07 Nov 2011 | Business

Searching for the DNA of Success 

Scottish Mortgage manager James Anderson
talks to Heather Farmbrough about the
unique approach of successful companies
on the West Coast of the USA and Europe.

In the latest issue of Trust, we speak to theoretical physicist Geoffrey West about his studies of cities that have become centres of innovation and what makes companies in certain industries cluster together in these locations (see Signs of Greatness article). The article mentions northern Denmark, an area that is home to many life science companies, including one you have been investing in recently – Novozymes.

Yes, Novozymes is part of a Scandinavian cultural approach that I think makes companies act in a different way by valuing long-term investors and providing a sense of continuity. Novozymes has the support of the Novo Nordisk Foundation; many other successful Danish or Swedish companies have a similar form of backing, often from a particular family.  This may provide the ability to invest for the long run,  long with a perspective that values scientific research rather than simply focusing on the next quarter’s earnings. I think this approach differs from that of many other quoted companies.

You’ve also travelled to the West Coast of the US quite recently, another area with many successful technology businesses. Why do you think they congregate there?

The way that the great – and prospectively great – West Coast companies are run is profoundly different from the traditional approach taken by, say, the City or Harvard Business School. I suspect this is due to the kind of society that generates these businesses.  Many of the influential people in this location aren’t always terribly interested in making money; they’re interested in transforming the world, and this is something that’s difficult for others to imitate. The very notion that you can establish another Silicon Valley anywhere else, such as in Russia or the UK, is flawed because the idea of setting it up purely to make money destroys what is actually there in the first place.  While in the US, it struck me how everyone would be staring up at the television screens in airports or public places during the worst of the angst about the American debt ceiling. But then I went to meet a client at a hotel in Menlo Park in Palo Alto, and there everything was perfect; it was the epitome of a life of luxury. The huge lobby was filled with people from all over the world being interviewed for jobs. It was such a contrast to elsewhere – there seems to be an extraordinary tension between the two worlds. I was also reading a book about the history of Silicon Valley and the extraordinary importance of Stanford University within it, which is something I hadn’t really recognised before. A huge amount of what happens in the world in the next 20 years will depend at some level on the output of great universities such as Stanford. It will also depend on which locations can have the great universities of the future.

What is the relationship between university and business, or between university and entrepreneur? Is there an actual link and is it possible to define it?

I’m not sure I could define it. But I think Stanford is in a way the most interesting and closest example you could use to answer your question. Stanford not only has links to companies but has also made a conscious effort since the 1950s and 1960s to encourage its graduates and professors to go out and be involved in businesses and even run them. It has also been one of the places that has used public and, in some cases, defence budget money. Intuitive Surgical, for instance, in which Scottish Mortgage is an investor, is run by people from or still teaching at Stanford. The money initially came from the US Defence Department’s efforts to provide surgical services during the Korean War. So all that MASH (Mobile Army Surgical Hospital) stuff – which I’ve always been interested in because my father happened to be part of a MASH Unit in Korea – had knock-on effects.  Interestingly, a huge amount of scientific thought is also generated at Cambridge.

Do you mean Cambridge, Massachusetts – or Cambridge, England?

We could go back to Cambridge, Mass., but I mean Cambridge, Cambridge. It has generated some interesting life sciences companies, but there is a constraint there, don’t you think? For example, one of the most inspiring companies I visited on the West Coast of the US is Illumina, a gene sequencing company that believes it may eventually be able to cure many kinds of cancer. I mention this because the current generation of gene sequencing machine, by far the best in the world, has its origins in – guess what? – Cambridge, England, where professors would meet in a pub and work on the same model.  But eventually they sold out because they couldn’t market it. Whether this was due to a lack of skills or an absence of real motivation in wanting to transform the world in the same way, I’m not sure.

Maybe there is less of a connection between universities and business in the UK?

I don’t think you find it in many other countries either; I think it is really just the West Coast of the US, and not just Silicon Valley. I also visited Amazon in Seattle and had a very interesting session with one of the most influential executives in the company. He said to me: “Lots of people love American football, drinking beer, their family. I do, too, but I am also obsessed with logistics.” He dreams about being able to sell, via Amazon, every single item in the world with a barcode or some other identifying tag – just once, just for the thrill of it. So at one level, I think it is about wanting it, being obsessive.  On another level, maybe, it is something the physicist Geoffrey West has talked about: recognising the dangers of being big because big companies are often dying ones. And Amazon does not want that to happen to itself. But it isn’t size per se that matters, it is avoiding the bureaucracy and other problems of scale that can act like a pair of lead boots. I was impressed by how well thought out Amazon’s plans are for the future; that type of vision seems to be something intrinsic to those kinds of people in that sort of setting. I can’t imagine it in many other types of company. The attitude of mind is so, so different from what you see elsewhere, and I think it goes back to something that has almost become old-fashioned – the idea of creating something of value, not for short-term gain, but simply of value in itself.

This interview took place in August.

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Author: Heather Farmbrough
Heather Farmbrough worked in the city as a stockbroker and fund manager before joining the Financial Times where she was Junior Markets and Smaller Companies correspondent. She has contributed to publications including Weekend FT, and Management Today and broadcasts on Radio 4.