INTRODUCTION
$2,750...This would now amount to 3,114 shares, with a market value of $1,029,177, which with cash dividends of $117,356 paid during this period, totals $1,206,533...
In perfect irony, IBM’s success generated its competition: a young MIT graduate student working on a joint computer development project with IBM for the Department of Defense. His frustration with IBM’s stuffy hierarchy and approach to computing drove him to realize his own vision of computing—he fundamentally believed that individuals wanted their own access to the computer, with a keyboard and monitor, rather than ceding control to computer systems operators. This young man, Ken Olsen, created the basis for the next generation in computing, minicomputers. Named that because of their relatively small physical size and ability to work without special air conditioning, minicomputers also happened to be very low cost—DEC’s sub-$100,000 system price was a relative bargain compared with IBM’s million-dollar hardware. Digital’s runaway success earned Olsen, his venture capitalists, and lucky investors millions.
Digital’s ascent inspired dozens of imitators and competitors and, only 22 years after the company’s founding, sparked the imagination of a 12-year-old boy at Seattle’s Lakeside School—Bill Gates. His introduction to computing: Digital’s PDP-8 computer.
Despite the apparently boundless opportunity that awaited promising computer industry startups, roadkill littered the road to dominance in the nascent industry. William Shockley, the Nobel Prize-winning co-inventor of the transistor (a miniatur-ized vacuum tube set in a single solid piece of germanium—
later silicon) was among the most notable business failures.
Previously, all computers used vacuum tube technology as processors of information. One of the first computers ever developed, ENIAC, was a 30 ton, 1,500 square foot, unreliable monstrosity. With Shockley Semiconductor’s (as the firm was called) technology, more compact and powerful computers could be built using thousands and thousands of microscopic circuits.
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Shockley’s skills as a physicist didn’t necessarily translate into management talent, however. After only a couple of years in business, his firm suffered defections from bright young engineers. Among the defectors were Robert Noyce and Gordon Moore, who with a handful of other engineers founded Fairchild Semiconductor.
Fairchild’s role as the standard-bearer of semiconductor technology paradoxically proved to be its own undoing.
Dozens of other starry-eyed developers left to start their own companies. Again Noyce and Moore departed, and with a young Hungarian-born physicist named Andy Grove in tow, created Intel (INTegrated ELectronics). Many Silicon Valley startups of that era trace their lineage back to Fairchild.
Intel’s first products were advanced memory chips. Later, it devised a way to put all of the circuits that worked as the main processors for a computer onto a single chip. The company was slow to recognize the importance of its achievement, but it eventually focused its business solely on this technology and grew to amass industry dominance by selling its successive generations of “microprocessors” to the world’s largest personal computer manufacturers.
Unnoticed by most, the January 1975 issue of Popular Electronics heralded the arrival of the next, albeit primitive, generation of computing: a computer kit priced affordably enough for hobbyists to assemble their very own machine and use it to perform modest calculations. The cowboy entrepreneur behind this computer, the Altair, was Ed Roberts. His company, MITS, cleverly leveraged Intel’s microprocessor developments by incorporating the Intel 8080 as the brains for its low-cost machine.
To all outward appearances, the little Altair was a black box. Adorned only with flashing red lights to inform the user that it was working on something and lacking a keyboard and monitor, Altair riveted imaginative young minds on the east and west coasts to the potential of personal computing. It was not long after the machine’s launch that college undergrad Bill Gates and his partner, Paul Allen, were furiously writing code that would serve as Altair’s base operating system, there-
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INTRODUCTION
by giving users the ability to perform more useful functions with the machine than just flipping toggle switches that made lights blink on and off.
Meanwhile, in the suburbs of the San Francisco Bay Area, young engineers, hackers and assorted minstrels circulated in a subculture of computer tinkering, assembly and idea-sharing. The Homebrew Computer Club was among the most recognized organizations in this milieu. It was there that several enthusiasts studied the Altair and Gates’ software, and in fits of technical one-upmanship, developed their own computers.
Dozens and dozens of machines were created—some with their own software, others pirated from Gates’ work. Few among them viewed these developments as money-making opportunities.
In the early 1970s, Xerox was the paragon of corporate success. Company management rightly concluded that industry leadership would require technical superiority and development leadership. The company set out to create the world’s leading corporate research center in the backyard of Stanford University. Its Palo Alto Research Center was known and ven-erated by all associated with it as Xerox PARC.
Despite PARC’s preeminence as a center of leading-edge work in computing, it proved to be the antithesis of entrepreneurial activity as innovation after innovation walked out of PARC’s doors to be capitalized on by others. PARC’s leadership in graphically-based computer operating systems directly influenced Apple’s development of the Macintosh and Microsoft’s development of the Windows operating system—
both considered among the most influential and lucrative technologies to emerge from the modern computing era.
So, what’s in store for the future? The 90s have brought promise of a new era in computing. Simply put, the new paradigm for entrepreneurs to grapple with is the notion that computers connected to others—communicating and sharing information amongst them—increases their value tremendously to users. Steve Case, founder of America Online, saw this in 1985 when he created a proprietary service designed to allow users with modem-equipped computers to communicate
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with others in a private community setting or to retrieve information from the equivalent of town hall bulletin boards.
Case’s venture, America Online, grew several years before the rapid popularization of the internet took place. Originally a network of networks, the internet was designed by the military to allow researchers to communicate with other researchers.
As the Net’s commercialization continued, companies recognized the value of low cost communication by computers over great distances. America Online and now hundreds of others aim to cash in on what promises to be a whole new industry.
As startup ventures sprout like mushrooms in venture capital-backed fecundity, it remains to be seen whether the advent of the internet strengthens the Giants’ hold over computing or undermines it to create an entirely new generation of successful entrepreneurs and leaders. Regardless, we think you’ll find these candid conversations with some of America’s greatest entrepreneurs as informative and entertaining as we did.
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STEVE JOBS
Apple Computer,
NeXT Software, and Pixar
ONLY THE BEST—PEOPLE,
PRODUCT, PURPOSE
The story of Steve Jobs is the story of a young college drop-out who sojourned to India in search of purity and enlight-enment, returned to the U.S., and founded Apple Computer.
Was dabbling with Hinduism the key to success for a 20-year-old with little money and a modest technical background?
Perhaps. High school buddy Steve Wozniak—by all accounts a brilliant tinkerer and engineer—and Jobs collaborat-ed on several “projects” during their adolescence, including hacking into phone company networks and making video games. Yet, over time, their individual respon
sibilities remained well-defined: Wozniak mainly designed and built the product, and Jobs scrambled to find customers, coworkers, and components. Eventually the projects became of value to others and Jobs persuaded Wozniak in 1976 to devote his energy to a partnership—Apple Computer.
Many would-be entrepreneurs, lacking money or strong 9
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business experience, become stymied by the challenges of obtaining financing and recruiting people to join in working for what is essentially an idea. Yet Jobs doggedly cajoled suppliers and retail outlets to provide Apple with low pricing and extended credit. His apathy for maintaining his outward appearance—he often showed up to meetings barefoot and bearded—didn’t appear to lessen his zeal. Instead, his aggressiveness netted the help of several engineers, marketing firms, and venture capitalists.
The product of Wozniak’s astounding engineering feats and Jobs’ relentless ambition, Apple’s mainstream computer, the Apple II, began selling like wildfire. The company mushroomed, with the Apple II bringing in huge profits. Media attention turned toward Silicon Valley, and Jobs, the master salesman, graced the cover of Time in 1982.
Jobs, however, is best known in the computer industry for leading the team that developed the boldly-designed computer used by millions today: the Apple Macintosh. During a demonstration of a prototype computer at the famed Xerox PARC, Jobs and other Apple employees were astounded by a computer that displayed graphical icons and pull-down menus in its operating system. The computer even allowed the user to issue commands from a small, wheeled device (a mouse). The demonstration’s impact on the Apple team cannot be overestimated—Jobs scrambled to rewrite Apple’s plan for its next computer, the Lisa, in order to accommodate the revolutionary ideas and logic of the Xerox PARC prototype. In its most basic description, the Lisa was the mother of the Macintosh.
Targeted at corporate America, Lisa was a powerful computer destined to leapfrog its competition, but instead floundered in the marketplace mainly due to its hefty $10,000 price tag.
During this time, Jobs recruited Pepsi marketing executive John Sculley to join Apple as CEO. Jobs’ management responsibility shifted to leading product development for a pint-sized version of Lisa, code-named Macintosh. Jobs’ zealousness and management style drove the Macintosh team to sustained levels of intense work: seventy-plus hour weeks for months at a
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stretch became the norm. When later asked to explain their incredible work ethic, Macintosh team developers spoke of a sense of importance to their work, a messianic belief that the Macintosh would not only change computing, it would change the world.
Yet, after an initial spurt of sales to early adopters and yup-pies, Macintosh sales lagged behind forecasts. Dissension in the nine-year-old company grew. Jobs and Sculley, once partners, became bitter enemies and attempted various power plays to remove each other. Politically more astute and agile than Jobs, Sculley won the showdown and Jobs was forced to retreat.
Jobs soon left the company with several key Apple employees in tow and started NeXT, his bid to revolutionize computing a second time. After a string of disappointing hardware product initiatives, NeXT boasted an estimated $60 million in yearly revenues in 1996—very respectable for a software company, but disappointing perhaps to those who expected nothing less than another rabbit hat trick and billion dollar revenues.
However, Steve Jobs still does magic. In an ironic twist to this Silicon Valley soap opera, Apple Computer decided to purchase NeXT for $400 million at the end of 1996. Why?
Apple, by the end of 1996, was desperately struggling to re-vamp its own operating system and boost lagging sales. It needed a new vision, and chose NeXT—among several other potential companies—to fulfill that vision. Apple’s reasons behind the purchase were widely speculated upon in the press, and many journalists had critical comments about Apple’s strategy behind the acquisition—after all, NeXT only posted an annual profit once in the past four years, and was a market share laggard. Will NeXT—and Steve Jobs—be able to help save Apple? Only time will tell.
Fate rarely presents entrepreneurs more than one golden opportunity for commercial success. But Steve Jobs manages to defy the odds. Longing to enter computer animation, Jobs acquired the computer graphics division of Lucasfilm,
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renamed it Pixar, and helped shepherd it to a successful launch of a computer-generated feature film ( Toy Story) and a public stock offering that pushed Jobs’ estimated wealth well over the $500 million mark.
Yet, in the final analysis, Steve Jobs built a team of tremendously motivated and talented people who were able to truly change the world. All from a small company that started out of a suburban California garage.
We met with Steve Jobs at NeXT’s corporate headquarters in Redwood City, California.
“You’ve got to be passionate about something!”
What talent do you think you consistently brought to Apple and bring to NeXT and Pixar?
I think that I’ve consistently figured out who really smart people were to hang around with. No major work that I have been involved with has been work that can be done by a single person, or two people, or even three or four people. Some people can do one thing magnifi-cently, like Michaelangelo, and others make things like semiconductors or build 747 airplanes—that type of work requires legions of people. In order to do things well that can’t be done by one person, you must find extraordinary people.
The key observation is that, in most things in life, the dynamic range between average quality and the best quality is, at most, two-to-one. For example, if you were in New York and compared the best taxi to an average taxi, you might get there 20 percent faster. In terms of computers, the best PC is perhaps 30 percent better than the average PC. There is not much difference in magnitude. Rarely you find a difference of 2 to 1. Pick anything.
But, in the field that I was interested in—originally, hardware design—I noticed that the dynamic range between what an average person could accomplish and what the best person could accomplish was 50 or 100 to 1. Given that, you’re well advised to go after the cream of the cream. That’s what we’ve done. You can then build a team that pursues the A players. A small team of A players can run
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circles around a giant team of B and C players. That’s what I’ve tried to do.
So you think your talent is in recruiting?
It’s not just recruiting. After recruiting, it’s then building an environment that makes people feel they are surrounded by equally talented people and that their work is bigger than they are. The feeling that the work will have tremendous influence and is part of a strong, clear vision—all of those things. Recruiting usually requires more than you alone can do, so I’ve found that collaborative recruiting and having a culture that recruits the A players is the best way. Any interviewee will speak with at least a dozen people in several areas of this company, not just those in the area that he would work in. That way a lot of your A employees get broad exposure to the company, and—by having a company culture that supports them if they feel strongly enough—the current employees can veto a candidate.
That seems very time-consuming.
Yes, it is. We’ve interviewed people where nine out of ten employees thought the candidate was terrific, one employee really had a problem with the candidate, and therefore we didn’t hire him. The process is hard, very time-consuming, and can lead to real problems if not managed right. But it’s a very good way, all in all.
Yet, in a typical startup, a manager may not always have time to spend recruiting other people.
I disagree totally. I think it’s the most important job. Assume you’re by yourself in a startup and you want a partner. You’d take a lot of time findi
ng the partner, right? He would be half of your company.
Why should you take any less time finding a third of your company or a fourth of your company or a fifth of your company? When you’re in a startup, the first ten people will determine whether the company succeeds or not. Each is ten percent of the company. So why wouldn’t you take as much time as necessary to find all A players? If three were not so great why would you want a company where thirty percent of your people are not so great? A small company depends on great people much more than a big company does.
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But, what about the need for speed when taking your product to market? Wouldn’t recruiting in this manner take away time from getting your product to market quickly?
You’d better have great people or you won’t get your product to market as fast as possible. Or, you might get a product to market really fast but it will be really clunky and nobody will buy it. There are no shortcuts around quality, and quality starts with people. Maybe shortcuts exist, but I’m not smart enough to have ever found any.
I spend 20 percent of my time recruiting even now. I spend a day a week helping people recruit. It’s one of the most important things you can do.
If finding the A players is so important, how can you tell who is an A player and who isn’t?
That’s a very hard question. Ultimately there are two paths. If a candidate has been in the workplace for a while, you have to look at the results. There are people who look so good on paper and talk such a good story but have no results behind them. They can’t point to breakthroughs or successful products that they shipped and played an integral part in. Ultimately the results should lead you to the people. As a matter of fact that’s how I find great people. I look at great results and I find out who was responsible for them.
However, sometimes young people haven’t had the opportunity yet to be in a position of influence to create such results. So here you must evaluate potential. It’s certainly more difficult, but the primary attributes of potential are intelligence and the ability to learn quickly.
In the Company of Giants Page 2