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Remembering Eugene Kleiner

Remembering Eugene Kleiner, the pioneering venture capitalist and co-founder of Kleiner Perkins Caulfield & Byers

In 1986, when I landed my very first client, a small sportswear company in need of a business plan, I asked my friend, Eugene Kleiner, for advice. Eugene took me to his office, sifted through stacks of business plans and selected about a dozen. "Go home and study these." A couple weeks later, he sat down with me and told me what made a good business plan -- and a good business.

Over the following years, Eugene and I had lunch once a month, and he would not only share insights about building companies but stories of his history -- the history of Silicon Valley.

Even then, of course, I knew what an extraordinary education I was receiving. After all, before Eugene Kleiner, there was no silicon in Silicon Valley. Eugene and his seven colleagues comprised the "traitorous eight" -- eight young men who broke away from Nobel Prize winner William Shockley to form the first silicon semiconductor company, Fairchild Electronics, in 1957. In doing so, they launched a new industry, transforming a section of California known for apricots into the world center of technology.

But as pioneering as their product, Eugene's group was radically changing the business world by creating a new kind of company. They had difficulty raising their start-up funds because the engineers themselves, not the investors, would get majority ownership. This was a radical departure from the way companies were funded on the East Coast -- a tension still reflected today in the fight over stock options and the idea of employee ownership.

They were also transforming the meaning of the word "management." I once asked Eugene about the management style at Fairchild, particularly in the early days. He shook his head in semi-confusion -- everyone just had a job to do, and they did it. There was no hierarchy, no reporting structures. Remember, this was the 1950's -- the era of big business and the "man in the grey flannel suit." But at Fairchild, they practiced the kind of "flat" management structure that would later be the hallmark of Silicon Valley and other entrepreneurial companies.

After Fairchild, two of the founders -- Gordon Moore and Robert Noyce -- went on to found Intel; Eugene was an initial investor.

And that's another major contribution Eugene and his colleagues made to the transformation of the business world. As they made money, they didn't just park it in secure stocks and bonds and go off and play golf; no, they invested in new companies.

In 1972, Eugene was introduced to Tom Perkins, and together they formed one of the world's first venture capital companies -- what would become Kleiner, Perkins, Caulfield & Byers -- commonly referred to as "Kleiner." Their first fund was eight million dollars. Today, KPCB has invested billions. KPCB basically invented the idea of "incubating" a company -- supporting a promising entrepreneur while still hatching a company. Genentech was one of the first incubated companies.

Eugene was a man of fascinating contradictions. Here was a man who was literally defined by the word "capitalist," yet, he understood the limitations of unfettered capitalism. I was with him the evening the Berlin Wall was toppled, and while I was exhilarated, Eugene was wistful. He considered socialism a "noble experiment" and worried about a society -- our society -- where so many of the poor and less able were left to fend entirely for themselves.

While Eugene was clearly motivated by making money, he didn't approve of pure speculation. In this he represented an earlier era of venture capital, in which he saw his role as building companies of lasting value. During the height of the dotcom era, Eugene complained that companies sent "bean counters" -- finance people -- on investor road shows rather than company founders or presidents. Everyone had become focused on the deal rather than the company.

It's hard to imagine a man as influential as Eugene being shy, but he was. A large part of that was probably due to the fact he was hard-of-hearing. I never saw him in a room where he didn't stand back. I suspect a lot of people who met him thought he was stand-offish. He wasn't. He was waiting for someone to say hello first.

Eugene was gracious, polite, mannerly, and impeccably dressed. Even when I came to meet him at his home long after he retired, he'd be wearing a sports coat. Only in his much later years did he come to the door in shirt sleeves. And his big splurge -- a man who could have bought yachts or private jets -- was shoes. His father had been a shoe manufacturer in Austria before the family had to flee from the Nazis, and Eugene always loved fine shoes.

Over the years, much of Eugene's business wisdom became widely known as "Kleiner's Laws." I was fortunate to have many lessons he taught me one-on-one. Some of my favorites:

  • Make sure the dog wants to eat the dog food. No matter how ground-breaking a new technology, how large a potential market, make certain customers actually want it.
  • Build one business at a time. Most business plans are overly ambitious. Concentrate on being successful in one endeavor first.
  • The time to take the tarts is when they're being passed. If an environment is right for funding, go for it. Eugene, more than anyone, knew that venture capital goes in cycles.
  • The problem with most companies is they don't know what business they're in.
  • Even turkeys can fly in a high wind. In times of strong economies, even bad companies can look good.
  • It's easier to get a piece of an existing market than to create a new one.
  • It's difficult to see the picture when you're inside the frame.
  • After learning some of the tricks of the trade, some people think they know the trade. This reflected some of Eugene's own humility; he recognized that many venture capitalists thought they were experts when they had just a bit of knowledge.
  • Venture capitalists will stop at nothing to copy success.
  • Invest in people, not just products. Eugene always respected founding entrepreneurs. He wanted to build companies with them not just with their ideas.

On November 20, 2003, Eugene Kleiner died at the age of 80. In the last weeks of his life, I asked Eugene if he had any regrets -- any investments he wished he'd made, places he wished he'd visited, any thing he'd missed. He sighed deeply, and his answer surprised me, "I know I was lucky to get out (of Austria) myself, and I was young, but I wish I could have brought some of my friends, too -- I know it's not realistic, but I wished I could have saved them." With all that Eugene had done, all that he had contributed, he never forgot the value of a single human life.

Copyright Rhonda Abrams, 2003


Rhonda Abrams is the author of The Successful Business Plan: Secrets & Strategies and the president of The Planning Shop, publishers of books and other tools for business plans. Register for Rhondaís free business planning newsletter at www.PlanningShop.com.

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