Adapting Episode 3: Intel

[0] I don't think so.

[1] I mean, we said on adapting we weren't doing any grading.

[2] I don't know what we would, I mean, it's like...

[3] The decision to pivot.

[4] Let's see, eh?

[5] Welcome to this Potapalooza special.

[6] We are in episode three of our adapting miniseries where we tell the stories of great companies and leaders who are adapting to a world that's changing in real time.

[7] For those keeping track at home, welcome to season six episode.

[8] Episode 6 have acquired.

[9] I'm Ben Gilbert.

[10] I'm David Rosenthal.

[11] And we are your hosts.

[12] Today, we tell a historical story of a company in crisis.

[13] A different and more industry -specific crisis than the one we are all going through right now, but a crisis nonetheless.

[14] 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.

[15] Today we cover Intel and their incredible bet the company move on their newly emerging microprocessor business in 1985.

[16] This was an astounding part of the research for me, was a full 17 years after their founding.

[17] Yep, they weren't the microprocessor company when they started, but we'll get into all that.

[18] To all of you listening out there for the very first time as part of Potapalooza, welcome to acquired and adapting.

[19] On this podcast, we tell the stories of great companies.

[20] 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, typically an acquisition or an IPO, hence the name acquired.

[21] Ben and I, though, are not journalists.

[22] We are industry practitioners.

[23] And so our perspective here is telling these stories from the perspective of people inside the industry.

[24] We're entrepreneurs and venture capitalists, and we've been trying over the past hundred 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.

[25] Well, a few announcements before we get to it.

[26] If you love Acquired and you want to go deeper on company building topics into the nitty -gritty, you can become unacquired limited partner.

[27] You'll get access to the LP show, which has recent guests like venture capitalists Charles Hudson and mystery co -founders Shane Kovalski and Vince Coppola.

[28] With Charles, we discuss the inside baseball of pre -seed investing and portfolio construction.

[29] And with Shane and Vince, their 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.

[30] And growing their business.

[31] I know.

[32] It's crazy.

[33] Just crazy.

[34] So you'll get access to that.

[35] You'll get the LP calls where we hop on Zoom and spend a couple hours.

[36] with all of you once a month or so.

[37] 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.

[38] So feel free to check it out.

[39] Okay, listeners, now is a great time to thank one of our big partners here at Acquired, ServiceNow.

[40] Yes, Service Now is the AI platform for business transformation, helping automate processes, improve service delivery, and increase efficiency.

[41] 85 % of the Fortune 500 runs on them, and they have quickly joined the Microsofts at the NVIDIAs as one of the most important enterprise technology vendors in the world.

[42] And, just like them, ServiceNow has AI baked in everywhere in their platform.

[43] They're also a major partner of both Microsoft and NVIDIA.

[44] I was at NVIDIA's GTC earlier this year, and Jensen brought up ServiceNow and their partnership many times throughout the keynote.

[45] So why is ServiceNow so important to both Nvidia and Microsoft companies we've explored deeply in the last year on the show.

[46] Well, AI in the real world is only as good as the bedrock platform it's built into.

[47] So whether you're looking for AI to supercharge developers in IT, empower and streamline customer service, or enable HR to deliver better employee experiences, service now is the platform that can make it possible.

[48] Interestingly, employees can not only get answers to their questions, but they're offered actions that they can take immediately.

[49] For example, smarter self -service for changing 401K contributions directly through AI -powered chat, or developers building apps faster with AI -powered code generation, or service agents that can use AI to notify you of a product that needs replacement before people even chat with you.

[50] With ServiceNow's platform, your business can put AI to work today.

[51] It's pretty incredible that ServiceNow built AI directly into their platform, so all the integration work to prepare for it that otherwise would have taken you years is already done.

[52] So if you want to learn more about the ServiceNow platform and how it can turbocharge the time to deploy AI for your business, go over to servicenow .com slash acquired, and when you get in touch, just tell them Ben and David sent you.

[53] Thanks, ServiceNow.

[54] David, I think we are ready to dive into the story of Intel.

[55] Let's do it.

[56] So the story of Intel, we are going to start here in the first act with the founding of Intel.

[57] Some of this is going to sound familiar.

[58] 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.

[59] So bear with us, but we're going to go in more detail and talk about really the beginning of Silicon Valley itself.

[60] 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.

[61] And that today from our modern perspective does not sound shocking, but it was shocking at the time.

[62] And it was curious for a couple reasons.

[63] One, because there were no semiconductor companies either in California or anywhere else at the time, nor were there startups in general.

[64] The whole concept just didn't exist.

[65] Mountain View was like views of mountains and a bunch of apple and peach orchards.

[66] The other reason it was surprising and interesting was that Shockley wasn't just some like dude off the street.

[67] He was living in New Jersey because he worked at Bell Labs where he had just co -invented the transistor.

[68] In fact, in that same year in 1956, he won the Nobel Prize for doing so.

[69] He also had a pretty interesting background.

[70] 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 advisor on, actually on radar and anti -submarine war techniques and had kind of become so important to the U .S .'s war effort that he had authored the report.

[71] 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 the island.

[72] I did not have to have Shockley.

[73] That was crazy, especially as we'll find out more about Shockley in a minute, what he ultimately turns into.

[74] But why did he move back to Mountain View, California?

[75] I say back, because he was originally from Palo Alto.

[76] And his mother was getting older at this point in time.

[77] I think his father had passed away.

[78] Wasn't doing well.

[79] And so he had just won the Nobel Prize, invented the co -invented the transistor.

[80] I think he was probably thinking about starting this company and he decided to move home to do that.

[81] So kind of with that, Silicon Valley was born in California and not in New Jersey.

[82] And David, so co -invented the transistor, but we don't have a semiconductor industry yet.

[83] Do you have any sense of like why he would win a Nobel Prize for inventing the transistor?

[84] Like what did we think the transistor was going to be used for?

[85] That's a good question.

[86] Well, I think, you know, he had these deep military connections.

[87] And as we talked about, or we're going to talk about less here, but in part one of the Sequoia Capital series, the first and primary customer for the silicon industry was the government and the defense industry.

[88] Well, I don't recall exactly, but I think the defense industry was sponsoring a lot of this work.

[89] Oh, for sure.

[90] I think within Bell Labs, although I'm not entirely sure how that worked.

[91] So there was kind of a race.

[92] And computers had been used during the war, Enniac and all that.

[93] 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.

[94] So I guess it was known.

[95] This is the part where I probably should have done.

[96] We're research in this area, but the ways that we were storing information before were just much bigger.

[97] We just, you know, transistors made it much more efficient, much smaller.

[98] But as you say, you know, the notion of a computer had existed before just not.

[99] It was vacuum tubes.

[100] Yes, exactly.

[101] Not not etched into silicon.

[102] Well, it's interesting you say information was stored.

[103] For a long time, even after this, information was still stored, not in transistors.

[104] Well, we'll get to that in one sec. So back to Shockley, though.

[105] I mean, he's brilliant.

[106] He's like literally one of the fathers of computing, undoubtedly, a Nobel laureate.

[107] But he had a pretty significant dark side.

[108] He was a total egomaniac.

[109] And when you have that in your personality, becoming at the same time, both a CEO and a Nobel laureate, tend to magnify those personality traits.

[110] When he started the company, he demanded absolute adherence to all of his whims.

[111] He started instituting lie detector tests at the office because he didn't trust any of his employees.

[112] And generally, he was kind of like the world's worst boss later in life, much later, after Shockley Semiconductor, he would go on to become a professor at Stanford.

[113] He literally went off the deep end.

[114] He became a white supremacist.

[115] He became obsessed with eugenics.

[116] pretty ironic, given his role on the side of the allies during World War II, and he ended up dying alone and completely estranged from his family.

[117] Like, it's crazy.

[118] He went totally off the deep end.

[119] But back to the 50s, in 1956, though, when he started this firm, this was, kind of back to your question.

[120] Everybody in the technology industry knew this was where it was at.

[121] And so he had just started this company in Mountain View, California.

[122] But everybody who was working in the industry all around the country wanted to come out and work with him.

[123] And so the best and brightest from all corners of the country started coming out and joining Shockley Semiconductor.

[124] And I think that also had a big part to do with why, you know, obviously there was the influence of Stanford and Cal and all the great universities in the Bay Area.

[125] Yeah, Stanford sort of beating Harvard to get the grant from the federal government to do more, I think it was DARPA research.

[126] Yeah, Darper Research.

[127] Yeah.

[128] But this was also a big part of it, this company that popped up and started.

[129] of recruiting people from all over the country.

[130] So kind of a year into this when Shockley's acting crazy, a group of eight employees who are really talented, they're kind of fed up with his antics.

[131] They decide to do something pretty radical.

[132] They all resign on mass on the same day.

[133] They leave Shockley.

[134] 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.

[135] And two of these traitorous eight gentlemen are people by the names of Bob Noyce and Gordon Moore.

[136] These traitors, these pirates, if you will, they also aren't just any kind of people off the street.

[137] So Bob Noyce, you know, remember Shockley had invented the transistor.

[138] Noyce invented the modern integrated circuit, which became, you know, how transistors were implemented in Silicon.

[139] And Moore, of course, observed and coined Moore's Law that we still talk about and 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.

[140] And that has happened for the past 50 plus years.

[141] Sort of.

[142] So I remember, I think we're going to go back eight, ten years, but there was a period of time where it basically petered off where we stopped seeing doubling in terms of pure Morse's law, which was the density of ICs on a single core.

[143] But then we saw the advent of multi -core computing.

[144] And of course, now you have eight core, 16, core, 30, like shipping in laptops.

[145] Processing power keeps increasing.

[146] Yes, correct it itself in terms of the amount of processing power you can sort of get on a single, I guess, CPU.

[147] Are there multiple CPUs on a, I guess what is the unified body called of the several cores that ship together now?

[148] I don't even know anymore.

[149] Once again, it's a commodity.

[150] But we'll get back to that.

[151] So all these talented people left.

[152] Shockley had, you know, proven you can create a company.

[153] But it ended up being super difficult to get this venture financed.

[154] Like, they needed money because they had to set up literally manufacturing plants to make the semi -connectors they wanted to make.

[155] Well, David, what year was this?

[156] This was 1957.

[157] Yeah.

[158] So, like, there is no money that exists to fund non -governmental sort of like tech businesses.

[159] Yeah, venture capital was like you were going on an adventure in some capital somewhere.

[160] Like, nobody knew what that meant.

[161] So the eight of them, they get in touch with a man named Arthur Rock, who was an investment banker from the East Coast.

[162] And he agrees to help them out.

[163] He kind of scours the technology universe at the time looking for somebody willing to fund these guys.

[164] 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.

[165] operation.

[166] Now, Sherman also happens to be the largest shareholder in IBM, which is why he's sort of interested in this.

[167] So he agrees to loan these eight plucky pirates, one and a half million dollars in exchange for the right to buy the whole company for $3 million, which he does.

[168] Venture capital terms have come a long way since then.

[169] It's a heck of a deal.

[170] Well, hey, you know, I mean, in this environment, the power is back on the investor side, I would say.

[171] Still, I don't think anybody would take that deal.

[172] It's actually interesting.

[173] Think about that deal for a second.

[174] So you're loaned one and a half million and they have the right to buy it for three.

[175] Let's say it happens over six months.

[176] I don't know how long it actually took.

[177] Like they wouldn't have taken any equity, right?

[178] It was truly alone.

[179] It was alone.

[180] Yeah.

[181] So the, I mean, at the end of the day, it wasn't a company.

[182] It was, it was a subsidiary of Fairchild.

[183] Like that's, and this becomes the problem, like Fairchild Semiconductor, the newly established division of Fairchild Cameron.

[184] instrument does take over the torch from Shockley and becomes the premier the 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 go by and like nobody's getting that rich there you know they've created all these you know millions hundreds of millions of dollars in sales but there's no equity right it's all going back to camera and instrument back in fairchild's uh new york in long island new york yeah yeah exactly so um the two of these folks you know noise and more they've already been traders once so you know what's what's another time they also start to see that we're 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.

[185] It's like it's done with magnetic cores, like literally, you know, magnetic discs, and it's way slower and it's way smaller.

[186] 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?

[187] I think we can do that.

[188] That sounds like a good idea.

[189] Let's start a company around that.

[190] Let me tease this apart to make sure I understand here.

[191] so when you say make these other chips like what what types of chips were being made with silicon and semiconductors before memory before ram well we talked about this a little bit on the sequoia 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.

[192] And then the storage was done in these, you know, storage of the data was done in these magnetic cores.

[193] Right.

[194] And there's no notion, you know, for folks that know how the inside of the computer works, you know, these days the CPU is the brain.

[195] Ram is basically like short -term memory.

[196] And then your hard risk or your SSD is like the long -term memory.

[197] So that long -term memory was living on tapes or or magnetic disks.

[198] There was no notion of short -term memory, like this RAM that would exist to hold your programs while they were running, but not actually run them.

[199] Like, that whole piece didn't exist at all.

[200] Like, that was the Intel innovation here.

[201] I'm sorry, that was the more a noise innovation here.

[202] More a noise innovation.

[203] The NM innovation.

[204] Yeah, but it's great.

[205] The other point, too, on that is like, you know, the CPU didn't exist yet.

[206] Intel would invent it.

[207] You said that is the brain.

[208] There were no brains.

[209] Like the chips that like we said that were being produced, they were like hard coded like the computing, the software was baked into the hardware.

[210] Yep.

[211] Yeah.

[212] I remember sitting in my electrical engineering lab in undergrad and I remember like specifically the 555 chip.

[213] 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.

[214] And I imagine, like, that was just the case for all these chips.

[215] 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.

[216] It's just you got 8, 10, 12, 15 pins.

[217] You use a breadboard to hook them together.

[218] And, yeah, they do a thing.

[219] So Nois and Moore leave.

[220] They have this vision of, like, we can create this short -term memory product in Silicon.

[221] They go find Arthur Rock again.

[222] Like, oh, well, you helped us start very.

[223] Fairchild, let's talk to him again.

[224] This time Arthur has gotten smarter.

[225] He says, you know, 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.

[226] What if you like start the company and I'll invest in the company and that they do?

[227] He organizes a two and a half million dollar funding round of venture capital from a syndicate that he leads.

[228] They raise that in July.

[229] They hire a few folks over from Fairchild, and they're off to the races.

[230] And let's talk about that.

[231] So $2 .5 million sounds like a great seed round for anybody that knows sort of funding these days.

[232] Inflation adjusted, you know, that's $15, $18 million.

[233] Yeah, I think it's about $18 million.

[234] 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.

[235] Now, no, again, at this time, we covered Don Valentine's prolific sort of pseudo -invention of the asset class of venture capital on the Sequoia episodes.

[236] but there wasn't this notion of like, well, I'll manage other people's money in a way that we can deploy it into startups and understand how, like, who gets a cut of what.

[237] And indeed, it wasn't until four years later that Don would start Sequoia.

[238] Right.

[239] And so what Arthur did, I think he put in something like 100K of his own money and then basically got convertible debt for the rest of the two point whatever million.

[240] Yeah.

[241] And it was basically a convertible debt instrument.

[242] Also, it wasn't a straight equity investment.

[243] Correct.

[244] Interesting.

[245] Interesting.

[246] Well, nonetheless, they do well, a quick diversion on the name.

[247] 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.

[248] So naturally, the name for this company should have been more noise.

[249] It's my favorite trivia from the research.

[250] So they're like, can I have more noise in my semiconductors?

[251] More noise in my semi -conductors.

[252] it only took saying that out loud to realize that was that was not a good idea yes you do not want more noise in any electronic system no so they 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 does that doesn't roll off the the ton no i didn't find that no i couldn't find it either but within a moment month of incorporating it, they changed the name from NM Electronics to maybe NM sounded a little bit like Intel.

[253] They changed it to Intel because they wanted it to be integrated electronics, but that was taken.

[254] And so they used the word, they invent the word, Intel, or I guess they borrow Intel from military intelligence.

[255] And they actually did have to go and buy the name.

[256] I think there was somebody else that there was a hotel chain called Intelco.

[257] Yeah.

[258] And they'd go buy the trademark.

[259] Yeah, yeah, apparently for $15 ,000, which was a lot of money in those days.

[260] But they had two and a half million.

[261] So, you know, they were swimming in it.

[262] Three years later, that $2 .5 million proves to be quite a good investment on behalf of Arthur Rock and his associates.

[263] Intel goes public with a market cap of $58 million.

[264] Everybody makes a lot of money.

[265] Don, who at this point - It's a fast IPO.

[266] We're like way before to stay private longer.

[267] Yeah, exactly.

[268] Don, who we've referenced Don Valentine, he's over at National Semiconductor by this point.

[269] He sees this and he's like, okay, this is, well, let's go.

[270] Venture Capital, it's a thing.

[271] And then, of course, he leaves and starts Sequoia Capital and we all know the history there.

[272] Or if you don't, you can go listen to our two -part episode.

[273] Okay.

[274] So that's a nice little story.

[275] Intel founded, making memories, literally making memories, making people rich, three years to IPO, you know, $58 million market.

[276] is, you know, wonderful record setting at the time.

[277] That's a nice little story, but there's certainly nothing adapting about that.

[278] Honestly, if it weren't for what happens after that, Intel would just, I think, I ended up being like a part of ancient history, just like Shockley and Fairchild.

[279] 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, you know, you think about a cool rendering of a CPU on a motherboard to quote directly from the Andy Grove book, Only the Paranoid Survive, you know, he says Intel equaled memory in all of our minds.

[280] Like it was their core identity is we are memories.

[281] It was the business plan.

[282] It was founded on.

[283] Yep.

[284] Totally.

[285] So what was the problem that would have killed the company?

[286] It was that, you know, Ben, I think you mentioned this.

[287] It turns.

[288] out that memory and really all of the silicon that was being made at this time was a commodity.

[289] They just didn't realize it because they were first to market.

[290] Like memory chips didn't exist before.

[291] So Intel gets started.

[292] They start, you know, turning out these chips.

[293] People start using them.

[294] But then other people start making the chips.

[295] And there's nothing special about the chips.

[296] They're just like memory is memory.

[297] In some ways, you know, Intel, you know, they were the most innovative company.

[298] Like, they truly were able to stay six, 12 months ahead and always be sort of better than their competitors.

[299] A lot of their early competitors.

[300] They were making denser memories, more storage.

[301] Yep.

[302] They believed that R &D and, you know, technology, that's really at the core of who we are.

[303] They invested really heavily in it.

[304] And so for, you know, 15 years, I think that the first 10 years, they handily beat all competitors.

[305] 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.

[306] 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.

[307] In the words of Hamilton Helmer from our great LP episode and his book Seven Powers, there's no power in the business.

[308] Like it's just hard to do but there's nothing fundamentally about like once you are doing it or you're a leader.

[309] that you're going to stay the leader.

[310] 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 you had and go public, they are under siege.

[311] Japanese electronics companies had decided to enter the market with all of the power that they had at that point.

[312] And all of these companies were big Koretsu companies that were in just like Fairchild, kind of divisions of much larger companies.

[313] So they had access to a ton of capital, a ton of resources.

[314] And here we are in 1981 to four, call it, where this is really the boom of Japanese companies having operational excellence.

[315] Like that is the thing that they're just outoperating U .S. companies, exactly.

[316] And on top of that, they're, you know, companies like Sony, like there are these electronics companies that are just way better than the electronics being manufactured in the United States.

[317] the country was really rallying behind this as an identity.

[318] The Japanese companies were able to build enormous factories to build out these memories.

[319] So their economies of scale on building them, they could get so cheap.

[320] And their access to capital with whatever was going on in Japan at the time was just enormous.

[321] They kept being able to get either private or public funding and pour them into these companies where they could produce way more memories.

[322] They could do it way cheaper.

[323] And the talent that they had there from all these emerging, fantastic, Japanese electronics companies, like they were just as innovative, if not more innovative than Intel.

[324] Yes, they're eating Intel's lunch.

[325] So Intel's market share of memories goes from above 80 % at the beginning of the decade to by 1984.

[326] I think it's in 1984, they dropped a 1 .3 % of the global market.

[327] It's like brutal.

[328] Which we should say is still a huge business because memories at this point, you know, were for anyone who sort of gets this era that Macintosh was released in 1984, like personal 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.

[329] The demand for memories and all sorts of applications is huge.

[330] 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.

[331] Like Intel is a big freaking company just with that market share.

[332] Yeah, well, big buy revenue, but their profits are getting eroded down to zero or really below zero.

[333] because of the pricing power of these Japanese companies.

[334] So at this point, Intel needs a miracle.

[335] 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.

[336] And we're going to tell the story here of Andres Groff, better known in the U .S. as Andy Grove, the legend of Silicon Valley.

[337] And this story is just incredible.

[338] Adapting personally, adapting in terms of the world, adapting in terms of the company.

[339] Let's rewind for a little bit.

[340] So Andres Istivan Geroff was born in 1936 in Budapest, Hungary, to Jewish parents in a Jewish family.

[341] And when he was born in 1936, Hungary was already a fascist dictatorship that had aligned with Nazi Germany.

[342] But despite that, Andres' parents and family were doing okay.

[343] His dad ran a dairy co -op.

[344] 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.

[345] And then, of course, in 1941, when Andres' five, Hitler invades the Soviet Union, Hungary enters the war, and becomes for all intents and purposes a Nazi state.

[346] His dad is shipped off to a labor camp, disappears for four years.

[347] Amazingly, he survives.

[348] But at the beginning of the war, there were 650 ,000 Jews living in Hungary.

[349] By the end of the war, there are 150 ,000.

[350] So half a million people exterminated in the Holocaust.

[351] Totally, totally awful.

[352] Words can't even express.

[353] Andres and his family, though, they are the lucky ones.

[354] So Anders and his mother go into hiding.

[355] They assume new identities.

[356] Remember, he's like a kid at this time.

[357] He's, you know, this is between the ages of like five and ten.

[358] He spent years in hiding, pretending to be not Jewish.

[359] They're eventually liberated by the Soviets when the Soviets drive the Nazis out of Hungary.

[360] in 1945 and his dad survives and 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?

[361] And like, you know, his family, his dad had been an entrepreneur before 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.

[362] persecuted so 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 that's evil so you're a counter -revolutionary and so um his father and his family had to renounce everything pretend that they you know what they had done before was evil and you know and it's also not like anti -semitism died with hitler you know either at this time so it was it was pretty rough the andy grove story the intel story that i knew before this was called Andy Grove he wasn't the original founder of Intel but he was the one that you know saved it and like when you dig into full stop right his background is like imagine during your formative years of five to 15 having both of those experiences like totally no it just it just makes you realize how freaking comfortable and uncomparable most of our own lives are to just incredible and awful sort of persecution that people like Andy went through.

[363] Well, I think it's good perspective for this time, too.

[364] Like, this is a crazy time that we are living through, like, unprecedented and nuts with coronavirus and, you know, terrible and there's terrible human suffering.

[365] But, like, this really puts it in perspective.

[366] You know, 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.

[367] And it just really puts things in perspective.

[368] of like I've said things like, man, this feels like a war.

[369] Like we haven't experienced anything like this since World War II as a nation and a world.

[370] And it's like, no, this is nowhere near what World War II was like.

[371] Really good perspective.

[372] But anyway, like we said, his family were the lucky ones.

[373] And then a pretty momentous event happens.

[374] And this is also just like such an amazing American story.

[375] So in 1956, the same year that Bill Shockley moved to California, wins the Nobel Prize and starts Shockley Semiconductor.

[376] Student protests, Andy's in university in Budapest at this time, studying chemistry.

[377] Student protests erupt in Budapest and they turn into a full -blown revolution.

[378] And this becomes the Hungarian Revolution of 1956 against the Soviets.

[379] The Soviets roll tanks into the city and like brutally suppress the revolution.

[380] But in the chaos, a whole lot of people are able to escape across the border to Austria.

[381] 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 boot fest and then he walks across the border to austria from there he's able to get to the 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 grove is not not easy to pronounce by his professors he gets a scholarship and works his way through city college of new york as 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 no this is so cool the new york times actually writes an article when he graduates in um what would this been 59 maybe 59 or 60 uh 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.

[382] Super cool.

[383] On the back of that, he goes out to California.

[384] He goes out to Berkeley.

[385] He gets his Ph .D. in chemical engineering at UC Berkeley, graduates in 1963 and joins, of course, the best company, technology company in the world at that time.

[386] Fairchild.

[387] Fairchild.

[388] Semiconductor.

[389] And that's where he meets Nois and more.

[390] And so then legend has it.

[391] I think this is probably apocryphal, but even if it is apocryphal, like it's...

[392] I feel like half the stories we tell are apocryphal or reinvented some way.

[393] That's true.

[394] That's true.

[395] But if it's not true, the spirit would have been true.

[396] When Nois and Moore go to Arthur Rock when they're starting Intel in 1968 to get funding, the legend is that Arthur Rock 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.

[397] So Arthur, who's in an, he organized the initial investment in Fairchild, but then had nothing to do with it other than that.

[398] that.

[399] I think, I mean, he must have stayed close with, with the people.

[400] Had to, but like, that speaks to, like, 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.

[401] Yeah.

[402] I mean, this is a kid that we're, he's now five years out of his PhD program.

[403] And he had, like, of course he was, developed a great reputation within Fairchild, but, like, pretty cool that, like, Bob Noyes and Gordon Moore make you their first employee when they're starting Intel.

[404] And Arthur, you know, knows all value.

[405] So he joined, he was employee number one when the company was started in 1968.

[406] By 1979, he had been promoted many times he became president.

[407] So Gordon Moore was the CEO of the company.

[408] I think Arthur Rock was the chairman on the board.

[409] Or maybe Noyce was the chairman.

[410] Maybe Noise and Brock swapped off.

[411] Noyes might have been the first CEO and then they swapped and Gordon became the CEO.

[412] Yeah, it feels like it's like a Google or a Twitter type situation.

[413] Yeah, I think that's...

[414] I don't think it was a Twitter.

[415] I think they were all friends.

[416] But Andy got promoted to be president in 1979.

[417] So we're now back in the mid -1980s.

[418] Intel is under siege from these Japanese memory manufacturers that are flooding the market with highly superior products.

[419] Superior, cheaper, and in much greater quantities.

[420] In much greater quantities.

[421] There is no answer.

[422] for if you're intel for what to do.

[423] Yeah, 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.

[424] And so he actually then writes the book, Ben, that you mentioned, which is so great and it's just like classic of Silicon Valley, only the paranoid survive all about this.

[425] 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.

[426] And so apt, apt for right now, and apt for Intel at this moment.

[427] 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.

[428] But that dramatic thing that happened for their industry was just one industry and just one change.

[429] And what we're seeing now is a massive dislocation in every industry.

[430] And so, like, suddenly this story becomes very relevant for anyone doing business in anything, which is a kind of a crazy, crazy moment.

[431] Well, hopefully sales of the book, only the Paranoid Survive will spike.

[432] They'll benefit from this moment.

[433] So what change for Intel, right?

[434] Like, obviously it was that these superior in every dimension Japanese producers entered the market.

[435] but Intel 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.

[436] It was so crazy that, you know, Ben, as we talked about, Intel usually had the best technology, the best chips.

[437] They were six to 12 months ahead of the competition.

[438] 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.

[439] They did second sourcing.

[440] And so some people might know what this means.

[441] This is completely gone by the wayside.

[442] It's a byproduct of military contracts where the military, they needed to ensure that they would be able to get enough of what they wanted to buy.

[443] And so they would award the contract to a primary manufacturer that was going to 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 competitions factories make the product to ensure that the customers had enough demand.

[444] So Intel did this.

[445] Whenever they would win contracts, they would bring in their competitors, chief among them AMD, which people are going to know.

[446] Interestingly, AMD itself came out of Fairchild a couple months after Intel.

[447] So crazy that both Intel and AMD did.

[448] I know.

[449] And so they would kind of compete against each other for bringing primary source on the contracts that they were bidding for, but then kind of no matter who won, they would bring the other one in and just give them the reference design and fill it out.

[450] And so Intel was doing this with their competition.

[451] 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.

[452] 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're going to be kidding me. So he said, the Japanese memory producers appeared on the scene.

[453] Actually, 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.

[454] The Japanese were helpful then.

[455] They took the pressure off of us.

[456] But in the early 80s, they appeared in force, in overwhelming force.

[457] Yeah.

[458] And what is this overwhelming force that they're now appearing with?

[459] So at one point, Andy and his team and the sales team gets a hold of a hold of, a sales memo from one of these Japanese companies.

[460] He doesn't say which one.

[461] And here's the quote of how of the battle card against Intel.

[462] It says win with the 10 % rule.

[463] Find AMD and Intel Sockets.

[464] I assume sockets being like where they were selling into.

[465] Quote 10 % below their price.

[466] If they requote go 10 % again.

[467] Don't quit until you win.

[468] So they're literally willing to go to the bottom to win every contract.

[469] Ruthless.

[470] And they have two advantages there.

[471] One, their actual cost of production is dramatically cheaper because of the dramatically larger scale they were producing at.

[472] And two, their access to capital was much better.

[473] So they had a cheaper cost of capital.

[474] So they really could, without, you know, turning their business upside down or having negative gross margins, they really could just keep going lower and lower and lower lower.

[475] Yeah.

[476] And this is what we were talking about earlier.

[477] So, you know, Intel, like you were saying, their market share totally knows dives.

[478] But because the market is growing, their revenue doesn't actually drop that much.

[479] But they're no, they're losing money on every chip they're selling at this point because the profits have just been completely eroded.

[480] It's like it's like Uber and Lyfts, you know, bashing each other over the head and ride.

[481] Compete away all the margin.

[482] Yeah, there's no profit anymore.

[483] And so this creates what, you know, Grove calls in the book a strategic inflection point, which is, you know, he defines it as the time in the life of a business when its fundamentals are about to change.

[484] And he says these changes come about whenever there's a sudden huge kind of 10x change in one of the five, you know, fundamental Porter's five forces of the business, in this case, competition.

[485] Competition comes in.

[486] It's 10.

[487] next stronger, like, you're up a creek here.

[488] Yeah, and relaying that to current times, competition is unlikely up, but demand is likely way, way down.

[489] And so it's likely that the buyer power has, you know, evaporated in many, many industries where consumer spend is down or travel or hospitality or people with, you know, freezes to whatever corporate spend they had.

[490] I mean, it is just like, again, just trying to bring it home to relevance here, a different crisis, but a very, you know, there's a 10x change in your, in your customer behavior.

[491] Inside of Intel, it's chaos.

[492] And Grove writes about this, that, like, there's tons of infighting.

[493] Everybody has a conflicting opinion.

[494] We are the memory company.

[495] Like, that's the only thing we can possibly do.

[496] And so people are yelling at each other.

[497] It's like, you know, the engineers are like, the sales team needs to work harder.

[498] And the sales team's like, we need, you know, the engineers need to make better technology for us to sell.

[499] And some people are like, well, we should just like vastly increase our fab production to have more capacity and compete directly with the Japanese and other people just like, this is totally unfair.

[500] 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.

[501] They're saying, oh, we need to do like value added memory.

[502] Like we need to add additional features to the memory that make it not a pure commodity.

[503] Then we can make margin from selling these extra features in the memory to the customers.

[504] 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 are like running at them with different guns you know when you're when you're making the decision to to buy you know the next iPhone upgrade cycle or not like are you making your decision based on the whether the memory has more features in it than the previous year I'm not no um so this leads to this moment of clarity and I just like this is one of my favorite favorite moments in like all of business history of one famous day in early 1985 where Moore and Grove are talking about this situation.

[505] 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.

[506] 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?

[507] to like in response to this situation and more looks at him and he says just point blank he's like well they'd just get us out of the memory business and no one it no one had actually like like ben like he said like people were kind of dancing around there but nobody had been willing to bring that up of like this is like uber saying we're going to get out of the ride sharing business like which right right listeners can't see uh ben's shrug there um and so Grove writes in the book, he says, as soon as Moore said that, he just stared, he says, I stared at him numb.

[508] 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 and do just that.

[509] And so that's what they do.

[510] They actually physically walk out of the office.

[511] They ceremonially fire themselves, rehire themselves, and walk back in.

[512] And then that psychologically, like, gives them the clarity of like, no, this is what we need to do.

[513] We need to get out of this business.

[514] It's a, it's a cinematic moment imagining that.

[515] The sort of 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.

[516] And there is different than the emotional ones that I was talking about.

[517] We are the memory company.

[518] We can't possibly change.

[519] Like, even if you just take that stuff away and you look at the other businesses that they're in, the main, the obvious one that they should go focus on is CPU.

[520] They have some other stuff, but CPUs are kind of the thing.

[521] It's super immature.

[522] There's not necessarily their A -Team on it.

[523] They have no production capacity.

[524] They've only been doing it for a very short period of time.

[525] There's not necessarily customer pull yet.

[526] We're talking about 1985.

[527] The Mac has just come out.

[528] And remember, the Mac didn't use Intel chips.

[529] they use Motorola chips.

[530] So, like, the PC was not a thing yet.

[531] You know, I mean, it was a thing, but it wasn't like, the PC was like VR today.

[532] Right.

[533] And the things the sales guys are complaining about is that it was a complete breakthrough.

[534] And we, I think they invented the CPU or at least sort of our good credit for that.

[535] And maybe it was the 4 -04 was the big first one.

[536] They created this amazing thing.

[537] You know, they're working on the 386 in the corner of a building.

[538] And for anyone who knows sort of the X -86, processor like that's the first you know so no no no the x86 exists but the 386 we're going to get to it in a sec all right it was a magical so the the product that's happening but the sales team would correctly object uh this is not a complete product line like we we can't possibly go and sell with like one or two product like 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.

[539] And so everybody correctly has lots of reasons why they cannot shut down the memory's business and wholeheart switch to Intel.

[540] I'm sorry, switch to see, it's so synonymous.

[541] Switch to CPU.

[542] So, yeah, so Moore and Grove walk out of the office for the second time.

[543] And Andy starts going around like giving speeches about how they're going to get out of the memory business.

[544] and like all hell breaks loose.

[545] 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.

[546] And so Andy's like, Andy removes him and puts somebody else in charge of the memory business.

[547] That guy doesn't do it either.

[548] It's like the Saturday Night Massacre.

[549] He's like, yeah, yeah, yeah.

[550] No, I know you brought me in to get us out of the memory business.

[551] Cool, I'm going to do that.

[552] 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 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?

[553] You had won jobs.

[554] Dude, I told you to get out.

[555] So finally, this takes like basically all of 1985 where they're just trying to like and this says so much about organizations.

[556] So here you've got the founder, co -founder and CEO of the company and the president of the company he was the first employee who are literally telling the company to stop doing something and the company cannot stop doing it.

[557] It gets to 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.

[558] We just need to shut this factory down.

[559] It's an old factory anyway.

[560] It's too small to do, like, we really shouldn't be operating it anyway.

[561] But I'm doing this in part because we have to shut this, you know, this thing down.

[562] 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.

[563] Andy, 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.

[564] But like, it was crazy the amount of dramatic measures that he had to take, even as the president, to influence, this happening.

[565] war like they're fighting the competition outside the building but then they're also fighting you know the culture internally so 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 the but what's really interesting And what was brilliant about what really Andy did and how they led the company was if they had just done that, then the same cycle would have played out over the next 10 to 15 years.

[566] Like Intel was in the lead.

[567] They basically invented the microprocessor.

[568] They were the X -86 architecture was how the standard IBM PC and IBM PC clones were based on.

[569] And they would have been the leading chip producer.

[570] But anybody else could have come along and produce.

[571] chips too.

[572] And in fact, so there was the 4 -004, which was for a calculus, actually for a Japanese calculator, BusyCorp, I think that they created it.

[573] And then, but then the first X -86, they made the 80 -86, but then it was the 80 -88 that was in the first IBM PC.

[574] And then there was, they had the 80 -80, which was the Altair.

[575] Yeah, that's right.

[576] And then there was the 81 -86 and then the 82 -86, right?

[577] And so that's where we were at the this point in time.

[578] And they were second sourcing, just like they did with all of their product lines at this point.

[579] Oh, no way.

[580] Also, yeah, they were second sourcing.

[581] And AMD was the second source on the 186 and the 286.

[582] And I think maybe before that too.

[583] But they had a major contract in place with AMD to do, to be the second source for, for the 286.

[584] Now, like you said, they were working on the 386.

[585] And they knew and Andy knew that the 386 was going to be something.

[586] special while the all the 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 in 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 like strategic decision to make about what to focus on.

[587] Andy knows he's got this special product, and they come up with what ends up being the brilliant strategic decision, obvious in hindsight, to say, no, we're not going to second source this.

[588] We are going to be the primary and sole source.

[589] You want a 386 processor?

[590] You got to buy it.

[591] You want a 32 -bit, 86 -X -86 compatible architecture processor.

[592] There's only one place in the world to get those, and that is directly from Intel.

[593] It's kind of amazing what happens.

[594] I mean, you even look to how this translates all the way to today.

[595] So I want to like just pause for a moment and David like come back to it's crazy what happens.

[596] But you think about today, there's basically two types of chip companies.

[597] There's fabless and there's companies that have their own fabs like intel.

[598] And when I say like intel, I pretty much mean Intel.

[599] And so you've got like the TSMCs of the world, the Samsung who's designing at this time, all these arm -based chips that are designed by these fabless companies and then built in a separate chip fab in a commodity way that are decoupled.

[600] You know, you have the separate designer from the manufacturer.

[601] And Intel, to this day, still manufacturers 100 % of their designs themselves.

[602] Yep.

[603] So this is what happens.

[604] So remember, they had this, they had this agreement with AMD to be the second source.

[605] And I believe that agreement technically was supposed to continue into the 386 process.

[606] processor.

[607] Intel breaks it and says, nope, nobody else is going to do this.

[608] You want the 32 -bit X -86 processor.

[609] You got to come to us.

[610] AMD sues them.

[611] Intel countersues.

[612] And I didn't know this.

[613] And it ends up, it drags out in core.

[614] I forget who actually wins.

[615] But at the end of the day, the judgment is that AMD is going to be able to market X -86 architecture chips.

[616] But Intel's not going to be forced to give them the designs.

[617] So AMD has to, in a clean room, reverse engineer.

[618] No way.

[619] Yeah, so that takes them another couple years to do that.

[620] It ends up being...

[621] That's like the Atari story.

[622] It is.

[623] It's like the Atari story.

[624] Yeah, the EA Sports Sega Genesis story.

[625] So it ends up taking six years for AMD from the end of 1985 when Intel ships the 386 out the door.

[626] I believe compact computer is the first customer for the, the 386 and as that's like the beginning of compacts rise and intel rises with them and then everybody all the PC manufacturers use use intel 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, which is just like so brilliant on two levels.

[627] One, it's like one of the best pieces of marketing of all time.

[628] They really invented the ingredient brand.

[629] Exactly.

[630] It was them in NutraSuite, where like the only ingredient brand, successful ingredient brands of all time.

[631] 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 that's still doing the research.

[632] The way the Intel inside marketing campaign worked was Intel, of course, spent a bunch of money advertising, marketing it directly.

[633] Right.

[634] 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...

[635] Well, so that's what I thought.

[636] But here's the more powerful piece.

[637] Of course, course that's true but they went intel went to all of the pc 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 no way 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 the amount of marketing expenditure associated with that is enormous.

[638] 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.

[639] And so Intel just like, it's like a tsunami that just like washes over the whole market.

[640] Wow.

[641] That's like the Bobby Axelrod Billions quote, uh, when you know you have an advantage, press it.

[642] Yeah.

[643] Yeah, there.

[644] And I think that, you know, Andy doesn't talk really at all in the book.

[645] about that.

[646] But I think that was another decision kind of on the level of maybe not quite as big as sole sourcing the 386, but like, you know, having lived through the crazy all 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.

[647] Wow.

[648] So Andy becomes CEO of the whole company, uh, Gorton, Rett in 1987 once this is this whole wave is underway.

[649] And he serves as CEO of the company from 1987 to 1998.

[650] Revenues rise from 1 .9.

[651] 87 to 98.

[652] So 11 years.

[653] Oh, yes.

[654] Yeah.

[655] 87 to 98.

[656] And then he retires and becomes chairman.

[657] 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 their man of the year which is this like like this story is so incredible like you've got this kid 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 and 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 the contract with the ibm pc and the the sort of pc clones or copycats what would people call on well i think it was that it was it was it was 1981, when 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 they used the X86 architecture.

[658] Thus, you needed an X86 compatible chip for all PCs.

[659] 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 did have the beginnings of a backup plan and like they had started working on this new emerging market because 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 and shipped and got it out there and got it to be the, you know, critical path part of a major, major new product in the market.

[660] Yeah, I was going to save this for a playbook, but Andy talks about this and only the paranoid survive.

[661] Like, the time to innovate is not when you find yourself in a strategic inflection point.

[662] It is well before then.

[663] Like, you constantly should be looking for new product lines, looking for diversification.

[664] You know, honestly, like Uber has done a great job of this, right?

[665] Like, where would Uber be if not for Uber Eats?

[666] in Uber Freight and like...

[667] So Uber Eats in the U .S. last week or two weeks ago eclipsed ride sharing in revenue for the very first time.

[668] And like when you look at these graphs, it's ridiculous because it's Uber eats going up slowly and then Uber, you know, ride sharing obviously falling off a cliff.

[669] 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.

[670] Like...

[671] Yeah.

[672] Well, and compare that to Lyft, right?

[673] Who doesn't have You know, I think they're now launching a delivery type product, but a strategic inflection point is not the time to be launching new products.

[674] Yeah.

[675] Well, I'll catch us up to Intel today.

[676] The number, and I think David quoted something like this earlier, when Andy came in, annual revenues at Intel were $1 .9 billion.

[677] Nothing too bad.

[678] When he left in 97, it was $26 billion.

[679] So not only did he sort of save the company, but really, like, created the, the, behemoth that we know today you know what is that a 13x um on the revenue from that's revenue we don't have the um 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 boatloads of money and then they were immensely profitable by when Andy left well to give you and I give you a picture of the economic profile this company today.

[680] So it increased then from $26 billion when Andy left to $72 billion in 2019.

[681] They're a hardware company and their net income is $21 billion on that $71 billion.

[682] So that's what, 25 % net income margin?

[683] That's pretty damn good.

[684] Right, right.

[685] And this is a company that like, 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.

[686] But like, pretty behemoth of a I mean it's a $260 billion market cap business even in this crazy stock market environment that we're in right now.

[687] Yeah.

[688] Well, it's funny too.

[689] I mean, listeners should go listen if you haven't already to our Arm episode.

[690] You know, in much the same way that Intel was able to change the way that the market operated and business was done to generate a lot of power in their CPU business.

[691] they were then, you know, 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.

[692] Yep.

[693] Yeah.

[694] The disruptor becomes the disruptee at some point.

[695] And you can stay vigilant and you can stay paranoid, but you have to have.

[696] Andy wasn't there anymore.

[697] Yeah, you have to have leader after leader after leader that truly, truly believes that.

[698] So I want to tell you one crazy thing, David, I don't know.

[699] know if you caught this, an announcement made in July of 2015 from Intel.

[700] I don't think I did.

[701] So they announced that they were going to be shipping a new product called Optane Memory.

[702] So in addition to their CPU business, which we all know very well, they were shipping a new type of memory.

[703] Getting back in the biz.

[704] The main value prop was to make computers that had hard drives spinning disks as speedy as SSDs.

[705] And so it was indeed a value -added memory.

[706] They're not just shipping DDR2 DRAM.

[707] Here we are with Intel making a bet on memory.

[708] And to underscore this, I just read the annual report from Intel last year, they have three operating segments.

[709] They have a data -centric one and PC -centric one, and those are both responsible for about half of their revenue.

[710] The PC -centric one is everything that you know of.

[711] The core I -5 -I -7 -I -9, I think that's the core of it.

[712] the data -centric business is a lot of the server stuff so the zions and then they sort of lump in all these like mobile i is up there and a lot of those acquisitions they've made they have these big bets and from the big bets update they have a sentence that includes do they literally call it big bets did they like steal that from alphabet dude everyone does at this point oh come on that's ridiculous currently and there's three of them but I'm just going to end after the first currently our big bets are memory Andy Grove would be turning over in his grave.

[713] I know.

[714] Just amazing.

[715] So I don't think it's a bad idea.

[716] I think it makes sense, given the current environment.

[717] But it is amazing how history doesn't repeat itself, but it does rhyme.

[718] Indeed.

[719] That's part of why we do this show.

[720] Yep.

[721] All right, listeners, our sponsor is one of our favorite companies, Vanta, and we have something very new from them to share.

[722] Of course, you know Vanta enables companies to generate more revenue by getting their compliance certifications.

[723] That's SOC2, ISO 2701.

[724] But the thing that we want to share now is Vanta has grown to become the best security compliance platform as you hit hypergrowth and scale into a larger enterprise.

[725] It's kind of wild.

[726] When we first started working with Vanta and met Christina, my gosh, they had like a couple hundred customers, maybe.

[727] Now they've got 5 ,000, some of the largest companies out there.

[728] It's awesome.

[729] Yeah, and they offer a tremendous amount of customers now for more complex security needs.

[730] So if you're a larger company, and in the past, you showed Vanta to your compliance department, you might have heard something like, oh, well, we've already got a compliance process in place, and we can't integrate this new thing.

[731] But now, even if you already have a SOC2, Vanta makes maintaining your compliance even more efficient and robust.

[732] They launched vendor risk management.

[733] This allows your company to quickly understand the security posture of the vendors that you're choosing in a standardized way that cuts down on security.

[734] review times.

[735] This is great.

[736] And then on the customization front, they now also enable custom frameworks built around your controls and policies.

[737] Of course, that's in addition to the fact that with Vanta, you don't just become compliant once, you stay compliant with real -time data pulled from all of your systems, now all of your partner's systems, and you get a trust report page to prove it to your customers.

[738] If you click the link in the show notes here or go to Vanta .com slash acquired, you can get a free trial.

[739] And if you decide you love it, you will also get $1 ,000 off when you become a paying customer.

[740] Make sure you go to vanta .com slash acquired.

[741] All right.

[742] So, David, what would have happened if Andy Grove had not realized this and been successful and executed this pivot?

[743] Yeah, I mean, I think it's pretty clear, right?

[744] Like Intel would be, like we said up front, just like Shockley and Fairchild and National.

[745] I think National's still around in one form or another, but like, you know, names lost to history.

[746] Yep.

[747] Absolutely.

[748] I've literally nothing more to add to that.

[749] Yeah.

[750] Well, that was a quick section.

[751] Did we move on to Playbook?

[752] Yeah.

[753] So there's one thing that we didn't discuss from the history, and I think it really belongs here in the playbook.

[754] And for new listeners that are listening as part of Potapalooza or otherwise, this is the time when we sort of talk about themes that we pull out from the story that is the playbook that Intel ran that we can try and run in our businesses or that we might look out for.

[755] in history rhyming.

[756] The one in this story that really jumped out to me is the power of middle management.

[757] So I think that we didn't, I 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.

[758] And the head of sales is like adamant and pissed.

[759] And he's, you know, thrown a tantrum.

[760] And his, you know, his number next to his name and everybody under him is about cell memory.

[761] And so, you know, then he goes to the factory.

[762] And they're, whole livelihood is based on this.

[763] So the head of the factory is saying, there's no way, like, think about it, you know, there's no way we can retool this whole thing.

[764] 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 like 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.

[765] And so by the time the changes sort of trickle down to them, the middle management It's like, oh, yeah, no, no, no, we definitely need to be doing way more in CPUs.

[766] 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.

[767] No, it wasn't coordinated.

[768] It wasn't cohesive.

[769] 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.

[770] Well, Andy writes a bunch about this in the book, like that he was shocked by it.

[771] Like this group of people, like you said, that are not, not high enough from the company that they're moved from customers and caught up in all this political infighting, but they're actually close to the actual operations and customers.

[772] They were already doing this.

[773] They had already like just organically started reallocating resources away from memories and into CPUs.

[774] Yeah, that's wild.

[775] Let's see.

[776] I've got a couple on here.

[777] We've touched on a lot already.

[778] One 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.

[779] 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.

[780] Like, you are not going to build a great, and by great, I mean long term, sustainable and during business if you are selling a commodity.

[781] Like, it's just not going to happen.

[782] You can start by selling a commodity and participating in a commodity marketplace.

[783] 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.

[784] Like Amazon has done this in e -commerce.

[785] Like, there are lots of e -commerce retailers out there that, you know, compete with Amazon, but Amazon has so many features and so many, you know, whether that's prime delivery or selection or just what, that, like, they have, they have a power advantage.

[786] So I think that's one.

[787] And then the last two, these are smaller ones, but I think appropriate also for adapting that I wanted to cover that Andy talks about.

[788] You know, one, he says this quote and, you know, Sequoia said this in the Black Swan memo.

[789] I think Roloff said it in our interview with him.

[790] 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.

[791] I think the Sequoia version of this that they say in the Black Swan memo is nobody ever regrets acting swiftly or something like that.

[792] It's just a good thing to keep in mind.

[793] And related to that, you know, when Andy and Gordon fired themselves, and ceremonially fired themselves and rehired themselves.

[794] 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.

[795] Yeah, it was giving themselves permission.

[796] Yeah, yeah.

[797] And Andy, Andy mentions that and only the paranoid survived, 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.

[798] and that is they don't have the baggage of the way that everything has been thought about internally.

[799] And so they actually can act and do the things that need to be done without being weighed down.

[800] Yeah.

[801] And then that brings me to the last point, last one I wanted to highlight, which is just like learning, being a learning machine.

[802] And that's something Andy did so well throughout his whole life.

[803] I mean, even going all the way back to being a kid in Hungary, he writes, don't bemoan the way things were.

[804] They will never be that way again.

[805] 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 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 boy and what a good one for right now we are living in a new land right now so don't bemoan 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 lots 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 bemoan the past there's a lot that I think we can all take to heart there yeah I mean especially again 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 many of us, hopefully very few of us listening to this have ever been through.

[806] Yep.

[807] So, all right.

[808] Anything else you got in Playbook?

[809] Nope, that's it.

[810] Carvouts?

[811] Carvouts.

[812] Let's do it.

[813] You want to go first?

[814] Yeah.

[815] So I've been on a Michael Lewis tear recently during the staying at home time that we're in.

[816] And I most recently read The Fifth Risk.

[817] That was one that launched with a lot less fanfare than, you know, Michael writing money ball or liars poker or, uh, Flash Boys.

[818] Flash Boys, yeah.

[819] And I felt like this one was definitely, uh, 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.

[820] 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, all the sort of former, I'd call them the Obama administration, but really it's the public servants that had been in government for a long time.

[821] We're sort of getting everything ready to hand over to the next group of people coming in and saying, whatever your politics are, I don't care, but like you've got to know how to operate the levers here and like what all these different departments do and what budgets are for.

[822] 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 build on it.

[823] And we're going to go do something very different, of course.

[824] Nobody showed up to learn like how to operate this crazy machine.

[825] 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.

[826] And he said, well, tell me about it.

[827] And I'll write a book.

[828] And it's all these crazy cool stories that really do make you understand how the government sort of got this brand for stodginess and how the U .S. 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 you're going and 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 shockly you know like um as problematic as he was and became later in his life like he was one of the most brilliant people in america in the 40s and like the highest and best calling that he did was he stopped all of his commercial activity and he went to work for the war department.

[829] Yeah.

[830] Yeah.

[831] And so I found this book to be sort of three things.

[832] One, kind of crazy to read in this moment that we're in right now.

[833] Two, a really good explanation of how working for the government got the sort of brand that it has right now.

[834] Despite I don't think that really being true, I think like 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, like brilliant, thoughtful, driven people that are totally sort of mis -marketed or misbranded.

[835] And then the third piece of it is really understanding, like, what a lot of the pieces of the federal government are for, and of course, this is a very U .S.-centric view, that I just never really understood before.

[836] It's by no means comprehensive, but it's an interesting sort of several slices of instructions on how to run the government.

[837] 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.

[838] Yeah, totally.

[839] I need to go read it.

[840] I remember when it came out.

[841] And just like you said, like I was like, oh, new Michael Lewis book.

[842] Love Michael Lewis books.

[843] But I, you know, like, I don't know.

[844] I just missed that one.

[845] So yeah, I have to go back and read it.

[846] Lots of people should too.

[847] All right.

[848] Mine is Notion.

[849] So the hot, buzzy productivity company that just raised $50 million at a $2 billion valuation.

[850] And famously, what was it?

[851] They raised like an angel round of, I think, $10 million and an $800 million valuation before that.

[852] Yeah.

[853] I think there was one VC firm in, so you can call it a venture round.

[854] Okay, okay.

[855] But it was led by like other CEOs and angels, right?

[856] Yeah.

[857] Well, that was pre the world we're in now.

[858] So I tried it around that time when I first started hearing about it.

[859] And I was like, well, I don't get this thing.

[860] It is like way too complicated.

[861] I don't understand what's going on.

[862] I got inspired to try it again.

[863] And I totally get it now.

[864] And I've become like a huge convert.

[865] I've moved most of my productivity over to it.

[866] 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.

[867] But to me, it really reflects the whole no code movement.

[868] And like we've explored no code a bunch on on the LP show here.

[869] We're just going to keep doing more and more on the card.

[870] Like I think we both think it is like such a huge powerful movement in technology right now.

[871] But what I thought was so cool about Notion is it's like this is the first time I'd seen that same kind of principle of like 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.

[872] So, like, 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 WonderList back in the day, which I used to love, like WonderList, like the UI designers and the developers at WonderList and like the team there, they decided how it worked.

[873] They were the product designers.

[874] You used their vision.

[875] And it was great.

[876] What's cool about Notion is that like you have the power to shape the software as you want it.

[877] to your purposes.

[878] So, like, I've built in 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 like, it's tailored to me. And, like, yes, that's, like, harder to do than just downloading and using WonderList, for example.

[879] But I'm like, whoa, that's so powerful.

[880] So big fan.

[881] That's cool.

[882] It's like moving the accessible abstraction layer up one notch.

[883] Yeah, totally.

[884] And it makes you feel, like super powerful.

[885] That's cool.

[886] Yeah.

[887] Our sponsor for this episode is a brand new one for us.

[888] Statsig.

[889] So many of you reached out to them after hearing their CEO, Vijay, on ACQ2, that we are partnering with them as a sponsor of Acquired.

[890] Yeah.

[891] For those of you who haven't listened, Vijay's story is amazing.

[892] Before founding Statsig, Vijay spent 10 years at Facebook where he led the development of their mobile app ad product, which, as you all know, went on to become a huge part of their business.

[893] He also had a front row seat to all of the incredible product engineering tools that let Facebook continuously experiment and roll out product features to billions of users around the world.

[894] Yep.

[895] So now Statsig is the modern version of that promise and available to all companies building great products.

[896] Statsig is a feature management and experimentation platform that helps product teams ship faster, automate AB testing, and see the impact every feature is having on the core business metrics.

[897] The tool gives visualizations backed by a powerful stats engine unlocking real -time product observability.

[898] So what does that actually mean?

[899] It lets you tie a new feature that you just shipped to a core metric in your business and then instantly know if it made a difference or not in how your customers use your product.

[900] It's super cool.

[901] Statsig lets you make actual data -driven decisions about product changes, test them with different user groups around the world, and get statistically accurate reporting on the impact.

[902] Customers include Notion, Brex, OpenAI, FlipCart, Figma, Microsoft, and Cruise Automation.

[903] There are, like, so many more that we could name.

[904] I mean, I'm looking at the list, Plex and Versel, friends of the show at Rec Room, Vanta.

[905] They, like, literally have hundreds of customers now.

[906] Also, Statsig is a great platform for rolling out and taking.

[907] testing AI product features.

[908] So for anyone who's used Notion's awesome generative AI features and watched how fast that product has evolved, all of that was managed with Statsig.

[909] Yep.

[910] If you're experimenting with new AI features for your product and you want to know if it's really making a difference for your KPI's stat sig is awesome for that.

[911] They can now ingest data from data warehouses.

[912] So it works with your company's data wherever it's stored.

[913] So you can quickly get started no matter how your feature flagging is set up today.

[914] You don't even have to migrate from any current solution you might have.

[915] We're pumped to be working with them.

[916] You can click the link in the show notes or go on over to stat sig .com to get started.

[917] And when you do, just tell them that you heard about them from Ben and David here on Acquired.

[918] Well, listeners, thank you for joining us on this journey.

[919] If you are not currently subscribed to get more required episodes and you want to, you should.

[920] You can do that on our website at Acquired .fm or in literally anywhere where you can listen to podcast.

[921] We appreciate you both listening to this one and given other episodes a shot too.

[922] If you want to become a limited partner, that thing that I mentioned at the top of the show, subscribing gives you access to our bonus show where we dive into nitty -gritty topics of building companies in real time.

[923] And hear from other practitioners in the ecosystem.

[924] So we've had Vlad, the CEO of Webflow on and Wade the CEO of Zapier on, talking about no -code stuff.

[925] Yeah, speaking of no -code.

[926] Yeah, lots of other great founders on the show.

[927] Yep.

[928] So to listen, you can click the link in the show notes or go to glow .fm slash acquired.

[929] All new listeners get a seven -day free trial.

[930] If you want to discuss this episode, and you thought this was interesting, you should join our Slack.

[931] And frankly, there's lots going on that is completely unrelated to our episodes, people finding jobs, people posting jobs.

[932] People meeting each other and starting companies.

[933] Yeah.

[934] Yeah, we've had founders meet in the Slack.

[935] It's really cool.

[936] People find investors.

[937] So if you're looking for sort of a community to talk about everything in the world right now with sort of like -minded, anyone who would listen to this show.

[938] There's about 4 ,000 or something people hanging out at Acquired .fm slash slack.

[939] So you can join there or anywhere on our website.

[940] So with that, we will talk to you next time.