Every design house can buy the EDA tools, hardware, and software it needs to operate, but its success depends on its engineers' brainpower, company process and culture, and the CEO's abilities. In small IP and design service companies in particular, the CEO takes center stage.   (for additional insights download the presentation Fabless Startup Strategic Issues under the "For Entrepreneurs" category under Startup Business department in the RESOURCES CHANNEL).

The classic design house CEO is an engineer who either has a vision or just wants to run his own show. His leadership expertise probably includes strong engineering project management, but not likely skills in business-related tasks. He works in a regional or a national environment in which proximity to the customer offers inherent benefits. The CEO of a classic third-party IP provider, on the other hand, may also be an engineer, but most likely exhibits a much better mix of business and engineering skills. He must oversee a product that the company will resell to many customers from all over the world.

In the small IP and design service companies, the CEO determines the company's success and extends his influence throughout the enterprise. He directs operations, marketing, and finance; provides the background necessary for fast growth in a resource-constrained environment; and deploys a management team. Equally necessary are his personal attributes and "people skills": He must exhibit intelligence and high energy, a strong work ethic, openness, and even a bit of humility. He's both coach and head cheerleader.

Perhaps the most important skill a small-company CEO can demonstrate is the ability to acquire--and keep--the engineering talent the company needs to succeed. In today's Silicon Valley, engineers are usually more loyal to their industry than to their individual employers--an attitude produced in part by the view taken by electronics companies that layoffs should be dictated by quarter-to-quarter financials.

Clearly, the CEO must answer some very fundamental questions regarding the motivations of his most important asset, the engineering team: Why would engineers want to work at the company? Why would the engineers want to jump through hoops to deliver the product correctly and on time, even in a system with an imperfect process?

A set of broad guidelines can help to improve the process at IP and design houses. Begin by recruiting several superstars and implementing a cycle of progressive training for junior engineers. Create a strong culture and foster teamwork. Harness the veterans' experience by letting them conceptualize new products and improvements. Keep designers well stocked with the latest tools. Require engineers to adhere to highly professional standards--graduate degrees, ongoing training, and specialization--but pay appropriately.

Key characteristics that CEOs should posses:

• Experience in development, operations, marketing, and finance, such as business unit director of mid-large chip maker
• Background in fast growth in resource constrained environment
• Managerial team building skills and ability to delegate
• Intelligence and high energy
• High integrity, quality, strong work ethic, environment
• Openness in internal and external matters
• Moderate ego and humility
• Coach and head cheerleader

As the IC industry's enabling technologies--such as fabrication processes and EDA tools--become more and more commoditized, small IP and design houses can thrive. Those companies will reflect the value-added concept, becoming spheres of excellence in various niches. Efficient processes, knowledge of markets and customers, and skills in managing employees will determine a company's success.