Only the Paranoid Survive

by Andrew S. Grove

For now, let me just say that a strategic inflection point is a time in the life of a business when its fundamentals are about to change.

When the way business is being conducted changes, it creates opportunities for players who are adept at operating in the new way.

short, strategic inflection points are about fundamental change in any business, technological or not.

Every person in the world is on the verge of becoming both a

coworker and a competitor to every one of us, much the same as our colleagues down the hall of the same office building are.

cannot anticipate where the next fire will be, so it has to shape an energetic and efficient team that is capable of responding to the unanticipated as well as to any ordinary event.

hope to raise your awareness of what it’s like to go through cataclysmic changes and to provide a framework in which to deal with them.

Now, all of a sudden, instead of predictable success, nothing was predictable.

The first involved our attempting to change how our products were perceived.

problems developed with our flagship Pentium chip, our merchandising pointed the users directly back to us.

The second fundamental factor in creating the conditions for the maelstrom was our sheer size.

We had become gigantic in the eyes of computer buyers. Unfortunately, it took a blowup to make us realize this.

some set of unstated rules and sometimes these rules change—often in very significant ways.

The lesson is, we all need to expose ourselves to the winds of change. We need to expose ourselves to our customers, both the ones who are staying with us as well as those that we may lose by sticking to the past.

Porter describes five forces that determine the competitive well-being of a business. In my paraphrasing, they are:

The possibility that your product or service can be built or delivered in a different way. This is often called “substitution,”

and I’ve found that this last factor is the most deadly of all.

the force of complementors. Complementors are other businesses from whom customers buy complementary products.

Complementors often have the same interests as your business and travel the same road. I think of them as “fellow travelers.” While your interests are aligned, your products support each other.

Before the strategic inflection point, the industry simply was more like the old. After it, it is more like the new. It is

First, there is a troubling sense that something is different. Things don’t work the way they used to.

Then there is a growing dissonance between what your company thinks it is doing and what is actually

happening inside the bowels of the organization.

Yet the senior manager’s task is to force that march to a vaguely perceived goal in spite of the casualties, and the middle managers’ responsibility is to support that decision. There is no other choice.

Everything middle management is supposed to do—implement policy, deal with customers, train employees—also becomes more difficult.

Even those who believe in a scientific approach to management will have to rely on instinct and personal judgment.

So customers of vertical computer companies tended to stay for a long time with the solution they chose in the first place.

this diagram, we have horizontal bars representing fields of both competence and competition.

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

Competitors in each horizontal bar of competence and competition now fought for the largest share of that bar.

based on mass production and mass distribution. Those that win inevitably get stronger; those that lose, over time, get weaker.

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

Clearly, the old world was no more. Something had changed. And the more successful the players were in the earlier industry, the harder a time they had to change with it.

When an industry goes through a strategic inflection point, the practitioners of the old art may have trouble. 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.

that it is truly difficult for a successful industry participant to adapt to a completely different industry structure.

effect, they came to the conclusion that they couldn’t fight this industry-wide change, so they adapted to it.

There is an important lesson to be learned from Novell’s experience. Whereas as a hardware producer Novell had lack of scale working against them, by being the first to popularize networking software that runs on PCs and capturing a large share of the emerging networking market, they made scale work for them. They turned from losers to winners.

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 relucta...

Horizontal industries live and die by mass production and mass marketing. They have their own rules.

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.

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 time advantage, in this business, is

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.

of scale in which the large investments that are necessary can be effective and productive and will make sense because, by being a large-volume suppli...

By contrast, cost-based pricing will often lead you into a niche position, which in a mass-production-based ...

however, supplies just one product—for example, computer platforms or operating systems or software.

By virtue of the functional specialization that prevails, horizontal industries tend to be more

Simply put, it’s harder to be the best of class in several fiel...

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.