Andy Grove on Silver Bullets, First Version Traps, and the Inertia of Success

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Intel's Andy Grove on silver bullets, first version traps, and the inertia of success

Signals, noise, inertia, and inflections

In Only the Paranoid Survive, former Intel CEO Andrew Grove recalls a moment in the late 80s when Japanese semiconductor makers invested in x-ray machines for circuit etching. IBM saw it as a “fundamental change in the way semiconductors were built” and purchased machines for themselves. Intel, by contrast, believed it was “noise” and chose to monitor the situation closely instead.

Today, we know that these machines were not quite the right way forward. But that’s not to say that IBM was wrong and Intel correct. As Grove highlights, the brightest minds at IBM and Intel arrived at different conclusions despite having similar knowledge and data. The balance and paths of technology shifts with the times as companies exhaust other dead ends.

Grove reminds us that “there simply is no sure-fire formula by which you can decide if something is a signal or noise”. Because of this, organizations must retest their assumptions and hypotheses as new information comes to light – “You have to pay eternal attention to developments that could become a 10X factor in your business”.

Rise of the internet

Spotting and understanding strategic inflection points isn’t easy. In the early days of the Internet, Grove “read everything” to understand its potential. He spent hours browsing the web, visited companies in the field, and sketched “before and after” industry maps to visualize the internet age.

The global impact of the Internet is obvious today. But it wasn’t clear during its infancy. Inflection points are rarely big bang events. Grove says they tend to “approach on little cat feet”. They only obvious with the benefit of hindsight. Sometimes you have to get your hands dirty to see what’s going on.

It goes without saying that one of management’s core duties is to recognize super competitive forces, and to position their organizations for such strategic inflection points. How might we even recognize and navigate such events? Grove shares with us a few handy tips – the focus of today’s post.

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Silver bullet tests

Are your competitors changing? This is an important question that executives often forget to ask. Grove likes to approach this problem with a silver bullet test. It involves asking a follow-up question: if you could eliminate one competitor or substitute with a silver bullet, who would it be? When the answer to this question becomes unclear, then something in your industry is churning. You can apply the silver bullet test to other competitive forces as well. Which customer, supplier, or complementor would you save first?

First version traps

Don’t judge a book by its cover. An old cliché that applies equally to science, technology, and innovation. It’s true, people tend to overhype the first version of a novel product. First iterations, after all, tend to fall flat, promising more than they can deliver. Grove agrees that “it’s only natural to be suspicious”. “On the other hand, [we] don’t [want to] shut off [our] radar screens…, discounting [it] even if at first it seems quite crummy”. He calls this “the trap of the first version”.

Grove recollects, for example, his early impressions of Apple’s 1984 Macintosh. He thought “it was a ridiculous toy”. The machine was excruciatingly slow. And it didn’t even have a hard drive. These drawbacks made Apple’s graphical interface, in Grove’s eyes, “more of a nuisance than a significant advantage”. Apple’s first version disguised more promising features, like the “uniformity” of software applications that graphical interfaces helped to bring about.

Personal digital assistants

Similarly, when the Newton – Apple’s personal digital assistant device – launched in 1993, people “promptly criticized it for its failing”. Today, very few will question Apple’s experience in mobile, graphics, and UX. This was Grove’s view on the Newton and the public’s response (noting it was written well before the meteoric rise of handhelds):

“What does this say about the PDA phenomenon? Is it less of a “10X” force because its first instantiation was disappointing? When you think about it, first versions of most things usually are.  … My point is that you can’t judge the significance of strategic inflection points by the quality of the first version. You need to draw on your experience. Perhaps you remember your reaction to the first PC you ever saw. It probably didn’t strike you as a revolutionary device. … You might extrapolate the evolution of this phenomenon by remembering how rapidly PCs evolved and improved. … Consequently, you must discipline yourself to think things through and separate the quality of the early versions from the longer-term potential and significance of a new product or technology.”

Andrew Grove. (1988). Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company.

Quick response codes

Many of us, I think, are victims of the first version trap. I’ve made many gaffes myself. Quick Response (QR) technologies, for example, have been around since the late 90s. But I was skeptical given how unwieldy and inconvenient it was. While early adoption was slow, we see QR applications everywhere today in electronic authentication, loyalty programs, counterfeit detection, product tracing, and so on.

I made a similar mistake too with the early arrival of Uber. Why would anyone hop in the backseat of some stranger’s car? But habits and attitudes can renormalize easily, especially when the shiny new thing offers a better experience at a better price. I and many others have since become ride hailing converts. Hopefully, you’re a little better than I am at avoiding the first version trap (but not so exuberant as to believe in every new product that comes about).

Debate, data, and hammers

To respond to strategic inflection points effectively, “broad and intensive debate” is important. But it’s naïve, Grove says, to expect “a unanimous point of view”. The goal, rather, is to understand each other’s viewpoint to make better decisions.

It’s also important “to know when to argue with data”. Sometimes there just isn’t enough historical evidence to make well-informed extrapolations. Yes, it’s dangerous when people substitute emotions and opinions for facts and analysis. But it’s equally dangerous to draw a false sense of security from highly speculative forecasts.

Companies must find a “good dialectic” or “balanced interaction” between “deep knowledge” and the “larger perspective”. Senior managers that are far removed from their customers will miss the nuances necessary for sound strategy and tactics. By contrast, middle managers that are experts in a narrow field may misconstrue priorities of the highest importance.

“I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.”

Abraham Maslow. (1966). The Psychology of Science.

Egg baskets, incrementalism, and waiting moves

In Silicon Valley, first movers face a game of high risk, high reward. It’s especially hard to differentiate between noise and signal when you have nobody to follow. But the early movers that get it right tend to shape the future of industry. So, when it comes to focus or hedging, Grove subscribes to Mark Twain’s adage: “put all your eggs in one basket and watch that basket”.

It’s true, your company will die if you’re wrong about the direction. But most companies will “die [anyway] because they don’t commit themselves”. Grove reminds readers that survival within a competitive ecosystem is possible only “by outrunning the people who are after you”.  It’s doubly difficult to do so when your limbs are running in opposite directions.

Strategic clarity is important to the health of an organization. A “meandering” company hurts managerial and employee morale, which hurts productivity and innovation in turn. Left too long and organizational paralysis sets in.

“The most effective way to transform a company”, Grove says, “is through a series of incremental changes”. Improvements cannot wait until trouble arises. Companies must, as much as possible, explore their adjacent possible, and experiment with new products, processes, and customers. Most organizations, however, tend to do just the opposite.

I draw a similar parallel to chess, where it’s not always obvious what your plan should be. In these situations, chess grand masters recommend waiting moves that strengthen the incremental position of your pieces. The goal is to create the conditions to strike when a feasible strategy or tactic finally presents itself.

Inertia of success and prior actions

Senior managers rose to their ranks because they are “good at what they do” (at least in theory). This in turn generates a bias to meet new challenges with the same skills and ideas that earned them their early success. Grove says this “inertia of success” is dangerous because “it can reinforce denial” when the old order no longer works. Garry Kasparov shares a similar idea in Deep Thinking, in which the “gravity of past success” bronzes people and organizations in complacency.

There is also the “inertia of prior actions”. Many executives, Grove says, simply accept appointments, activities and meetings without further thought. He recommends senior managers break this habit to focus on problems of the highest priority. This is an important source of productivity and effectiveness. It is also of “enormous symbolic value”, as it communicates what is mission critical to the rest of organization. 

“Strategic change doesn’t just start at the top. It starts with your calendar. … Resist the tacit temptation to accept invitations or make appointments because you have done so in the past. Ask yourself the questions, “Will going to this meeting teach me about the new technology or the new market that I think is very important now?”

Andrew Grove. (1988). Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company.

Fear and complacency

Fear, in some sense, is “the opposite of complacency”. A healthy “dose of fear of losing”, Grove says, may help companies to “sharpen their survival instincts”. True, fear is a powerful social and economic motivator. But it’s cultural “poison” if it inhibits employees from working together. A fear of making mistakes and sharing opinions can debilitate a company.

“Once an environment of fear takes over, it will lead to paralysis throughout the organization and cut off the flow of bad news from the periphery. … Watching them from the outside, it seemed that management didn’t have a clue as to what was happening to them. I firmly believe that their tradition of dealing with bad news was an integral part of their decline.”

Andrew Grove. (1988). Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company.

Intel’s inflection with memory

Many of the reflections above come from Grove’s own experience with Intel. You might recall that Intel began with a first mover advantage and nearly “100 percent share of the memory chip market segment” in the late 60s. But Intel’s strategic inflection point arrived in the early 80s, when Japanese memory makers emerged “in overwhelming force”.

Major buyers, like Hewlett Packard, reported that the quality of Japanese memory was “consistently and substantially better” than American memory. The former CEO remembers Intel’s immediate reaction: “Denial. This had to be wrong.” The reality was, however, that Intel was “clearly behind” and hemorrhaging.

Fight or flight?

Grove wondered about their best response. Should Intel double down on scale, or focus on special-purpose segments? “Bickering and arguments” arose, leaving Intel directionless for some time, at least until a fateful conversation between Grove and then CEO Gordon Moore:

I remember a time in the middle of 1985, after this aimless wandering had been going on for almost a year. I was in my office with Intel’s chairman and CEO, Gordon Moore, and we were discussing our quandary. Our mood was downbeat. … I turned back to Gordon, and I asked, “If we got kicked out and the board brought in a new CEO, what do you think he would do?” Gordon answered without hesitation, “He would get us out of memories.” I stared at him, numb, then said, “Why shouldn’t you and I walk out the door, come back and do it ourselves?”

Andrew Grove. (1988). Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company.

Identity and impartiality

Today, we see Intel as a giant of microprocessors (that faces another turning point once again). But its exit from the memory segment was not easy. Intel “had to lay off thousands of employees” and shut down many fabrication, assembly and testing plants. They had to rebuild the identity and foundations that birthed them their early success. In turn, their pivot launched “the mother of all inflection points” for everybody else in computing.

Had Intel not made these difficult choices, Grove believes they “would have been relegated to an immensely tough economic existence”. And had they “dithered longer”, the company “might have been too weak to project [itself] into the exploding microprocessor market”. CEOs with “a history of deep involvement”, Grove says, may struggle to make logical decisions unhindered by emotional attachment. Some impartiality is necessary for strategic path selection.

“Had we stayed indecisive, we might have lost both [memory and microprocessor]. This is not unusual. People in the trenches are usually in touch with impending changes early. … For us senior managers, it took the crisis of an economic cycle and the sight of unrelenting red ink before we could summon up the gumption needed to execute a dramatic departure from our past. … If existing management want to keep their jobs when the basics of the business are undergoing profound change, they must adopt an outsider’s intellectual objectivity.”

Andrew Grove. (1988). Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company.

References

  • Grove, Andrew. (1988). Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company.
  • Kasparov, Garry. (2017). Deep Thinking: Where Machine Intelligence Ends and Human Creativity Begins.

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