Only the Paranoid Survive

by Andrew S. Grove

These computers are fundamentally similar even if the computer company engineers improve the basic machine as they compete with each other.

Analogous to infrared camera and systems manufacturers

But at the same time, the new order provided an opportunity for a number of new entries to shoot into preeminence.

Strategic inflection points are opportunities for startups!

Compaq became the fastest Fortune 500 company to reach $1 billion in revenue. They were a company that understood the dynamics of the new industry and prospered by tailoring their business model to it.

computer manufacturers and operating systems suppliers, found it more economically advantageous to build their business on Intel architecture

Leading at an inflection point, strong supplier/position in the new industry

If you base your business on the volume leader, you will be going after a larger business yourself.

Power and value of complements

What was the impact of this change on IBM?

the more successful the players were in the earlier industry, the harder a time they had to change with it.

Advantage startup with little experience in the previous infrastructure. But you have to move quick because old dogs learn eventually...

On the other hand, the new landscape provides an opportunity for people, some of whom may not even

be participants in the industry in question, to join and become part of the action.

their original business model consisted of being a follower of IBM as a maker of IBM-compatible personal computers,

new microprocessor in 1985 provided an opportunity to go for a market-share-leading position, they took the chance and got out in front,

there are two more lessons here.

First, when a strategic inflection point sweeps through the industry, the more successful a participant was in the old industry structure, the more threatened it is by change and the more reluctant it is to adapt to it.

Second, whereas the cost to enter a given industry in the face of well-entrenched part...

when the structure breaks, the cost to enter may become trivially small, giving rise to Compaqs, Dells and Novells, each of which emerged from practic...

Horizontal industries live and die by mass production and mass marketing.

One, don’t differentiate without a difference. Don’t introduce improvements whose only purpose is to give you an advantage over your competitor without giving your customer a substantial advantage.

Differentiate your product by its advantage to the customer!

Two, in this hypercompetitive horizontal world, opportunity knocks when a technology break or other fundamental change comes your way. Grab it. The first mover and only the first mover, the company that acts while the others dither, has a true opportunity to gain time over its competitors—and

Three, price for what the market will bear, price for volume, then work like the devil on your costs so that you can make money at that price.

Keep an optimistic,realistic,pessimistic pricing model with adjusted costs for scale. Work hard but don't under sell or under value the companies product

By contrast, cost-based pricing will often lead you into a niche position, which in a mass-production-based industry is not very lucrative.

Different financial models for volume pricing versus cost based pricing?

By learning from the painful experience of others, we can improve our ability to recognize a

strategic inflection point that’s about to affect us. And that’s half the battle.

one of the forces affecting the business.

1. Power of competitors 2. Power of suppliers 3. Power of potential competitors 4. Can it be done differently, better? 5. Power of customers 6. Power of complements

This, in turn, had two consequences. First, our influence on our customers increased.

Second, since most PCs increasingly were built on microprocessors from one supplier, they became more alike. This, in turn, had an impact on software developers, who could now concentrate their efforts on developing software for fundamentally similar computers built by many manufacturers.

Effects felt all down the supply chain

building up the determination necessary to undertake the hard, unpleasant and treacherous task of leading a group of people through an excruciatingly tough set of changes—the

the incident that I’m about to describe is how I learned with every fiber of my being what a strategic inflection point is about and what it takes to claw your way through one, inch by excruciating inch.

It takes objectivity, the willingness to act on your convictions and the passion to mobilize people into supporting those convictions.

An increasing transistor count readily translates into two enormous benefits

Example of technical capability...

for the customer: lower cost and higher performance.

Advantages/benefits for the customer!

We worked day and night to design the chip and, in parallel, develop the manufacturing process.

This is us

we introduced our second product a short while after the first.

How long between?

To put this in perspective, we were a company composed of a handful of people with a new type of design and a fragile technology, housed in a little rented building, and we were trying to supply the seemingly insatiable appetite of large computer companies for memory chips.

Through our struggle with the first two technological curiosities that didn’t sell

the third

one that sold but that we had such a hard time producing, Intel became a business and memory chips became an industry.

Keep trying!

Then we were hit by the quality issue. Managers from Hewlett-Packard reported that quality levels of Japanese memories were consistently and substantially better than those produced by the American companies.

Their principal weapon was the availability of high-quality product priced astonishingly low.

“If we got kicked out and the board brought in a new CEO, what do you think he would do?” Gordon answered without hesitation, “He would get us out of memories.” I stared at him, numb, then said, “Why shouldn’t you and I walk out the door, come back and do it ourselves?”

One was that memories were our “technology drivers.”

we always developed and refined our technologies on our memory products first because they were easier to test.

Once the technology had been debugged on memories, we would apply it to microproce...

According to this, our salesmen needed a full product line to do a good job in...

if they didn’t have a full product line, the customer would prefer to do business wit...

Given the strength of these two beliefs, an open-minded, rational discussion about getting out of memories was practically impossible.

Previous dogmas/cultural attitudes prevented ideological shift from memory to microprocessors; acted as an internal barrier to inflection point

In other words, he convinced me to continue to do R&D for a product that he and I both knew we had no plans to sell.

No! Waste of resources. sunk cost fallacy

Our customers knew that we were not a very large factor in the market and they had half figured that we would get out; most of them had already made arrangements with other suppliers.

Shift in customers. Not 10x, but clearly big indicator of a need to shift company direction

People who have no emotional stake in a decision can see what needs to be done sooner.

I suspect that the people coming in are probably no better managers or leaders than the people they are replacing. They have only one advantage, but it may be crucial: unlike the person who has devoted his entire life to the company and therefore has a history of deep involvement in the sequence of events that led to the present mess, the new managers come unencumbered by such emotional involvement and therefore are capable of applying an impersonal logic to the situation.

They can see things much more objectively than their predecessors did.