Andy Grove & Gordon Moore (1985)
In 1984, Andy Grove was President (second in command) at Intel, under CEO Gordon Moore. At this time, Intel was a memory chip company, and Japanese competitors were significantly undercutting prices. Intel’s market share in the DRAM space was 82% in 1974. Competition entered, undercut prices, and by the end of 1983, Intel had a 3.6% market share (9th in the industry). They were losing money and they couldn’t afford to lose much more. Intel had some resources devoted to microprocessors, but a majority was focused on memory chips. There was a great debate within the company on what to do. It was quickly becoming a reality that they couldn’t innovate out of this situation. At least not with memory chips. Grove would later say of this time, “We were wandering in the valley of death.”
Andy Grove approached Gordon Moore being fearful that they could both be kicked out of the company if nothing was done, and this lead to one of the most famous dialogues in business history.
“If we get kicked out and the board brought in a new CEO, what do you think he would do?” Grove asked Moore.
“He would get us out of memories [memory chips]”, Moore said without hesitating
Andy Grove famously replied, “Why shouldn’t you and I walk out the door, come back and do it ourselves”
This “revolving door test” focused Grove and Moore. It allowed them to look at the firm with an outsider’s perspective. Closing down the memory business was still a painful decision. The company had a lot of manufacturing, personnel, and sweat equity tied up in the memory business. Ben Horowitz calls this the choice between pain and suicide. You need to choose pain.
Ever since closing down the memory business in 1984, Intel has dominated the microprocessor industry. For further reading, here is Intel’s 1985 Annual Report.
In 2011, Ben Horowitz wrote a great article on Peacetime CEOs and Wartime CEO’s. In it he says that peacetime CEO’s lead in times of market growth while having a significant advantage over competition. He says a Wartime CEO leads by fending off an imminent existential threat (competition, macro headwinds, regulation, etc) and cites Andy Grove’s book Only The Paranoid Survive. Author Jim Collins also references Andy Grove in Great By Choice and talks about the benefits of productive paranoia.
Ben Horowitz calls Andy Grove one of the best wartime CEO’s ever.
Here are just a few of the examples Horowitz uses to compare Peacetime vs Wartime CEO’s:
- Peacetime CEO knows that proper protocol leads to winning. Wartime CEO violates protocol in order to win.
- Peacetime CEO focuses on the big picture and empowers her people to make detailed decisions. Wartime CEO cares about a speck of dust on a gnat’s ass if it interferes with the prime directive.
- Peacetime CEO builds scalable, high volume recruiting machines. Wartime CEO does that, but also builds HR organizations that can execute layoffs.
- Peacetime CEO spends time defining the culture. Wartime CEO lets the war define the culture.
- Peacetime CEO always has a contingency plan. Wartime CEO knows that sometimes you gotta roll a hard six.
- Peacetime CEO knows what to do with a big advantage. Wartime CEO is paranoid.
- Peacetime CEO strives not to use profanity. Wartime CEO sometimes uses profanity purposefully.
- Peacetime CEO thinks of the competition as other ships in a big ocean that may never engage. Wartime CEO thinks the competition is sneaking into her house and trying to kidnap her children.
Horowitz concludes that leading in peacetime is very different than leading in wartime and that it’s very difficult to have both skills. We like our leaders to be cushy, chummy, friendly, positive towards everyone, when in reality many of the greats were……assholes with regrettable personalities. As Horowitz states to do both well means knowing when to follow the rules and knowing when to violate the rules.
Sean and I have researched hundreds of great business builders (aka Intelligent Fanatics) that created dominant organizations. They created organizations that could react very quickly to threats. Sean wrote this great sentence in the book (I wish I could take credit for it):
Great companies are shape-shifters and can maneuver quickly as they grow and as the markets in which they compete change.We’ve found that Intelligent fanatic led organizations have this innate ability to switch from peacetime mode to wartime mode and its often driven from the founder down. It’s the only way for a business to not only survive but to dominate 30+ years. They need to be agile and react quickly in wartime.
A salamander can regenerate its limbs, heart, tail, brain, eyes, kidneys, and even spinal cord throughout its entire life. It only takes 40-50 days for a salamander to regrow an entire limb. Even when a section of the spine is removed, it will regrow within 30-days. We human beings only have the ability to regenerate our liver, fingertips, and endometrium. By this measure a salamander almost seems super human.
Scientists have found that the regenerative properties of salamanders are due to the presence of pluripotent cells (similar to stem cells) that also have properties of macrophage cells (they literally kill bacteria, viruses, fungi, and even cancer). When a limb is severed, the cells around the wound immediately morph from skin cells or blood cells, into these super cells that can regenerate any type of tissue.
Intelligent fanatic led organizations are very similar. When wartime strikes and challenges arise, everyone within the company seems to rally around the cause and against the common enemy. They shapeshift and regenerate in existing and new markets while killing off any cancer that exists.
Whether you are a business owner or investor the next question is how do you create this ability within your organization? How do you know the companies you are invested in have this ability and staying power? For investors I think you will find this recent post helpful, Are You Prepared?
As entrepreneurs and business owners I think it’s very important to surround yourself with advisors that have done what you are about to do. You need people that have been through it. Bill Campbell passed away in 2016. He was known as “The Coach” and mentor to many of the biggest names in Silicon Valley. He was a mentor to Steve Jobs, Eric Schmidt, Jeff Bezos, Larry Page, and a slew of other technology titans. I think you’ll enjoy this interview with him as you’ll find some valuable takeaways:
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