The Mafia Companies
How Pioneering Companies Spawn Generations of Innovation
In early 1955 William Shockley, co-inventor of the transistor at Bell Labs and later a Nobel Prize winner in Physics, founded a company with Shockley Diodes and Semiconductors. Following his fame, the company welcomed some intelligent people, growing to 32 employees by September 1956, comprised of many Ph. D.s and physicists.
However, Shockley was a terrible person to work with due to his intense paranoia about his employees breaking confidentiality or betraying him altogether (which later proved to be a self-fulfilling prophecy). He recorded every phone call, limited staff talk outside his supervision, circled research to Bell Labs, and demanded lie detector tests.
Subsequently, a few employees surreptitiously organized a coup and later ultimatumed the investor Arnold Beckman to evict Shockley. Beckman refused outright. He later put a manager in front of Shockley, but in September 1957 the eight renegades left anyway and formed Fairchild Semiconductor with money from Sherman Fairchild.
These eight, later known as the Traitorous Eight, built an impressive portfolio. Continuing the momentum, Fairchild Semiconductor became the first well-documented Mafia Company.
A more recent example occurred in the late 1990s. A group of entrepreneurs and tech enthusiasts created an online payment system, initially named Confinity, later known as PayPal. As the company grew, it attracted diverse individuals, including Elon Musk, who joined the team in 2000 after Confinity merged with his online banking company, X.com. The company's user-friendly platform gained traction among online auction users and small businesses. As PayPal's popularity soared, it caught the attention of tech giant eBay, which acquired the company for $1.5 billion in 2002. Following the acquisition, many of PayPal's key figures, now known as the PayPal Mafia, went on to establish or play crucial roles in some of the most influential companies in the tech industry.
Other mafias:
I think these Mafia Companies exhibit how technology disperses. Paradigm-shifting technology often emerges in a small lab, creating a steep technology gradient. While the inventing stakeholder sharpens their edge horizontally, the technology gradient slowly diffuses out vertically.
Therefore, the formation of the mafias proves to be a natural process, as these pinnacles of the gradient lure the flock. Then, the flock becomes missionaries who apply that technology to other verticals.
This was IBM, then Fairchild, then Apple and Microsoft, then Paypal, and then Google. I think the next one is OpenAI.
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