Acquired - Adapting Episode 3- Intel

0:00I don't think so. I mean, we said on adapting we weren't doing any grading. I don't know. I don't know what we would. I mean, the decision to pivot. Uh, let's see, eh? Welcome to this Pada Paloza special. We are in episode three of our adapting mini series where we tell the stories of great companies and leaders who are adapting to a world that's changing in real time. For those keeping track at home, welcome to season six, episode six of acquired.

0:39I'm Ben Gilbert. And we are your hosts. Today we tell a historical story of a company in crisis. A different and more industry-specific crisis than the one we are all going through right now, but a crisis nonetheless. This is the story of a business whose amazing and differentiated core product line became a pure commodity overnight, and the realization, action, and bravery that followed thereafter.

1:06Today, we cover Intel and their incredible bet the company move on their newly emerging microprocessor business in 1985. This was an astounding part of the research for me was a full 17 years after their founding. Yep, they weren't the microprocessor company when they started, but we'll get into all that. To all of you listening out there for the very first time as part of Potapalooza, welcome.

1:32to acquired and adapting. On this podcast, we tell the stories of great companies. Mostly, we focus on technology companies and we center our story mostly in normal times around a culminating event that we grade for the company, who typically an acquisition or an IPO, hence the name acquired. Ben and I, though, are not journalists. We are industry practitioners, and so our perspective here is telling these stories from the perspective of people inside the industry. We're entrepreneurs and venture capitalists, and we've been trying over the past 100 or so episodes here on Acquired to better understand how to build great companies and learn in public how to do that ourselves and with all of you. Well, a few announcements before we get to it. If you love Acquired and you want to go deeper on company building topics into the nitty gritty, you can become an Acquired Limited Partner.

2:26you'll get access to the LP show which has recent guests like Venture Capitalist Charles Hudson and Mystery co-founders Shane Kavalski and Vince Coppola. With Charles we discuss the inside baseball of pre-seed investing and portfolio construction and with Shane and Vince they're insane pivot in real time where they took their seed stage experience hospitality company which is a tough spot right now into the world of in-home kind of morphing their offering during the coronavirus pandemic and figuring it out in real time. And growing their business. I know. It's crazy. Just crazy. So you'll get access to that. You'll get the LP calls where we hop on Zoom and spend a couple hours with all of you once a month or so. And you can get access by clicking the link in the show notes or going to glow.fm slash acquired and all subscriptions come with a seven day free trial. So feel free to check it out. All right listeners.

3:23Now is a great time to talk about a new partner of ours here on Acquired. Lagora, the agentic operating system that is redefining how the world's best legal teams work. Yup, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Lagora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

3:50So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love like tabular review where you.

4:10drop in a folder of hundreds of contracts, and it pulls every key term into a grid a lawyer can actually work with. Lugora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work, and this means that the pie can grow even as each individual task takes less time.

4:29And they recently launched LaGora agent offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And LaGora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early LaGora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over 100,000 lawyers on the platform from 1200 legal teams in 50 countries, and crazily they went from 1 million to 100 million in ARR in about 18 months. Truly insane numbers. And that is the real test.

5:22Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm, or you're in-house at a company, you can learn more at logora.com slash acquired and just tell them that Ben and David sent you. David, I think we are ready to dive into the story of Intel. Let's do it. So...

5:51The story of Intel, we are going to start here in the first act with the founding of Intel. Some of this is going to sound familiar to listeners who have listened to part one of our series on Sequoia Capital because Sequoia Capital and Intel share much of the same heritage and roots, although Sequoia was not an investor in Intel because it wasn't founded yet. So bear with us, but we're going to go in more detail and talk about really the beginning of Silicon Valley itself. So we start our story in 1956 with a man named William Shockley, who has just moved from New Jersey, wonderful New Jersey, spent lots of time there growing up and in college, to Mountain View, California, where he starts a company called Shockley, semiconductor, and that...

6:42today from our modern perspective does not sound shocking, but it was shocking at the time, and it was curious for a couple reasons. One, because there were no semiconductor companies, either in California or anywhere else at the time, nor were there startups in general. The whole concept just didn't exist. Mountain View was like a views of mountains and a bunch of Apple and P-torchards. The other reason it was surprising and interesting was that Shockley wasn't just some like dude off the street.

7:09He was living in New Jersey because he worked at Bell Labs where he had just co-invented the transistor. In fact, in that same year, in 1956, he won the Nobel Prize for doing so. He also had a pretty interesting background. He had very deep military connections because during World War II, while he was working at Bell Labs. He had been tapped as a senior military adviser on actually on radar and anti-submarine war techniques and had kind of become so important to the US's war effort that he had authored the report. He was asked to author the report that estimated the difference in potential casualties between dropping the atomic bombs on Japan at the end of the war and invading violent. That was him, Shockley.

7:58Crazy. Especially as we all find out more about Shockley in a minute, what he ultimately turns into. But why did he move back to Mountain View, California? I say back because he was originally from Palo Alto and his mother was getting older at this point in time. I think his father passed away. Wasn't doing well. And so he had just won the Nobel Prize, invented the co-invented the transistor. I think he was probably thinking about starting this company and he decided to move home to do that. So kind of with that, Silicon Valley was born in California and not in New Jersey. And David, so co-invited the transistor, but we don't have a semiconductor industry yet. Do you have any sense of why he would win a Nobel Prize for inventing the transistor? What did we think the transistor was going to be used for? That's a good question. Well, I think he had these deep military connections. And as we talked about, or we can talk about less here, but in part one of the Sequoia Capital Series, the first in primary

8:58customer for the Silicon industry, was the government of the defense industry? Well, I don't recall exactly, but I think the defense industry was sponsoring a lot of this research. I think within Bell Labs, although I'm not entirely sure how that worked. So there was kind of a race and computers had been used during the war, any act and all that. It was super clear that the transistor and semiconductors were going to enable a whole step change function in the power and Utility of computers. So I guess it was known. This is the part where I probably should have done. We're at research in this area, but the ways that we were storing information before were just much bigger. We just, you know, transistors made it much more efficient, much smaller. But as you say, you know, the notion of a computer had existed before just not vacuum tubes. Yes, exactly, not etched into a into silicon. Well, that's interesting. You say information was stored.

9:52For a long time, even after this information was still stored, not in transistors, but we'll get to that in one sec. So back to Shockley, though. I mean, he's brilliant. He's like literally one of the fathers of computing, undoubtedly, Nobel laureate, but he had a pretty significant dark side. He was a total egomaniac and...

10:12when you have that in your personality becoming at the same time both a CEO and a Nobel laureate tend to magnify those personality traits. When he started the company, he demanded absolute adherence to all of his whims. He started instituting a lie detector test at the office because he didn't trust any of his employees. And generally, he was kind of like the world's worst boss later in life much later after after shockley semiconductor. He would go on to become a professor at Stanford.

10:42He literally went off the deep end. He became a white supremacist. He became obsessed with eugenics. Pretty ironic given his role on the side of the Allies during World War II. Again, he ended up dying alone and completely estranged from his family. Like it's crazy. He went totally off the deep end. But back to the 50s. In 1956, though, when he started this firm, This was, you know, kind of back to your question. I like everybody in the technology industry knew this was where it was at. And so he had just started this company in Mountain View, California, but everybody who was working in the industry all around the country wanted to come out and work with them. And so the best and brightest from all corners of the country started coming out and joining Shackley, semiconductor. And I think that also had a big...

11:26part to do with why you know obviously there was the influence of Stanford and and Cal and all the great universities in the Bay Area. Yeah Stanford sort of beating Harvard to get the grant from the federal government to do more I think it was DARPA research. Yeah. But this was also a big part of it. This this company that popped up and started recruiting people from all over the country. So kind of a year into this when Shackley's acting crazy a group of eight employees who are really talented. They're kind of fed up with his antics. They decide to do something pretty radical. They all resign on mass on the same day. They leave shackly. They walk out the door and they start a competing company becoming known in the process as the quote-unquote traitorous eight, which folks might have heard of. And two of these traitorous eight gentlemen are people by the names of Bob Nois and Gordon Moore.

12:21these traders, these pirates, if you will. They also aren't just any kind of people off the street. So Bob Noice, and remember Shackley had invented the transistor, Noice invented the modern integrated circuit, which became, you know, how transistors were implemented in silicon. And more, Gordon Moore, of course, observed and coined Moore's law that we still talk about and is holds even to this day, which was the observation that roughly the density of integrated circuits on a chip, computing power would double every one to two years. And that has happened for the past 50 plus years. Sort of. So I remember, I think we're going to go back eight, 10 years, but there was a period of time where it basically petered off where we stopped seeing doubling in terms of pure Moore's law, which was the density of ICs on a single core. But

13:19then we saw the advent of multi-core computing, and of course now you have eight core, 16 core, 30, like shipping in laptops. Processing power keeps increasing. Yes, corrected itself in terms of the amount of processing power you can sort of get on a single, I guess CPU. Are there multiple CPUs on a, what is the unified body called of the several cores that ship together now? I don't even know anymore. Once again, it's a commodity, but we'll get back to that.

13:48All these talented people left. Shackley had proven you can create a company, but it ended up being super difficult to get this venture financed. They needed money because they had to set up literally manufacturing plants to make the semiconductor. What year was this? This was 1957. There is no money that exists to fund non-governmental tech businesses.

14:12Yeah, venture capital was like you were going on an adventure in some capital somewhere like nobody knew what that meant. So they ate them. They get in touch with a man named Arthur Rock who was an investment banker from the East Coast and he agrees to help them out. He kind of scours the technology universe at the time looking for somebody willing to fund these guys and He ends up connecting them with a guy named Sherman Fairchild back in Long Island, New York, who is the owner of Fairchild, Camera, and Instrument Corporation. Now Sherman also happens to be the largest shareholder in IBM, which is why he's sort of interested in this. So he agrees to loan these eight plucky pirates, one and a half million dollars.

14:54In exchange for the right to buy the whole company for three million dollars Which he does venture capital terms have come a long way since then. It's a heck of a deal. Well, hey, you know, I mean this environment the power is back on the investor side I would say Yeah, I don't think anybody would take that deal. It's actually interesting think about that deal for a second So you're alone one and a half million and they have the right to buy it for three Let's say it happens over the six months. I don't know how long it actually took like They wouldn't have taken any equity, right? It was truly alone. It was alone. Yeah. I mean, at the end of the day, it wasn't a company. It was a subsidiary of Fairchild. And this becomes the problem. Fairchild semi-conductor, the newly established division of Fairchild Camera and Instrument, does take over the torch from Shockley and becomes the premiere.

15:47The premier semiconductor company, not just in Silicon Valley, but in the world. They have a great 10 year run. Don Valentine famously becomes the head of sales there and just crushes it selling to the military and other customers. But 10 years to go by and nobody's getting that rich there. They've created all these millions, hundreds of millions of dollars in sales, but there's no equity.

16:11Right, it's all going back to Cameron instrument back in Fairchild's back in New York. Yeah, exactly so Two of these folks you know nois and more they've already been traders once so you know what's what's another time they also start to see that were now in 1968 They start to see that like hey, you know Silicon has revolutionized computing which has revolutionized so many industries at this point, but The memory aspect of computers still isn't done with chips. It's like, it's done with magnetic cores. Like literally, you know, magnetic disks and it's way slower and it's way smaller. What if we use the same semiconductor and silicon technology that we're using to make these other chips to turn the memory into chips? I think we can do that. That sounds like a good idea. Let's start a company around that. Let me tease this apart to make sure I understand here.

17:08When you say make these other chips, like what types of chips were being made with silicon and semiconductors before memory, before RAM? Well, we talked about this a little bit on this quay episode. I think they were like specialized computing chips for the productions and the applications that they were selling them to. So like they were selling to the military for like radar or missile guidance systems I think they were customized like the compute that was needed for the application was baked into the chips and then the Storage was done in these you know storage of the data was done in these magnetic cores

17:48Right, and there's no notion, you know, for folks that know how the inside of the computer works, you know, these days, the CPUs, the brain, RAM is basically like short-term memory, and then your hard disk or your SSD is like the long-term memory. So that long-term memory was living on tapes or magnetic disks. There was no notion of short-term memory like this, this like RAM that would exist to hold your programs while they were running, but not actually run them. Like that whole, Peace didn't exist at all. That was the Intel innovation here. I'm sorry. That was the more a noise innovation. More a noise innovation. The NM and innovation. Yeah, but it's great. The other point too on that is the CPU didn't exist yet. Intel would invent it. You said that as the brain. There were no brains. The chips that were being produced, they were hard-coded. The computing, the software was baked into

18:43The hardware. Yeah, I remember sitting in my electrical engineering lab in undergrad and I remember like specifically the 555 chip it was this timer chip and it existed to do one thing and it was basically keep track of time and sort of like tick up as time went on so that you could keep track of it and I imagine like That was just the case for all these chips. It was special purpose, you know, everybody can imagine them if they played with them as a kid or if they've ever ripped apart a computer. It's just, you got 8, 10, 12, 15 pins. You use a breadboard to hook them together and yeah, they do a thing. So nice and more, leave. They have this vision of like, we can create this short-term memory.

19:23product in Silicon. They go find Arthur Rock again. Like, oh, well, he helped us start Fairchild. Let's talk to him again. This time Arthur has gotten smarter. He says, you know, well, I saw Sherman get pretty rich at Fairchild rather than hooking you up with somebody who can like, you know, set this up as a division. What if you like start the company and I'll invest in the company and that they do? He organizes a two and a half million dollar funding round of venture capital.

19:53from a syndicate that he leads, they raise that in July, they hire a few folks over from Fairchild, and they're off to the races. And let's talk about that. So two and a half million dollars sounds like a great seed round for anybody that knows sort of funding these days. Inflation of Justin, that's 15, 18 million dollars. So, you know, you're probably not going to a guy like Arthur Rock for him just to be able to write that check individually. Now, no, again, at this time, we covered Don Valentine's prolific sort of pseudo invention of the asset class of venture capital on on the Sequoia episodes, but there wasn't this notion of like, well, I'll manage other people's money in a way that we can deployed into startups and understand how

20:36Like, who gets a cut of what? And indeed, it wasn't until four years later that Don would start Sequoia. Right. And so what Arthur did, I think he put in something like a hundred K of his own money and then basically got convertible debt for the rest of the two point, whatever million. Yeah. And it was basically a convertible debt instrument. So it wasn't a straight equity investment. Correct. Interesting. Interesting. Well, nonetheless, they do well.

21:04Quick version on the name. So until this point, all the names of these companies had been either the founder's name or the name of the owner in the case of Fairchild. So naturally, the name for this company should have been more noise. So my favorite trivia on the research. So they're like, can I have more noise in my semiconductor? More noise in my semiconductor.

21:26It only took saying that out loud to realize that was not a good idea. Yeah, so you do not want more noise in any electronic system. No. So they're like, oh yeah, no worries, we'll just use our initials, NM. So they actually incorporated the company as NM electronics. But then I wasn't able to find, were you able to find who said like, yeah, that doesn't say very good. Doesn't roll off the time. No, I didn't find that.

21:53No, I couldn't find it either, but within a month of incorporating it, they changed the name from NM Electronics to maybe NM sounded a little bit like Intel. They changed it to Intel because they wanted it to be integrated electronics, but that was taken. And so they used the word, they invent the word Intel, or I guess they borrow Intel from those intelligence. And they actually did have to...

22:17to go and buy the name. I think there was somebody else that owned. There was a hotel chain called in Tulco. Yeah. And they had to go buy the trademark. Yeah, yeah. Apparently for $15,000, which was a lot of money in those days. But they had $2.5 million. So, you know, they were swimming in it. Three years later, that $2.5 million proves to be quite a good investment on behalf of Arthur Racken. His associates, Intel goes public with a market cap of $58 million. Everybody makes a lot of money.

22:46Don who fast IPO were like way before stay private longer. Yeah Exactly Don who we reference done Valentine. He's over at national semiconductor by this point. He sees this and he's like Okay, this is Well, let's go venture capital. It's a thing and then of course he leaves and starts Sequoia capital and we all know the history there or if you don't you can go listen to our two-part episode. Okay, so that's a nice little story, Intel founded, making memories, literally making memories, making people rich, three years to IPO, you know, $58 million market cap is, you know, wonderful record setting at the time. That's a nice little story, but there's certainly nothing adapting about that. Honestly, if it weren't for what happens after that, Intel would just, I think, have ended up being like a part of ancient history, just like, exactly.

23:38Fairchild. Yeah, and to really drive home for everyone, because everyone thinks of Intel as, you know, Intel inside, or maybe it triggers in your mind. Dun, dun, dun, dun, or maybe as, you know, you think about a cool rendering of a CPU on a motherboard.

23:54to quote directly from the Andy Grove book, only the paranoid survive. You know, he says Intel equaled memory in all of our minds. Like it was their core identity is we are memories that it was the business plan. It was founded on it. Yep. Totally. So what was the problem that would have killed the company? It was that, you know, Ben, I think you mentioned this, it turns out that memory and really all of the silicon that was being made at this time was a commodity. They just didn't realize it because they were first to market like memory chips didn't exist before. So until it gets started, they start, you know, turning out these chips, people start using them. But then other people start making the chips. And there's nothing special about the chips. They're just like memory is memory.

24:43In some ways, Intel, they were the most innovative company. They truly were able to stay six, 12 months ahead and always be better than their competitors. A lot of their early competitors. They were making denser memories, more storage. They believed that R&D and technology, that's really at the core of who we are. They invested really heavily in it.

25:07you know, 15 years, I think that the first 10 years, they handily beat all competitors. Maybe the next five years, they sort of would trade back and forth with Texas Instruments and other early memory companies for who would have the best model this time around. And then we'll wait for next year to see who has the best model for next time around. So commodity in a sense of like, everybody has to really push the envelope to run forward, but not enormous barriers to entry and like new competitors kind of keep popping up. In the words of Hamilton Helmer from great LP episode and his book Seven Powers. There's no power in the business. Like it's just hard to do, but there's nothing fundamentally about like once you are doing it or you're a leader, that you're gonna stay the leader. And so by the mid 1980s, again, as you say, you know, 12, 15 years after founding, which was a great run for the company ahead and go public, they are under siege Japanese electronics companies.

26:04had decided to enter the market with all of the power that they had at that point, and all of these companies were big Koretsu companies that were in just like Fairchild, kind of divisions of much larger companies. So they had access to a ton of capital, a ton of resources. And here we are in 1981 to four call it, where this is really the boom of Japanese companies having operational excellence. Like that is the thing that they're just out operating US companies. Exactly. And on top of that, there are companies like Sony, there are these electronics companies that are just way better than the electronics being manufactured in the United States. The country was really rallying behind this as an identity. The Japanese companies were able to build enormous factories to build out these memories, so their economies of scale on building them, they could get so cheap, and their access to capital with whatever was going on in Japan at the time was just

27:02enormous. They kept being able to get their private or public funding and pour them into these companies where they could produce way more memories. They could do it way cheaper and the talent that they had there from all these emerging fantastic Japanese electronics companies. They were just as innovative, if not more innovative than Intel. Yes, they're eating Intel's lunch, so Intel's market share of memories goes from above 80% at the beginning of the decade, too, by 1984, I think it's in 1984, they dropped out 1.3% of the market, which we should say is still a huge business because memories at this point were for anyone who sort of gets this error, the Macintosh was released in 1984.

27:45personal computing is on the verge of becoming a thing, but you think about mainframes, you think about all the computing that was sort of going on just before that. The demand for memories and all sorts of applications is huge. And so it's still a really big business with factories all over the country, with different, you know, eight different projects going on for eight different models, like Intel is a big freaking company just with that market share. Yeah, well, big by revenue, but their profits are getting eroded down to zero or really below zero because of the pricing power of these Japanese companies. All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF that everyone would not and you're done. But in an AI first world, that doesn't hold up anymore. Yep. Your risk surface changes every week now.

28:38A vendor turns on an AI feature or someone writes in a new model without telling IT, and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this, quote unquote, shadow AI, running with no security review at all. Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap, and the way that they close that gap is Vanta agent.

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30:04So, at this point, Intel needs a miracle. And they are just lucky enough that somebody on the team, in fact, Intel's, by at this point, president, and their very first employee, happens to be a miracle worker. And we're going to tell the story here of Andres Gruff, better known in the US as Andy Grove, the legend of Silicon Valley. And this story is just incredible, adapting personally adapting in terms of the world and adapting in terms of the company. What's rewind for a little bit? So, Andres Istvangerov was born in 1936 in Budapest, Hungary, to Jewish parents in a Jewish family. And when he was born in 1936, Hungary was already a fascist dictatorship that had aligned with Nazi Germany. But despite that,

30:57Andres's parents and family were doing, okay, his dad ran a dairy co-op. His mom was actually educated and had finished high school, which was super rare for any women in Hungary at that time, and especially super rare for a Jewish woman. And then of course in 1941, when Andres's five Hitler invades the Soviet Union, Hungary enters the war and becomes for all intensive purposes in Nazi state. His dad is shipped off to a labor camp, disappears for four years, amazingly survives.

31:25But at the beginning of the war, there were 650,000 Jews living in Hungary. By the end of the war, there are 150,000. So half a million people exterminated in the Holocaust. Totally, totally awful. Words can't even express. Andres and his family, though, they are the lucky ones. So Andres and his mother go into hiding. They assume new identities. Remember, he's like a kid at this time. He's, you know, this is between the ages of like 5 and 10. He spent years in hiding.

31:54pretending to be not Jewish. They're eventually liberated by the Soviets when the Soviets drive the Nazis out of Hungary in 1945 and his dad survives in returns, but it's kind of like maybe like not out of the frying pan and into the fire, more like out of the fire and into the frying pan because now Hungary is a Soviet state, right? And like, his family, his dad had been an entrepreneur.

32:18before the war had started, this dairy co-op, and known this dairy co-op, and anybody who had employed people was considered a class alien by the Soviet state and was persecuted. Like because they were communists, and if you're running a business that makes you a capitalist, that makes you a capitalist, and that's evil, so you're a counter-revolutionary. And so his father and his family had to renounce everything, pretend that they, you know, to what they had done before was evil, and it's also not like anti-Semitism died with Hitler either at this time. So it was pretty rough. The Andy Grove story, the Intel story that I knew before this was there was a guy called Andy Grove. He wasn't the original founder of Intel, but he was the one that saved it. And like when you dig into it, his background is like, imagine during your formative years of five to 15 having both of those experiences.

33:17Totally. It just makes you realize how freaking comfortable and incomparable most of our own lives are to just incredible and awful persecution that people like Andy went through. Well, I think it's good perspective for this time too. This is a crazy time that we are living through unprecedented nuts with Coronavirus and terrible and there's terrible human suffering. But this really puts in a perspective. I was reading Andy wrote several great books, but one of them, he wrote a memoir at the end of his life called Swimming Across about these years. And it just really puts things in perspective. I've said things like, man, this feels like a war. We haven't experienced anything like this since World War II as a nation and a world. And it's like, no, this is nowhere near what World War II was like. Really good perspective.

34:13But anyway, like we said, his family were the lucky ones, and then a pretty momentous event happens. And this is also just like such an amazing American story. So, in 1956, the same year that Bill Shockley moved to California wins the Nobel Prize and starts Shockley's semiconductor, student protests, Andy's in university in Budapest at this time studying chemistry, student protests erupt in Budapest and they turn into a full-blown revolution and this becomes the Hungarian revolution of 1956 against the Soviets. The Soviets roll tanks into the city and brutally suppress the revolution but in the chaos a whole lot of people are able to escape across the border to Austria and make it to the west and Andy is one of those people. He literally walks out of Budapest. He gets a train out of Budapest and then he walks across the border to Austria. From there he's able to get to

35:09The U.S. he has a refugee. He comes to New York City 20 years old with $20 in his pocket and nothing else. And just shows up. And when he gets there, he's taken him by some extended family in New York City. He changes his name to Andy Groves so that people can pronounce Andres Graf is not easy to pronounce by his professors. He gets a scholarship and works his way through City College of New York.

35:37as a chemical engineer. He ends up graduating top of his class in the New York Times writes an article. Did you find this, Ben? No. That was just so cool. The New York Times actually wrote writes an article when he graduates. And what would this have been? 59, maybe 59 or 60. He graduates at the top of his class in City College in New York. And the headline is refugee heading engineers class in the New York Times. Huh. Super cool. Yeah. On the back of that, he goes out to California. He goes out to Berkeley, he gets his PhD in chemical engineering at UC Berkeley. Graduates in 1963 and joins, of course, the best company, technology company in the world at that time. Fair child. Fair child semiconductor. And that's where he meets noise and more. And so then legend has it. I think this is probably apocryphal. But even if it is apocryphal, like it's... I feel like half the stories we tell are apocryphal. Reinvented in some way. That's true. That's true. But if it's not true, it...

36:32The spirit would have been true when noise and more go to Arthur Rack when they're starting intel in 1968 to get funding the legend is that Arthur Rack told them that he was going to refuse to finance the company unless they recruited Andy out of Fairchild to come join them as the first employee so Arthur who's in and he organized the initial investment in Fairchild but then had nothing to do with it other than that I think he must have stayed close with the people. Had to, but that speaks to how special Andy was if someone like Arthur Rock is getting visibility into what he's doing inside the company so much so to lobby for him.

37:14Yeah, I mean, this is a kid that he's now five years out of his PhD program. And he had art like, of course, he was a developed great reputation within Fairchild, but like, pretty cool that like Bob Nois and Gordon Moore make you their first employee when they're starting Intel and Arthur, you know, knows all the value. So he joined, he was employee number one when the company was started in 1968. By 1979, he had been promoted many times. He became president. So Gordon Moore was the CEO of the company. I think Arthur Rock was the chairman on the board and, or maybe Nois was the chairman and maybe Nois and Rock swapped off. Nois might have been the first CEO and then they swapped and Gordon became the CEO. Yeah, it feels like it's like a Google or a Twitter type situation. Yeah, I think that's. I don't think it was a Twitter. I think they were all friends. But Andy got promoted to be president in 1979. So we're now back in the mid 1980s.

38:10Intel is under siege from these Japanese memory manufacturers that are floating in the market with highly superior products superior cheaper and much greater quantities like much greater quantity there is there is no answer for if you're Intel for what to do yeah it's it's like it's 1984 And Andy thankfully isn't living under a communist oppressive regime, but he's still having brutal nightmares here. And so he actually then writes the book then that you mentioned, which is so great and is just like classic of Silicon Valley. Only the paranoid survive all about this. The quote that actually starts only the paranoid survive that Andy starts the book with is sooner or later something fundamental in your business world will change. And so apt.

39:00app for right now and app for Intel at this moment. Yeah. And what's crazy to think about is like, this is a dramatic story about Intel, mostly because of what a successful company they became. But that dramatic thing that happened for their industry was just one industry and just one change. And what we're seeing now is a massive dislocation in every industry. And so like suddenly, this story becomes very relevant for anyone doing business in anything, which is a kind of a crazy, crazy moment. Well, hopefully sales of the book only the paranoid drive will, we'll, we'll spike the benefit from from this moment. So what changed for Intel, right? Like, obviously it was that these superior and every dimension Japanese producers entered the market. But

39:49Intel itself was caught so off guard because their relationship to the competition up into this point. Like we said, they didn't understand that they were in a commodity business until this point. It was so crazy that Ben, as we talked about, Intel usually had the best technology, the best chips. They were six to 12 months ahead of the competition. But because these are physical chips that have to be created, And Intel didn't have enough production resources to meet demand. They did this thing that sounds crazy right now, but was just totally normal in the industry back then. They did second sourcing. And so some people might know what this means. This is completely gone by the wayside. It's a byproduct of military contracts where the military

40:37they needed to ensure that they would be able to get enough of what they wanted to buy. And so they would award the contract to a primary manufacturer that was gonna make what they were buying. But then they would encourage that manufacturer to go to their competition, give them their designs for making the product, and let the competition's factories make the product to ensure that the customer's had enough demand. So Intel did this. Whenever they would win contracts, they would bring in their competitors chief among them AMD, which people are going to know. Interestingly, AMD itself came out of Fairchild a couple months after Intel. Crazy that both Intel and AMD did. I know. And so they would kind of compete against each other for bringing primary source on the contracts that they were bidding for.

41:23but then to kind of no matter who won, they would bring the other one in and just give them the reference design and fill it out. And so Intel was doing this with their competition, and they actually, part of how the Japanese got up the learning curve so fast, was they came in as second source for Intel during the late 70s on a bunch of these contracts. Yeah, so here's the quote from only the paranoid survive, which I highlighted this when I was reading on a Kindle because I was like, you know, you'd be kidding me. So he said, the Japanese memory producers appeared on the scene.

41:53Actually, they had first shown up in the late 70s to fill the production shortages we had created when a recession pulled back our investments in production capacity. The Japanese were helpful then. They took the pressure off of us. But in the early 80s, they appeared in force and overwhelming force. Yeah. What is this overwhelming force that they're now appearing with? So at one point, Andy and his team And the sales team gets a hold of a sales memo from one of these Japanese companies. He doesn't say which one. And here's the quote of how of the battle card against Intel. It says, when with the 10% rule, find AMD and Intel sockets. I assume sockets being like where they were selling into quote 10% below their price.

42:35If they re-quote go 10% again, don't quit until you win. So they were literally willing to go to the bottom to win every contract. Ruthless. And they have two advantages there. One, their actual cost of production is dramatically cheaper because of the dramatically larger scale they were producing at. And two, their access to capital was much better. So they had a cheaper cost of capital. So they really could without turning their business upside down or having negative gross margins, they really could just keep going lower and lower lower.

43:03Yeah, and this is what we were talking about earlier. So, you know, Intel, like you're saying, their market share totally knows times, but because the market is growing, their revenue doesn't actually drop that much, but they're losing money on every chip they're selling at this point because the profits have just been completely eroded. It's like Uber and Lyft, you know, bashing each other over the head and the market.

43:23Yeah, there's no profit anymore. And so this creates what in a growth cause in the book, a strategic inflection point, which is, he defines it as the time in the life of a business when its fundamentals are about to change.

43:36And he says these changes come about whenever there's a sudden huge kind of 10x change in one of the five, you know, fundamental quarters, five forces of the business. In this case, competition comes in, it's 10x stronger, like, you're up a creek here. Yeah. And relaying that to current times, competition is unlikely up, but demand is likely way, way down. And so it's likely that the buyer power has evaporated in many, many industries where consumer spend is down or travel or hospitality or people people with freezes to whatever corporate spend they had. It is just like, again, just trying to bring it home to relevance here, a different crisis, but very... There's a 10X change in your customer behavior. Inside of Intel, it's chaos and growth rates about this. There's tons of infighting. Everybody has a conflicting opinion. We are the memory company. That's the only thing we can possibly do.

44:31And so people are yelling at each other. It's like, you know, the engineers are like, the sales team needs to work harder and the sales team's like, we need, you know, the engineers need to make better technology for us to sell. And some people like, well, we should just like vastly increase our, you know, our fab production to have more capacity and compute directly with the Japanese. And then other people are just like, this is totally unfair. And there's some people that are on sort of the right path, but still like everything looks like a nail because they've got a hammer. They're saying, oh, we need to do like value added memory. Like we need to

45:01We need to add additional features to the memory that make it not appear commodity. Then we can make margin from selling these extra features in the memory to the customers. And so they're like getting this notion that we can't compete head on. We have to flank them in some way, but they're not flanking far enough. Like, they just start like running at them with different guns. You know, it's very... Then when you're making the decision to...

45:23by the next iPhone upgrade cycle or not. Are you making your decision based on whether the memory has more features in it than the previous year? I'm not. No. So this leads to this moment of clarity. And I just like, this is one of my favorite, favorite moments in all of business history of one famous day in early 1985, where...

45:48more and Grove are talking about this situation. I think Andy says it was in his office at Intel. And they're standing there, they're talking to each other. And Grove says to Andy says to Gordon, you know, I mean, things are like bad. So like, you know, if the board kicked us out and brought in a new CEO, what do you think the new CEO would do to like in response to this situation?

46:15And more looks at him and he says, just point blank, he's like, well, they just get us out of the memory business. And no one, no one had actually like, like, been like, he's like, people were kind of dancing around there. But nobody would be willing to bring that up of like, this is like, this is like Uber saying we're going to get out of the ride sharing business. Like, which, right, right. Listen, you can't see Ben shrug there.

46:41And so Grove writes in the book, he says, as soon as more said that, he says, I stared at him numb. And then Grove responds, well, what if you and I fire ourselves, walk out of the door to this office, rehire ourselves, turn around, come back in.

47:01and do just that and so that's what they do they actually physically walk out of the office they ceremonially fire themselves rehire themselves and walk back in and then that's like a logically like gives them the clarity of like no this is what we need to do we need to get out of this business it's a it's a cinematic moment imagining that the Sort of a chutzpah that it takes then to go and actually pull this off people in the company correctly have laundry lists of reasons why You can't possibly do this and and there is a different than the emotional ones that I was talking about We are the memory company. We can't possibly change like even if you just take that stuff away and you look at

47:42The other businesses that they're in, the main obvious one that they should go focus on is CPU. They have some other stuff, but CPUs are kind of the thing. It's super immature. There's not necessarily their A team on it. They have no production capacity. They've only been doing it for a very short period of time. There's not necessarily customer pull yet. We're talking about 1985. The Mac has just come out. And remember, the Mac didn't use Intel chips. They use Motorola chips. So like the PC was not thing. You know, I mean, it was a thing, but it wasn't like the PC was like VR today. Right. And the things the sales guys are complaining about is that it was a complete breakthrough. And we, I think they invented the CPU or at least sort of get credit for that. And maybe it was a 4.004 was the big first one. They created this amazing thing. You know, they're working on the 386 in the corner of a building. And for anyone who knows, sort of the x86 processor, like that's the first, you know, so the x86 existed.

48:41with 386, we're gonna get to it in sec. All right, magical. So the product, that's happening, but the sales team would correctly object, this is not a complete product line. Like we can't possibly go and sell with like one or two.

48:57like these sort of like point solutions like we need a whole product line in memories we have a whole product line so we can be effective with customers like not to mention their quotas right in their livelihood right yeah like the whole company's freaking set up to hawk memory and so everybody correctly has lots of reasons why they cannot shut down the memory's business and whole heart switched to intel I'm sorry to switch to see it's so so out of it switch to CPU so Yeah, so more and grow up, walk out of the office for the second time and Andy starts going around like giving speeches about how they're gonna get out of the memory business and like all hell breaks loose. So Andy tells the head of the memory division to come up with a plan to get out of the business and he like revolts, he doesn't do it. And so Andy's like, Andy removes him.

49:49and put somebody else in charge of the memory business, that guy doesn't do it either. It's like the Saturday night massacre. He's like, yeah, yeah. No, I know you brought me in to get us out of the memory business. Cool. I'm going to do that. And then he takes like six months and then comes back and says, okay, cool. I'm going to make it so that we after, after the current R&D that we're doing, and then we produce all of those, we're not going to do any additional R&D on new ones after that. And Andy's like, Are you kidding me? You're one job. Dude, I told you to get out. So finally, it just takes basically all of 1985 where they're just trying to... And this is so much about organizations. Here you've got the founder, co-founder and CEO of the company, and the president of the company who was the first employee who were...

50:36Literally telling the company to stop doing something and the company cannot stop doing it It gets the point where Andy is personally going to factories and just laying everyone off on the spot and saying hey like We really need to get serious about this. We just need to shut this factory down. It's it's an old factory anyway. It's too small to do like it. We really shouldn't be operating in any way, but I'm doing this in part because we have to shut this, you know, this thing down, but it's also a statement to the company of like, I'm closing the memory factories. And we're going to turn some into CPU factories, but like this one isn't it? And everybody needs to see that I'm freaking serious about this.

51:12Andy, at least from the book, seems like a really sort of like empathetic and warm person and understood how to do that with sort of as much grace as you possibly can and sort of be with those people in a hard time. But like, it was crazy the amount of dramatic measures that he had to take even as the president to influence. Yeah, well, it's like a team front war, like they're fighting the competition outside the building, but then they're also fighting, you know, the culture internally.

51:40So they finally do it by the end of 1985. They're out of the memory business. And of course, the obvious thing that they go into of their remaining business lines that they put their focus behind is the microprocessor business that turns out to be super smart because, you know, the PC wave is coming and obviously this is going to grow hugely. So you could say that that's sort of what happened and what's this. There's the story. But what's really interesting and what was brilliant about what Really handy did, and how they led the company was, if they had just done that, then the same cycle would have played out.

52:16Over the next 10 to 15 years, like Intel was in the lead. They basically invented the microprocessor. They were the X86 architecture was how the standard IBM PC and IBM PC clones were based on. And they would have been the leading chip producer. But anybody else could have come along and produced chips too. And in fact, so there was the 4.004, which is free.

52:38How it gives actually for a Japanese calculator, busy corp, I think that they created it. And then, but then the first x86 architecture was the 80, they made the 80, 86, but then it was the 80, 88. There was in the first IBM PC and then there was, they had the 80, 80, which was the Altair. Yeah, that's right. And then there was the, eighty one eighty six and then the eighty two eighty six right and so that's where we were at this point in time and they were second sourcing just like they did with all of their product lines no way also yeah they were second sourcing and AMD was the second source on the one eighty six and the two eighty six and I think maybe before that too but they had a major contract in place with AMD to do to be the second source for for the two eighty six now

53:26Like you said, they were working on the 386 and they knew and Andy knew that the 386 was going to be something special while the only other iterations on the 86 processor had been increased speed and more, you know, more transistor density, the 386 processor was going to be the first 32-bit processor. Everything before that was 16-bit. So this was going to be like major, major step change.

53:52in the power and functionality of the brains of the personal computer. And so they're getting out of the memory business. They have this huge lake strategic decision to make about what to focus on. Andy knows he's got this special product and they come up with what ends up being the brilliant strategic decision. Obvious and hindsight to say no, we're not going to second source this. We are going to be the Primary and sole source, you want a 386 processor, you got it by, you want a 32 bit, 86, X86 compatible architecture processor, there's only one place in the world to get those and that is directly from Intel. It's kind of amazing what happens. I mean, you even look to how this translates all the way to today. So I want to like just pause for a moment and David, like come back to, it's crazy what happens. But you think about today, there's basically two types of chip companies.

54:47Fabulous and there's companies that have their own fabs like Intel and when I say like Intel I pretty much mean Intel and so you've got like the TSMCs of the world the Samsung Samsung who's who's designing that this time all these arm-based chips that are designed by these fabulous companies and then built in a separate chipfab in a commodity way that are decoupled, you know, you have the separate designer from the manufacturer. And Intel to this day still manufacturers 100% of their designs themselves. Yep. So this is what happens. So remember, they had this, they had this agreement with AMD to be the second source. And I believe that agreement technically was supposed to continue into the 386 processor until

55:34Breaks and says, nope, nobody else is going to do this. You want the 32-bit X86 process. We got to come to us. AMD suits them. Intel counters yous. And it ends up, it drags out in core. I forget who actually wins, but at the end of the day, the judgment is that AMD is going to be able to market X86 architecture chips.

56:02but Intel's not gonna be forced to give them the designs. So AMD has to in a clean room reverse engineer. No way. Yeah, so that takes them another couple of years to do that. It ends up being... That's like the Atari, yes, story.

56:16It is the EA Sports Story. Yeah, the EA Sports Sega Genesis Story. So it ends up taking six years for AMD from the end of 1985 when Intel ships the 386 out the door. I believe Compact Computer is the first customer for the 386. And that's like the beginning of Compact's rise. And Intel rises with them. And then everybody, all the PC manufacturers use.

56:41Intel 386 processors. It takes until 1991 before AMD can get a competitive product out there. So during the whole first six years of the PC wave, Intel is the only player providing CPUs, the most important component of the computer. And then what happens in 1991 when AMD finally gets their competing product out there? That's when Intel launches the Intel inside campaign.

57:09which is just like so brilliant on two levels. One, it's like one of the best pieces of marketing of all time. They really invented the ingredient brand. Exactly. It was them in like Nutra Suite, where like the only ingredient brand, successful ingredient brands of all time, but they do something super, super smart that prevents AMD from countering with any kind of similar tactic which is the way I didn't realize I still do in the research. The way the Intel inside marketing campaign worked was Intel of course spent a bunch of money advertising marketing it directly. Right. So then of course the customers would then demand from the manufacturer like, oh, I'm only buying this Dell or compact if it has an Intel inside, which is so that's what I thought. But here's the more powerful piece. Of course, that's true. But they went until went to all of the

58:03PC manufacturers to compact to Dell to gateway to everybody's IBM and they said You know all the marketing costs that you guys are spending to market your own PCs competing against one another We will pay 50% of your marketing costs if you include in your marketing collateral that you have Intel inside Oh, that is so smart isn't that just like killer and so that's like The amount of marketing expenditure associated with that is enormous. There's no way that AMD who's been out of the game now for five, six years can do anything even close to matching that level of spend. And so Intel just like, it's like a tsunami that just like washes over the whole market. Wow. That's like the Bobby Axelrod billions quote. When you know you have an advantage, press it.

58:52Yeah, yeah there and I think that you know Andy doesn't talk Really at all in the book about that, but I think that was another decision kind of on the level of maybe not quite as big as soul sourcing the 386 but like You know having lived through the crazy on near-death experience of competition and becoming a commodity of memories They were so paranoid about ever like losing their power advantage in CPUs that they were going to be willing to do anything to maintain it. Wow. So Andy becomes CEO of the whole company. Gordon retires in 1987. Once this is this whole wave is underway. Andy serves as CEO of the company from 1987 to 1998. Revenues rise from 1.9. 87 to 98. So 11. Oh, yes. Yeah. 87 to 98.

59:45and then he retires and becomes chairman. The company revenues rise from 1.9 billion in 87 when he becomes CEO after they'd already selling, started selling the 386 to over 26 billion when he retires in 1998. And in 1997, right before he retires famously time magazine names Andy there, man of the year. But does this like, this story is so incredible. Like you've got this.

1:00:12kid born, this Jewish kid born in 1936 in Hungary, who by like all statistical probability should never have even survived. And like here he is leading and turning around like the preeminent Silicon Valley company in this new industry and becoming Time magazine man of the year. Like it's incredible. It's totally crazy. It also really underscores like I don't know what the original deal looked like for Intel to land the contract with the IBM PC and the sort of PC, IBM PC clones or copycats. What do people call them? Well, I think it was that it was 1981.

1:00:53when Intel landed the contract to be the CPU provider for the IBM PC. And then I think all the clones, because of that, the clones had to use the same architecture as the IBM PC and the X86 architecture, thus you needed an X86 compatible chip for all PCs. I don't know if they really realized the value that they had when the IBM PC sort of chose Intel to be the supplier for that one but like I assume they knew it was some amount of a big deal and it speaks to how much even though we can sort of rip on Intel for dragging their feet for so long and taking forever to get out of the memories business like they they did have the beginnings of a backup plan and like they had started working on this new emerging market

1:01:40because they had R&D at their core and believe they needed to be on the cutting edge, believe they needed to be investing in technology, and shipped and got it out there and got it to be the critical path part of a major, major new product in the market. Yeah, I was going to save this for a playbook, but Andy talks about this and only the paranoid survive. The time to innovate is not when you find yourself in a strategic conflection point. It is well before then, like you constantly should be looking for new product lines, looking for a diversification. You know, honestly, like Uber has done a great job of this, right? Like, where would Uber be if not for Uber Eats and Uber Freighten? So Uber Eats in the US the last week or two weeks ago, eclipsed ride sharing in revenue for the very first time. And like, when you look at these graphs, it's ridiculous because it's Uber Eats going up slowly and then Uber.

1:02:33you know, ridesharing obviously falling off a cliff, but it's insane to see like right now in time because of the investments done over the last three, four years, Uber has revenue. Like, yeah, one compared that to Lyft, right? Who doesn't have, you know, I think they're now launching a delivery type product, but strategic inflation point is not the time to be launching new products. Yeah. Yeah. Well, I'll catch us up to Intel today.

1:03:00number, and I think David quoted something like this earlier, when Andy came in, annual revenues at Intel were $1.9 billion. Nothing too bad. When he left in 97, it was $26 billion. So not only did he sort of save the company, but really like created the behemoth that we know today, you know, what is that? 13x on the revenue for the premium. That's revenue. We don't have the, we couldn't find the profit margin stats on those, but like they were bleeding money on the 1.9, well, before maybe not the 1.9 in 1987, but whatever hundreds of millions of revenue they had in 1984, they were losing both loads of money, and then they were immensely profitable by when Andy left. Well, to give you a picture of the economic profile of this company today, so it increased then from 26 billion on Andy left to 72 billion in 2019.

1:03:53They're a hardware company, and their net income is $21 billion on that 71 billion. So that's what 25%. Net income is pretty damn good. Right. Right. And this is a company that there's lots to talk about in the modern era of the way they've dropped the ball, and they haven't effectively created low power processors. And they miss the mobile wave and lots to criticize. But pretty behemoth of a, it's a $260 billion market cap business, even in this crazy stock market environment that we're in right now. Yeah. Well, it's funny too. I mean, uh, uh, let's just go listen if you haven't already to our arm episode, you know, in much the same way that Intel was able to change the way that the market operated in business was done to generate a lot of power in their CPU business.

1:04:45They were then partially disrupted by arm, who came along and said, we're going to do a completely different, take a completely different approach to entering the business in a way that Intel is not going to be able to respond to. Yep. Yeah. The disruptor becomes the disruptee at some point. And you can stay vigilant and you can stay paranoid, but you have to. And he wasn't there anymore. Yeah, you have to have leader after leader after leader that truly.

1:05:10Truly believes that. So I want to tell you one crazy thing, David. I don't know if you caught this. An announcement made in July of 2015 from Intel. I don't think I did. So they announced that they were going to be shipping a new product called Optane Memory.

1:05:26In addition to their CPU business, which we all know very well, they were shipping a new type of memory that's back in the biz. The main value prop was to make computers that had hard drives, spinning disks as speedy as SSDs. And so it was indeed a value added memory. They're not just shipping a DDR2 DRAM. Here we are with Intel.

1:05:50making a bet on memory. And to underscore this, I just read the annual report from until last year. They have three operating segments. They have a data centric one and a PC centric one. And those are both responsible for about half of their revenue. The PC centric one is everything that you know of.

1:06:07Core i5 i7 i9, I think that's the core of it. The data-centric business is a lot of the server stuff, so the zians, and then they sort of lump in all these like mobile i as up there, and a lot of the acquisitions they've made. And they have these big bets. And from the big bets update, they have a sentence that includes. They literally call it big bets, did they steal that from out of it? Dude, everyone does at this point. Come on, that's ridiculous. Currently.

1:06:35And there's three of them, but I'm just gonna end after the first. Currently, our big bets are memory. Andy Gravel would be turning over in his grave. I know, just amazing. So I don't think it's a bad idea. I think it makes sense given the current environment, but it is amazing how history doesn't repeat itself, but it does rhyme. Indeed, indeed. Part of why we do this show. Yep. All right, listeners.

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1:08:14billion workflows annually, and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates. And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, Go check out servicenow.com slash acquired and tell them that Ben and David sent you. All right, so David, what would have happened if Andy Grove had not realized this and been successful and executed this pivot? Yeah, I mean, I think it's pretty clear, right? Like, Intel would be like we said up front, just like Shockley and Fairchild and National, I think National's still around in one form or another, but like, you know, names lost to history. Yep.

1:09:11Absolutely. I've literally nothing more to add to that. Yeah. Well, that was quick section. We move on to playbook. Yeah. So there's one thing that we didn't discuss from the history. And I think it really belongs here in the playbook. And for new listeners that are listening as part of Podopolis or otherwise, this is the time when we sort of talk about themes that we pull out from the story and that is the playbook that that Intel ran that we can try and run in our businesses or that we might look out for in history rhyming. The one in this story that really jumped out to me is the power of middle management. So I think that we didn't totally touch on was when Andy's going around, you know, and he's talking to his like mid-level executives and he's saying, we're going to get out of the memories business and the head of sales is like adamant and

1:10:02pissed and he's you know thrown a tantrum and his you know his number next to his name and everybody under him is about cell memory and so then you know then he goes to the factory and their whole livelihood is based on this so the head of the factory saying there's no way like think about you know there's no way we can retool this whole thing and meanwhile The people who are actually really close to the customer, the people that are really close to the product, not the executives, but the mid-level management who is actually working with the day-to-day individual contributors and working with customers, they see the writing on the wall. And so by the time...

1:10:37the change is sort of trickle down to them. The middle management's like, oh yeah, no, no, no, we definitely need to be doing way more in CPUs. And we sort of have a plan for that because like, well, there's all this politicking and infighting at the top like, yeah, we had a plan. No, it wasn't coordinated, it wasn't cohesive. But everybody sort of had assembled the resources that they needed to to make this happen and operationalize whatever came down when it came down. Well, Andy writes a bunch about this in the book like that he was shocked by it. Like this.

1:11:06a group of people, like you said, that are not high enough of the company that they're removed from customers and caught up in all this political infighting, but they're actually close to the actual operations and customers. They were already doing this. They had already, like, just organically started reallocating resources away from memories and into CPUs. Yeah. That's wild. Let's see, I've got a couple on here. We've touched on a lot already.

1:11:33one of the biggest ones that I wanted to talk about, we already have, which is like the time to start experimenting and figuring out, you know, your next, your response to the next strategic inflection point is well, well before that happens. But a couple others, I want to underscore again, this like, what it means to, to be a commodity or not be a commodity in the market, like, you are not going to build a gree.

1:11:58And by great, I mean long-term sustainable enduring business if you are selling a commodity. Like, it's just not going to happen. You can start by selling a commodity and participating in a commodity marketplace, but you need to have a plan and a path to either shift the commoditization to another layer of the stack, which Intel and Microsoft did incredibly well in the PC wave of the, it was the manufacturers themselves that got commoditized or to introduce something about what you're doing and your product that allows you to have power over your competitors. Amazon has done this in e-commerce. There are lots of e-commerce retailers out there that compete with Amazon, but Amazon has so many features and so many whether that's prime delivery or selection or just what, they have a power advantage. So I think that's one. And then the last two, these are smaller ones, but I think appropriate.

1:12:58also for adapting that I wanted to cover that Andy talks about. You know, one, he says this quote and, you know, Sequoia said this in black swan memo. I think Rulaf said it in our interview with him. Andy says, 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. I think the Sequoia version of this that they say in the black swan memo is nobody ever regrets.

1:13:28acting swiftly or something like that. This is a good thing to keep in mind and related to that. You know, when Andy and Gordon fired themselves and ceremonially fired themselves and rehired themselves like doing something like that is so important because like without some performative action like that, like it can be so hard to make the decisions you know you need to make. Yeah, I was giving themselves permission. Yeah, yeah.

1:13:57And Andy mentions that only the parents would survive too, that a lot of times when companies bring in external new CEOs, they may be just as smart as the current CEOs, but they have one distinct advantage. And that is they don't have the baggage of the way that everything has been thought about internally. And so they actually can act and do the things that need to be done without being weighed down. Yeah.

1:14:19And that brings me to the last point. The last one I wanted to highlight, which is just like learning, being a learning machine, and that's something Andy did so well throughout his whole life. I mean, even going all the way back to being a kid and hungry. He writes, don't bemoan the way things were. They will never be that way again.

1:14:38Pour 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. Whereas the old land presented limited opportunity, or none at all, the new land enables you to have a future whose rewards are worth all the risks. It's like, what a good one right now. We are living in a new land right now, so don't come on the past, learn how to shape the future. The thing that's been occurring to me the most over the last few weeks is that we will never go back to normal.

1:15:07Lots of things will go back to very close to normal, but there are also lots of things that will never be the same way that they were again. Don't be moaning the past. There's a lot that I think we can all take take to heart there. Yeah, I mean, especially getting coming from someone like Andy who like this when he says that, you know, this is someone who lived through like most of his extended family dying, you know, like that's a that's just a level that fortunately, you know, I think most But many of us, hopefully very few of us listening to this have ever been through. Yep. So, all right. Anything else you got in playbook? Nope, that's it. Carvouts.

1:15:47Caravans, let's see what you want to go first. Yeah, so I've been on a Michael Lewis tear recently during the Staying at home time that we're in and I most recently read the fifth risk That was one that launched with a lot less fanfare than you know Michael writing Muddy ball or Liars poker or Flash boys Flash boys. Yeah, and I felt like this one was definitely a little bit less sort of glorified, but it's an amazing collection of stories that are basically the handbook of how to run the federal government and I wouldn't call it like the complete handbook on how to run the federal government but it was basically when the Trump transition team basically didn't happen and all the sort of former I'd call in the Obama administration but really it's the public servants that had been in government for a long time were sort of getting

1:16:39everything ready to hand over to the next group of people coming in saying whatever your politics are I don't care but like you got to know how to operate the levers here and like what all these different departments do and what budgets are for and and nobody kind of showed up to take that from them and say cool like we would love to take what you did and learn from it and and build on it we're gonna go do something very different of course nobody showed up to learn like how to operate this crazy machine. And so there's this unbelievable fodder for a book. And Michael Lewis realizes this and he starts going around to all the people who helped sort of assemble transition materials and he said, well, tell me about it. And I'll write a book. And it's all these crazy cool stories that really do make you understand how the government sort of got this brand for

1:17:26Stodginess and how the US government became a thing that you didn't want to go do, whereas in the 50s, 60s, you know, there was like reverence for it. You're a government employee, like you're going in, you know, you're a public servant or you're doing something innovative or you're, you know, on the cutting edge. And now it's kind of this like, they often don't attract the best talent. Like Shockley, you know, like as problematic as he was and became later in his life, like he was one of the most brilliant people in America.

1:17:55in the forties and like the highest investment calling that he did was he stopped all of his commercial activity and he went to work for the war department yeah yeah and so I found this book to be sort of three things one kind of crazy to read in this moment that we're in in right now to a really good explanation of how working for the government got the sort of brand that it has right now. Despite, I don't think that really being true. I think public servants and especially people that aren't elected, but sort of go into public service just to work on hard problems that exist in government to serve everyone. Brilliant, thoughtful, driven people that are totally sort of mis-marketed or mis-branded. And then the third piece of it is really understanding

1:18:42What a lot of the pieces of the federal government are for? Of course, I'm this a very US-centric view that I just never really understood before. It's by no means comprehensive but it's an interesting sort of several slices of instructions on how to run the government. I sort of never have had more service level understanding but reverence for why infrastructure and an organization like that sort of needs to exist. Yeah, totally. I need to go read it. I remember when it came out and just like you said, I was like, oh, my new Michael Lewis book, love Michael Lewis books, but hey, you know, like, I don't know, I just missed that one. So yeah, I have to go back and read it. Lots of people should too. All right, mine is Notion. So the hot, fuzzy productivity company that just raised $50 million at the $2 billion valuation, and famous, what was it called? They raised like an angel round of,

1:19:37I think $10 million at an $800 million valuation before that. I think there was one VC firm in, so you can call it a venture round. Okay. Okay. But it was led by like other CEOs and angels, right? Yeah. Well, that was pretty the world we're in now. So I tried it around that time when I first started hearing about it. And I was like, whoa, I don't get this thing. It is like way too complicated. I don't understand what's going on. I got inspired to try it again.

1:20:04And I totally get it now. And I've become like a huge convert. I've moved most of my productivity over to it. And what I think is cool about it, I don't know if they think about it this way or I haven't heard anybody else talk about it. But to me, it really reflects the whole no code movement. And like we've explored no code bunch on the LP show here.

1:20:25I'm just going to keep doing more and more on the card. I think we both think it is such a huge, powerful movement in technology right now. But what I thought was so cool about Notion is this is the first time I'd seen that same kind of principle of you don't have to be a developer to create things and to shape your software that you're using in an actual consumer application. So what I mean by that is What's hard and confusing about Notion at first is it's not like a you know, if you use like Wonderless back in the day, which I used to love like Wonderless like the UI designers and the developers at Wonderless and like the team there they decided how it worked They were the product designers you used their vision and it was great What's cool about Notion is that like you have the power to shape the software as you want it to your purposes So like I've built

1:21:22in notion a task management system that I've completely designed all the UI for, all the logic of how it works, all the database, and it's tailored to me. Yes, that's harder to do than just downloading and using Wonderless, for example, but whoa, that's so powerful. Big fan. That's cool. It's like moving the accessible abstraction layer up one notch. Yeah, totally. It makes you feel super powerful.

1:21:52That's cool. Yeah. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig. Yes. There is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale. Yep. In the...

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