#291 David Packard (Founder of HP)

Transcript from https://podmenti.com/t/1e9b6962387f1ddf

David Packard rejected the idea that a company exists merely to maximize profits.
I think many people assume wrongly that a company exists simply to make money.
Packard said.
While this is an important result of a company's existence.
We have to go deeper to find the real reason for our being.
Do our products offer something unique?
Are people's lives
Improved.
Because of what we do.
If the answer to any of these questions is no
Then Packard.
would deem HP a failure.
Most entrepreneurs pursue the question, how can I succeed?
From day one.
Packer pursued a different question.
What can we contribute?
As a result, HP attained extraordinary success.
This success in turn.
enable them to invest more in making a contribution.
Which produced even greater success.
Which led to increased contribution.
Which created even greater success. This virtuous cycle eventually enabled
Packard and Hewitt to personally contribute at levels far beyond
What they would have dared to imagine as young men.
In nineteen ninety five.
Packard attended a dinner at Stanford University.
The Dean of Engineering mentioned to Packard that he and Hewlett
had donated on a present value basis
As much to Stanford
As Jane and Leland Stanford had given
To fund the university.
Upon his death, Packard bequeathed nearly all
of his five point six billion dollar estate
To charity.
But if you were to think of David Packard and the HP Way as being all about benevolence and charity.
You would be terribly mistaken.
Packard and Hewlett demanded performance, and if you could not deliver
H P
held no place for you.
Customer satisfaction.
Second to none.
Із онлиаку гол.
Admonish David Packard.
If you cannot lead your organization to achieve that goal.
Well find somebody who can.
That is an excerpt from the book that I'm going to talk to you about today, which is David Packard's autobiography. It is called The HP Way, How Bill Hewlett and I Built Our Company.
And so nearly all the words from here on in are going to come directly from a very wise eighty two year old founder.
What's amazing to me is how many times you and I've seen this.
David Packard publishes his book.
In nineteen ninety five and he passes away in nineteen ninety six.
There's at least twenty episodes in the founders archive where you'll find the exact same thing. This desire to document what they learned over in David's case.
Over fifty years.
Half a century as an unbelievably successful entrepreneur to document what he learned during that time and pass it down to future generations of entrepreneurs.
And so I'm gonna put this book down. I wanna revisit that section from the introduction, though, because really if you read between the lines of what he's saying over those sev several pages is
It's gonna be very similar to the lesson that uh you and I just went over in episode two eighty two, uh the third time I read Jeff Bezos' shareholder letters.
Something Jeff repeats over and over and over again in his letters is that you need to obsess over customers. This exact same message that David Packard
Is writing that introduction.
So I'll come back to that in one second. In the meantime, I have another book in my hand. It is called The Intel Trinity How Robert Noyce, Gordon Moore, and Andy Grove built the world's most important company.
And is written by Michael Malone.
I read this book like four or five years ago. I'm going to eventually read it, reread it in the next few weeks.
And make another episode about it.
And the reason I want to start here is because I think a lot of people can look at HP in its current state and not realize how important David Packard and Bill Hewlett were to the history of Silicon Valley. And so the author of the book that I hold in my hand, Michael Malone, you can consider him like a historian of Silicon Valley, he's written
Think at least ten books on Silicon Valley history.
This paragraph that he has towards the end of this book is an excellent overview on why you and I should spend time learning from David Packard. He says, In the valley, the ultimate career standard
was set by David Packard.
Start a company in a garage.
grow it into a leading innovator in its field.
Take it public.
And then take it into the Fortune five hundred.
Then take it into the Fortune fifty.
Then become the spokesman for your industry.
Then go to Washington.
And then become a historic global figure.
Only Packard.
Had accomplished all of this.
He
Set the bar.
And the valley had honored his achievement.
By making him the unofficial mayor of Silicon Valley.
And then I want to pick up the biography of Steve Jobs written by Walter Isaacson and just read you this paragraph.
Steve called me late on the afternoon of New Year's Eve, two thousand nine.
He was at home in Palo Alto with his sister.
His wife and his three children had taken a quick trip to go skiing, but he was not healthy enough to join them.
He was in a reflective mood.
And we talk for more than an hour.
He began by recalling that he had wanted to build a frequency counter. Remember this for later in in David uh David's autobiography.
He began by recalling that he had wanted to build a frequency counter when he was twelve.
And he was able to look up Bill Hewlett, the founder of HP, in the phone book and call him and get parts.
Bill also gave a young Steve Jobs a summer job working on the assembly line, assembling frequency counters.
Back to this.
Job said that the past twelve years of his life since his return to Apple had been the most productive in terms of creating new products.
But his more important goal, he said.
was to do what Bill Hewlett
and David Packard had done.
Which was to create a company.
That was so imbued.
With innovative creativity.
That the company
would outlive them.
And so if you think about the context around that paragraph.
in that biography.
Steve has less than two years to live.
He is so sick.
He cannot travel with his family on vacation.
And one of the things on his mind is how much Bill Hewlett and David Packard influenced
His building of Apple.
I think that speaks to why you and I should learn from David Packard. So let's go back to the introduction.
Which in my opinion is just really several pages of hey, you need to obsess over your customers.
And I think David demonstrates the importance of that by some of the phrases that he uses.
These are spread over multiple pages, but it the theme is consistent.
Do our products offer something unique?
Our people's lives improve because of what we do.
What can we contribute?
And finally, customer satisfaction second to none.
Is the only acceptable goal.
And then the autobiography starts and the first thing he does, the first page in the first chapter
He highlights an institution and a person.
That changed the course of his life.
As we get older, we have the opportunity to look back over many years and see how certain events
Seemingly unimportant at the time.
Had a profound effect.
In shaping our business and our professional careers.
The first event that he's referencing is the fact that he was admitted into Stanford University. The second was who he met at Stanford.
The second event was becoming acquainted with Professor Fred Turman at Stanford.
It was Fred who sparked my interest in electronics.
And who later encouraged and helped Bill and me go into business for ourselves.
His interest and faith in our abilities even at a young age and in the midst of the Great Depression.
Gave us confidence.
And helped set a course for us.
And then he tells us a little bit about his childhood, the fact that his love of reading and experimenting
was something that was present from a very early age. You'll see that he has
HP is founded on the fact that they want to produce electronics. He was interested in electrical equipment since he was a little kid.
He says, even as a young child, I spent hours curled up
with my fam the family world book encyclopedia.
I got a thrill.
From looking at pictures of railroads, bridges, motors, generators, and other mechanical and electrical equipment.
I try to simulate some of these devices with small scale models in our backyard.
So this idea where he's sitting down, he's reading the entire encyclopedia as a child and teaching himself about the world around him. We just saw this last week, a young Bill Gates did this exact same thing. His mom in that book says, I think when he was like seven or eight years old, he read
the entire collection of encyclopedias that the family owned.
One of the things that you'll find if you read this book spread throughout the pages
Is there's these random
Hints.
That as polite and well thought out as he appears to the reader.
There'll be these flashes where you understand, oh, underneath all that.
is a person that possesses this steely level of determination.
You don't live the life and build the career that Michael Malone described that David Packer did without being a without m turning yourself into a formidable individual.
And this is the first hint of the extreme levels of determination that David Packard possessed while he was alive.
When I was eleven years old, my father bought me a horse.
I would saddle him up in the morning and when I got on him he would buck and rear up.
Then
My father would hit him on the behind with a broom.
And the horse would go out of the driveway at full gallop.
The horse would spot a patch of alfalfa, race up to it at full speed, and then plant his legs to stop and eat.
I would go flying overhead and hit the ground. Remember he's eleven years old when this is happening.
He knew the horse knew all the tricks to get rid of its rider.
Such as running next to a barbed wire fence.
To scrape'em off.
And this is the most important sentence in this section and describes the very important lesson that his father is teaching him.
My father wouldn't let me quit, however.
So I finally learned
How to handle the horse.
And so I think that's David's preferred method of teaching. He's gonna tell you these little stories, those little anecdotes, and from there you'll infer the lessons that he's trying to impart to you.
And so then he moves the timeline forward, he talks about what he learned.
from competing in high school sports.
And we're gonna see again another uh inclination that he's a very determined individual.
I enjoyed athletics and learned some lessons that were helpful in managing Hewlett Packard.
And so then he tells us a lesson that he learned from his coach, Mr. Porter.
Mr Porter said that many times two teams playing for a championship each have equally good players.
In this case, teamwork becomes very important.
Given equally good players and good teamwork.
The team with the strongest will to win.
Will prevail.
I have remembered that advice and it has been a guiding principle in developing and managing HP.
Get the best people.
Stress the importance of teamwork.
and get them fired up to win the game.
And so we see another example.
uh one of my favorite quotes, this idea that Jeff Bezos says that uh we don't choose our passions, they choose us.
And so David Packard said, I had decided as far back as grade school
Then I wanted to be an engineer.
And because of my interest in radio and electrical devices
I had narrowed that to electrical engineering.
That's actually a really important sentence because this interest leads
Him to going to Stanford, which then leads in turn
to the founding of H P.
Because when he's at Stanford, he is still pursuing this grade school.
Interest
in radio and electrical devices, it says Stanford had an amateur radio station.
The radio station was near the laboratory of a new young professor named Fred Turman.
Fred invited me into his office and suggested that I take his graduate course in radio engineering during my senior year.
That was the beginning of a series of events that resulted in the establishment
of the Hewlett Packard company.
And so Stanford is also where
David is going to meet his co founder, Bill Hewlett. He gives us a brief overview of Bill Hewlett.
And something that pops out that I can't really explain and I'll tell you that in one minute.
Says as a youngster, Bill gave early evidence of what became a prominent trait.
An insatiable curiosity.
He wanted to know how things worked.
And why they did what they did, and he often conducted homemade experiments to find out.
Some involved explosives.
And like me, he was lucky to survive.
And so what David's referencing there is earlier in the book, he mentioned that he liked to experiment with explosives as well when he was young.
And that one of these experiments
Actually exploded in his hand.
And the fa and then he says the fact that he ever since that experiment he had lived his entire life.
With a distorted left thumb.
And so when I said this is something that I can't really explain, what I'm referencing there is how many times this comes up in the early lives of these company founders.
The fact that they like building bombs.
This was front of mine because a few weeks ago, I think on episode two seventy eight, I just reread Peter Thiel's book, Zero to One. And there's a line in that book that talks about this. He says, Of the six people who started PayPal,
Four had built bombs in high school.
And now we see with David Packard and Bill Hewlett they did the same thing, but even younger than high school.
So then David goes back to this idea where that HP will likely not exist if him and Bill did not meet Professor Fred Turman.
a lot of the people that he's going to actually meet in Terman's class or going to form, he says it's the nucleus of the management team.
At H B.
And he says largely because of Terman's classes the four of us.
Uh, Bill, him, and these two other guys became fast friends.
It is not a coincidence that a few years later this group would become the management team
of HP.
many of them working for over thirty years in the company.
Fred Turman's keen interest in radio engineering induced him to become acquainted with almost all the pioneers in that industry.
Many of whom were located in the Palo Alto area.
Now, why is that important? Fred becomes friends with all these these early company founders.
Then he takes his students on tours. He says Termin
O course included visits to some of these firms.
And Terman makes the point since this is the beginning of the industry, a lot of these company founders, it's not like you could be an expert in the field. They're creating the field, right? So it's like what if you actually study the field intently, then what could you actually do if you if you founded your own firm?
I remember Terman saying something like, Well, as you can see, most of these successful radio firms were built by people without much education.
Adding that business opportunities would likely be greater for someone with sound theoretical background in the field.
That got us thinking.
And so even before they're graduating, these this small group of guys is like okay, why don't we start our own company?
And so they have tentative plans to start an unnamed company they don't know
what the product uh what product they're gonna make. They just know that they wanna build electrical components.
But there's a the Great Depression is gonna give this diversion.
says our plans were set aside when I received a job offer from General Electric.
The country was then in the throes of the Great Depression, and jobs were scarce.
Termin encouraged me to take the GE job.
Pointing out that I would learn a great deal.
That would prove useful.
In our own endeavor.
And so he drives across the country, he goes to the east coast. There's two stories that he's gonna tell.
He's gonna be a GE uh for a few years.
But there's two main stories that he tells
About his time working for General Electric.
That he's gonna use later at HP.
The first one is that you should follow your own intense interests and at the beginning of industries or markets you can't possibly predict how large they're gonna be.
So it says on my first day I met with a Mr. Boring.
who as you'll see is aptly named.
Uh he knew of my interest in electronics, his intense interest in electronics, but he told me there's no future for electronics at General Electric and recommended that I concentrate my work and interest on heavy components for public utility plants.
And why was this conversation so important?
that David is telling us
Uh, we're laying it, you know, forty years after it happened.
I have often thought of the irony of Mr. Boring's advice because our electronics firm, HP
Has become larger than the entire general electric company was at the time that he gave me this advice.
And then the second important story about his time at H P
Is really this is how David is able to succeed where others people other people has failed and he's gonna use this idea over and over again when he's building HP.
Uh, the background here is he is in responsible for quality control
They're producing general electric is producing these things called mercury vapor rectifier tubes.
And the quality of the tubes are not good. A lot of them are failing. A lot of them are blowing up. And so this is how he figured out how to fix that.
I learned everything I could about possible causes of failure, and I decided to spend most of my time on the factory floor.
To make sure every step was done properly.
And so what he's gonna realize is the engineering department where he's working, right? They're not communicating properly with the people that are actually making it, the factory people.
It soon became apparent
That the instructions
The engineering department gave the factory people were not adequate to ensure that every step would be done properly.
I found the factory people eager to do the job right.
We work together to conduct tests.
And identify every possible cause of failure.
And as a result
Every tube in the batch
Passed its final test.
Without a single failure.
That was a very important lesson for me.
That personal communication was often necessary to back up written instructions. That is his punchline, let's repeat that.
that personal communication was often necessary to back up written instructions.
That was the genesis of

management by walking around.
at the Hewlett Packard company.
And so after a few years he's still talking to Bill.
Still talking to Fred. They still have this idea it's like, Hey, we should start our own
a company.
So he's on like a break from General Electric. He drives all the way back across the country.
uh back to Palo Alto and he has the f what they consider the first official meeting.
Of
What's gonna turn into HP?
We had our first official business meeting, the minutes of the meeting
are headed tentative organization plans and a tentative work program for a proposed business venture.
Must be a riveting document to read.
The product ideas we discussed included high frequency receivers and medical equipment, and it was noted
That we should make every attempt to keep up
On the newly announced technology of television.
And so the reason that is important is because he's telling you, Hey, we started a company before we knew what product we wanted to make.
And so they decide to start the company in Bill's garage. This garage is gonna become really famous.
This goes on for like uh there's like a about a year, year and a half while he's on like a break from GE.
uh until he actually formally resigned. So before I want to get to where the founding of their company in the garage, which becomes like Silicon Valley Lore.
I just want to read this one paragraph that I thought was fascinating. It really talks about like this
the feeling that you have when you're taking your jump from employment to I'm gonna run my own business. I'm gonna take this giant risk.
And so even though this is just one paragraph and a few sentences, it's like
I I paused here and I just stared at it after I underlined and made made notes on it.
What is David's life?
If he never did this.
What if he just stated G E?
What if he just played it safe?
And so he writes, I didn't formally resign from GE until nearly a year later. Lucille, which is his uh wife
Always remembered the moment she dropped my letter of resignation in the mailbox.
Mailing that letter cut our financial ties.
But we were hopeful and excited.
About what the future had in store.
And so this is his schedule at the very beginning of the company. He's also going to school and working.
And so it says Bill found a two story house in Palo Alto.
There was also a one car garage and that became our workshop.
In nineteen eighty nine, so fifty years later, the state of California designated
That garage as a California historical landmark.
And the birthplace of Silicon Valley.
My schedule then was to go to classes at Stanford in the mornings.
Work with Bill and also find time to study in the afternoon, and then go to Lytton Laboratories in the evening.
And so this is his first mention of Charlie Lytton, who's actually he's working for, but's also going to become a competitor in the future and really a friend.
He learned a lot from Charlie Lytton, they wind up exchanging information and Lytton actually becomes really important. His life
But there's something that jumped out to me that you you you realize when you read all these founder biographies
Especially the found the American founders around World War Two.
They didn't really believe that they had limits on what they could do or what they could learn to do.
And they would do so many things themselves.
And so when I got to this section, I actually thought of this book, this biography of Edwin Land that I read for the first time.
probably like four years ago. I think it was episode forty.
It's called insisting on the impossible.
I just re read it uh probably I don't know, maybe like a year ago.
But this is what David is learning from Charlie.
Says Charlie was able to do everything better than anyone else.
When he wanted to build a new plant, he didn't hire a contractor to do the excavating.
Instead, he bought a calip a caterpillar, like a bulldozer.
and ac excavated the site himself.
I helped him and then I became fairly proficient with a bulldozer.
when Bill Hulin and I acquired a ranch in nineteen fifty four
So was that fifteen years later?
I bought a bulldozer and then helped build more than twenty miles of roads.
And so I have no idea why, but when I got to that paragraph, I thought about this paragraph that I've never forgot since I read it, you know, four or five years ago, whenever episode forty came out.
And I'm gonna read it to you. And what's fascinating now, this is crazy.
how all these things fit together, right? So
Uh, Davy Packard and Bill Hewlett are building their company at the exact same time in history that Edwin Land is building Polaroid.
And back on page four hundred and thirty seven of this giant biography, almost five hundred page biography of Edwin Land that I that I um
That I read.
There's this young guy named Ken Olson who's going to wind up being an entrepreneur. He was gonna wind up founding
uh D E C Digital Equipment Corporation. Now here's the crazy part. He is describing
Actually, I'll tell you the crazy part after this. Let me read this paragraph from Insisting on the Impossible. It's Ken Olson.
who's, you know, a generation younger than Packard.
and and Edwin Land is and he's describing just how different they were.
says uh Lands represented a generation of scientists that Olsen encountered as a young researcher in the late nineteen forties.
These older generation scientists blew their own glass.
They did their own machining.
They made their own parts.
They knew everything and they were independent.
They created radar and the atomic bomb and all these wonderful electronics.
These self reliant old timers are
Came up against the fearful challenges of World War Two and said
You know?
This war's not going too well.
What problem should we solve for them?
And so what Ken is picking up there as a young researcher, right? Looking at these older generations, this generation older than him. He's like, this is extreme levels of self-reliance, which is exactly
With David Packard.
Is describing what he learned.
from Charles Lytton in the book. Now here is how
This always blows my mind how this all connects. This is why I think about founders just as one giant conversation you and I are having.
on the history of entrepreneurship that just spread over
Has to be separate in episodes, but it's just one conversation, right?
Ken Olson is quoted in the Edwin Land book that I'm holding in my hand.
Later in David Packard's autobiography, he talks about meeting with a young Ken Olson and trying to buy his company.
Digital Equipment Corporation.
So let's go back to this book.
There's several pages that goes on. They're trying to figure out, okay, we know we wanna develop electronics. What do we wanna build? They're not too sure. They're gonna do a bunch of different things. They're gonna do contract work just to pay the bills.
Uh oh, interesting to note.
H P
was profitable from the very first year and it was profitable every year for fifty years after that.
That's crazy. But the reason it's called HP is because that was a result
of a coin flip. They couldn't decide is it gonna be Packard Hewlett or Hewitt Packard?
We flipped a coin to see whose name would come first in the company.
Needless to say, Bill One.
And so eventually they think they have an idea for a product. It is called an audio oscillator.
And we see very, very humble beginnings to what is gonna become a very valuable company.
So it says uh the first pr uh the audio o oscillator represented the first practical low cost method of generating high quality
Audio frequencies.
We built one model.
And then we took it to a radio engineers conference.
The response was positive, so we decided to take pictures of it and produced a two page sales for share.
That we sent to a list of about twenty five potential customers.
Provided by Fred Turman. There's Fred again.
We designated this first product the model two hundred A. This made me laugh.
Uh, we did we designated this first product the model two hundred A because we thought that the name would make it look like we had been around for a while.
We were afraid that if people knew we never actually developed, designed, and built a finished product, they'd be scared off.
We weren't expecting much from our first mailing, but amazingly enough, in the first couple of weeks, several orders came back.
And some were accompanied by checks.
And so they don't have a bunch of money at this time. So this is where they're where Charlie Linton does them another uh favor.
He was a tremendous help in getting us started in production. He gave us access to his shop.
So we could do things we weren't able to accomplish in the garage on our own.
And this is what I meant, that technically they're competitors, but they're sharing information and they're friends. Charlie Lytton and his equipment
made an important difference during a period when time and money were very tight.
He never saw us his competitors.
But always as compatriots.
And he also thought it was very important for them to get together and share ideas.
He also did something else that was very important.
He loved to expound and philosophize philosophize on new ideas.
And he whenever he wanted to learn more about something, he'd organize a seminar at his shop.
And he would invite me and a few other people.
These seminars occurred several times.
We also talked about business philosophy.
So in addition to mailing and trying to do outbound sales
uh for their audio oscillator. They actually take it to all these conferences. So they take it to another uh technical conference and this is where they're gonna get their first big sale. They actually sell
uh a batch to Walt Disney.
And more importantly, David tells us why he's able to get the sale.
There was people who expressed considerable interest
uh in our audio oscillator. One of them was B Bud Hawkins. He was the chief sound engineer from Walt Disney Studios.
Hawkins was developing the sound equipment for Disney, uh the Disney movie Fantasia.
He was planning to buy audio oscillators from another company for four hundred dollars each.
Our model would cost less than a hundred dollars.
Hawkins decided to buy R Oscillator instead of General Radios.
And so David summarizes the advantage his young company have had and why he received Disney's money.
as opposed to general radios. We enable Disney to buy a good product.
А при
Than our competitors.
And so one of the things I loved is David takes s history of the company.
Is
They grow.
They need more space, and every time they need more space, it's like we can't possibly need
More space in this.
And so this is the first of many examples.
I says by nineteen thirty nine our business had grown to the point where we needed additional space. We set up an office in the front section of our new building.
While the back room held a few machine tools and assembly benches.
It seemed as if we had all the space that we would ever need.
In those early days, Bill and I had to be versatile. We had to attack almost everything ourselves.
From inventing and building products to pricing, packaging and shipping them.
From dealing with customers and sales reps.
To keeping the books.
From writing the ads to sweeping up at the end of the day.
And so essentially what he's describing there is this is a form of education. Many of the things I learned in this process were invaluable.
And not available in business schools.
Cash flow was a frequent problem during those early days, and he's gonna give us advice that you need to shop around for your financing options.
So he goes into the largest bank of California, the largest bank in California at the time is Bank of America.
We tried to establish some credit g some credit with the bank of uh with the Bank of America.
They sent a man out to look us over. He was not impressed.
So that's a no from Bank of America.
So then David walks over to his little local bank.
Uh, which is called Palo Alto National.
And I introduced myself to its president, this guy named uh Jud Crary.
I described our initial success and then I explained how we now needed a loan to expand our business.
He listened carefully, asked some questions.
and then wrote out a note for me to sign.
That little leap of faith on Crary's part was the beginning of a long and happy relationship between us.
When we finally grew to the point where our financing requirements
went beyond the bank's legal limits.
We went to Palo Alto National's Associate Bank.
Wells Fargo.
The Wells this is this is so important. He's gonna repeat this is one of the greatest lines I've ever heard.
But he's gonna repeat this this piece of advice that he gets from the gentleman at Wells Fargo.
A few times throughout the book.
The Wells Fargo Bank sent a retired engineer to visit us.
I spent a full afternoon with him, and I remembered ever since some advice that he gave me.
He said that more businesses die from indigestion.
Than starvation.
I have observed the truth of that advice many times since then.
More businesses die from indigestion than starvation.
So at this point in the company history, America gets pulled into World War Two.
Bill Hewlett gets called into service in the army. So now David's gotta run the company while Bill's gone.
And it says Bill and I decided that we were going to reinvest our profits. This is something he repeats over and over again, grow, grow from profits, grow from profits.
He is very uh because he grew up in the the depression, which he goes into more detail.
uh very wary of of debt.
And growing way faster than you should.
Uh, Bill and I decided we were going to reinvest our profits and not resort to long term borrowing. I felt very strongly about this issue.
We found we were clearly able to finance a hundred percent growth per year by reinvesting our profits.
And then we see an example of good guy David, the note I left myself when
Uh I read the sentence that he's about to describe here that you need to it's very important to work with people that you like, admire, and trust.
I kept my salary at a lower level than it should have been because I did not think it was fair.
For my salary to be higher than Bill's army salary.
So as you can imagine the demand for the war, their business is gonna grow because they're selling a lot of these uh uh like their devices and electronic equipment to the US government. But even then, even when they were selling them to to companies, they kept their he talks about keeping the importance of like keeping control of your costs. Obviously, a main theme for the history of entrepreneurship.
But he's like just because we're selling to the government doesn't mean like we can artificially inflate
Like what these things cost. He says we'd controlled our cost
To the extent that the government could not get better products
From anyone else at a lower price.
And then they also did something very smart here. They're building products for the Naval Research Laboratory of the US government.
And they just asked them, like, what else do you need us to make? What else do you guys want to buy? We were interested in selling them our standard products, but also interested in finding out what other instruments they might need. When I got to that section, I thought of uh
Jeff Bezos in the early days of Amazon.
He sent a thousand emails to some of uh
to a thousand early customers to Amazon. I was like, Well, okay, you you bought a book for me, like what else would you buy?
One guy replied back.
He's like what he learned about that th th those emails or the email interactions was the fact that the answers that people
The answers to Jeff's question were whatever they happened
to want at that particular moment. And that's where you realize it's like, Oh, like one guy's like, Hey, I really wish
They would sell that to be able to order
Windshield wipers from Amazon.
'cause the windshield wipers on my car and Jeff's like oh
Like I can s we can sell anything this way.
And so as a result of asking this question to the Naval Research uh Laboratory
they wind up being able to build a bunch of different products for the Navy.
And more importantly
the knowledge on how to develop these instruments.
That they previously did not know how to manufacture.
And so he's describing all these different things that they're building during the war and he's like, Listen, they may seem
It it it it almost seems like counter to the advice he's about to give us, which is like the importance of maintaining a narrow focus and then optimizing for the long term.
But he's like these products may look different, but they're all complementary. So he says those these instruments differ from one another.
All were designed to measure and test electronic equipment. That is their main focus in the early days of H P.
measuring and testing electronic equipment.
Uh they reflected our strategy to concentrate on a b on building a group of complementary products
Rather than becoming involved in a lot of unrelated things, I believe this decision to focus
Our efforts was extremely important.
I felt that we should take on no more than we could reasonably handle, building a solid base.
By doing what we did best.
Designing and manufacturing high quality instruments.
And I think that's one of the main themes of uh of the story that he's telling us.
is the fact that they were very methodical. They were not trying to rush their growth. They're very
It says we had built a good foundation on which to grow.
So you remember early in the book where David is talking to I think it's the Dean of Engineering at Stanford's like, Hey, it's pretty credible that you guys actually donated more
to Stanford then
The actual founders of Stanford.
And part of that is because Packard felt he owed not only did you know he him and Bill attend there
Пат со мою фер клос релішенші.
With Stanford University and all of the talent
that came out of that school.
And so this program that David and Bill are about to start with Fred Terman
You can actually think about like what's happening there is like
They're figuring out how to create an edge in hiring talent.
And so they start this thing with the university called the Honors Cooperative Program.
And this is what it is. It allowed qualified HP engineers to pursue advanced degrees at Stanford.
This program made it possible for us to hire top level young graduates from around the country
With the promise that if they came to work for us.
And we thought it appropriate they could attend graduate school
Why on full HP salary?
the company would pay all of their tuition. More than four hundred
H P engineers have obtained master's or doctor degrees.
Through this program.
It has enabled us to hire the top engineering graduates from universities all across the country for a number of years.
This was an important factor in the ultimate success of our company.
And so in addition to building a company with Bill, uh David and Bill also
Uh purchased ranches.
And they actually in like their spare time.
would actually act as k full on cattle ranchers.
And so this is another example of what I mentioned earlier, the fact that
a lot of the way that he's conveying these lessons to the reader to you and I
is the fact that he tells like these little stories.
of experiences that may not be directly related to business, but they're actually lessons he drew from those these life experiences.
And applied it to his business.
I've enjoyed many pleasures as a result of my experience as a rancher.
I've learned a thing or two.
Every season we would round up the cattle.
From the range and drive them to the corral.
Along the way we'd come to a gate.
The trick was to get them through the gate and not stampede them.
I found after much trial and error that
That applying steady
gentle pressure from the rear
worked best. That is the most important sentence in the section that applying steady
Gentle pressure.
from the rear worked best. Eventually
One would decide to pass through the gate, the rest would follow.
Press them too hard.
And no panic.
Scattering in all directions.
Slack off entirely.
And they just head back to their old grazing spots.
This insight was useful.
through my management career.
And so this is where he goes more into his company building philosophy. One uh theme that he repeats over and over again, the one I mentioned earlier.
It's his belief in the growth growing your company from profit and he's gonna tie this into
his experience during the Great Depression.
And so he goes into the fact.
All companies, they have access to people, materials, facilities, money, and time. These are the resources available to us for conducting our business.
By applying our skills, we turn these resources into useful products and services. And if we do a good job, customers will pay us.
More for our products than the sum
of our cost in producing and distributing them.
This difference, our profit, represents the value that we add to the resources that we utilize.
It is impossible to operate a business for long.
Unless it generates a profit.
The profit we generate from our operations is the ultimate source of funds we need to prosper and grow.
It is the foundation of future opportunity.
and employment security.
And then he states why he optimizes for growing from profit as opposed to like growing from debt.
Sixty years ago, our country was in the depths of the Great Depression.
Thousands of businesses had shut their doors.
Bill and I were raised during that depression.
We had observed its devastating effects on people.
including many families and friends who were close to us. And a m matter fact when I got to the section it made me realize
Or maybe remember that
Uh in one of uh the biographies I read on Warren Buffett.
Talks about the fact that he keeps newspapers from the Great Depression on his office wall.
to serve a r uh as a reminder about how bad things can get.
So back to David. My father had been appointed as a bankruptcy referee to the st for the state.
I often help my father in looking up the records for those companies that had gone bankrupt.
I know it.
Та банк симптон ферм за моргер ассет.
And these firms were left with nothing.
Those firms that did not borrow money had a difficult time, but they ended up with their assets intact.
And survived.
during the depression years that followed. So that is
Something like a main theme of this book.
That experience he's having with his father. This idea is like, Okay, well
Who are the the companies that actually went under the during the depression, like
Why did they fail and who are the ones that survive? I noted that the banks simply foreclosed on the businesses.
that mortgage their assets
And those businesses
We're left with nothing.
The businesses that did not borrow money
They had a difficult time.
But they ended up with their assets intact and they survived.
From this experience, I decided our company should not incur any long term debt for this reason.
Bill and I determined we would operate the company as a pay
on a pay as you go basis, financing our growth primarily
out of earnings.
Rather than borrowing money.
And we have.
For more than half a century.
And so eventually H P is gonna go public, but what he says he did not like
that Wall Street had this like fixation on quarterly earnings.
And he points out that those are really easy to manipulate that like you could cut back on like R and D
And suddenly you have more profits and Wall Street's like, Oh, that's fantastic. This company may be doing well.
He's like, No, this is a that's uh a fa a description of short term thinking. You have to avoid that because you're a technology company and technology companies
Need to constantly create
Great new products.
It is always possible to improve profits for a time by reducing the level of your investment in new product design and engineering.
But in the long run
We will pay a severe price for overlooking any of these areas.
Good new products are the lifeblood.
Of technical companies.
And so then he has an entire chapter on his commitment to innovation, right? And so go back to the beginning of this podcast where it's like one of the first things he says is like
Are our products.
Offering something unique.
And if the answer to that question is no, and that people's lives are not being improved by our unique products, then he would consider HP a failure, even if it made a lot of money.
And so there's just a single sentence here.
In the chapter on commitment to innovation.
That spawn an entire
Like I just filled up the page with notes.
And it says Bill and I knew we didn't want to be a Me Too company.
Merely copying products already on the market.
And so that biography of Edwin Lane that I was reading from earlier, insisting on the impossible, there's a line in that
That it says the exact same thing.
Edwin Lang clearly did not wish to waste his powers on me too products.
They use the exact same language.
And then that line also made me think of something I learned when I was reading Johnny Ive's biography. This is episode one seventy eight.
You've got to listen to that podcast. Listen to it. If you haven't listened to episode one seventy eight, Johnny I've the genius behind Apple's greatest products.
Listen to it after this episode. I think you're really like it.
But there's a story that they tell that Johnny's telling in that book.
Where at the time, I think this is like late nineties, maybe early two thousands, there was uh this computer product called a netbook.
And so at the time netbooks accounted for twenty percent
Of the laptop market.
An apple
Never.
Seriously considered making one?
And so this is Steve Jobs explaining in the Johnny I biography why he doesn't want to make a netbook.
Netbooks aren't better than anything.
They're just cheap laptops.
Johnny tells a story.
uh Steve directs the energy instead of uh using Apple's resources time and and resources
To make a netbook.
They actually start doing
Development and experimentation.
on a product that eventually turns into the iPad.
And then the last thing that popped to mind is in uh Jeff Bezos' show letters.
He talks about uh l this is a couple like probably like fifteen years into Amazon.
We talked about like, you know, we have a lot of experience. There's a lot of uh company history where people inside of Amazon have seen
What starts out as like a small business, you know, maybe a ten million dollar a year business.
uh grow into a billion or ten billion a year business.
And he had a line in there that that stuck in my mind. He's like, Listen
We don't.
Well, we don't demand that these new businesses that are born inside of Amazon.
Are big on the day
That they are born, but we do demand.
That they're differentiated.
And it's just Jeff's way of saying, I'm not wasting my powers.
Making me two products.
And we see that exact same thinking.
you know, forty, fifty, sixty years ago with Bill and David Bill.
And I knew we did not want
to be a Me Too company merely copying products already on the market.
Let's go back to this idea that David repeats over and over again, hey, your company should have a law uh
A very solid foundation.
that you can you can build upon for
you know, half a century in David's case.
And so he does this fantastic uh
Description of like why that's so important because
He talks about uh H P survive long enough, you know, they start in the nineteen thirties.
There is no such thing as what we think about computers at that point. He's like, and yet we've su successfully transitioned into the computer age. It's not that he designed this. He was actually he says he's pulled into the computer age.
But look what he says here. He's like in nineteen ninety four.
HP sales and computer products were twenty billion dollars.
Thirty years earlier.
Okay.
So nineteen ninety four, they're making twenty billion from computer products.
In nineteen sixty four, thirty years before
Our sales
Total, we're just a hundred and twenty five million.
And they were entirely in instruments.
Not a penny.
was from computer sales.
And I think that's another example of something you and I see in these books over and over again. That you have to do the best
with the opportunities in front of you. And if you do the best with the opportunities in front of you, it will unlock
J in some cases giant opportunities in the future that you cannot possibly predict.
When David was operating, he's already think about it, he's thirty, almost thirty years into his business in nineteen sixty four.
He's got a successful company, he's doing a hundred and twenty five million dollars a year and nineteen sixty four dollars. That's insane, right?
Making entire only an instrument, he was able to succeed to hold on to the best with the to the best of his ability with the opportunities in front of him.
So thirty years later the company is doing
And that's that's twenty billion in computer products. That's only eighty percent of their total revenue.
That's incredible.
They're doing twenty billion a year and thirty years earlier, not a penny.
Was from computer sales.
And then we get to what might be my favorite story in this book.
It is titled A Maverick's Persistence.
Or another way to think about this, this is the type of teammates that you want to hire.
Uh sometimes management's turn down of a new idea doesn't always effectively kill it.
One of our bright energetic engineers, Chuck House, was advised.
To abandon a display monitor that he was developing.
Okay, so he's told by his bosses, including David, Hey, don't do that.
This is what he does instead.
Instead, he embarked on a vacation to California.
Stopping along the way to show potential customers a prototype model
Of the monitor.
Their reaction spurred him to continue with the project, even though he found that I had requested it to be discontinued.
And so what happens? Not only is he not going to stop, he's going to speed it up.
He persuaded his R D manager.
To rush the monitor into production.
And as it turned out, HP sold more than seventeen.
Thousand display monitors.
Representing sales.
of thirty five million dollars for the company.
Several years later.
I presented Chuck with a metal.
For extraordinary contempt and defiance.
Beyond the normal call.
of engineering duty.
So how does a company distinguish between insubordination
and entrepreneurship
To this young engineer's mind.
The difference lay in the intent.
I was not trying to be defiant, he said.
I really just wanted a success for HP.
He store the book saying, Hey, we're gonna obsess over customers, we're gonna create new differentiated products.
They're gonna make the cust the lives of our customers better, customer satisfaction second to none is the goal.
He repeats it again.
The fundamental basis for success is
in the operation of HP is the job that we do in satisfying the needs of our customers.
We encourage every person in our organization to think continually
About how their activities relate to the central purpose.
Of serving our customers.
And then he's got another great story about the lesson he learned. So this is how the Japanese division of HP
He's gonna teach David Packard and the rest of the company the importance of working with people
With excessively high standards.
So they have this joint venture going on in J Japan.
It's like middle of the pack in performance. It's it's you know, not the best, not the worst. They're thinking, Okay, I guess this this is just what this thing is.
And then one uh this is going on for a few years.
And then it says uh a bright young Japanese manager named Kenzo Sasako.
cornered Bill and me one day. He said, Why don't you let me run this?
You s you sent an American manager
To us to oversee our work.
We think we can do better.
And so Bill and David are like, Okay.
You're gonna run the operation. The following year
Uh this division grew at a faster rate than ever before.
But that is not the most important part. This is the most important part.
This is how they find a four hundred X improvement.
We had been making printed circuit boards. Our best failure rates were about four in a thousand.
We thought that was pretty good.
A little less than point five percent.
And that was the rate we found a lot of other companies were achieving.
So remember, this is a story about
how the David and the rest of the company are gonna uh realize the importance of working with people with excessively high standards. So, okay.
We have a
Half of a percent failure rate.
We think that's good. We we stick our head up. We look around the industry. They're about accomplishing the same thing. This must be as good as it can get.
Wrong.
Our Japanese unit, on the other hand, came in with a failure rate of
of only ten per million.
So they were doing
Four per thousand, right?
Now the Japanese are doing ten per million.
That is four hundred times better.
than anything we had been able to do.
That shook a lot of people up.
And it changed a lot of thinking within the company.
It clearly showed.
That our targets on quality
Just were nowhere near what could be achieved.
The result was that the thinking and the work that they were doing in Japan
Was soon reflected all over our company.
We were able to raise quality targets and many divisions far beyond anything that we thought we could have done before.
And it was an issue of how much time you're willing to put in.
They w they just analyze like well how the hell do you guys do this?
Uh, the people in our operation in Japan spend considerable time making sure that every adjustment was done.
Just as accurately as possible.
That same adjustments
We're done at HP and Palo Alto.
Just as quickly.
So one had the goal of being as accurate as possible. The other had the goal of being
As quick as possible.
And this is the main punchline to what David learned from this gains in quality.
Come from meticulous attention to detail.
And every step in the manufacturing process
Must be done as carefully as possible.
Not as quickly as possible.
This sounds simple.
But it is only achieved if everyone in the organization is dedicated to quality.
And one of the things I absolutely loved about David Packard's perspective
The fact he's writing this book.
When he's in his eighties
very close to the end of his life and he's still
Relentlessly optimistic.
When I think of the phenomenal growth of the electronics industry over the last fifty years.
I realized how fortunate Bill and I were to be in on the ground floor.
But it reminds you of a story I like to tell on myself.
In my sophomore year at Stanford
I took a course in American history.
And had the opportunity to study the westward movement
beginning with the early pioneers and continuing throughout the nineteenth century.
I remember lamenting that
That I had been born one hundred years too late.
That all the frontiers had been conquered.
And that my generation would be deprived
Of the pioneering opportunities.
Offered our forebears.
But in fact
We went on to make breathtaking advances.
In the twentieth century.
In the twentieth century we have experienced dizzying progress.
Everywhere look.
I see the potential for growth.
For discovery.
Far greater.
than anything we have seen in the twentieth century.
Exponential growth.
is based on the principle.
That the state of change is proportional to the level of effort expended.
The level of effort will be far greater in the twenty first century.
than it has been in the twentieth century.
Just as it has in the past, growth in the future
Will come from new products.
By new products I mean products that make real contributions to technology.
Not products that copy.
Вот сама елся дан.
This must be our standard in the future.
Just as it has been in the past.
The twenty first century.
Will be an age in which many kinds of new products contribute.

For all the people
In the world.
And that is where I'll leave it for the full story.
Highly recommend picking up this wonderful little book.
If you buy the book using the link that's in the show notes in your podcast player.
You'll be supporting the podcast at the same time. The link's also available at founderspodcast dot com.
You can also support the podcast by signing up for the founders premium feed. I just recorded another AMA episode.
I'm getting excellent excellent questions.
One of my favorite questions that I've gotten is who would be on my seven person
personal board of directors, which I just answered that and along with other questions from listeners.
In the latest episode.
That link.
If you're interested in that.
is down below in the show notes, as with every other link, and is also available at founderspodcast.com.
That is two hundred and ninety one books down.
One thousand ago.
And I'll talk to you again soon.