Only the Paranoid Survive

by Andrew S. Grove

But in capitalist reality, as distinguished from its textbook picture, it is not (price) competition which counts but the competition from the new commodity, the new technology, the source of supply, the new type of organization … competition which … strikes not at the margins … of the existing firms but at their foundations and their very lives. —Joseph A. Schumpeter, Capitalism, Socialism and Democracy, 1942

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. The personal computer industry is characterized by well-chronicled failures when manufacturers, ostensibly motivated by a desire to make “a better PC,” departed from the mainstream standard. But goodness in a PC was inseparable from compatibility, so “a better PC” that was different turned out to be a technological oxymoron.

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. This will lead you to achieve economies 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 supplier, you can spread and recoup those costs. By contrast, cost-based pricing will often lead you into a niche position, which in a mass-production-based industry is not very lucrative.

I was in my office with Intel’s chairman and CEO, Gordon Moore, and we were discussing our quandary. Our mood was downbeat. I looked out the window at the Ferris wheel of the Great America amusement park revolving in the distance, then I turned back to Gordon and I asked, “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?”

If existing management want to keep their jobs when the basics of the business are undergoing profound change, they must adopt an outsider’s intellectual objectivity. They must do what they need to do to get through the strategic inflection point unfettered by any emotional attachment to the past. That’s what Gordon and I had to do when we figuratively went out the door, stomped out our cigarettes and returned to do the job.

These were very hard times and we were losing a lot of money. We had to lay off thousands of employees. We had no immediate use for the silicon fabrication plant where memories were made and had to shut it down. We also shut down assembly plants and testing plants that were involved with the production of memories. These also happened to be our oldest factories, situated in odd locations and too small for our business at this point anyway, so shutting them down gave us the opportunity to modernize our factory network. But that didn’t make it any less painful.

You don’t have to seek these Cassandras out; if you are in management, they will find you. Like somebody who sells a product that he is passionate about, they will “sell” their concern to you with a passion. Don’t argue with them; even though it’s time-consuming, do your best to hear them out, to learn what they know and to understand why it affects them the way it does.

My point is that you can’t judge the significance of strategic inflection points by the quality of the first version. You need to draw on your experience. Perhaps you remember your reaction to the first PC you ever saw. It probably didn’t strike you as a revolutionary device. So it is with the Internet. Now, as you stare at your computer screen that’s connected to the Internet, waiting for a World Wide Web page to slowly materialize, let your imagination flow a bit. What might this experience be like if transmission speed doubled? Or better yet, if it were improved by “10X”? What might the content look like if professional editors rather than amateurs created it, not as a sideline but as their main occupation? You might extrapolate the evolution of this phenomenon by remembering how rapidly PCs evolved and improved.

That’s why in a way I think that we at Intel were fortunate to have gone through the terrible times in 1985 and 1986 that I described in Chapter 5. Most of our managers still remember what it felt like to be on the losing side. Those memories make it easy to conjure up the lingering dread of a decline and generate the passion to stay out of it. It may sound strange but I’m convinced that the fear of repeating 1985 and 1986 has been an important ingredient in our success.

But if you are a middle manager you face an additional fear: the fear that when you bring bad tidings you will be punished, the fear that your management will not want to hear the bad news from the periphery. Fear that might keep you from voicing your real thoughts is poison. Almost nothing could be more detrimental to the well-being of the company.

If you are a senior manager, keep in mind that the key role of Cassandras is to call your attention to strategic inflection points, so under no circumstances should you ever “shoot the messenger,” nor s...

Looking back over my own career, I have never made a tough change, whether it involved resource shifts or personnel moves, that I haven’t wished I had made a year or so earlier.

The fundamental implication of this model was—and is—that the player with the largest share of a horizontal layer is the one who wins.

To make it through the valley of death successfully, your first task is to form a mental image of what the company should look like when you get to the other side. This image not only needs to be clear enough for you to visualize but it also has to be crisp enough so you can communicate it simply to your tired, demoralized and confused staff.

One more word about your own time: if you’re in a leadership position, how you spend your time has enormous symbolic value. It will communicate what’s important or what isn’t far more powerfully than all the speeches you can give. Strategic change doesn’t just start at the top. It starts with your calendar.

Simply put, in times of change, managers almost always know which direction they should go in, but usually act too late and do too little. Correct for this tendency: Advance the pace of your actions and increase their magnitude. You’ll find that you’re more likely to be close to right.

As in any good co-op, people acting in their own self-interest act in the interests of the whole.

Don’t bemoan the way things were. They will never be that way again. Pour your energy, every bit of it, into adapting to your new world, into learning the skills you need to prosper in it and into shaping it around you.