us to develop our branding package over the kitchen table without the need to pay any out-of-the-door cash to branding agencies or corporate designers. 

In the first few years, when staff growth was 100s of percentage points per year, Iain Campbell our HR and recruitment manager, had signed up more than 300 staffing agencies for the supply of CVs and had developed a finely tuned process for sifting the deluge of CVs which came to the company every day. We recruited staff from Cambridge, the wider UK and more than 20 other countries. Our secret of success was that we recruited the best people, trained them well and gave them very interesting work. Our equivalent pay was in the top quartile and we offered options from a well-designed stock option plan. Incidentally, there are a number of founder-led hi-tech companies in Cambridge that still do not offer stock options; this would not be possible in California.  

Concerning ambition and confidence, I remember that when we started CSR, we had difficulty making industry pundits believe that we could create a fabless semiconductor company based in Cambridge UK. For the incumbents in the semiconductor industry, mostly homed in California, setting up a chip company in Cambridge, Massachusetts would have been a step too far, let alone Cambridge UK! 

Cambridge is an excellent city in which to place a fabless company, given that chip design work can comfortably be done in Cambridge and the chips then manufactured in a third-party semiconductor contract fabrication facility (fab) commonly situated in Taiwan or China and then shipped directly to customers around the globe. 

CSR drop-ships its chips from Taiwan stamped with the CSR logo and customers pay CSR which, in turn, pays the fab; that is the fabless semiconductor model. Even the largest and most successful US semiconductor companies who own in-house silicon fabs also use third-party fabs for reasons of load management.

The fabless model – which applies to semiconductors as well as other products –  feeds the UK’s aspiration to foster and grow knowledge-intensive industries whilst allowing manufacturing to be situated off-shore in regions with lower labour costs. This model has also been labelled ‘High Value Manufacturing’ by Justin Hayward of CIR in Cambridge. 

The role of government

Entrepreneurs are sometimes asked what government could do to help; the answer from most entrepreneurs would be, ‘keep out of the way’. It is sometimes a citizen’s duty to help government but do not expect government to help you. Things like housebuilding and science park building take care of themselves.  Infrastructure (roads mostly) has been a sore point and it is not obvious that Cambridge’s success has encouraged investment in regional infrastructure by central government. 

Furthermore, although the UK tax system is sorely in need of reform, there have been some helpful tax incentives including EIS and SEIS relief as well as the one-time tax relief for entrepreneurs. However, the gamechanger for entrepreneurs able and willing to grow $billion companies – namely, the 10 per cent tax taper introduced by Gordon Brown – has long gone largely due to abuse by private equity players in the City of London. 

There continues to be debate concerning the benefits of centrally directed programmes and initiatives. The UK Alvey and CEC RACE and ESPRIT pre-competitive, collaborative projects are fertile ground for universities and consultants but it is less clear how they benefit industry – especially when UK manufacturing industry is becoming more fragmented. 

At STL, I was project manager of the UK Alvey Adaptive Intelligent Dialogues project otherwise known as AID. The project comprised STL, British Telecom, Data Logic and the Universities of Strathclyde (plus the Turing Institute for Artificial Intelligence) and Heriot Watt. One reason that the project was successful was because the company project staff had PhDs and the university professors had worked in industry. We all, therefore, understood each other’s needs and success criteria. International Computers Limited, or ICL, the large British computer hardware, computer software and computer services company, had just been acquired by STC which played to the then current theme of ‘convergence’ and we hoped that our AID work would help create improved human to computer interfaces. Unfortunately, the work was ahead of its time and ICL is now owned by Fujitsu.

The billion dollar question

It would be interesting to know how many of the 15 Cambridge-grown $billion companies owe their success to UK government or CEC support. It was interesting to note that, in CSR’s early years, representatives from the governments of France, Singapore and the USA visited CSR on a number of occasions to ask what it would take to persuade us to decamp to their respective countries. 

Various inducements, including grants and free rent, were mentioned. In the same timescale, however, it was not obvious that UK government even noticed that CSR existed. Maybe this is indicative of how hungry – or not – we are in the UK are for product success and whether we have the companies able to manufacture them.

I remember, back in 2000 when customers from Japan, Taiwan and Korea were insistent on visiting CSR with their complete product design teams, interest from the UK was mostly about trying to persuade CSR to provide free Bluetooth training courses. There are now few indigenous electronic consumer product companies in the UK although there are notable exceptions, such as Dyson, the world beating, innovative mass-market UK air management company.

ARM was one of the first of the new wave of Cambridge-bred hi-tech companies and started some eight years before CSR as a joint venture between Acorn Computers, Apple Computer (now Apple Inc) and VLSI Technology in 1990. 

The company went public in 1998 in the year that we began to think about spinning CSR out of CCL. We knew some of the founders and staff at ARM and recognised that they, as individuals, were not too different from us. Simply put – they were role models. If they could do it then so could we.  Like the ARM founders we were a ready-made team. There were nine founding staff of CSR of which James Collier, Glenn Collinson and I were the three founding directors. James picked the six founding engineers which completed our team of nine (pictured above).

It helped that all three founding directors had worked in industry for a number of years before joining CCL. With the blessing of Paul Auton, the chairman of CCL, we formally spun out in April 1999.  

In the very early days we rented CCL facilities and lunched in the CCL canteen until our first £12m set us on our way. We took much of the CCL meritocratic and lead-by-example culture with us, including offering a free two-course lunch to all employees. This latter perk was, we believed, beneficial to the company in that it encouraged staff to stay on the premises at lunchtime and to share a canteen table and ideas with staff with whom they did not normally work.

In total, CSR raised over £50m in pre-IPO cash from VCs, corporates (including ARM, Sony, Compaq, Siemens and Philips) and banks prior to flotation on the London Stock Exchange. In CSR’s early days, and once our revenue had topped £100m, we were told by one of our large customers that we were their only private company supplier. This became a further incentive to become a public company.

Delivering on potential

It is tempting to say that building a $1bn company is not rocket science but rather it is simply that a large number of contributing company components need to be more than satisfactory in order for the venture to be successful. The recognition of what those components are, building them effectively, and operating them efficiently is what VCs call ‘execution.’ 

This also requires focus and the ability to stay on track whilst ignoring the many diverting opportunities that do not contribute to the primary goal of hitting the market with the right product at the right time. We are tempted in Cambridge to think that technology is everything but, for a product company, it is usually the sales, marketing or manufacturing functions that are the weakest.

It used to be said in VC circles that, in their investee companies, VCs back three things; management, management and management. Stick to the knitting and remember that Davos is for those who have made it rather than those who are in the process of making it. 

At CSR, we recognised that a world-class silicon manufacturing team was necessary to ensure that we obtained good service and value from our third-party silicon fabs. As the necessary skills did not exist in Cambridge at that time, we recruited manufacturing staff from Scotland, the USA and wherever we could find them. 

A number of Cambridge companies have made the mistake of thinking that all that is required of a fabless semiconductor company is to design a chip and then hand it over to a fab and then wait for the chips to come off the manufacturing line. In this way lies failure – what makes chips successful is producing a design suitable for very high volume manufacture and testing it exhaustively before committing it to manufacture. 

Our experienced manufacturing team was led by Chris Ladas, a veteran professional, who had spent all of his working career in the semiconductor industry. Chris knew and had worked with the senior management of the fabs for many years and ensured that CSR got the best possible service. There are now a good number of staff in Cambridge with the silicon manufacturing skills needed by fabless semiconductor companies. 

It is necessary to be confident (or foolhardy) to start a global high volume products company. At CSR, we admired the American ‘can-do’ attitude prevalent in the semiconductor industry. In fact, our principal competitor at the time – Broadcom – was co-led by a former US Marine. I believe that the CSR culture we built in the early days was can-do but was also meritocratic and collegiate in the best Cambridge traditions. 

Finding the funding

The best start-up opportunities will attract funding so is there a shortage of angel or venture capital today in the UK? As an investor, it is quite common to be presented with a business plan for a good opportunity where product development is well funded but the plan is undercooked by not asking for the amount of capital necessary to rapidly gain market traction by adequate deployment of marketing and sales effort.

Does this represent a lack of founder experience or ambition or are founders conditioned by cautious investors who do not have deep pockets?Probably all of the above coupled with the fact that, here in the UK, we do not have as many well-funded role model companies that have become successful as there are in the USA.  

How far down the line of attractiveness should angels and VCs go to provide funding to less attractive propositions? As a business angel, I see many opportunities and about one in 50 of them looks really attractive. It is often easy to see what is missing in the startups that pitch to me for funds. On the other hand, as it is not so long since I sat on the founder side of the table, I can easily understand why some founders don’t appreciate my wise words of advice. It will take another seven years or so for me to see whether I have already passed on the next FaceBook, Abcam or CSR!

Are entrepreneurs born or made? 

There are certainly some learnt skills, including project and financial management as well as sales and presentational skills, that help entrepreneurs to pitch and win funding as well as make their company a success. 

A stint in one of the design and development consulting companies is a good place to learn these skills whilst working for market-leading global clients. It is noticeable that management (rather than technical) consultants do not very obviously make natural entrepreneurs; maybe the plethora of analysis tools in their kitbag inclines them towards analysis rather than action. Studying entrepreneurship increases the ability to recognise opportunities. Some people may go through life and not see the opportunities. However, once they look at the world through a slightly different lens, they start to see opportunities that may have potential – overshadowing the concomitant risks. 

Opportunities in general don’t jump out at you – they have to be shaped; they have to be created. Once people understand that process they will never look at the world the same way again. The CfEL teaches entrepreneurial skills and acts as a focus and meeting point for those wishing to become entrepreneurs.

On the other hand, James V. Koch of Old Dominion University in Norfolk, Virginia (Ref 2) believes that if you want to know who’s most likely to be an entrepreneur then don’t go to a business school and see who has taken entrepreneurship courses. The more important thing is to look at someone’s personality and ability to take risks. 

He is not sure that you can teach somebody to love taking risks. It seems hard-wired in the individual. It doesn’t mean they will act on the opportunity but if people are more sensitive to seeing opportunities, they are more likely to act on them and persevere in the face of adversity – like James Dyson – until they are successful. According to Thomas Edison (Ref 3) many of life’s failures are people who did not realise how close they were to success when they gave up.

Over the years, I have been asked to produce a number of case studies summarising the what and how of CSR’s success and, looking back, I think that the essence of the what is to select a global high volume market, produce a winning product and get it to market first. 

As for the how; find a team (some entrepreneurs are not natural team players but doing it solo, at least the first time, is very lonely), create and reinforce the right culture, recruit the best people, train them and reward them well for good performance. This is not rocket science but it is, increasingly, the Cambridge way. Is there any variety of fabless or high value manufacturing business which would be unable to grow to world-scale from a base here in Cambridge?

 

• Reference 1:  The Current and Future Role of Technology and Innovation Centres in the UK. A Report by Dr. Hermann Hauser.
• Reference 2:  http://www.entrepreneur.com/article/228273
• Reference 3:  This is presented as a statement made in 1877, as quoted in From Telegraph to Light Bulb with Thomas Edison (2007) by Deborah Hedstrom, p. 22.