John Chisholm is the founder, former CEO and chairman of Decisive Technology, a pioneer in online survey software (now part of Google), and of CustomerSat, a leading provider of enterprise feedback management systems (now part of MarketTools). A 30-year veteran executive of Silicon Valley, he holds bachelor’s and master’s degrees in electrical engineering and computer science from MIT and an MBA from Harvard Business School. He chairs the MIT Club of Northern California, serves as trustee of the Santa Fe Institute, as member of the MIT Corporation Development Committee, and as mentor with the MIT Venture Mentoring Service. Previously, he has served as Chairman of the Board of the Stanford Institute for the Quantitative Study of Society, one of Stanford’s twelve independent laboratories; as a member of the visiting committee of the MIT Department of Mathematics; and as vice president of the worldwide MIT Alumni Association. He is author or co-author of two patents in online polling. We met with Mr. Chisholm in the San Francisco bay area to explore his thoughts on the benefits and challenges of entrepreneurship.

Kaizen: You have founded two high-tech companies, Decisive Technology and CustomerSat. Were you technically oriented as a youth?

Chisholm: I think you would say so. I liked to take clocks apart and try to figure out how the gears and springs worked together. I grew up in Jupiter, Florida, a small town about 20 miles north of West Palm Beach. In junior high school, my best friend Al Pion and I each memorized pi to over 100 decimal places—we would recite it alternating the digits, like tossing a ball back and forth. Talk about geeky!

I also had two great math teachers. The first was Mr. Rees in the eighth grade, who introduced us to probability theory. It fascinated me then and still does today: at MIT, I was a teaching assistant in applied probabilistic systems; and at both Decisive Technology and CustomerSat, real-time statistics and metrics were key competitive advantages.

My other memorable high school math teacher was Mr. Parrish. In trig class, I noticed a commonality between the roots of polynomials and Pascal’s Triangle. I kept analyzing it until I could describe the exact relationship, thought I had discovered something, and with Mr. Parrish’s encouragement, wrote it up in a paper called, “A relationship between Pascal’s Triangle and the coefficients of equations with altered roots.” When I got to MIT, I learned a bit more math and realized that this relationship had been known for centuries. But the experience gave me a taste of how exciting mathematical discovery can be.

Kaizen: When you went off to MIT, did you know you would study electrical engineering and computer science (EE/CS)?

Chisholm: No. I started out in civil, switched to mechanical and then electrical. My dad was a mechanical engineer. The 1970’s were a hugely exciting time in electrical engineering and computer science—digital signal processing, data communications, and interactive timesharing were just coming of age. Even then, EE/CS was MIT’s largest department, as it remains today, though not by as wide a margin today as it was back then. Like many others, I got caught up in the excitement.

Kaizen: Is that why you stayed on at MIT to get a master’s degree in EE/CS?

Chisholm: As a sophomore, I was accepted into co-op, a work-study internship program; and later into its joint bachelor’s-master’s program. Companies like GE, IBM, and AT&T committed to MIT to providing work assignments relevant to our studies. We alternated semesters between MIT and our co-op companies, got real-life work experience, academic credit, and best of all, got paid. I feel really good about co-op. Among other benefits, it helped pay my way through MIT.

I landed a co-op position with GE. There were four semester-long assignments. The first two were at GE Ordnance Systems in Pittsfield, MA, where I did FORTRAN programming for finite element analyses and conducted Monte Carlo (i.e., driven by random processes) simulations. I learned a lot about both engineering and its practice.

Pittsfield, MA is just north of Tanglewood, the summer home of the Boston Symphony Orchestra. By volunteering as an usher on weekends, I went to all 24 concerts that season. Over the eight weeks, the music progressed from medieval to baroque to classical to romantic to modern, so you could hear the evolution of music over four centuries. Among the great musicians we heard was Leonard Bernstein conducting Tchaikovsky’s Fifth Symphony. It was a priceless introduction to classical music.

My third and fourth assignments were with the GE Electronics Lab in Syracuse, NY in digital signal processing (DSP). The E-Lab had just introduced a chip that calculated Fast Fourier Transforms (FFT) very fast and was looking for applications for it. A form of DSP called cepstral analysis and homomorphic filtering uses the FFT four times, and so was a perfect application for the chip. My master’s thesis was to use the chip to implement this form of DSP. It encompassed a bit of everything—signal theory, algorithms, even writing microcode.

Kaizen: What were you thinking your likely career path would be?

Chisholm: At first I followed two routes in parallel: the EE/CS Sc.D. (MIT’s equivalent to a Ph.D.) program and applying to business schools. My b-school applications talked a lot about entrepreneurship—applying engineering know-how to start a new company. That is the path I finally chose.

Kaizen: You went directly from MIT to Harvard Business School (HBS). What was the most valuable business lesson of your MBA program?

Chisholm: At first I rebelled against b-school. At MIT, substance—content—had been all-important; at HBS, it seemed that packaging was most important. Gradually, I came to appreciate that packaging was important, too. My favorite courses at HBS, and the ones I did best in, were still the most analytic ones—managerial economics (ME) and game theory, in particular.

Kaizen: After Harvard, you went west—to Hewlett-Packard as a product manager in northern California.

Chisholm: I knew that Silicon Valley was the place for me the first time I drove through it, among the hundreds of high-tech companies. Being a product manager at HP in those days was like running your own business: you were responsible for product specification, marketing, pricing, sales training, competitive analysis, production planning, forecasting, even writing press releases.  HP was then still small enough that new employees were invited to meet with Bill Hewlett or Dave Packard. On October 3, 1978, I was one of a small group of engineers that got to spend 90 minutes with Bill at HP headquarters. That night I wrote two pages about him and the meeting in my journal.  He made you feel perfectly at ease; that nothing could faze him; and that he wasn’t concerned with making money but just wanted the company to do well.  I felt and still feel deep admiration and affection for him.

Both of the companies that I have started adopted HP’s egalitarianism. For example, until we merged with MarketTools, my cubicle at CustomerSat was the same as everyone else’s, as were Bill’s and Dave’s in the early days.

Kaizen: You went from HP to GRiD Systems. What did you learn at GRiD?

Chisholm: The value of focus. GRiD, my first start-up, was hugely ambitious: it offered a proprietary, flat-panel laptop, far ahead of its time; a proprietary operating system; a proprietary suite of management tools along the lines of Lotus 1-2-3 (a precursor to Microsoft Office) that ran only on the GRiD laptop; and even its own proprietary networking. The company became profitable only after it abandoned the proprietary architecture in favor of IBM compatibility, and then largely on the strength of its sales to the military/defense market, for which its ruggedized aluminum case was well-suited. Narrowing the focus to either just the laptop or the management tools software, and not attempting to re-invent the operating system and networking, would have been a path to greater market success, in my view.

Kaizen: Why did you decide to start John Chisholm Group and consult rather than pursue a marketing career within an established corporation?

Chisholm: Like many entrepreneurs, I was fired—in this case, from GRiD, after a disagreement with my boss about product strategy. While I was looking for another job, I landed a marketing consulting assignment. Then another. Then GRiD hired me back as a consultant. Eventually I lost interest in finding a regular job. Over time, I was able to parlay my consulting experience into monthly columns for Open Systems Today and Unix Review, which helped establish me as an industry expert, especially in the then-hot UNIX market. Today, it would be like writing a popular industry blog.

Kaizen: What kind of consulting did you do?

Chisholm: I developed a specialty in strategic marketing: finding optimal combinations of product definition and target market, given the relative strengths of a company and its competitors. The process involves inventorying the assets of the company and its competitors—e.g., product, brand, technology, distribution channels, and financing—and of estimating the size of market opportunity for each product and target market combination considered. The process requires collecting a lot of data, analyzing it, and prioritizing options. Think of it as searching out, evaluating and sorting values of the expression:

[Size of Target Market] * [Your Unique Strengths — Competitors’ Strengths]

for each combination of product and target market to which the unique strengths are applicable. The analysis is both qualitative and quantitative. It seeks the largest market opportunities for which your competitive advantage is strongest. We did this kind of work for clients such as IBM, Microsoft, Xerox, and Sun Microsystems. I also served as part-time director or VP of Marketing and as expert witness in high-tech litigation.

Kaizen: How did you get from there to founding Decisive Technology?

Chisholm: In 1990-91, our consulting included phone surveys—customer interviews. At the same time, we were engaged by Sun Micro to serve as brokers for divesting Inbox, an e-mail software business that was part of Sitka, a local area networking company that Sun had acquired. We sold Inbox to CE Software, publisher of QuickMail, then the leading email software for Mac, on June 30, 1992.

The combination of phone surveys and email made me think, “What if you could do a survey via email?” For months I couldn’t get that idea out of my head. I played with it, developed it, nurtured it, and hired software developers to first prototype it and then develop it for real.

Over 1992-93, John Chisholm Group evolved into Decisive Technology, publisher of the first shrink-wrapped software for conducting surveys via email. Our product, Decisive Survey, let you compose a survey under Windows and upload a distribution list of email addresses of recipients. The software then formatted the survey as a text message and emailed it to each recipient, who would complete the survey by editing and replying to the message. Decisive Survey then retrieved the completed questionnaires from the surveyor’s mailbox; parsed (i.e., read) the messages to find the responses to the questions; and generated a simple set of charts and statistics—frequency distributions and cross-tabs. In short, it used the PC and email to automate the entire survey process. After its introduction in late 1995, Decisive Survey quickly became the leading desktop software for conducting surveys online.

Using software to parse email messages to pick out survey responses was way ahead of its time. It was not 100% reliable—this was before the web—because with text messages, respondents could type in comments outside of designated response areas. To address this, Decisive Survey provided surveyors a split screen environment where they could compare how the parsing software interpreted the responses with what the person actually typed, to make sure that the software’s interpretation was correct. In 1996, as the web was taking off, we came out with Decisive Survey 2.0 which created surveys using the web’s Hypertext Markup Language (HTML) instead of plain text, and which eliminated the problem.

Kaizen: What other technical challenges did you face?

Chisholm: Oh, many. Working with all of the different email clients, for example—Microsoft, cc:Mail, Lotus Notes, Novell, and Eudora—each one had a different application programming interface.

Kaizen: As Decisive grew you became CEO of a bigger organization. Did developing the necessary management skills come naturally to you, or was it something you had to work at?

Chisholm: It was hard. As a consultant, I hadn’t gained much experience managing relationships with employees and board members. I half-joke that I made every possible mistake as CEO of Decisive so I could start with a clean slate at CustomerSat. After Decisive raised venture capital, we recruited Doug Stone as CEO, an experienced general executive and a valued friend and colleague.

Kaizen: Decisive Technology is now part of Google. How did that come about?

Chisholm: Decisive was part of what is known as a “roll-up”—combining multiple smaller companies into a larger company to achieve scale. Decisive was acquired by MessageMedia, which was acquired by DoubleClick, which was acquired by Google.

Kaizen: Your third venture, CustomerSat, was the next big thing. How did it grow out of Decisive Technology?

Chisholm: We learned a great deal at Decisive: that measuring customer satisfaction and loyalty was a critical segment of survey research; that enterprises (large corporations) needed professional services to help design and implement surveys; that they needed to conduct and manage multiple surveys concurrently; and to distribute survey results to large numbers of users.

At the same time, the web had changed the software landscape dramatically over the five years since I founded Decisive. While Decisive was a Windows application, CustomerSat was designed for the web from the outset. Decisive was primarily licensed software, that is, it ran on our clients’ computers. In contrast, CustomerSat was Software as a Service (SaaS—pronounced “sass”): it ran on our computers and was accessed by our clients through the Internet. CustomerSat helped define a new market category that analysts today refer to as Enterprise Feedback Management.

Kaizen: How was founding CustomerSat different from Decisive?

Chisholm: Several key team members came over to CustomerSat from Decisive, who helped us get up and running at CustomerSat quickly.

CustomerSat’s financing strategy was different from Decisive’s in several ways. At Decisive, we spent over $1 million in software development before we started selling software and generating revenue. In contrast, from CustomerSat’s inception, we provided web survey programming and consulting services that generated revenue, and used these revenues to fund much of CustomerSat’s initial software development. CustomerSat had nearly $1 million in revenues by the time we raised capital.

As a result, CustomerSat needed to raise less capital, and could do so on more favorable terms than Decisive. This is advantageous for many reasons. A greater share of the company’s ownership stays with the employees, on whose dedication and commitment the success of the company depends; the valuation hurdle is lower at which you have to sell the company for everyone to make money; and there are fewer conflicting objectives and power struggles that can distract the company.

Decisive raised venture capital from such respected firms as Softbank, Helix, and Hanna Ventures. In contrast, CustomerSat raised corporate capital from two strategic partners. J.D. Power and Associates was the world’s best-know brand in customer satisfaction, especially in automotive, and thus brought instant credibility to CustomerSat. NICE Systems, a leading provider in call center recording systems, wanted new ways to measure the customer experience, which CustomerSat provided. While venture firms’ primary focus is financial return, corporate investors are fully as interested in gaining market knowledge and new products to re-sell. Corporate capital is often overlooked and deserves more attention than it gets from entrepreneurs, in my view.

Kaizen: Who were your early clients? How big would they have to be to be attractive to you? And how did you market yourself to those companies?

Chisholm: Early on, most of our clients were technology companies like AMD, HP, Microsoft and AT&T, because they were the ones who consistently had email addresses for their customers. A company or business unit would ideally have revenues of $250-$500 million or more to be a good prospect for us. Seminars at industry conferences were particularly effective marketing vehicles for us—they let us show qualified prospects the entire customer feedback solution we offered, from survey design to IT system integration to generation of real-time survey results.

Kaizen: How did you weather the dot-com bust?

Chisholm: The economic downturn of late 2000 through 2002 was by far the hardest time of any in my career. The bust hit CustomerSat in the first quarter of 2001, causing our quarterly revenues, which had been on a healthy growth curve, to drop quarter-over-quarter by almost 20%. One of the hardest things was to cut salaries of employees and management by 20% and lay off 30% of our staff in a 90-day period.  We factored receivables at considerable expense so we had enough cash to make payroll. Quarterly sales declined again slightly in the second quarter. No one knew when it would end.

These were the times I would wake up at 2 a.m. in sweat-soaked sheets wondering whether CustomerSat would make it. Our sales finally stabilized in the third quarter and were slightly up in the fourth quarter. We broke even in the third quarter—the infamous September 11 quarter—and made a small profit in the fourth. The going stayed tough for the next two years, through 2002 and the first half of 2003—we didn’t hire a single new employee for 18 months—but we made it through. Few companies of our cohort survived. I feel I earned my executive stripes during the dot-com bust. Among the team members who went through this ordeal with us, there was very little turnover—very strong employee loyalty—for many years. It was as if the crucible of the dot-com bust had bonded us all together.

Contrary to conventional wisdom, I believe that having raised less money may have actually helped CustomerSat make it through the dot-com bust. First, if a company has millions in reserve, it can be hard to persuade employees of the need for pay cuts and other reductions in benefits. We did not have that problem. Second, with little in reserve, you have to respond to market conditions immediately. Some of our competitors who had deeper pockets postponed the tough actions of cutting costs, thus burning through capital and forever diluting everyone’s interest, both financially and otherwise, in their companies. Third, if the company is owned primarily by outside investors rather than by employees, there can be a feeling that the problem is not ours, but the investors’, and they should fix it. Not a winning strategy.

Kaizen: How did you get back on a growth track?

Chisholm: Many factors contributed. In 2002, we introduced Action Management, the ability to use business rules to open and assign cases when high-value customers indicated in surveys they were dissatisfied with our clients’ products and services. We collaborated with one of our best clients, Honeywell, to develop this unique differentiator. Action Management enabled our clients to close the loop between customer experience and follow-up with that customer, and helped fuel our growth for several years.  Interactive dashboards of satisfaction analytics and metrics also became key selling features.

Dickey Singh, Jonathan Clay, Tulsi Dharmarajan, and Scott Williams all brought superb leadership and/or innovation to our software development efforts.  In Sales and Professional Services, execs like Harry Rich, Russ Haswell, Josh Lamour, Annette Gleneicki and Greg Rich—I could go on and on—articulated the benefits of our solutions, built long-term relationships with clients, and helped us expand into vertical markets like financial services, pharmaceuticals, and health care.  CustomerSat succeeded because of them.

Kaizen: By 2007, CustomerSat had been in business and grown profitably for a decade. What then?

Chisholm: Selling CustomerSat was an unnatural act for me. It had been over seven years since we had brought in investors. Ernie Pomerantz, a member of my board and a 22-year former partner at Warburg Pincus, the world-famous private equity/venture capital firm, said, “John, you can’t keep your investors waiting indefinitely. You have to give them liquidity at some point.”

I started the M&A [mergers and acquisitions] process somewhat reluctantly. It is hard to both run a company and sell it at the same time so, as we had done at Decisive, we hired an investment banker to manage the process for us. Brian Mutert at Stratagem brought great financial insight to the process and knew the SaaS space intimately. In March, 2008, after negotiations with several potential acquirers in market research and business analytics, we closed the deal with MarketTools.

Kaizen: Right before the economic downturn?

Chisholm: The deal was well-timed. No one knew the downturn was coming.

Kaizen: How did the merger process start—who approached whom?

Chisholm: Our dealings with MarketTools had actually started three years before the merger, when Beth Rounds, a highly-regarded market research executive whom I had known for a decade, introduced me to Amal Johnson, MarketTools’ chairman. During that initial meeting, Amal indicated that MarketTools was interested in acquiring CustomerSat. We were not ready to sell then, but we entered into a reseller agreement that enabled both companies to get to know the other, which was a factor in our going with MarketTools.

Kaizen: Understanding that the exact terms are confidential, how much were Decisive and CustomerSat valued at when they were acquired, if I may ask?

Chisholm: Yes, exact terms are confidential, but between the two companies, the total was well above $50 million but less than $100 million combined.

Kaizen: What are the major factors that determine valuation?

Chisholm: They are many, including profitability, revenues, growth rate, technology, brand equity, customer loyalty, and scalability, i.e., how much incremental revenue growth can be achieved by injecting a specified amount of capital into the company.

Kaizen: Was it difficult to decide whether to stay on with the new parent company?

Chisholm: You work out those details as part of the merger agreement. I was expected to stay on to run CustomerSat as a business unit, was incentivized to do so and learned a great deal by doing so. Market Tools was larger and had more mature financial reporting and accounting controls than CustomerSat. Helping align and integrate CustomerSat’s systems with MarketTools was good experience.

Kaizen: So your management priorities changed after the merger.

Chisholm: Yes. Before the merger, they were sales, marketing and products; after the merger, they were finance, accounting and revenue recognition. Not my favorite areas, but necessary. As a result of this experience, I’ll likely put these processes and controls in place from the outset of my next venture.

Kaizen: Were non-compete agreements part of the process?

Chisholm: Yes, as is typical. First, during negotiations we agreed to a non-compete called a “no shop” agreement. This means that once we received a term sheet—a formal offer—we couldn’t talk or “shop” the company to other potential acquirers for a period of time. Later, we agreed that selected execs could not directly compete for specified periods of time.

Kaizen: Was it hard to let go of CustomerSat, having founded and built it up successfully?

Chisholm: At times, absolutely, especially early in the M&A process. Later, when I started to plan what I was going to do next, including taking some time off, it became easier.

Kaizen: What are you doing now?

Chisholm: Taking some time off before my next venture. I’ve traveled around southeast Asia and volunteered with the MIT Venture Mentoring Service where I get to help bright, young entrepreneurs who have great ideas and knowledge but limited experience. And I bought a new place in San Francisco with dramatic views of the bay and bay bridge.

Kaizen: You’ve climbed to the tops of Mounts Rainier, Whitney, Shasta, St. Helens, even a live volcano in Chile. Was that as dangerous as it sounds?

Chisholm: More exciting than dangerous. Like Rainier and Shasta, Volcan Villarica was a snow climb requiring crampons (boot spikes) and ice-axes. At the summit, you looked down into a boiling, bubbling, splashing lake of red-hot lava 200 feet below you. The crater had collapsed in some places and looked like it was about to collapse in others, so you stayed away from those parts.

Kaizen: Looking back on the last twenty years, what has been the best thing about being an entrepreneur?

Chisholm: Creating something of value out of nothing, and the camaraderie of fellow team members. Two milestones in a start-up’s life are particularly exciting: 1) when you realize that even if you disappeared today, the company has enough momentum and people committed to it that it will continue without you; and 2) when you realize that it has genuine value and others want to acquire it.

Kaizen: Entrepreneurs have to have creativity, initiative, guts, resourcefulness, perseverance, the ability to recover from setbacks, and so on. Which of those is the most important?

Chisholm: Any of those strengths could be the key to success, but overall I would vote for perseverance. Having an idea, not letting go of it, developing it, bouncing it off other people, and refining it. With time, you can turn an amorphous idea into a practical solution to a real need.

No new technology is better than all existing technologies for every application, but any new technology can be better than existing ones for some application, e.g., a certain user type, geographical area, or IT environment. The entrepreneur needs to figure out what specific market needs can best be addressed by new technology. I mentioned the process I use: unique advantages minus competitive strengths times size of target market to which the unique advantages are applicable. That whole strategic process can be thrilling and lead to unexpected results—I’m helping some new companies with this right now.

Kaizen: Who and what else have helped you be successful as an entrepreneur?

Chisholm: All of the friends and colleagues I have already mentioned. Bill Hewlett, Jerry Peterson, Fred Gibbons, and Bill Krause at HP; Ernie Pomerantz and Norman Nie at CustomerSat; Dave Hanna of Hanna Ventures; Bob Metcalfe of 3Com; Roy Rood of Rood Landscape; and Lee Hill of Dale Carnegie are among the execs who encouraged and/or inspired me.

Having loving and supportive parents is the greatest asset with which any individual can be endowed in life. I have enjoyed that asset in spades. Also a large network of friends to draw on for advice and encouragement.

Years ago I took Dale Carnegie, a 14-week course which challenges you to apply human relations principles in everyday life, then give talks to the class a few weeks later about what happened. As a result, you get experience applying the principles, organizing your thoughts, and speaking publicly. Principle #1, for example, is “Don’t criticize, condemn, or complain.”  You can get very far in life on that one principle alone. Others are, “If you make a mistake, admit it quickly and emphatically,” and “Show appreciation and do it sincerely.” I’ve often said that Carnegie was more valuable to me than my Harvard MBA, because you use Carnegie’s principles every moment of every day that you are with another person.

Over the years, consistently applying these principles elevates you to a position of leadership. I think of myself as a point on the carpet below our feet. If I grab that point, I can’t lift it very far unless all the points around it also rise. We are all like points on that carpet.

A truly courageous person merely acts courageously consistently. Similarly, a truly noble person is one who acts nobly consistently. I may not be able to change who I am, but I can control the way I act. So anyone—even I—have the potential to be courageous and noble. That is an inspiring thought.

Kaizen: How do you come up with ideas for new ventures?

Chisholm: Find or ideally experience first-hand a need that current tools or solutions do not adequately address. If you are passionate about and have high aspirations for any activity or group of people—your work, a hobby, a team, or your family — finding such needs will come naturally.  At the same time, place yourself where you’re exposed to ideas that could suggest new solutions. The TEDx conferences and MIT Clubs around the world give you access to thought leaders and innovators—a constant flow of ideas. Most of their events are open to everyone. I go to trade shows outside of my field, for example, to conferences on embedded systems (microprocessors and computers embedded in devices like digital cameras, toasters, and refrigerators) and online social games. Ideas from those fields may be applicable to other fields. Burning Man (annual art festival in Nevada) is an incredible, wild and crazy, exhausting 24×7 inspiration for out-of-the-box thinking. Don’t miss the chance to experience it at least once in your life. Books are also a great source. The Evolution of Cooperation and The Selfish Gene are two of my favorites.

Here is a technique for generating ideas: think of two or more separate markets, currently non-overlapping, that are growing rapidly. As they grow, they will likely overlap. That overlap will start very small and grow very fast and likely harbors good entrepreneurial opportunities. Streaming video on social networks on mobile devices is an example. Use of cams, microsensors and GPS are growing rapidly; what new applications might be found that combine these?

Kaizen: How has being gay affected your career?

Chisholm: It’s no big deal. Every year, sexual orientation becomes more of a non-issue. I came out late, in my late-30s. Being gay has been an asset for me in two ways. First, because it was not socially acceptable when I was growing up, much of the time and energy I might have put into dating went into studying, sports, and career. Second, being in a group against which many still discriminate has sensitized me to the challenge of being in a minority. Of course, a key to success is to view any aspect of yourself that you cannot change as an asset, so I am biased. For the under-30 crowd nowadays, being gay more and more is just not an issue, like eye color or left- or right-handedness. That is a good thing.

Kaizen: How do you think coming out should be handled in the workplace?

Chisholm: I think being “out” can be helpful, especially for those who work in teams. If your co-workers don’t know anything at all about your life outside of work, that can affect their trust in you, your teamwork, and your opportunity to assume leadership.  With trust, anything is possible; without it, anything can be an obstacle.

I don’t much talk at work about being gay, but I believe everyone knows; people talk. I was in a relationship for five years with a wonderful guy, Mike Beasley, still my best friend, who would come to our company parties with me. A good general rule is: Don’t tell people; show them.

Kaizen: Is there anything distinctive about the way gay issues are treated in corporate culture, or should we just treat them like religious or political differences?

Chisholm: The issues do seem broadly similar to me. I wonder which is more generally acceptable today: abortion or same-sex marriage? I would guess abortion, although same-sex marriage is rapidly gaining wider acceptance. Nonetheless, I wouldn’t be inclined to start a discussion at work on either topic. A big part of success is focus, and that may mean not bringing up things aren’t relevant to or may distract from the company’s mission.

Kaizen: In reflecting on your CEO experience, what do you see as the CEO’s most important role?

Chisholm: Depending upon circumstances, it may be any position on the field: cheerleader, referee, quarterback, offence or defense. Overall, the way I can best help team members, or anyone else, for that matter, is to look for and find good qualities in them—strengths, skills, or knowledge—let them know that I see those qualities, and help them visualize how they might apply them. In other words, help them see their potential. The more specific and tangible I can make that potential, the better I can help that person do great things. The willingness to look for and ability to find the good in people and build on that good is a quality I look for and deeply value in executives.

The CEO and his or her team also have to choose which battles to fight—battles that build and strengthen the company and its human capital; and avoid those you are likely to lose.

Kaizen: Judgment matters, since CEOs can make big errors?

Chisholm: Absolutely. You can err by underestimating or misconstruing the resources needed to penetrate or dominate a market—and conversely, by not being ambitious enough. You don’t want to avoid a battle you can win, because then you forfeit market share and profitability and deprive your team of the growth, exhilaration and invigoration of winning a battle. You don’t want to leave a battle on the table. So you want to take on battles, go after new markets, win over new customers, develop new channels of distribution, and come out with exciting new products. But you want to say “no” to the ones that you cannot win.

Kaizen: Any of these “no” decisions that stand out from your experience?

Chisholm: One was opening a data center in Europe. In 2003, several major prospects wanted us to host their data there. This would have been very expensive, but several of our execs favored the idea, and we went long down the road of investigating it. Along the way, we asked, “What is Salesforce.com doing?” Salesforce was the most successful company and a role model for us in SaaS. They were easily 20 times our size with major clients in the EU. As it turned out, they were hosting all of their worldwide clients’ data in North America. If Salesforce could do major business in the EU without hosting there, why couldn’t we? We finally decided not to do it. That was a tough, important, and right decision.

Another example: several large prospects wanted us to license our software to them, in addition to making it available as a service. This also would have been very expensive, to develop, test, install and support our software in many different IT environments. In this case, “no” was a particularly good call, because the rest of market gradually moved and continues to move away from licensed software to SaaS. Even Oracle and SAP’s revenues are shifting from licensed software to SaaS. More and more, non-IT companies don’t want to have to run their own data centers, which is helping drive the shift to SaaS.

Kaizen: Another CEO job is managing the culture of a company?

Chisholm: I don’t think a CEO can control culture directly, but he or she hugely influences it. Culture emerges from how people treat each other and how decisions are made. The CEO’s behavior is critical, because people look to that example and copy it. Genuinely believing that people are important is necessary for any organization’s success. If you do, people will recognize, appreciate and respond to it; if you don’t, they will recognize and resent it. You cannot fake it.

CustomerSat had a company-wide meeting every Friday morning at 9:30, to make announcements, of course, but primarily to celebrate good things that people had done or had happened. Unlike most company meetings, people enjoyed attending them. All CustomerSat employees have received hand-written, personal notes or postcards from me over the years acknowledging and thanking them for something they have done. I also like to connect employees who don’t normally work together. I’ll try to guess which pairs of our employees know each other least well and encourage them to contact and get to know each other. Those new links can strengthen the social fabric of our company.

Kaizen: In closing, John, what advice would you have for young professionals?

Chisholm: Become passionate about something. Stick with it. Then have fun making it happen!

This interview was conducted for Kaizen by Stephen Hicks.

Also featured in Kaizen are: this semester’s Introduction to Philosophy student essay contest winners – Bronson Garcia, Mona Khalifeh, and Erica Price; Guest Speaker William Kline; and news about our professors.

A PDF version of Kaizen is available here. We will soon post separately the full interview with Mr. Chisholm.

If you would like to receive a complimentary issue of the print version of Kaizen, please email your name and postal address to CEE [at] Rockford.edu.

The talk was sponsored by the Center for Ethics and Entrepreneurship.

Forthcoming: Our interview Professor Kline on David Hume, who, according to a recent vote by contemporary philosophers, is the most influential dead philosopher.

Judy Estrin, CEO of JLabs, is the co-founder of seven technology companies.  She was the Chief Technology Officer of Cisco Systems from 1998 to 2000 and has served on the boards of Rockwell and Sun Microsystems. Currently, she is on the Board of Directors of the Walt Disney Company and FedEx, the advisory board of Stanford’s School of Engineering and Bio-X interdisciplinary program, and the University of California President’s Science and Innovation Advisory Board. Most recently, she is the author of

Kaizen: What was it like growing up in a high-powered science-and-engineering family?

Estrin: That’s hard to answer because I don’t know anything but growing up steeped in science. A lot of the trips we took during the summer were to academic scientific conferences throughout the world. As I talk about in the preface of Closing the Innovation Gap, it wasn’t just that my parents were both academics, but both were Ph.D.s in electrical engineering — it was quite rare at the time for a woman to have a Ph.D. in electrical engineering. And so I just grew up in an environment where I was surrounded by academics and scientists.

Kaizen: How did your parents cultivate your passion for the sciences rather than make it seem dry and academic, as science often unfortunately is presented?

Estrin: Somehow my parents managed to expose us without pushing us away. I’m the middle of three girls, and all three of us ended up staying in science to some extent. My older sister’s an M.D.; my younger sister’s a professor of computer science. So I’m the black sheep — I’m the only one without a “Dr.” in front of my name. We were constantly exposed to science and learning, and saw how passionate our parents were about their careers. I have wondered if I had grown up in a different family, might I have taken a different path? But it was such that I never even questioned that I would end up doing something in a scientific field.

And when I went into business and became an entrepreneur — that was actually a real break from my upbringing, the academic roots. I never imagined, as a kid, that I would ever be interested in the business aspects. And I even remember when I first was working as an individual contributor as an engineer, I had such disdain for the people in marketing. I just had no appreciation for the importance of other aspects of the business when I was an engineer.

It wasn’t until I had my first experience leading a project and actually realized that if you didn’t have the right marketing and sales strategy aligned with the product, it didn’t matter how good your product was. Nothing happens unless the product, marketing, sales, and strategy are aligned. So that was a very key lesson for me.

Kaizen: When you went to college, you already knew your major would be in the sciences?

Estrin: Yes. Actually, I used to joke that if computers hadn’t been invented, I might have been a statistician. I was very, very mathematically and mechanically inclined as a kid and — it’s somewhat ironic since I’ve just written a book — but not at all focused on anything in the humanities or writing. Writing was torturous for me when I was growing up.

I was exposed to computers early because of my father, and at UCLA I very quickly went into computer science. I think what attracted me to computer science is that I love to solve problems, and computer science is about solving problems.

I’m not a typical nerd, though. I was an individual contributor for a couple years and then went into management very quickly, because in the end I prefer working with people than with just machines. I love applying technology, but sitting in front of a computer all day is just not my thing.

I had a very strong education in problem solving through my computer science training, but ended up applying it not just to technology, but to solving customer, organizational and other business problems.

Kaizen: Hopefully in college you find a major you love, but even so you have to deal with challenges and frustrations. How did you learn to handle increasingly large-scale and difficult issues?

Estrin: First I was brought up in an environment where my parents instilled in all of us this notion of continual learning and being stimulated. And so I, as a personality, am very driven. I am also good at taking in lots of data and being able to synthesize it.

There’s a story that I tell in the book about a lesson that I learned from my father that was very influential to me in college.

When I took my first really tough computer science class — the first computer science class at UCLA was pretty easy, the second one is a real killer programming class — I can remember staying up all night trying to get my program to work. It was in the days of batch computing, so you’d submit your program; you’d wait a couple hours before you got it back. And IBM has this term, “ABEND,” which was for “abnormal ending,” and every time it would come back it would say “ABEND.” Today, on PCs, your PC crashes and it’s very easy to just change it. But in those days it was hours and hours spent.

And I can remember coming home in tears — I had been up all night and not been able to solve the problem — and talking to my dad about it. My dad said to me — and this is something I have applied throughout my career and my life — which is, when something is overwhelming, maybe you’re trying to tackle too much of it at once. And that the key to solving problems in programming, which I think applies to life also, is first to look at that big problem and break it into pieces. Any problem is a set of steps, a set of pieces that are all interrelated. And then go figure out how to solve the smaller problems, often tackling the hard ones first, but remembering how they all fit together.

So this notion of being able to look at a situation and instead of trying to do the whole thing — because often in life you can’t, and as an entrepreneur or any leader you have to do the same thing — try to look at the problem in front of you and say, “Okay, let’s piece apart the different elements that are causing this problem, and are there smaller pieces that I can solve that then can allow me to solve the larger one?” And that was a very important lesson to me.

Kaizen: You got a first-rate science and engineering education at UCLA and Stanford. Did your formal education also help prepare you for being an entrepreneur?

Estrin: No. I think that my personality prepared me as an entrepreneur. I love people. I’ve always enjoyed taking complex subjects and being able to explain them to people. So communication skill is something that I think I innately had to some degree and then developed. I am also flexible and hard-working, attributes valuable in entrepreneurial environments. But none of those were taught.

Kaizen: When you graduated in the 1970s, did you consider going to work some place other than Silicon Valley?

Estrin: No. Actually at the time I wasn’t sure what I was going to do long-term, but I just wanted to get a first job and get some experience. I interviewed at all the large high-tech companies — Xerox, HP, Intel — and had offers from most of them, but I also interviewed at a small startup called Zilog that had just spun out of Intel. They had 51 people, and the guy who ran software at the company was a visiting professor at Stanford, and I remember being interviewed walking down the Stanford campus.

I knew nothing about startups, nothing about entrepreneurship at all; I didn’t even know the word “entrepreneurship” at that time. Remember, this is in 1976 and I was 22. So I was very young.

But I chose the job because a friend of my father’s told me that the smartest people he knew — he was a professor at Berkeley — were at that company: Federico Faggin and Charley Bass and Ralph Ungerman and the people who started it. And that’s how I made my decision. I just decided to go where the smart people were.

It changed my life, because if I had gone to HP or Xerox or Intel, it probably would have taken me five to ten years as an individual contributor and then maybe [I’d be promoted to] a project manager. But at Zilog I was exposed to an entrepreneurial experience that I would not have been exposed to otherwise.

It also happened to be where I then met my business partner and now ex-husband, Bill Carrico. We co-founded seven companies. So it ended up being a pretty significant decision in terms of my career path.

Kaizen: In 1981 you went entrepreneurial yourself and co-founded Bridge with Mr. Carrico. What was your division of labor with him?

Estrin: Up until the early ’90s at NCD [Network Computing Devices], he was the CEO, I was the Executive Vice President. So, officially he was the boss. I started out running engineering, but very quickly, once the product was out, I got very involved with customers because it was such an evangelistic sale. Eventually I ended up running marketing and sales also.

In the beginning I was more engineering-focused and Bill had marketing and sales experience. As the company evolved, and even then in future companies, I ended up being more externally focused and he ended up liking to focus on the operations. So we had very clear roles that we played, but also because we were partners, there were fuzzy lines. We had very different styles, and so we really complemented each other and then, over time, learned from each other. Over time, it was one of those combinations that it’s hard to say exactly who did what.

Kaizen: At this point, you were 26 years old. Did you feel well prepared for taking the entrepreneurial plunge?

Estrin: No, I wasn’t prepared, but we probably thought we were prepared. Because in those days there weren’t a lot of young entrepreneurs. Bill was 31, I was 26. Now 26 seems old to start a company. But in those days there were not many 26-year olds who were starting companies. We believed in the area that it was going to develop; we believed that we could make something happen. We were excited about it and willing to give it a try.

Kaizen: In these early days of Ethernet and the Internet, did you have a sense for where it could go?

Estrin: We knew that it was going to be really significant, knew that it was going to be something that was going to change the way people worked. At that time most of the focus was on communication within enterprises, not so much personal — the consumer market. We weren’t sure exactly how things would evolve, but we believed that it would be very significant.

Kaizen: Bridge was successful and went public in 1985 and merged with 3Com in 1986?

Estrin: I think it merged with 3Com in ’87.

Kaizen: What made Bridge successful and attractive to 3Com?

Estrin: Even though they were bigger, it was a merger that we both needed. Bridge was in the business of selling directly to enterprises. We sold what were called communications services. They connected terminals to computers, and we sold routers and gateways, which is what Cisco later started their business on. 3Com sold PC adapters to connect to the Ethernet. As PCs were becoming more and more of a force in the market we either needed to develop a PC business or merge with a company that was doing PCs. 3Com needed to expand their business more into a systems business, which we were. And so it was a merger that seemed to make a lot of sense.

It ended up being very difficult from a management perspective because Bill and I didn’t agree strategically with the management of 3Com after the merger on the direction of the company. And so after nine months we decided to leave rather than have a board fight and disrupt the company.

Kaizen: Your next company was Network Computing Devices (NCD), which you joined at the beginning as Executive Vice President, later becoming President and CEO in 1993?

Estrin: Right after we left 3Com a group of five people who were prototyping a new type of product approached us to come join them as CEO and EVP.  We joined and raised financing for the company right away. NCD was the early leader in the Xterminal market — thin clients before thin clients were popular. The common theme is “ahead of its time” in all of these.

Kaizen: You also co-founded Precept in 1995 — what was Precept’s focus?

Estrin: NCD went public in 1992, and in 1994 we decided that we badly needed a break. I found a CEO to replace me. We didn’t think that we were going to start another company, but after six months we realized that we were not very good at retiring and we started Precept.

Kaizen: Precept was acquired by Cisco in 1998 for $82 million. You then became Cisco’s Chief Technology Officer and were now managing a large number of people. Did you have to learn or upgrade your management skills for the different environment?

Estrin: I had to adjust my internal expectations because it was a big company. It was a different type of job. I was used to running a company, not working in someone else’s culture. I was used to being able to set the culture. It was a big company — there were a lot of politics, there were dynamics going on that I had to deal with.

But from a leadership style, I think that I had developed the skills that carried over to that. But more challenging issues had to do with that it was the peak of the bubble and some of the dynamics of what Cisco was going through at that time.

In the first year I was just CTO. In the second year I was CTO and ran all of their centralized software, which was another several thousand people that reported in to me. By the end of the two years I had a lot of respect for Cisco as a company but realized that, culturally, it was very different from what I was used to and that I wanted to go back to building my own culture.

Kaizen: Packet Design was your next project, starting in 2000 — what was its product?

Estrin: Packet Design was a different business model completely. It was an experiment that did not turn out exactly as planned partly because the timing was wrong. It would have been a very interesting business model if not for the bursting of the bubble. We believed that the bubble was going to burst; we didn’t anticipate quite how dramatic the consequences were going to be. Packet Design was a technology lab/incubator. We had multiple projects that were more medium-term research-focused; they weren’t short-term focused. And then for those projects that got through proof of concept, we would spin out companies and get venture capital.

We ended up spinning out three companies. One of them exists and is still a private company but is doing well today; the other two are essentially gone.

Now some would say that if you look at a portfolio of a VC, one in three is not bad. I guess there’s a part of me that would have liked to have seen all of them succeed.

The parent company Packet Design, LLC was eventually dissolved. In 2003 we changed the business model and stopped doing future development and just focused on the spin-outs. And then two years ago we distributed all of its assets. I then focused my attention on my board work, and that’s actually when I started writing the book.

Kaizen: Your experience and successes also led to your joining the boards of directors of FedEx, along with CEO Fred Smith, and Disney, along with CEO Bob Iger and Steve Jobs. Everyone on those boards is extremely accomplished—what complementary expertise do you bring to those boards?

Estrin: I’ve been on the board of FedEx for 20 years and Disney now for a little over ten. I like to think that I contribute in a variety of says, but three main areas are my entrepreneurial experience, my different perspective as a woman, and my understanding of technology and the Internet.

Kaizen: Looking back on your extensive entrepreneurial experience, what was the most exciting aspect of being an entrepreneur?

Estrin: I don’t know that I can pick just one. One of the most exciting aspects of entrepreneurship is identifying an unmet need and developing a new approach to address that need and then actually seeing it happen. Creating a new market and seeing people use the products and figuring out how you need to adapt it to bring that to market.

The second part is the part I miss the most — teambuilding; when you build a company, you get to create the culture bottom-up, which is very special. People used to joke that I used to talk about my companies as kids. I actually give a presentation where I compare great leadership to great parenting. Ethics and values, whether you’re raising kids or building cultures and companies, are not dictated by little notes on a card — they’re set by example. There are behaviors that you reward, what you tolerate, how you treat different things. It’s built into the fabric. There’s something to me just really wonderful about bringing teams of people together and watching them grow. Individuals that I remember starting working for us right out of school — now I see them off starting companies of their own. So the people part of it is probably the most special aspect that I think back on.

Kaizen: What has been the most challenging aspect of being an entrepreneur? Anything that caused sleepless nights?

Estrin: First of all, being an entrepreneur is really, really, really, really, really hard work. It’s all-consuming. The great entrepreneurs are consumed by passion. It takes a lot of time. It’s a really big commitment. And so you have to realize there are compromises that you give up by throwing yourself into something.

And then — not true in the early years — but one of the reasons why I’m no longer running a company is that, today, the venture-entrepreneurial ecosystem is broken. And so raising money and having to deal with venture capitalists today is an unbelievable frustrating experience. Not across the board, but for the most part. They’ve become very risk-averse. It’s become more adversarial. Now I also think entrepreneurs today are feeling too entitled. They don’t realize that there’s risk involved and how much work is required and often expect returns too quickly. So I would say the venture-entrepreneurial dynamic to me is the most frustrating part.

Kaizen: You’re an innovative person in an innovative field, and that has led you to write an innovation manifesto—a call to action, as one of your chapters describes it. Why did you decide to write Closing the Innovation Gap?

Estrin: Some of it came from my concern about the venture-entrepreneurial ecosystem. And actually, the joke amongst my friends when they heard I was writing a book was that some people wondered whether I was going to write a two-hundred-page rant about the venture community. There’s only a very short rant in there about that.

But I think what drove me to write the book is that I was giving presentations to people on innovation and leadership and started to realize how much people took it for granted. And ever since leaving Cisco, ever since we were in the bubble, I have been increasingly uncomfortable with the state of innovation in this country and feel that the ecosystem or the values that support innovation and have always made it thrive in the United States have been undermined by a set of forces.

I wanted to be able to communicate to a broader audience, number one, that innovation is really important and how much it matters. It drives the economy, it impacts our quality of life, it’s the only way we’re going to get to energy independence, or reverse climate change, or affordable and available health care.

And it matters to individuals. As you go through life, you change, and so innovation really matters. I realized very few people that I came across really understood innovation in a broad perspective. You have these silos of communities, and if you go to the business world, they will talk about innovation in terms of bringing a product to market. If you go to academia, their role in innovation is discovery, research, science. Then there’s also the role of applying innovations in new ways. So if you look at what FedEx does, or if you look at how the government can reinvent itself, or if you look at physicians who are innovative in their methods in providing health care.

I felt that people, number one, were taking innovation for granted. We’ve become much more focused on short-term, greed, which has driven and undermined long-term innovation. We have an innovation deficit. We are harvesting the seeds that were planted decades ago, but we’re not planting seeds at the sufficient rate to grow. And actually one of my favorite quotes from the book was one from my interview with Marc Andreessen, who was the developer of the browser. And when I asked him how he had developed it so quickly, he said to me, “Judy, the browser was the icing on a cake that had been baking for 30 years.” It took layers of innovation to get there. And we are no longer planting those early seeds.

We have de-emphasized how important science and research is, and even a lot of the research has become more short-term focused. And in the entrepreneurial ecosystem people are no longer investing in the higher-risk type of areas. They tend to want safer bets because they want shorter-term returns.

It’s interesting because if you ask me what drove me to start any of the companies, it was never about money. It was always about seeing a need, seeing a problem, and having a passion to address that problem. And with the companies it was about developing technology or a market. With the book it was about seeing a problem that I was passionate about and wanting to do more than just go around giving presentations about it. I decided to be innovative and try something new.

Kaizen: What can we learn from great innovative companies? You’ve been involved with Disney and FedEx, and you describe FedEx as the “ultimate left-brain company” while Disney is a great “right-brain” company. What makes FedEx a “left brain” innovator?

Estrin: I have lots of examples throughout the book because I interviewed over 100 people. Most of my career experiences are entrepreneurial. It’s one thing to manage innovation in a startup entrepreneurial environment; it’s another thing to do it in a large company. The reason I sit on those two boards is that I believe they have great cultures of innovation and are very committed to always thinking about change and the future.

But what’s interesting is how different they are. Here is FedEx on one hand. Its business is based on metrics and measurement and operational excellence, as they have to deliver millions and millions of packages a day. Yet they are able to not just be incrementally innovative, but they think long-term. And they have labs where they think about, “How can we use information technology to improve the customer experience — what might we do?”

Then on the other hand you have Disney, which is also operationally an excellent company — and certainly in the theme parks you have some of that same notion of having to measure and manage a large operation. But in the end Disney is really about creativity. It’s really about storytelling, from the parks to movies to TV. So that’s the right brain, as opposed to FedEx. But both of them have these incredible commitments to innovation in their cultures.

Kaizen: Pixar is also a good example here? Pixar works on three time horizons simultaneously: the current film, developing the next generation of animation tools, and an even longer-term research group that collaborates actively with the research community.

Estrin: I do tell a story of Pixar in the book, because to me Pixar is one of the most innovative environments I’ve ever experienced. I haven’t worked there, but Disney acquired Pixar, and as part of that I’ve gotten to know the people and the operation. They just are incredible.

Kaizen: You also like the design of Pixar’s headquarters’ atrium. How does the atrium facilitate innovation?

Estrin: When you walk into the main building of Pixar, there is this feeling of openness and it’s not artificial. Actually, I think it was Steve Jobs who came up with the idea. It’s this very high-ceilinged atrium where there’s a cafeteria off to one side. If you walk straight ahead there’s actually a screening area. But there are these games rooms. And on the second floor — they have glass so you can see them — are meeting rooms. And so it just becomes an automatic gathering place, because that’s where people go for their coffee, you have to walk through the atrium to get from one side of the building to the other, and so you just have this natural coming together of people in a way that is important, in this very open environment.

Kaizen: You identify three things that leaders must do to start and grow an innovative company: find the right talent, get and allocate funding to the talented, and then nurture that talent. You use organic metaphors here — “Innovation does not just happen. Like a garden, it must be actively nurtured.”

Estrin: There’s one left. Part of nurturing, if you use the organic metaphor, is also protecting them from the elements. So a big job of a leader in a large company is, if you have a small group, to protect them from all of the forces in the company that want to kill that small group. Meg Whitman at eBay, whom I interviewed for my book, calls them “baby tigers.” But you could call them small groups, seedlings, whatever you want to refer to them as.

Kaizen: Why do they need special protection in a larger organization?

Estrin: Again using this organic notion, think of a big business as a factory farm. And the role of a large business is to be very customer-focused, to mass produce, to eliminate all defects, all surprises, and just have high quality to support the customer. You can get incremental innovations in a factory farm, but if what you’re trying to do is eliminate surprises and mass produce, you will never get more disruptive innovation.

And so you need to couple that with what I call little greenhouses or gardens, which are smaller groups that are managed differently, where surprises are good, where you’re doing more nurturing. And then the challenge is: When do you transplant from those gardens to those main things?

But in a big company, the people who are running the mainstream businesses are very often so focused on their own business, that they don’t recognize the need for these little greenhouses, and they’ll say, “I need that $5 million for my marketing budget.” Well, $5 million in their big marketing budget probably means nothing, but $5 million to one of these little projects could be a lot.

Another problem is that companies often put up ROI [return on investment] hurdles before they’ll start something. If you do that, that’s just the way to kill innovation, because you don’t know how big something’s going to be. You want to take a certain amount of your resources, no matter how big a company you are, and be able to just play and explore, if you want to make sure you’re going to have that future growth horizon. The other way to do it is not do it internally but keep your communication open with startups and academia.

Kaizen: Part of the challenge is telling the difference between a tiger and a toad, so to speak? You quote Robert Spinrad of Xerox: “I assumed that half of the stuff we were doing wouldn’t pan out. But I never knew which half.”

What goes into nurturing the baby tiger to the point where you can tell if it’s actually a tiger or a failure?

Estrin: A lot of that is instinct. How do you know, when you’re nurturing a plant, whether it’s going to make it? It starts to flower. And sometimes you could give up on a plant and it might be just about ready to flower.

One of the reasons why leading for innovation — and I use this term “green thumb leadership” — is so hard, and why people are more comfortable with incremental innovation, is those people are taught in business schools that you can’t manage what you can’t measure. So if you can manage with metrics and measurement, that’s much easier than to manage based on judgment or patience and letting things grow.

So there is no rule book for it. It’s a question of, how much do you trust the talent? Asking the right questions. Having a sense of where it’s going. Having a sense of how long you can afford to fund something, funding it lean for a while, trying different things. It really is something that is hard to quantify.

Kaizen: Part of the leader’s job is to create an environment of risk-tolerance, trust, healthy criticism, and a willingness to fail. You quote Google CEO Eric Schmidt: “You have to have a culture that is explicitly tolerant of the crazy idea, the criticism of it, and then its renewal.” How do leaders do this?

Estrin: You have to create forums where people can input ideas and make sure that critique of ideas is not taken personally, that people are free to discuss ideas. You want to be very careful about forums where, the minute somebody puts up a crazy idea, people shoot it down and don’t even have discussion of it. So it’s again how you act, what forums you create for communication.

In the book I talk about these five core values: questioning, risk, openness, patience, and trust. That trust one is really important, because if you don’t have an environment of trust, then people aren’t going to be open to change, or to share, or to talk about problems. They’re not going to be open to question or to self-assess, and they’re not going to be willing to be vulnerable to try something if they’re going to fail, because if they don’t trust, it’s very hard to have the other environment. So a big part of leading for innovation and building that culture is trust.

Kaizen: But innovative companies expect lots of failures and, paradoxically, should try to fail quickly?

Estrin: I think it’s designing tools and having the idea within organizations to tackle the hard parts of a problem first. So if you’re looking at something, what are the key technology risks, and tackle them. Because if they’re not solvable, then maybe the rest doesn’t matter. Whereas sometimes people say, “Let’s get the easy things out of the way.”

One of the things that the pharmaceutical industry really suffers from is that there aren’t good techniques for determining failure early — for example biomarkers. I don’t think we, as a country, have invested enough into ways to determine whether a drug is likely to work or fail early enough. And you have to go through this whole process that is so expensive, and it has made the pharmaceutical industry trend toward blockbuster drugs.

Kaizen: Much of leadership involves making very difficult judgment calls: Whom to hire — what to fund and how much funding and for how long — when to acquire and when to cultivate innovation — recognizing stagnation and deciding to cut funding off — recognizing progress and deciding when to move from the lab to development, from development to the market — and so on. Is that true to your experience?

Estrin: Yes. And I think that how good a person’s judgment is, is a key aspect in any management or leadership situation, no question about it. Because a lot of what a manager or leader does is address the hard problems — the easy ones get solved at lower layers.

But the difference between leading in an entrepreneurial or in a more disruptive innovative environment versus an ongoing business is that, in an ongoing business, you often have hard data with which to make those decisions and make those judgments. You sometimes have to fill in a couple of blanks, but you usually have data. In entrepreneurial businesses, when the market doesn’t exist yet, or in research environments, or very early stage innovative environments, again, places where you don’t have that hard data, that judgment has to be sometimes made with asking the best questions you can and then instinct.

Kaizen: Is that why you quote venture capitalist Bob Metcalfe: “The real commodities are the CEOs”?

Estrin: Yes.

Kaizen: So what do we need to do as an “innovation ecosystem” culture to develop more people with that potential?

Estrin: I actually think that there are two different issues. There is a question about whether you can teach judgment: some of that is people’s aptitude and some people just are better at it than others, better making decisions in ambiguous situations.

But I think it’s also experience. And I think one of the things that we don’t do in our education system very well is give people experience with not just answering questions but framing questions, and being able to play out scenarios that they then make decisions on the basis of. And too often even case studies that are done in business schools or entrepreneurial programs are all success stories and don’t deal with the failure scenarios. So I think there’s a lot more that we could do to prepare future generations.

Now you asked about the ecosystem. I was trying to find a way to describe the environment in which what I call “sustainable innovation” can thrive. And I call it “sustainable” because I’m not talking about just one product or one idea. And I wanted to communicate to people that it didn’t begin and end with products. And this notion that I mentioned earlier that you have the research and basic science element of it, you also have the application and use of products that drive innovation.

So I came up with the notion of comparing it to a biological ecosystem —communities of living organisms that exchange nutrients and then interact dynamically with their environment. In biology the environment is air and rain and sunshine. The communities might be plants or bugs or people.

With innovation there are three communities. There’s the research community, which is about furthering understanding, about discovery and, very importantly, it’s the community in which we train young minds. It’s where most people learn how to tackle problems. There’s the development community, which is about developing products and services in innovative ways. And then there’s the application community, which is about applying those products and services in different ways. Examples of the application community are the government, doctors, or consumers that use iPods, social networks or 3M sticky notes in new ways.

And it’s not a line — it’s not research-development-application — it’s a circle. Because needs and questions and communications need to go between all of those different communities, and people move between them. And then the environmental factors in innovation, the factors that influence the ecosystem, are leadership, policy, funding, education, and culture. An important notion of an ecosystem is that a biological ecosystem needs to be in balance to sustain life. And so too an innovation ecosystem needs balance across the communities and the right balance of these environmental factors to sustain innovation.

Kaizen: What can schools do better? You mentioned paying more attention to asking open-ended questions as opposed to focusing on answers.

Estrin: Experience. Giving them experience with learning from failure. Experimentation. Trying things.

Kaizen: So what can we do better, prior to college in the education system, to develop those things?

Estrin: We essentially need to change our whole methodology of teaching. We don’t pay enough to attract great teachers, and there are a lot of great, dedicated teachers, but not enough. And when I talked about the importance of leadership in a company, well who are the leaders in schools? Principals and teachers. They’re the most important environmental factor, and we don’t pay enough or respect the profession enough to attract people who will inspire young minds.

Kaizen: Yet U.S. students do seem to have lots of initiative — you quote Nokia’s Henry Tirri: “If I pose a question to a class of 100 students at a university in Finland, I’ll get only one hand up, but I’ll be totally convinced that the answer will be correct. If I do the same in the United States, I get 99 hands raised, out of which 90 are probably wrong. But they’re willing to try.” Are we doing well enough in that respect?

Estrin: That is a true statement, and I think that has been a hallmark of America’s culture, but I think it’s going down. I think we are losing some of that, and I think we need to make sure that we are reinforcing it. Because the word “accountability” has become a big word in this country. It is important, but we need to be careful about how we execute. As we focus more and more on accountability, we do that through tests. And people start getting so test-focused that they’re no longer focused on learning. And Henry is not talking about K-12, he’s talking about college kids.

Kaizen: At the college level, as you mentioned, we have both professors doing academic research and educating. What needs to change on the academic research side?

Estrin: I wrote a lot in the book on this topic. At a very high level, there’s a scarcity of financial resources in terms of investing in research, in terms of government funding, and corporate investment. Some scarcity is good. It creates competition. But when you have too much scarcity, people take fewer risks and they take a safe route. So we need to look at how we’re granting money, how we’re allocating it, how much is being granted.

Universities need to become more interdisciplinary. They need to focus on not just training people as experts in one subject but really looking at getting people to work across disciplines, because the problems of the future are mostly interdisciplinary. And a lot of that is thinking about the silos that departments and the tenure system create.

I’m not one of those people who are suggesting that we take away tenure. It was put in place to give people freedom of expression, but it’s backfired in some sense. I do think we should take a look at the tenure system and decide if it is doing what we want it to do. Are we putting so much pressure on our young professors at the prime of their career to just publish or perish, so it just focuses them on the wrong thing?

So I think we need to find the right blend of encouraging young researchers and coupling them up with the more mature professors and scientists who have the training to think critically. Because one of the problems of the younger generation is, they’re very impatient. They haven’t been taught to think critically, to sometimes even to take time to think. The Internet’s a wonderful thing but it amplifies good and bad. And one of the things that it amplifies is impatience, because you just Google for an answer instead of thinking something through.

Kaizen: How about corporate research? What is the most significant reform you think needs to happen there?

Estrin: I think, unfortunately, corporations have gotten to the point that they’re under so much pressure from Wall Street on short-term earnings per share that they just have forgotten about research. Not all, but for the most part. And I think they need to realize how important it is to their future, not to go back to Bell Labs or house big labs themselves, but form connections with academia and help fund research in academia.

Kaizen: You mention both Google and Procter & Gamble as two success cases of corporate labs.

Estrin: Google does some research. I think Microsoft is probably the better example of a corporate research lab. And Procter & Gamble does that.

Kaizen: You mention that P&G’s “research labs around the globe employ more Ph.D. scientists than all the Ivy League universities combined.” So they’re doing a lot. Is it a matter of focusing, more longer-term studies?

Estrin: Proctor & Gamble and Microsoft do invest in research. But we have lots of companies in this country. I often have this happen where I’ll say, “We’re not doing enough,” and somebody will point to one company. That’s not enough.

Kaizen: But you don’t think that those success cases are symptomatic of the rest of corporate research?

Estrin: No. And I put those success cases in there to try to show other companies what they should be thinking about doing.

Kaizen: So we shift to the venture capitalist sector and Wall Street. You are more negative here about increasing pressures to meet quarterly report benchmarks. What data suggests that this is more so now than ten or twenty years ago?

Estrin: This is actually a very long answer. But it comes from a bunch of different elements, whether it’s program trading, whether it’s the percentage of the market that hedge funds are involved in, whether it is that in general the investors that are in the market do more flipping and trading than long-term holding, whether it was the demise of the brokerage firm that could actually give advice and do good analysis and research on small and large companies. And that went away when online trading came in and basically took away all the margins from the more traditional brokerages; they could no longer afford to really do that.

So there’s been a lot of changes in the market. If you ask any CEO, they will tell you that for the last five or ten years there has just been this incredible focus on short-term earnings per share.

Kaizen: You’re very critical of the VC sector and suggest that it is more risk-averse now and sinking into groupthink? That’s a strong statement.

Estrin: Yes. I think that during the bubble, all these VC firms bulked up. They raised huge funds, they hired lots of people, and the people that they hired may be very smart, but they’re more like bankers than venture capitalists. So they’re not really people who have lived and seen the entrepreneurial cycle. They don’t understand the entrepreneurial process as well, and they try to put a level of determinism into entrepreneurship that doesn’t work.

Kaizen: Would you suggest that VC firms hire more people out of the entrepreneurial sector?

Estrin: I think they should hire people who at least understand intelligent risk and have had more exposure to entrepreneurial cycles.

Kaizen: How about the role of government? A number of huge issues are on the table here — tax policies that encourage innovation, immigration policies that attract students and entrepreneurs, funding for science and engineering R&D, regulation and red tape (e.g., Sarbanes-Oxley), amounts of funding for education, allowing charter schools or vouchers, and of course conflicting political philosophies that are science-friendly or science-unfriendly. If you had to pick just one to focus on and fix, which would you identify as the best one to start with?

Estrin: There isn’t just one issue. They’re so interconnected. Let me just say a couple of things.

One is, that there’s a tendency in this country to polarize and portray the issue of government involvement as black or white. Either you believe government is bad and you have as small a government as possible, or you’re a socialist and you think government should run everything.

And the fact of the matter is, government has a really important role to play in innovation. Can government stifle innovation? You bet. And things like the Sarbanes-Oxley Act, where there was legislation passed too quickly, a knee-jerk reaction, ended up stifling it.

But government’s role should be, number one, to use the bully pulpit of the leadership of the country to inspire, challenge and rally the nation. If you look at the last eight years, one of the problems was that threats were used to create fear. And then we were told to go shopping, so we were afraid and felt helpless. What you really want is for a leader to take a threat and turn it into a challenge, use that challenge to rally involvement. And that really turns on innovation. So you want to use the bully pulpit to inspire like JFK did and actually what Obama is trying to do today around energy and the environment and health care.

Government needs to fund research because it’s for the good of society and it doesn’t bring returns to any one company, so it’s something that companies can’t or won’t do. Creating regulation can help or hurt. Government has to really be smart about policy and think about the unintended consequences of that policy. You want policy that creates openness.  Government should not pick winners, but it can spark innovation through funding, smart policy and inspiration.

And then government needs to provide a safety net. The fact that you can educate your kids or that you can have health care available to your family allows you, as an entrepreneur, to leave your job at a big company and go start a company. But if you don’t have a safety net, things like bankruptcy laws, an environment of trust, it’s hard for entrepreneurialism to exist.

Kaizen: You are more optimistic about the role of private foundations and mention the impressive track records of the Howard Hughes Medical Institute and the MacArthur Foundation, and the promising Bill and Melinda Gates Foundation. Here you suggest that “At a time when the government is so driven by partisanship and businesses are struggling to look beyond the next quarter, nonprofits may be the best positioned to think long-term.” How so?

Estrin: I’m optimistic in that I said that they’re the ones who potentially can think longest-term, if they have good endowments. Politics are driven by the next election, companies are driven by their earnings per share, and nonprofits can be — if they’re run the right way — longer-term focused.

Kaizen: But overall you’re not optimistic?

Estrin: I think we have incredibly serious problems in this country. I submitted the manuscript before the financial crisis, and the financial crisis has exacerbated the problem. But innovation is our only way out of this. We are stopping the downward spiral, but once we come out of this, we’re going to have significant unemployment and massive deficit. And we won’t address these two issues through slow growth, which is what existing, mature industries can give you. We need sustainable, more significant growth — not bubbles — which is only going to be created by new industries. And the only way that happens is through innovation. So I am very concerned about the problem.

Kaizen: Nonetheless, you don’t think the trends are irreversible and you do think that it is possible for us to rejuvenate our innovation culture?

Estrin: Yes. Because I think there are two approaches in life: you can be frustrated and overwhelmed and choose to do nothing, or you can be optimistic and figure out a way that you can maybe try to make a difference.

So I choose optimism. But it’s frustrating because you look around and these are big, big, hard, significant problems. And the financial crisis unfortunately has us even more focused on the short-term.

Kaizen: To come back to your own career as an innovator and technology pioneer, which of your business achievements has given you the biggest sense of accomplishment?

Estrin: Each experience was different. I would say that my most precious innovation is my son, who is 18 and just went off to college.

I think the two things that come to mind are the first company, Bridge, and writing the book. Because in both cases I was doing something completely different, completely new.

Kaizen: Looking back, what was the single most difficult business problem you had to overcome?

Estrin: For me personally, it was very early in my career: Learning to make decisions and when decisions needed to be made. The engineer in me wanted to analyze everything. I also wanted everybody to like me. Working with Bill who is incredibly decisive and maybe not as people-oriented, over time I developed those skills.

But I think early in my career as a leader and an entrepreneur, one of the hardest things was learning when it was time to make a hard decision. The other challenge throughout my career has been juggling — the balance of trying to do everything I want to do.

Kaizen: Most busy professionals struggle with balancing their career goals with their other major life goals — their relationships, their children. Do you have advice there about time management?

Estrin: When I talk to college kids or high school kids, or often women’s groups, this work-life balance often comes up. It is a challenge for men and women. And what I suggest to people is: Think about an expert juggler. An expert juggler knows exactly how many balls they can juggle; they don’t ever take on one more. Because if you take on one more than you can juggle, what happens? They all fall.

So the trick is learning to put down the balls, knowing yourself. And the number of balls changes through life. If you wake up sick one day realizing that, “Today I can’t juggle as many balls because I’m not feeling well.” Or if you have a death in the family, or you’ve just had a kid, or there’s something else going on in your life. Sometimes there are periods of time you can juggle more. There are periods of time when you have to realize, if there’s something else going on, that’s like another ball that you’re juggling.

In the work-life business what does putting down a ball mean? It means saying no or asking for help. And depending on your situation, sometimes you can’t say no, so then you need to ask for help. And it’s very hard for some women to ask for help. And so I think learning that notion of tuning into yourself and figuring out how many balls you really can juggle and not judging yourself if the number of balls you can juggle is less right now. The trick is to prioritize and keep the important ones in the air, not how many are in the air.

Kaizen: How do you maintain your forward direction when times are tough, or you’re facing disappointments or seemingly insurmountable obstacles?

Estrin: I think this is different for different people, and it’s been different for me at different times in my life. I think being tuned into your body and being tuned into your stress levels allowing yourself to feel vulnerable.

So what do I do? Everything from going home and crying, getting a hug from my son to going for a walk or talking to someone close. There’s not a person in the world, from an entrepreneur to the CEO of a large company to the leader of a country, who isn’t sometimes exhausted, unsure, and just needs to talk. The notion of being able to just know you’ve hit a wall, or know before you’ve hit the wall, and backing up a little bit and just saying “I need to get perspective on this.”

I’m sometimes better at giving advice than getting it, than doing it myself. But it’s that notion of taking something seriously, but not so personally that you get so wrapped up in it. And I know this is a problem I have had through my career, which is, I not only take things very seriously, I take them personally, so I just throw my whole self into it. Sometimes you need to be able to take that step back.

Kaizen: Your career has been, from what I can tell, non-stop and in a highly-innovative sector and in perhaps the most dynamic place on Earth — and you have flourished there. Where does all your energy come from?

Estrin: There are lots of people who have flourished here. I think it’s a combination. Some of it is, I think I had the aptitude, the passion, the drive, the willingness. I’m very disciplined, I’m very driven. But some of it, and one of the reasons I wrote the book, is that my career intersected with a time in which the environment in Silicon Valley allowed me to thrive. If I didn’t have the skills I wouldn’t have thrived, but it’s much harder today to build that same thing.

I found as I became an entrepreneur — this is not something I ever knew as a kid — that leading, motivating people and inspiring people to do great things, was something I loved and was something that came natural to me.

So my career is really a product of all of the people who worked at all of our companies. It really is not an individual thing. Entrepreneurship is a team sport. But as the leader in an entrepreneurial venture, some of it is having a vision, picking the right areas, but also being able to rally and inspire a team of people to execute.

Kaizen: You have received many awards — you have been named one of Fortune magazine’s 50 most powerful women in American business three times, and in 2002 you were inducted into the Women in Technology International Hall of Fame. Do those impressive recognitions add to your sense of accomplishment?

Estrin: I think they look good on a book cover, but they don’t mean a lot to me. Not that I don’t like them, but to me the rewarding part of it is the experience and the people. Awards are not what drive me. The only reason that I really care about them is that I think they are good for providing role models for other women and future generations. I do think they play an important role, not so much for me personally but in influencing others.

Kaizen: In closing, what advice would you give to young people starting out on their hopefully exciting (and hopefully innovative) careers?

Estrin: I’d say a couple things. One is that everybody is very focused on entrepreneurship now and it is a wonderful, wonderful experience, because the greatest thing about being an entrepreneur is, there’s a very direct feedback loop between the success of the venture and the individuals in the company, because it’s small. When you’re in a very big company and the customer’s problem gets solved, for the engineer in the lab that feedback is not there. So there’s this wonderful feeling of satisfaction that can come from entrepreneurship.

But if you’re not an entrepreneurial type and don’t want to be in a small company, you can be entrepreneurial in a big company, too. It’s a state of mind, and it’s a state of mind that is about passion and drive and flexibility and learning how to identify needs and thinking disruptively, and discipline, drive, and hard work. And so it’s this interesting combination.

And my advice to entrepreneurs is that they should be driven by passion, not greed. When entrepreneurship is driven by greed it becomes a very different experience. When it’s driven by a passion to solve a problem, often the money follows if you’re successful, but the most successful entrepreneurs have been driven by that passion.

But you need to go into it realizing that it’s hard work. There’s a lot of taking two steps backward to go one step forward. There’s a lot of obstacles. It takes tenacity and patience. You can’t go into it feeling entitled, because the fact of the matter is most new ventures fail. And so what if it fails? Then you pick yourself up and try something else.

This interview was conducted for Kaizen by Stephen Hicks. To learn more about Judy Estrin, please visit www.theinnovationgap.com.

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Read the article at Forbes.

Ms. Mitra also has a longer interview with Ms. Fell at her website.

In this issue we also feature guest speakers Joshua Hall and Jerry Kirkpatrick and student essay contest winners Erin Filak, Kristy Luck, and Elliot Welsh.

A PDF version of Kaizen is available here. We will soon post separately the full interview with Ms. Estrin.

If you would like to receive a complimentary issue of the print version of Kaizen, please email your name and postal address to CEE [at] Rockford.edu.