It’s not often that people are given the chance to change things. This is the story of 8 men who changed business forever.
In the winter of 1955, William Shockley, the inventor of the transistor decided to mass produce his advanced transistors and diodes. By that summer he had convinced Arnold Beckman, the owner of Beckman Instruments, to finance his one million dollar laboratory. The selected location for the new business was in Mountain View, California, which was not very popular at the time because the rural location did not have long-distance phone service. By September of 1956, there were over 30 employees.
Historians generally agree that Shockley was a poor manager and worse businessman. He was prone to unprovoked outbursts of aggression. He would also see rivals, even in his own subordinates. Although Shockley was never diagnosed, historians characterized Shockley’s state of mind as paranoid or autistic. All phone calls were recorded. The staff were not allowed to share their results with each other, which was virtually impossible since they worked in a small building. Shockley would send their reports to Bell Labs for double-checking. At one point he sent the entire lab for a lie detector test, though everyone refused.
In March of 1957, Eugene Kleiner, who was beyond Shockley’s suspicions, took to visit an exhibition in Los Angeles. Instead Kleiner flew to New York seeking investors for a new company. He wrote a letter of utter desperation which would reach the desk of Arthur Rock from Hayden, Stone & Co. Rock became interested because he assumed that the trainees of a Nobel Prize winner were destined to succeed.
Finding investors proved to be incredibly difficult. Arthur Rock is often attributed as coining the phrase “venture capital”.
Venture. n. an undertaking involving uncertainty as to the outcome, especially a risky or dangerous one.
Capital. n. the wealth owned or employed in business by an individual
At the time most of the electronics industry was concentrated on the East coast, and the Kleiners team wish to stay together in California. When it seemed as though all hope was lost, in August of 1957, Arthur Rock met with inventor and businessman Sherman Fairchild, founder of Fairchild Aircraft and Fairchild Camera after a few short weeks the paperwork was finalized.
On September 18, 1957 Julius Blank, Victor Grinich, Jean Hoerni, Eugene Kleiner, Jay Last, Gordon Moore, Robert Noyce and Sheldon Roberts resigned from Shockley Labs, an act that was unheard of at the time, because in 1957 if you had a job, it was expected that you would be loyal to the company until you retired. They became known as the “Traitorous eight”. Shockley would describe their actions as a betrayal.
The newly founded Fairchild Semiconductor soon grew into a leader of the semiconductor industry. In 1960 it became an incubator of Silicon Valley, and was directly or indirectly involved in the creation of dozens of corporations such as AMD and Intel. These many spin-off companies came to be known as “Fairchildren”.
In 1959, Sherman Fairchild exercised his right to purchase shares of the members of the traitorous eight. Jay Last recalled that this event happened too early and turned former partners into ordinary employees, destroying the team spirit. In November 1960, Tom Bay, the Vice President of Marketing at Fairchild, accused Last of squandering money and demanded termination of Last’s project of developing integrated circuits. Moore refused to help Last, and Noyce declined to discuss the matter. This conflict was the last straw: on January 31, 1961 Last and Hoerni left Fairchild. Kleiner and Roberts joined them after a few weeks. Blank, Grinich, Moore and Noyce stayed with Fairchild. The traitorous eight were split into two groups.
In 1960, with the help of a new team, Shockley brought his diode to serial production, but time had been lost and competitors had already come close to the development of integrated circuits. Beckman sold the unprofitable Shockley Labs to investors from Cleveland. In 1969, IT&T, the new owners of Shockley Labs moved the company to Florida. When the staff refused to move, the lab ceased to exist.
Noyce and Moore went on to found semiconductor firm Intel with financial support from Kleiner.
Arthur Rock is now a world renowned venture capitalist best known for firing Steve Jobs from Apple in 1985.
The members of the future Traitorous Eight were aged between 26 (Last) and 33 (Kleiner); six of them held a PhD. “The Eight” changed the way that business is done in several ways. The crushed the idea that just because someone gave you a job meant you were expected to stay indefinitely.One letter to a banker in New York sparked the concept of venture capital, leading the way for thousands of startups to grow faster. They established the west coast as a leader in semiconductors, which paved the way for others and transformed Mountain View and Palo Alto into what is now commonly referred to as Silicon Valley.