The New New Thing: A Silicon Valley Story (12 page)

The trouble was that, whether or not Hugh knew it, Clark now was in control of Hugh. And Clark didn’t like being told that he had to deal with Phil. He wanted Hugh and, as was now abundantly clear, what Clark wanted Clark got. He shot off another e-mail that found its way to Dick Kramlich:

Within days Clark had called a meeting with NEA that included John Doerr. Within weeks he had agreed to split the equity into eleven parts, he and Kleiner Perkins each taking four parts and NEA getting only two. In mid-November 1995 the Kleiner employer David Schnell, writing “on behalf of NEA and Kleiner Perkins,” sent Clark an e-mail, “reviewing our discussion on your business model.”

Schnell was yet another medical doctor who had decided that he wanted to be a venture capitalist. He was now a Kleiner employee who had been told by his bosses that, if he wanted to make partner, he needed to prove himself. The bosses’ idea of how Schnell might prove himself was to become a captain of one of Jim Clark’s ships. If Schnell went out with Jim Clark’s imprimatur and came back with a few hundred million dollars in profits, he could be a partner at Kleiner Perkins. Schnell, who knew perfectly well what it meant to be a captain of Jim Clark’s ship, politely declined. In the end, he was given no choice, and he became, reluctantly, Healthscape’s acting CEO.

The sycophantic tone of his e-mail to Clark suggested that Schnell, like every other venture capitalist, felt Clark needed to be “managed.” He sought to give Clark the feeling that he was in control of what might become the world’s largest company without giving him actual control. As a result, it wasn’t long before Clark found fault with Kleiner Perkins—or at least with David Schnell. Schnell, together with Hugh Reinhoff at NEA, kept trying to pin Clark down, by offering up various “business models” and “business plans” for Healthscape. In early December, Clark wrote to both,

Clark had required only about six weeks of very part-time work to sow strife inside Dick Kramlich’s partnership. He required only a few weeks more to disrupt John Doerr’s. A month after his first e-mail to Clark, David Schnell sent another e-mail to everyone but Clark who was even slightly involved with Healthscape to complain about “JC’s behavior here.” David Schnell had new fears. The guy inside the venture capital firm who worked with Clark, he grumbled, was always the guy who got fired. He was more prescient than he knew.

That was how it was now with Clark and the venture capitalists who now sat on top of American capitalism, funding the many people newly engaged in the search for the new new thing. Clark was at best ambivalent about young men in suits who had gone to business school and never run a real risk in their lives. He certainly was never going to let them have their way, unless their way happened to be his way. This raises an obvious question: Why did the world’s most important venture capitalists put up with Clark? Surely, it would have been easy enough for Kleiner Perkins or NEA to announce that they were backing someone else to do the same thing as Clark. Valley venture capitalists stole each other’s ideas all the time. Right from the start Clark put much less effort into his enterprise than they did—though even they did not know that he was spending most of his time computerizing a boat. (“I knew Jim was doing this on the side,” Reinhoff said, much later. “He had the big vision…the details fell to those in the company. I really didn’t know what else he was doing. I assumed it was Netscape that took up most of his energy.”) And yet not once did anyone dare to suggest that Clark was not carrying his load, or that the business would be better off without him.

That was the miracle of Jim Clark: by the end of 1995 he had created a money-making machine in which he was the least easily replaced part. The venture capitalists, the investment bankers, the CEOs—they were all fungible. If you were going to seize control of a $1.5 trillion industry you needed a certain authority with the engineering class. In the fall of 1995 no one in the Valley had the same authority with the engineers as Clark. That aura was why every one of the e-mails sent from Kleiner and NEA to people who might come to work for Healthscape boasted right up front that the Magic Diamond was Jim Clark’s idea. In late 1995 a new kind of faith was in the engineering mind. Engineers believed that if Jim Clark said he was going to do something new, however outlandish his proposal, he would do it. And Clark responded to the faith by cooking up ever more outlandish new things to do.

The software that was required to link the entire U.S. health care industry was not trivial to design. The land-grab logic of the Internet meant that it had to be thrown together about three times as fast as it should. To build a complicated piece of software so quickly you needed engineers—and not just any engineers. You needed the smartest engineers. By late 1995 the smartest engineers in Silicon Valley had a lot of choice in how they spent their time. The Valley was booming. A lot of people were claiming to have stumbled upon a great new business opportunity. To attract the smartest engineers you needed to persuade people that you had the new new thing.

Clark figured that there were about three software cowboys who could pull off what he had in mind, as quickly as it needed to be pulled off. All worked for Silicon Graphics. He knew them all and spoke to them all, and they were all more than a little interested in working for him. In the end, he decided that one more than the others “had the passion to change the world.” On Christmas Eve 1995, Clark’s final choice arrived at Kleiner Perkins for his interview with David Schnell—which even Schnell knew was a formality. On Christmas Day, David Schnell wrote to Clark, “I spent several hours yesterday with Pavan. I think he’s great, and I believe he wants to join.”

L
ike a lot of software engineers in Silicon Valley, Pavan Nigam can recall where he was when he heard about Netscape’s initial public offering. Or, at least, he can figure it out. He was in India—he’s sure of that. He couldn’t have been in Kanpur, his hometown. Kanpur was a squalid, fly-specked, death-drenched city overrun by cows and pigs and chickens. When a person with Western standards of hygiene stepped off the train in Kanpur, his first thought was to get right back on. Even Pavan now found it repellant. More to the point, Kanpur did not receive American newspapers. And Pavan distinctly recalls reading the front page of
USA Today
. So he must have been in Delhi, which means he was in a hotel. So in a Delhi hotel he picked up the August 10, 1995, edition of
USA Today
and read that Netscape had risen from its offering price of $18 a share to a high of $171.

By late 1995 Pavan’s mental state was not good. In the fifteen years since he had come to America from India, he had risen to what he thought was fantastic heights in Silicon Valley. He had just finished eighteen putatively spectacular months at Silicon Graphics, where he had been the boss of the most glamorous engineering project in the Valley: the creation of the world’s first interactive television. He’d hired fifty of the smartest engineers ever assembled under one roof. He’d spent three hundred million corporate research dollars. He’d had his name and his picture in the newspaper; famous businessmen had told him that his work was important. And all he had to show for it was a black box that was supposed to sit on top of people’s TVs but was as hopelessly out of touch with the market as the Kitchen Computer. Not a single one was ever sold.

That experience had pretty much shattered Pavan’s faith in pure technical virtuosity, or what he called “the religion of technology.” Great technical success had proven to be a great commercial failure. “Just a bunch of engineers solving problems,” as Pavan put it, derisively.

Anyway, by the time he left for India and a few weeks of serious self-examination in August 1995, Pavan suspected that Jim Clark was always right, except, of course, when he was wrong. And when Jim Clark was wrong, he wasn’t around to suffer the consequences. The lesson Pavan extracted from the bitter experience was to watch what Jim Clark did, not what he said. Before he boarded the plane, Pavan called his stock broker and left an order to buy Netscape at the opening. Reading
USA Today
in a Delhi hotel, he calculated that he must have bought at $50—the price of the first trades—and sold at $100—the price at which he’d instructed his stock broker to sell. He never seriously believed that Netscape’s share price would reach $100. It was, he says, “the easiest money I ever made in my life,” but even so it was bittersweet. Netscape had gone to $171 a share! He’d left $71 a share on the table!

With that and many other thoughts on his mind, Pavan returned to the squalor of Kanpur. “I remember sitting there in my parents’ house for two weeks with all these cows running around me,” he says. “I remember that I decided right then whatever I did next it was going to be with the Web.” Pavan had learned enough about American capitalism to know that where the stock market went the opportunity followed. That thought was followed pretty quickly by a second thought: “I remember thinking that if I could find out whatever Jim Clark planned to do next I would do that.”

T
he Silicon Valley labor market was one of the many new joys in Jim Clark’s new life. Having decided that the $1.5 trillion health care industry was the new new thing—and, in so deciding, having transformed it into the new thing—Clark needed to hire a lot of smart people quickly. There was no easier place on the planet to do that. Silicon Valley engineers had long treated the companies they worked for with less than the usual fidelity to the corporate cause. Their bosses, of course, disapproved of those who defected, and so there was a running debate about what was simply the proper workings of a free market and what was an unseemly breach of loyalty. The steady stream of engineers out of Silicon Graphics and into Netscape just before Netscape went public prompted Ed McCracken’s lawyers to write Clark nasty letters. With Healthscape, Clark figured he needed even bigger brains, and planned to poach them from Silicon Graphics—only he couldn’t be seen to do it. His solution to the problem was to sneak in and hire one fine software cowboy and let him be the Pied Piper. If he hired the right person, the rest would beg to follow, and Ed McCracken could do nothing to stop them.

The moment of conception was, to Clark’s way of thinking, the critical moment of any new enterprise. At that moment it was important not merely to hire the people bent on changing the world but to avoid hiring the people bent only on changing jobs. “There are all sorts of guys who will show up because they can’t think of anything else to do,” he said. “Those are exactly the people you don’t want. I have a strategy for dealing with these people. When they come by to apply for a job I tell them, ‘We’re all confused here. We don’t know what we’re going to do yet.’ But when you find someone you want, I tell them, ‘Here’s exactly what we’re going to do and it is going to be
huge
and you are going to get very, very rich.’”

For engineering talent Clark looked to Silicon Graphics. In particular he had his sights on the Indian engineers who had taught him to write the code for his boat and then built the interactive television. Clark had a thing for Indians. “The Indian outcasts of Silicon Valley,” he usually called them; “my Indian hordes,” in less sober moments. He thought of the young Indian men who had taught him the tools he needed to program his sailboat as some of the sharpest technical minds he’d ever encountered. “As a concentrated group,” he said, “they were the most talented engineers in the Valley…
and they work their butts off
!”

As it happened, the Indian education system had been built to find and to cultivate precisely those skills Clark, and people like Clark, valued most. Of course, that isn’t how it was originally conceived. The Indian educational system was conceived by Nehru in reaction to the British colonial experience. Nehru believed that India was more likely to remain an independent country if it made itself technologically equal to its former rulers. To that end he created a ruthlessly efficient mechanism for finding and exploiting Indian technical talent. It was called the Indian Institute of Technology. The IITs were created in the early 1960s with foreign aid. The first two, at Kharagpur and Madras, were funded by Germany; the third, in Bombay by the USSR; the fourth, at Kanpur, by the United States; the fifth, at Delhi, by the United Kingdom.

The IITs became the funnel through which young Indians who finished high in a national standardized test passed on their way into Nehru’s game of catch-up ball. The force of their attraction was spectacular. It was as if a nation of 900 million people had set out to find the few among them most able to program a computer, and leave nothing to chance. By the time the Nehru regime finished engineering Indian society, every parent in the country wanted his son to become either a doctor or an engineer. By the early 1970s hundreds of thousands of Indian seventeen-year-olds were sitting for the annual two-day engineering exams. A few weeks after the exam the results were posted in the newspapers. The two thousand students with the highest scores won admission to the IITs and had their names printed in the newspaper. Imagine the thrill of gaining entrance to Harvard. Multiply it several times. That gives you some idea of the sense of destiny that accompanied admission to an IIT. “If you could make it into an IIT, the rest of your life was guaranteed,” says Pavan Nigam. “If you don’t make it into an IIT, there are no guarantees about anything. And I mean
anything
.”

But the exam was just the beginning of India’s search for its own technical aptitude. The two thousand students who passed the test were further ranked according to their scores. Beginning at the top, they selected the schools and the departments they wished to enter. These schools and their departments had their own informal hierarchy. For instance, by the early 1980s the most desirable place to study in the whole of India was the computer science department at IIT Kanpur—the school funded by the United States. The Kanpur computer science department had only fifty places. By the time the student who had placed 100th in the exam wandered in to make his choice, the places were already taken by others who had done better on the exam. Out of the 150,000 Indian high school students who took the national exam in 1975, Pavan Nigam finished 91st. He took one of the last places in computer science at Kanpur.

He couldn’t have known it at the time, but his success put him on a collision course with Jim Clark. A system designed to churn out engineers for a Third World economy would soon be used to its greatest effect in the quest for the new new thing. The talent that the government had gone to such trouble to find and cultivate wound up being some of the most sought-after corporate employees on the planet. All these bright young men spoke English. They could quite easily pick up and go to America, which was paying the highest price for their talent. And, in massive numbers, that is exactly what they did. Indian engineers flooded Silicon Valley in the 1980s and 1990s. By 1996 nearly half of the 55,000 temporary visas issued by the U.S. government to high-tech workers went to Indians. In early 1999 a Berkeley sociologist named AnnaLee Saxenian discovered that nearly half of all Silicon Valley companies were founded by Indian entrepreneurs. The definitive smell inside a Silicon Valley start-up was of curry.

S
o one day when Jim Clark had finished writing his code for the boat, he picked up the phone and called Pavan Nigam and told him about his idea for making him rich. When Pavan asked for a business plan, Clark simply revealed the Magic Diamond with Healthscape at the center. Pavan was at first very excited; then he was very nervous. Software engineers went hunting in packs: he couldn’t do such a big project alone. Where would he find the engineers he needed to help him? Pavan often said that “the difference between a great software guy and an okay software guy is
huge
. A great software guy is worth ten times an okay software guy.” Software wasn’t like hardware; software was more like art. Clark was thrusting a project on him that required the very best artists. True, a lot of those people worked with him at Silicon Graphics. Like Clark, though, Pavan knew that Ed McCracken’s lawyers would not put up with a systematic raid on the staff. And if he couldn’t actively recruit from Silicon Graphics, where would he find the brilliant engineers he needed to succeed?

“You won’t have to recruit,” said Clark. “They’ll follow you.”

Clark’s confidence finally swayed Pavan. Then he hung up.

An hour later Pavan’s anxiety came storming back. After all, he was at that moment a very senior guy at Silicon Graphics, and Silicon Graphics was a very well-established corporation. It was a big risk for him to jump to running a start-up. He knew exactly nothing about the U.S. health care system. He had never been inside an American hospital, or visited an American doctor. He wasn’t even sure what his own health insurance covered.

Pavan phoned Clark back. “I thought about it, and I don’t think they’ll follow me,” he said. Clark said, “Pavan, just trust me on this one.”

But how could Pavan trust anyone with a decision of such importance? Clark was already a billionaire. ITV had demonstrated Clark’s ability to lead Pavan and a lot of other people down a blind alley and into a brick wall. What if Clark changed his mind again? What if Pavan left Silicon Graphics and announced that he planned to “fix the American health care system,” and no one showed up to help him? Where would he be then? He’d be the thirty-six-year-old Indian immigrant who had built a black box no one had bought, sitting alone in an office while everyone he knew laughed at him behind his back—that’s where he’d be.
Fix the U.S. health care system
. Right.

Pavan knew well that it was possibly illegal and certainly immoral for him to recruit from Silicon Graphics. But surely he could pick one person and have a…chat. There was one person above the rest who would considerably ease Pavan’s anxiety, Kittu Kolluri. Kittu was both the smartest engineer he had working for him and a trusted friend. Surely Pavan had a right to confide his discussion with Jim Clark to his friend.

F
or a few years Kittu Kolluri had been the chief target of Jim Clark’s weird phone calls. Clark called him KEE-TOO, when the correct pronunciation was KIT-TOO. Never mind. Whenever Clark was floating off the coast of Tahiti or Borneo and needed a bit of advice on the computer program he was writing for the yacht, he could not afford he called Kittu. Kittu could not understand why the chairman of a big American corporation would spend his time writing computer code. He understood very well, however, why a man writing computer code would call him for help.

Kittu was another fine example of the power of Indian society to ferret out its technical talent and catapult it in the direction of people like Clark, who knew how to use it. “There are these definite moments in my life,” Kittu says. “When I know that things changed and I became an engineer.” The first such moment was when his cousin from Bombay came one summer to visit his family in Hyderabad. Kittu was in the sixth grade, and his cousin was a pretty young woman. “She described this guy she had fallen in love with,” recalls Kittu.