Transforming a business is never easy, but when is the right time to do it? Learn a valuable question to ask yourself when that time comes from Andy Grove.
Dave Young:
Welcome to the Empire Builders Podcast, teaching business owners the not so secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those.
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Dave Young:
Intel Inside. Intel. That’s the music.
[Intel Chime Plays]
That is it. That’s the song. Dun dun dun dun. Dun dun dun dun. It’s officially called Leap Ahead.
Dave Young:
We’ve been hearing that for a while haven’t we?
Stephen Semple:
Yeah. I’m not sure how long they’ve been running that one for, but yeah, it’s been a while. Remember there was even a while there where they had the Blue Man Group do a little bit of [crosstalk 00:01:24]
Dave Young:
Oh yeah. Yeah.
Stephen Semple:
So if everybody’s probably guessed, today, we’re talking about…
Dave Young:
Intel.
Stephen Semple:
Intel. Intel’s got a neat company, because today, it’s one of the dominant companies in the technology space.
Dave Young:
Mm-hmm (affirmative).
Stephen Semple:
And you know, they make the chips that run, frankly, most of the computers in the world, but they’ve come a long way baby from their first year in business. So they started in 1968. Guess how much money they made in 1968? How much money did they make in their first year? They do $21 billion today.
Dave Young:
21 billion.
Stephen Semple:
21 billion, B $21 billion. How much do you think they did in 1968 in their first year?
Dave Young:
Did they actually make money?
Stephen Semple:
They lost money, but what do you think the revenues were?
Dave Young:
1968, couple million.
Stephen Semple:
$2,678.
Dave Young:
Wow. I wonder if they had a full time accountant to count that.
Stephen Semple:
Yeah. And when I say 21 billion, that was their profitability. They do like 80 billion in sales and they’ve got a 100,000 employees today. So they’ve come a long ways baby, from that 2,678 bucks in their first year. So Intel was officially founded by Gordon Moore and Robert Noyce. And Moore is probably familiar to a lot of people because Moore is so influential, he’s got a law named after him.
Dave Young:
Yeah, he’s… I was going to say he’s the Moore’s law guy.
Stephen Semple:
He’s the Moore’s law. And that law is the thing that drove development and thinking and technology space for decades. And Moore’s law states, the number of transistors on a chip will double every 18 months and that’s pretty much what happened. So you’re a big deal when you got a law named after you that people outside the technology industry know.
Dave Young:
I think it’s still applicable. I mean they’re finding weird new ways of just keep doing it.
Stephen Semple:
Yes, but it’s still very much happening and very much drives the thinking and the design. But here’s the thing, our story today is going to be actually be about Andy Grove.
Dave Young:
Okay.
Stephen Semple:
So Andy Grove, while he’s not one of the founders, he was the first employee. He had joined on incorporation day. The day they incorporated, Andy Grove joined. And he’s been described as the guy who drove growth in Silicon Valley. So again, he’s a very, very big deal and right from the start, he was the CEO of Intel. And Grove was born to a middle class Jewish family in Budapest, Hungary. And when he was eight years old, the Nazis occupied Hungary.
Dave Young:
Mm-hmm (affirmative).
Stephen Semple:
And he and his mom were deported to a concentration camp. Now he and his mother took on false identities. They were sheltered by friends and eventually found their way to America. So when he was in the US, he had this job as a bus boy while studying at Hunter College and he got his chemical engineering degree at City College in 1960. And then he went on to get a PhD from Berkeley in 1963. So clearly very smart, determined-
Dave Young:
Yeah.
Stephen Semple:
… guy right? Now in the early days, he worked doing integrated circuits at a company called Fairchild Semiconductors before joining Intel and there’s all sorts of business books about Grove, about his management style, about how he believed you need to stay scared in business to stay ahead. But this podcast is not going to be about that. This podcast is going to be about what to do when the world changes.
Dave Young:
What to do when the world changes.
Stephen Semple:
Which is, I think, very timely for where we are today.
Dave Young:
Oh my God, yeah. [crosstalk]
Stephen Semple:
And Andy Grove and Moore have a really interesting insight on what do. You see Intel reached a stage where their business was under siege. It was the mid 1980s and most of the technology being used was in chips that were invented by Intel, but they were losing market share. They’re losing market share right left and center. And one of the things that Grove is often talks about in his big business books is how to identify and manage crisis points. So we also got to keep in mind, it’s easy to sit there and say this was easy, but it wasn’t. We got to keep in mind that the survival of Intel was far from sure. Let me list you other technology leaders in the chip space that were around at that time. Do you remember Mostech?
Dave Young:
Mm yeah.
Stephen Semple:
Unicem?
Dave Young:
No.
Stephen Semple:
Advanced Memory Systems? These were all leaders and they’re all gone. So success was not assured at that time and the biggest decision that faced Intel happened in 1980 that completely changed their business. So what had happened was the Japanese memory chip manufacturers decided to go after Intel. They said, you know what? We are taking down Intel. This is very similar to what Canon did to Xerox. Focus on a particular company and said, we’re taking them down. And they decided that they were going to win with what they called the 10% rule, which was undercut Intel by 10%, no matter what price Intel did, 10%. If Intel matched it, they would go down 10% again, just relentlessly driving down the prices and got to remember, this business that Intel was in at that time, they invented this business. So this was a real crisis for Intel. Most of the patents were there, they invented this business and they were under siege.
Stephen Semple:
So they went into planning mode and they thought, well you know what? What we could do is we could build a new giant factory in the hopes of establishing a cost advantage, right? That’s how we’ll win. We’ll win by cost advantage, or we’ll push the technology envelope and build new superior memory chips because at that time, what they’re making was memory chips or we’ll target another niche market. We’ll find some niche market and we’ll make something along that lines. And they spent a year doing this type of planning of what were they going to do to push back in the memory chip market.
Dave Young:
Mm-hmm (affirmative).
Stephen Semple:
So after a year of this, Andy Grove came to a really interesting realization. He looked at all of these answers, everything that they had dreamt of, all the brainstorming that they did. And they said none of these were going to solve the problem. None of them.
Dave Young:
Okay.
Stephen Semple:
So Grove then went to Gordon Moore and he asked this question, he sat down with Gordon Moore and he said, “Hey Gordon, if we got kicked out and the board brought in a new CEO, what do you think he would do?”
Dave Young:
Hmm.
Stephen Semple:
And Moore answered without hesitation. He’d get us out of the memory chip business. So Grove replied, “Well, why shouldn’t you and I walk out the door, turn around, come back in and do that ourselves?”
Dave Young:
Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.
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Dave Young:
Let’s pick up our story of where we left off and trust me, you haven’t missed a thing.
Stephen Semple:
So Grove replied, “Well, why shouldn’t you and I walk out the door, turn around, come back in and do that ourselves?” And that’s what they did. They got out of their core business. They got out of memory chips and they went into the microprocessor business, which at the time was a distant second place in terms of revenues for them. Tiny, tiny part of their business. It was a bold move. They abandoned their main business, the thing that represent the vast majority of their revenues and patents in history to go after this-
Dave Young:
Mm-hmm (affirmative).
Stephen Semple:
… brand new little small business and they didn’t sort of go, oh, let’s pivot. They slid the chips across the table and went all in. They-
Dave Young:
All in.
Stephen Semple:
… walked away from the core business and they did the thing that they knew represented the future. That’s hard to do, man.
Dave Young:
That is.
Stephen Semple:
Right?
Dave Young:
What a great question.
Stephen Semple:
Yeah. We got kicked out and the board brought in a new CEO. What do you think they would do? Because all of a sudden that means they’re not attached to any of that history.
Dave Young:
Yeah.
Stephen Semple:
And I think this getting locked in to your existing business is the reason why so much innovation that we see today comes from outsiders. Like think about it. Uber, Airbnb, they’re outsiders. Apple, when it entered the music business was an outsider. So much innovation comes from the outsiders because I think the insiders aren’t asking that question that Grove asked of Moore.
Dave Young:
It’s interesting you know, what it brings to mind, the whole idea of when you do get attacked from outside, right? And some of that, that’s going on today is like these big hedge funds that… Would you apply that as well? Like should a business owner say, well, if a hedge fund bought us out, they have their own reasons, right? What would they do? And do you do that?
Stephen Semple:
Yeah. I’m not sure about that because hedge funds often have a different approach and are very short term, financial focused and whatnot but I think the really interesting thing was really it’s more about if I wasn’t tied to the history of this business, I didn’t have that baggage and none of that mattered to me and I didn’t develop these things and I didn’t do all this stuff, what would I do if I had a brand new, absolute clean slate, what would I do?
Dave Young:
Mm.
Stephen Semple:
And I think that’s the part that’s really interesting about it because then it’s not about, oh, we can’t do that because we do this or I can’t do that because it ends up becoming, no, this is what I had a brand new clean slate and none of this history, this is what I would do, then why aren’t you doing it?
Dave Young:
Yeah. I think it’s a great question. I think it’s such a great strategy focus and question and premise, it seems to have worked out for them too.
Stephen Semple:
It’s worked out huge, you know we look at all of these other companies that were leaders in the eighties that failed. Intel went on to become an even bigger monster than it was at that time and they did it by having the guts to actually abandon the thing that made them great, go all in on where they thought the future would be and be part of that future. And you know, I also think today, we also have to recognize that if you don’t change that future, somebody else will.
Dave Young:
Mm-hmm (affirmative). I think you also have to… This might even be a topic for another episode, but I think you also have to give them credit for somehow becoming a part of everybody’s brand with the insertion of their name on a sticker.
Stephen Semple:
Yes.
Dave Young:
And in branding commercials right? So you didn’t hear about a PC clone that didn’t have Intel Inside and that’s true on macs, it’s true on PCs, they became… Even though they’re just another part inside of a computer, they became almost as important as the brand of the computer you were buying.
Stephen Semple:
Yeah and I think in the future when we can talk about that, because that was really had to do with their battle with Advanced Micro Devices with AMD, when AMD moved into the market-
Dave Young:
Mm-hmm (affirmative).
Stephen Semple:
… with a lower priced chip, this was Intel’s response to it. So I think that would make a really interesting AMD versus Intel one for the future but it’s really incredible when you get somebody like Andy Grove who was uprooted and came to the United States with nothing, built this thing and then you know Moore being so insightful that he had this law around him and while Andy Grove’s question was really insightful, Moore’s answer was equally insightful.
Dave Young:
Yeah.
Stephen Semple:
He was like, I would do this.
Dave Young:
Mm-hmm (affirmative).
Stephen Semple:
And then they both had the guts to go, all right, let’s do it.
Dave Young:
Yeah. What a huge pivot.
Stephen Semple:
Huge pivot.
Dave Young:
Yeah.
Stephen Semple:
Intel. Amazing company that really deserves our admiration.
Dave Young: Thanks for listening to the podcast. Please share us. Subscribe on your favorite podcast app and leave us a big fat juicy five star rating and review at Apple podcast. And if you’d like to schedule your own 90 minute empire building session, you can do it at empirebuildingprogram.com.
