The power within Featured

8:00pm EDT April 25, 2008

Silicon Valley is known as the birthplace of new business ideas and the home of the entrepreneurial spirit. The challenge is that even tech companies with entrepreneurial roots can struggle to maintain a competitive edge and a penchant for innovation as they grow.

Several times, one of the most famous, colorful and outspoken founders in the Silicon Valley, T.J. Rodgers, faced these same challenges.

“What’s important to sustaining growth is that you have to continue to learn as a CEO and as a company, you have to continue to drive things forward,” Rodgers says. “We started as an SRAM company, and we had a single-minded focus, which caused us not to diversify. That made us very vulnerable in 2001. What I’ve learned is that as a company, you exist to serve your customers, and you can evolve and change or simply disappear.”

Rodgers, president and CEO of Cypress Semiconductor Corp., has become famous for his business success and his expert opinions since founding the company in 1982. He testified before a senate committee in 1997, a senate judiciary committee in 1998 and, later that same year, he spoke to the Annual Cato Institute-Forbes ASAP Conference on Technology and Society about why the Silicon Valley should not normalize relations with Washington D.C. In addition, somewhere along the way, he’s grown a billion-dollar business with more than 6,000 employees, invented and patented new technologies, written a few books, and received numerous recognitions.

Given that Cypress’ core business was originally built in the ultracompetitive semiconductor industry, achieving revenue of $1.56 billion in 2007 — up from $1.09 billion in 2006 — is proof of Rodgers’ innovative tenacity.

At Cypress, the incubator switch is always in the on position and the company has become famous for its continual quest for new ideas. In addition to product diversification, Rodgers has sustained growth by creating and sustaining a visionary culture within the organization.

Building the incubator

Being open to new ideas always helps maintain your competitive edge.

“Start-ups have a lot of energy, and they keep you looking toward the future, so we always have two or three new companies incubating here at Cypress,” Rodgers says.

“We’re known within the Silicon Valley community as having an open door to new ideas, so sometimes we’re approached by external entrepreneurs who have an idea for a new business or internal employees who present an idea for a new product that further leverages our existing technology. Our openness to new ideas is also a powerful recruiting tool. Sometimes prospective employees approach us with an idea, and they come in as sort of a package deal. We get a new employee and a new idea; they get the chance to be entrepreneurs.”

When someone from the outside approaches Cypress with an idea for a new product, they write a business plan that defines the market the product will appeal to and the team that will be responsible for developing the product and executing the business plan.

“Our management team decides if this is something we should fund, and then we take the idea to our board for approval,” Rodgers says.

What makes the incubator structure so unique at Cypress is not only the number of internal employees who are spending their days working on new products but the flexibility of the support relationship between Cypress and the incubating company.

“Part of what gets decided before we agree to move forward is how the new company will be supported through Cypress’ infrastructure and what support they’ll provide themselves,” Rodgers says. “If they use Cypress support services, such as accounting and HR for example, we’ll bill them back for the time and materials. Since Cypress is providing the funding, if the new venture runs short of cash, it will sell Cypress additional shares to raise cash.

“Like any start-up, not everything succeeds, and you don’t always know exactly what the customer wants. I would say that maybe six out of 10 new ideas will fail.”

But Cypress has had two really big winners. One was the creation of SunPower, which got the company into the solar energy business, and the other was the creation of Cypress Microsystems Inc., which was an employee start-up that is now doing $160 million per year in revenue.

“Both of these businesses helped diversify our offerings, counterbalanced our cycles, improved our profitability, and they keep us on the leading edge of innovation,” Rodgers says.

“Creating these entrepreneurial start-up subsidiaries has allowed us to really do two things at once. Many companies have a hard time driving innovation, but with this structure, our main line managers can continue to drive our existing business, and they don’t have to worry about the fear of failure with new product development.”

Maintain a unified culture

While one of Cypress’ strengths is its entrepreneurial culture and its structure of multiple subsidiaries, Rodgers is the first to acknowledge that it’s been hard to find the balance between maintaining a culture that’s open to innovation and achieving consistency.

As the company grew, Rodgers says there have been times when not only innovation lagged but, at one point during the downturn of 1992, business results were extremely poor, partly because the company was having an identity crisis. To remedy the situation, Rodgers relied on the teachings of Jim Collins and Jerry Porras in their book, “Built to Last: Successful Habits of Visionary Companies.”

“One thing that I’ve learned is that in order to continue to drive growth and maintain innovation, the main thing is that you have to keep everybody on the same page philosophically,” Rodgers says. “It doesn’t matter that you have different structures or businesses, what matters is that everyone maintains the same set of values. That’s what holds everyone together.

“As you get larger and start acquiring other companies, it’s important to continue to think about who you are as a company because you can become a crazy quilt of different cultures. Once you achieve philosophical continuity, the technical work product flows from there.”

When Rodgers accepted the fact that his company was in the midst of a crisis seemingly from a lack of a singular vision, he traveled to each location, sat down with employees and talked to each group about what makes Cypress different. Their answers would be the key to reclaiming the company’s universal philosophy and values, a critical step to putting Cypress back on a growth track.

“I essentially put my butt in an airplane seat for six months and traveled around to 25 different locations asking each group of employees what makes Cypress different,” Rodgers says. “I was using them to write a new corporate vision, and what I found is that they frequently mentioned the same things. All I did was repeat back to them the things that they already believed about the company.

“For six months, I gathered this data, and then I reviewed it for commonalities and divided it into five categories. From there, I put the data in front of the VPs and managers for discussion, and then we rolled it out. Going through the process helped to get everybody on the same page because people who thought they were in an identity crisis, suddenly felt like they had a great deal in common with their co-workers.”

The results of the effort helped unify the company. “Now, we have a statement of core values, a unified statement of purpose, a mission statement, and we’ve stated specifically how we were going to take each business component and move it from its old position to a new posture that continues to drive revenue and profit growth,” Rodgers says. “We have one page of information that ties everyone together, and we’re out fighting the enemy — not each other.”

Since the crisis, Rodgers says that he has learned his lesson. To keep the situation from repeating, he frequently meets with employees, gathers feedback and has rewritten the company’s statement of purpose 40 times. It’s the single tool that he relies on to keep everyone on the same page.

Learning from mistakes

Rodgers says a company needs to never lose sight of quality. “If I had it to do all over again and I was building a new company, from day zero, I’d hire a VP of quality,” Rodgers says. “Anyone can make a product more cheaply than the next guy. Where they fail is working quality into the process. Every company needs someone who gets up in the morning and thinks about quality, and they need to have real authority to get things done.

“You need to approach quality from a holistic standpoint, and as a CEO, you need to demand quality in every aspect of your organization, and then it will wrap itself around the manufacturing process. I was never trained in the mathematics of quality, and it took me awhile to understand it and embed it in all of our processes. Quality is the main reason that Toyota has been beating Detroit because they are perfectionists in design, and they have never given up on their quality focus.”

And if a lack of quality or any other reason leads to a mistake, don’t be afraid to admit that a mistake was made.

“That’s another thing I’ve learned through my experience as a CEO, always admit your mistakes and never stop learning,” Rodgers says. “There have been times in the history of this company when we’ve had a stellar ride and management took credit for it, so when there’s a problem, management needs to take responsibility for that, as well. People will judge you not by what you say but by your actions, so if you make mistakes, admit it.”

HOW TO REACH: Cypress Semiconductor Corp.,