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This week’s theme: Silicon Valley’s data-driven product design is a winning strategy, but was predated a hundred years ago by the German chemical engineering giants. Plus: confused by some recent going-private talk? Carta has you covered.
I’m guessing most Snippets readers have previously heard some version of the phrase, “Silicon Valley isn’t just a place, it’s a state of mind.” As platitudes go, it might be occasionally annoying, but it’s not wrong. The collective output of Silicon Valley and the broader modern tech industry is more than just the regional output of people, technology, institutions and investment. It’s as if the region has adopted the broad challenge: “We’re going to build the future, even though we can’t know what it looks like, since it doesn’t exist yet.” Although we make a habit of setting broad, ambitious goals, the real future-building takes place in the continuous product iteration and experimental, data-driven grinding. Unlike in many other industries, product research and development is not walled off separately from engineering, shipping, sales and marketing, or treated like a cost center to be tolerated. Data-driven research and development is inseparably incorporated directly into product design, customer acquisition funnels, and service operations. It’s not the only aspect of what makes Silicon Valley work so well, but it’s an essential aspect to what makes tech so powerful, for good and for ill alike.
However, today’s tech industry is far from the only historical industry — or geographical location — where that marriage between the research team and the product team has been so intertwined and so successful. The best historical template for modern-day Silicon Valley — and, perhaps ominously, a good historical warning to heed — may well be the German chemical industry in the late 19th and early 20th century.
Today, we often think versions of, “The whole world is made of data, and software is how you work with data.” The 19th century analogue would be, “The whole world is made of molecules, and chemistry is how you work with molecules.” Chemistry has been a study and practice of humankind for thousands of years: we’ve always sought to understand the elements, their compositions and their reactions, although that study has not always been so scientifically rigorous. Over time, the craft of alchemy (and its never-ending pursuit for “the philosopher’s stone, a compound that could turn lead into gold”) evolved into what we recognize as modern chemistry: the recognition that all molecules are made up of modular parts that could be broken down, studied, and synthetically reassembled in new, repeatable and predictable combinations. By the mid-19th century, British chemistry labs in Oxford, Cambridge and London were widely considered to be the world’s best, and chemistry began to evolve from a research discipline into a full-fledged industry.
One early product in high-demand to which the early chemistry industry turned their sights was the production of chemical dyes and pigments. Naturally occurring pigments, often coming from flowers and exotic plants, had been prized and heavily-traded goods for centuries. Although they made perfect sense to pursue as a synthetic chemical product, the first chemical pigment discovery took place by accident. While attempting to synthetically produce quinine in 1857, 19-year-old British chemist William Henry Perkin inadvertently produced a gorgeous and stable purple compound: mauve. It was the first synthetic dye, and its commercial potential was immediately obvious. By 1864, nearly 70 British firms were commercially synthesizing and producing chemical dyes, transforming a variety of different sought-after pigments from exotic trading chips into commodity chemicals made from coal.
The early British lead would not last for long. Although they had the world’s best chemists and labs, Germany — a young country full of resources and ambition — was building a chemical industry of its own. The German approach drew its design much more from the engineering world than from academic research, and developed a culture of systematic, high-throughput research and development that relied less on individual genius scientists and more on a rigorous, scalable discovery process that could be carried out at industrial scale. By 1870, a short thirteen years after Perkin’s original discovery, German chemical firms — including rising giants Bayer, BASF and Hoechst — had already superseded the British, and captured half of the global dye market.
One dye in particular stood out as a long-cherished prize to synthesize chemically: indigo. We now know it as the dye in blue jeans, but throughout history, indigo had been prized across the world as a brilliantly-colored, long-lasting pigment that was used in royal fabrics and other expensive garments. Synthesizing indigo was taken on as a grand challenge at BASF, and its pursuit (and eventual commercialization) went on to transform BASF from a specialized dye producer into a true “tech giant”. Heinrich von Brunck, BASF’s head, seized the opportunity to reinvent BASF as a new kind of company geared not for focused production but instead as a general-purpose innovation machine in the style of Amazon or Alibaba today. As Thomas Hager writes in The Alchemy of Air:
“The infrastructure [Brunck] had built for a specific dye was turning into something more: it was a way to transform a dye company into a modern chemical company. Large amounts of certain acids were needed for the indigo project, for example, so to save money his growing cadre of BASF chemists figured out better ways to make acids in bulk. They soon had excess acids to sell. Chlorine was another important raw material for dye processing; a BASF chemist found a better way to purify it and the company began selling it. All these processes took place in machines, and Brunck paid attention to the required engineering as well as chemistry, seeing the two as inextricable, pioneering the field of chemical engineering before people ever used the term. He saw BASF not as a miscellany of separate parts but as a single integrated machine.”
The most genius aspect to Brunck’s innovations in chemical engineering was not the vertical integration, but rather the way it incorporated R&D directly into the product development, engineering and sales divisions of the company. Unlike in Britain, where scientists, engineers and salesmen were kept miles away from one another, BASF had built something that should be recognizable to any software giant today: a platform company that used itself to continually test, build and ship new products systematically. In another interesting nod to today’s tech companies, Brunck recognized that the nearly unlimited opportunity presented by this platform-first approach meant that BASF ought to withhold dividend payments to their shareholders in favor of reinvesting their indigo profits into both better consumer products and better back-end technology, each of which reinforced the other in a virtuous cycle. It’s common practice now, but at the time this was a radical thing to do.
Next week, we’ll keep with this theme of what happened to the German chemical engineering a century ago, as their sights turned past industrial chemicals and towards consumer products — including, as we’ve written about before in Snippets, some of the most potent and dangerous consumer products ever brought to market.
In this week’s highlighted stories, one saga you definitely can’t miss is the ongoing suspense around Elon Musk potentially taking Tesla private. We’re huge admirers of what Elon and Tesla have accomplished, and are fully committed behind Tesla’s mission to help bring the world into a new era of electric, carbon-free transportation. But it’s also important to hear the skeptic’s (or, at least, the observer’s) take on a pretty major story like Tesla getting potentially taken private. Matt Levine from Bloomberg, who never fails to have the sharp, witty and prescient take of the day, has some great scenario-hypothesizing around various paths that Tesla might take over the next little while. They’re fun to read, and well thought-out.
(And while you’re on this story, don’t miss a funny exchange between Elon and famous Tesla short-seller David Einhorn, where Elon sent over a box of short shorts and David had an all-time classic reply. Who says business rivals can’t have any fun with each other?)
The other story we’d like to point out is an interview with Lebron James in the Wall Street Journal. James recently helped open a public school in his hometown of Akron, Ohio, and one perk associated with attending the new school will be that every student is given their own bicycle. In this interview, LeBron shares why having a bicycle was so important to him growing up, as a way of becoming responsible and earning his independence as a youth. It’s a remarkable story and you won’t want to miss it.
Not what it seemed at first:
A new variety of corn that helps produce its own nitrogen (or, at it’s affectionately called by some, “snot corn”) may be a very big deal:
Revisiting a series of thoughts on two different product philosophies:
Other reading from around the Internet:
In this week’s news and notes from Social Capital, we have a helpful and timely piece to share from Carta that helps demystify some of the nuance around the Tesla-going-private story. Like, why would a public company seek to go private? Under what conditions might they not go public in the first place, or stay private much longer than they formerly would have (like Uber?) Or, on the contrary, when might companies want to go public, or perhaps seek alternate ways to do so (like Social Capital’s IPO 2.0 Initiative)?
Carta is in perhaps the best position to answer your questions of anyone. As the Ownership Management company that helps companies, employees, shareholders and owners of all kinds manage their shares and securities effectively, Carta’s impact on public and private companies alike is to help all owners, of all kinds, get the most of what they need out of the ownership that they have. They’ve put together a very helpful primer for anyone interested around the key considerations, requirements and rules that go into the decision of if, when and how to take a company public:
In addition to this primer, did you know that the Carta blog has all kinds of useful information that is probably need-to-know for a lot of you? If you: a) work for a startup (or run one), or even b) own shares, securities, or any other kind of fractional ownership of a business, then you should head over and see how Carta’s team can help you be smarter and more knowledgable. As an example, a few days ago they came out with helpful primer, What is Rule 701 and what’s recently changed? Rule 701, if you don’t know, is a piece of American federal legislation that allows private companies to issue their first annual $10M in company equity to employees without having to go through a normally required, lengthy disclosures process. Recently, that $10M cap was raised to $15M, which is good news for growing startups who might’ve been hitting up against that cap. But there are some timing concerns to keep in mind, and Carta has you covered for making sure you’ve thought through the ins and outs. For more helpful content like this, check out Carta’s Blog here. There’s also a special section, the Henry Section, that comes straight from Carta’s CEO Henry Ward. And if you’re interested in joining the Carta team, they’re currently hiring for positions all over the world: not just San Francisco, New York and Seattle either, but also in Salt Lake City, New Jersey and Rio de Janeiro. If you or anyone you know is interested, please forward along their way.
Have a great week,
Alex & the team from Social Capital