Adapting Episode 3: Intel

0:00 I don't think so. I mean we said on adapting we weren't doing any grading. I don't know I don't know what we would gr I mean it's a decision to pivot. Uh let's see, eh? Welcome to this Pottapalooza special. 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. For those keeping track at home, welcome to season six, episode six of Acquired.

0:38 I'm Ben Gilbert. I'm David Resenthal. And we are your hosts. Today we tell a historical story of a company in crisis. a different and more industry specific crisis than the one we are all going through right now. But a crisis nonetheless. This is the story of a business whose amazing and differentiated core product line became a pure commodity overnight.

1:02 and the realization, action, and bravery that followed thereafter. Today we cover Intel and their incredible Bet the Company move on their newly emerging microprocessor business in 1985. This was an astounding part of the research for me was a full seventeen years after their founding. Yep. They weren't the microprocessor company when they started.

1:25 But we'll get into all that. To all of you listening out there for the very first time as part of Padpalooza, welcome. to acquired and adapting. On this podcast, we tell the stories of great companies. Mostly we focus on technology companies and we center our story mostly in normal times around a culminating event that we grade uh for the company typically an acquisition or an IPO, hence. the name acquired. Ben and I, though, are not journalists. We are industry practitioners. And so our perspective here is telling these stories from the perspective of people inside the industry. We're entrepreneurs and venture capitalists and uh

2:05 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. Well, a few announcements before we get to it. If you love acquired and you want to go deeper on company building topics into the nitty gritty. you can become an acquired limited partner.

2:25 You'll get access to the LP show, which has recent guests like venture capitalist Charles Hudson. And mystery co founders Shane Kavalski and Vince Coppola. With Charles, we discuss the inside baseball of pre seed investing and portfolio construction. And with Shane and Vince, 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 uh and figuring it out in real time.

2:59 And growing your business. I know, it's crazy. Just crazy. So you'll get access to that. You'll get the LP calls where we hop on Zoom and spend a couple hours with all of you uh once a month or so. And uh you can get access by clicking the link in the show notes or going to glow.fm slash acquired and And all subscriptions come with a seven day free trial. So feel free to check it out. All right listeners.

3:22 Now is a great time to talk about a new partner of ours here on Acquired, Lagora. The agentic operating system that is redefining how the world's best legal teams work. Yep. It's sort of obvious that AI is gonna completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Ligora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry? So the founders did exactly what great founders do. operate with obsessive customer focus.

3:57 They embedded inside a massive law firm. For months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review, where you Drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legor's bet here is interesting, since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

4:29 And they recently launched Lagora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And Lagora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Ligora numbers essentially speak for themselves. When they have a head to head pilot with their top competitor, they win seventy percent of the time. Lagora now has over a hundred thousand lawyers on the platform from twelve hundred legal teams in fifty countries. And crazily, they went from one million

5:13 In about Eighteen months. Truly insane numbers. And that is the real test.

5:21 Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at Lagora.com/slash acquired. And just tell'em that Ben and David sent you. David, I think we are ready to dive into the story of Intel. Let's do it.

5:49 Yeah. So The story of Intel we are gonna start here. In the first act. with the founding of Intel. Some of this is gonna sound familiar to listeners who have listened to

6:01 Part one of our series on Sequoia Capital. Uh because Sequoia Capital and Intel share much of the same heritage and roots. Although Sequoia was not an investor in Intel'cause it wasn't founded yet.

6:15 So bear with us, but we're gonna go in more detail And talk about it. Really, the beginning. So we start our story. In nineteen fifty six.

6:25 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.

6:40 Semiconductor. And that Today from our modern perspective does not sound shocking, but it was shocking at the time. And it was curious for a couple of reasons. One, because there were no semiconductor companies either in California or anywhere else at the time, nor were there startups in general. The whole concept just didn't exist. Mountain View was like of views of mountains and a bunch of apple and pea torchards.

7:03 The other reason it was surprising and interesting. was that Shockley wasn't just some like dude off the street. He was living in New Jersey because he worked at Bell Labs. where he had just co-invented the transistor. In fact, in that same year, in 1956, he won the Nobel Prize for doing so. He also had a pretty interesting uh background. He had very deep military connections because during World War Two

7:28 while he was working at Bell Labs, he had been tapped as a senior military advisor on uh actually on uh radar and um anti submarine war techniques. And um had kinda become so important to the US's war effort. that he had authored the report. He was asked to author the report That estimated

7:48 the difference in potential casualties between dropping the atomic bombs on Japan at the end of the war and invading the island. I didn't know shockley. Does Crazy. Um, especially as we'll find out more about Chocolate in a minute, uh what he ultimately turns into. But why did he move back to Mountain View, California? I say back because he was originally from Palo Alto. And uh his mother was getting older at this point in time. I think his father had passed away, uh wasn't doing well.

8:17 And so we had just won the Nobel Prize, invented the co invented the transistor. Uh I think he was probably thinking about starting this company and he decided to move home to do that. So kinda with that. Silicon Valley. was born in California and not in New Jersey. And and David, so co invented the transistor, uh, but we don't have a semiconductor industry yet. Do you have any sense of like

8:38 why he would win a Nobel Prize for inventing the transistor. Like what did we think the transistor was gonna be used for? That's a good question. Well, I think you know, he had these deep military connections and As we talked about, or we're gonna talk about less here, but uh In part one of the Sequoia Capital series the first and primary

8:57 customer for the silicon industry, uh was the government and the defense industry. Well, I don't recall exactly, but I think the defense industry was sponsoring a lot of this will for sure research. I think within Bell Labs, although I'm not entirely sure how that worked. So there was kind of a race and computers had been used during the war, and I and all that. It was super clear that the transistor and semiconductors were gonna enable a whole step change function in The power and utility of computers. So I I guess it was known. This is the part where I probably should have done more research in this area, but the ways that we were um storing information before were just much bigger. We just you know transistors made it much more efficient, much smaller. But as you say, you know, can the notion of a computer had existed before just not uh vacuum tubes.

9:44 Yes, exactly. Not not etched into uh into silicon. Well it's interesting you say information was stored. For a long time even after this information was still stored, not in transistors, but we'll get to that in one sec. So back to Shockley though. Uh I mean he's brilliant. He's like literally one of the fathers of Computing, uh undoubtedly. Nobel laureate.

10:05 But he had a Pretty significant dark side. He was a total egomaniac and uh d when you have that in your personality, becoming at the same time both a CEO and a Nobel laureate. tend to magnify those.

10:20 Personality traits. When he started the company, he demanded absolute adherents to all of his whims. He started instituting lie detector tests at the office because he didn't trust any of his employees. And generally he was kind of like the world's worst boss. Later in life, much later. after uh after Shockley he uh semiconductor he would go on to become a professor at Stanford. He literally went off the deep end. He became a white supremacist, he became obsessed with eugenics. Pretty ironic given his role.

10:48 on the side of the Allies during World War Two. Again, he ended up dying alone and completely estranged from his family. Like it's crazy. He went totally off the deep end. But Back to the fifties. In nineteen fifty six, though, when he started this firm. This was you know, kinda back to your question. I like everybody in the technology industry knew this was where it was at. And so he had just started this company in Mountain View, California, but everybody

11:12 Who was working in the industry all around the country wanted to come out and work with him. And so The best and brightest from all corners of the country started coming out. And joining Shock Lee.

11:23 semiconductor. And I think that also had a big part to do with why, you know, obviously there was the influence of Stanford and and Cal and all the great universities in the Bay Area. Yeah, Stanford sort of beating Harvard to uh get the grant from the federal government to do more uh I think it was DARPA research. Yeah DARPA too much. But this was also a big part of it, this this company that popped up and started recruiting people from all over the country. So kind of a year into this when Shockley' acting crazy.

11:51 A group of eight employees who are really talented. They're kind of fed up with his a antics. They decide to do something pretty radical. They all resign en masse on the same day. They leave. Shockly they walk out the door.

12:04 And they start a competing company, becoming known in the process as the quote unquote traitoress eight, which folks might have heard of. And Two of these traitorous eight gentlemen have Are People by the names of Bob Noyce. And Gordon.

12:20 More. These traitors, these uh these pirates, if you will. They also don't aren't just any kinda people off the street. So Bob Noyce You know remember Shockley had invented the transistor. Noyce invented the modern integrated circuit, uh, which became you know how uh transistors were um uh were implemented in silicon. And Moore, Gordon Moore, of course, observed and coined Moore's law that we still talk about and is holds even to this day. Which was the observation that

12:50 Roughly the density of uh integrated circuits on a chip, um, computing power would double every one to two years. And that has happened for the past fifty plus years. Sort of. Uh so I remember I think we're gonna go back eight, ten years, but uh there was a period of time where it basically petered off. where we stopped seeing doubling in terms of Pure Moore's Law, which was the density of

13:15 I Cs on A single core, but then we saw the advent of multi-core computing, and of course, now you have eight core, sixteen core, thirty, like shipping in laptops. Processing power keeps increasing. I guess CPU. Are are there multiple CPUs on a What are the I guess what is the unified

13:38 body called of the several cores that ship together now. I don't even know anymore. Once again, it's a commodity. But we'll get back to that. So All these talented people left. Shockley had You know.

13:51 Proven you can create a company. But it ended up being super difficult to get this venture financed. Like they needed money'cause they had to set up literally manufacturing plants to make the semiconductors like it. This was nineteen fifty seven. Yeah, so like the the there is no money that exists to to fund non governmental sort of like Tech businesses. Yeah, venture capital was like you were going on an adventure in some capital somewhere. Like nobody knew what that meant. So the eight of them, they get in touch with a man named Arthur Rock.

14:23 Who was an investment banker. From the East Coast, and he agrees to help them out. He kinda scours the technology universe at the time, looking for somebody willing to fund these guys. And uh he ends up connecting them with a guy named Sherman Fairchild, uh back in Long Island, New York, who is the owner Fairchild Camera and Instrument Corporation. Now Sherman also happens to be the largest shareholder in IBM, which is why he's sort of interested in this. So he agrees to loan these eight plucky pirates. One and a half million dollars.

14:54 In exchange for the right to buy the whole company for three million dollars. Which he does. Venture capital terms have come a long way since. Well hey, you know, I mean uh This environment, the power is back on the uh investor side, I would say. Yeah. Still I don't think anybody would take that deal. It's actually interesting. Think about that deal for a second. So you're loaned one and a half million and they have the right to buy it for three. Let's say it happens over the six months. I don't know how long it actually took, like

15:24 They wouldn't have taken any equity, right? It was truly a loan. It was alone. Yeah. So the I mean at the end of the day it wasn't a company. It was it was a subsidiary of of Fairchild. Like that's and this becomes the problem, like Fairchild semiconductor. the newly established division of Fetch out camera and instrument.

15:42 Um 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, uh, selling to the military and other customers. But ten years go by and like nobody's getting

16:03 Yeah. Rich there. You know, they've created all these, you know, millions, hundreds of millions of dollars in sales. But there's no Eccoli. Right, so all going back to camera and instrument, back in Fairchild's uh what in Long Island, New York. Yeah, yeah.

16:17 Exactly. So Um two of these folks, you know, noise and 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 nineteen sixty eight They start to see that like hey You know, silicon has revolutionized computing.

16:35 Which has revolutionized so many industries at this point. But The memory aspect of computers still isn't done with chips. It's like it's done with magnetic cores. Like literally, you know. magnetic discs, uh and it's way slower and it's way smaller. What if we use the same

16:56 semiconductor and silicon technology that we're using to make these other chips to turn the memory into chips. I think we can do that. That sounds like a good idea. Let's start a company around that. Let me s tease this apart to make sure I understand here. 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,

17:19 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 if 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.

17:41 And then The Storage was done in these, you know, storage of the data was done in these magnetic cores. Right. And there's no notion, you know, for for folks that know how the inside of the computer works. You know, you these days the CPU is the brain. Uh RAM is basically like short term memory, and then your hard disk or your SSD is like the long term memory. So that long term memory was living on tapes or or magnetic discs. Um there was no notion of short term memory, like that this this like RAM that would exist to hold your programs while they were running, um, but not actually run them. Like that whole that whole piece didn't exist at all. Like that was the Intel innovation here, or I'm sorry. That was the uh The more a noise innovation. The N M in innovation.

18:26 Uh yeah, but it's great. The other point too on that is like You know, the CPU Didn't exist yet. Intel would. didn't know, invent it. You said that is the brain. There were no brains. Like the the chips that like we said that were being produced, they were like hard coded, like the computing, the software was baked into

18:43 The hardware. Yep. Yeah. I remember sitting in my uh electrical engineering lab in uh undergrad and I remember like specifically the five five five chip. It was this timer chip and it existed to do one thing and it was basically keep track of time and sort of like tick up as time went on so that you could keep track of it. And I imagine like that was just the case for all these chips. It was special purpose. You know, everybody can imagine'em if they played with them as a kid or if they've ever ripped apart a computer. It's just you got eight, ten, twelve, fifteen pins, you use a breadboard to hook'em together and uh yeah, they they do a thing. So Noise and more, leave.

19:18 They have this vision of like we can create this short term memory. Product. In silicon. They go find Arthur Rock again, like oh well he helped us start Fairchild. Let's talk to him again. This time Arthur has gotten smarter because

19:32 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. What if you like start the company and I'll invest in the company?

19:44 And that they do. He organizes A two and a half million dollar funding round of venture capital. From a syndicate that he leads. Uh, they raise that in July. They hire a few folks over from Fairchild and they're off to the races. And let's talk about that. So two and a half million dollars sounds like a great seed round for anybody that knows sort of funding these days. Inflation adjusted, you know, that's fifteen, eighteen million dollars.

20:10 So you know, you're probably not going to a guy like Arthur Rock for him just to be able to write that check individually. Now no again at this time we we covered Don Valentine's prolific sort of pseudoinvention of the asset class of venture capital on on the Sequoia episodes, but there wasn't this notion of like well, I'll manage other people's money in a way that we can deploy it into startups and understand how like who gets a cut of what. So And indeed it wasn't until four years later that Don would start Sequoia. Right. And so what Arthur did, I think he put in something like a hundred K of his own money and then basically got convertible debt for the rest of the two point whatever million. Yeah. And it it was basically a a a convertible debt

20:54 debt instrument. Correct. Interesting. Interesting. Well, nonetheless they do well.

21:04 Quick diversion on the name. So until this point, all the names of these companies had been either the founder's name or the name of the owner in the case of Fairchild. So naturally the the name for this company should have been more noise. It's my favorite trivia in the research. So they're like, Can I have more noise in my semiconductors? More noise in my semiconductors. Uh The it only took saying that out loud to realize that was that was not a good idea. Yes, you do not want uh more noise in any electronic system. No. So they um They're like, Oh yeah, no worries, we'll just use our initials. NM. Uh 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 does not character. That does not roll off. No, I didn't find that. No, I couldn't find it either. But within a month of incorporating it

21:56 They changed the name from N M Electronics. too. Maybe N M sounded a little bit like Intel. They change it to Intel because they wanted it to be integrated electronics, but that was taken. And so they use the word, uh they invent the word. Intel or they guess they borrow Intel from military intelligence. And they actually did have to

22:16 to go and buy the name. I think there was somebody else that's a There was a hotel chain called Telco, yeah. And they had to go buy the trademark. Yeah, yeah, apparently for fifteen thousand dollars, which was a lot of money in those days. Um but they had two and a half million, so you know, they were swimming in it. Three years later, uh that two and a half million proves to be quite a good investment on behalf of Arthur Rock and his associates. Intel goes public with a market cap of fifty eight. Million dollars.

22:43 Everybody makes A lot of money. Uh Don who's a fast IPO. We're like way before stay private longer. Yeah, exactly. Don, uh, who we've referenced Don Valentine, he's over at National Semiconductor by this point. He sees this and he's like Okay. This is

23:00 Well, let's go. Venture capital, it's a thing. And uh then of course he leaves and starts Sequoia Capital and We all know the history there. Or if you don't, you can go listen to our two part episode. Okay. So that's a nice little story. Intel Founded, making memories, uh literally making memories, making people rich, three years to IPO. Uh, you know, fifty eight million dollar market cap is you know, wonderful record setting at the time. That's a nice little story, but there's certainly nothing adapting about that. Honestly, if it weren't for what happens

23:31 After that. Intel would just I think have ended up being like a a part of ancient history, just like Shockley and and Fairchild. Yeah, and to and to really drive home for everyone,'cause everyone thinks of Intel as you know, Intel inside, or it maybe it triggers in your mind dun dun dun dun Or maybe you know, you think about a cool rendering of a a CPU on a motherboard to quote directly from the Andy Grove uh book, Only the Paranoid Survive, you know, he says Intel equaled memory in all of our minds. Like it was their core identity. is we are memories. That is It was the business plan it was founded on. Yep. Totally. So

24:11 What was the problem that would have killed the company It was that, you know, Ben, I think you mentioned this. It turns out that memory and really All of the silicon that was being made at this time.

24:25 was a commodity. they just didn't realize it because they were first to market. Like memory chips didn't exist before. So Intel gets started. They start you know, turning out these chips, people start using them. But then other people start making the chips. And there's nothing special about the chips. They're just like memory is memory.

24:43 In some ways, you know, Intel You know, they were the most innovative company. Like they they truly um were able to stay six, twelve months ahead and always be sort of better than their competitors. A lot of their early. Yep. They they believed that R and D and you know, technology, that's really at the core of who we are. They invested really heavily in it. And so for

25:07 you know, fifteen years. I think that the the first ten years they handily beat all competitors. Maybe the next five years they sort of would trade back and forth with Texas instruments and other early memory companies for uh who would have the best model this time around. And then we'll wait for next year to see who has the best model for next time around. So commodity in a sense of like Everybody has to really push the envelope to run forward, but not enormous barriers to entry and like new competitors kind of keep popping up. In the words of the Hamilton Helmer from her. great LP episode in his book Seven Powers. There's no power in the business. Like it's just hard to do.

25:43 But there's nothing fundamentally about like once you are doing it or you're a leader that you're gonna Stay the leader. And so by the mid nineteen eighties, again as you say, you know twelve, fifteen years. After

25:55 Founding Which was a great run for the company to have and go public. They're under siege. Japanese electronics companies. had decided to enter the market with all of the power that they had at that point. And all of these companies were big Koretsu companies that were just like fair tale kind of divisions of much larger companies. So they had access to a ton of capital, ton of resources. And and here we are in nineteen eighty one to four call it, where this is really the the

26:23 boom of Japanese companies having operational excellence. Like that is the thing that they're just out operating US companies. Exactly. And on top of that, there are there are you know companies like Sony, like that there are these electronics companies that are just way better than the electronics being manufactured in the United States. The country was really rallying behind this as an identity. The Japanese companies were able to build enormous factories to build out these memories. So their their economies of scale on building them, they could get so cheap, and their access to capital with whatever was going on in Japan at the time was just enormous. They they kept being able to get either private or public funding and pour them into these companies where they could produce way more memories. They could do it way cheaper. And the talent that they had there from all these emerging fantastic Japanese electronics companies, like they were just as as innovative, if not more innovative than Intel. Yes, they're eating Intel's lunch, so Intel's market share of memories.

27:24 goes from above eighty percent at the beginning of the decade to by Nineteen eighty four. I think it's n nineteen eighty four they dropped a one point three percent of the market global market. Brutal. 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 nineteen eighty four, 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, the demand for memories in all sorts of applications is is huge. And so it's still a really big business with factories all over the country, with different you know, eight different projects going on for eight different models. Like Intel is a big freaking company just with that market share.

28:08 Yeah, well big buy revenue, but their profits are getting eroded down to zero or really below zero because of the pricing power of these Japanese companies. All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI first world, that doesn't hold up anymore.

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30:01 That Ben and David sent you. So at this point Intel needs a miracle. And they are Just

30:10 Lucky enough. That somebody on the team in fact intels by at this point president and their very first employee. happens to be a miracle worker. And we're gonna tell the story here.

30:22 Of Andres Grof. Better known in the US as Andy Grove. The legend. Silicon Valley. And this story is just incredible. Adapting

30:32 Personally adapting in terms of the world, adapting in terms of the company. Let's rewind for a little bit. So Andres Istanbul Garf. was born in nineteen thirty six in Budapest.

30:44 Hungary to Jewish parents. In a Jewish family. Yeah. And when he was born in nineteen thirty six, Hungary was already a fascist dictatorship that had aligned with Nazi Germany. But despite that.

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

31:27 There were six hundred and fifty thousand Jews living in Hungary. By the end of the war, there are a hundred and fifty thousand. So half a million people Exterminated in the Holocaust. Totally totally awful. Words can't even express. Andres and his family, though, they are the lucky ones. So Andres and his mother go into hiding, they assume new identities. Remember, he's like a kid at this time. He's you know, this is between the ages of like five and ten. Uh he spent years in hiding

31:54 pretending to be Not Jewish. They're eventually liberated by the Soviets when the Soviets drive the Nazis out of Hungary in in nineteen forty five, and his dad survives and returns, but it's kinda like maybe like uh not out of the frying pan and into the fire, more like out of the fire and into the frying pan. Because now Hungary Is a Soviet state, right? And like, you know, his family, his dad had been an entrepreneur.

32:18 before the war had started this dairy co op and known this dairy co op, and anybody who had employed people Was considered an alien a class alien by the Soviet state. And was Persecuted. So like because they were communists and if you're running a business that makes you a capitalist?

32:37 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

32:47 what they had done before was evil and you know, and it's 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 there was a guy 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 his background is like

33:10 Im Imagine during your formative years of five to fifteen having both of those experiences. Like totally. Ma it just it just makes you realize how freaking comfortable and uh uncomparable. most of our own lives are to the just incredible and and awful

33:31 persecution that people like like Andy went through. Well, I think it's good perspective for this time too. 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.

33:48 But like this really puts it in perspective. You know, I I was reading uh Andy wrote several great books, but one of them he wrote a memoir at the end of his life called Swimming Across about these years. And it just really puts things things in perspective. Like I've said things like, Man, this feels like a war. Like we haven't experienced anything like this since World War Two as a nation in a world. And it's like No, this is nowhere near what World War Two was like. Really good perspective. Um But anyway.

34:14 Uh like we said, his family were the lucky ones. And Then A pretty momentous event happens. And this is also just like such An amazing American story. So in nineteen fifty six, the same year that Bill Shockley moved to California.

34:29 wins the Nobel Prize, and starts shockly semiconductor. Student protests. Andy's in um in university in Budapest at this time studying chemistry. Student protests Erupt in Budapest. And they turn into a full blown.

34:44 revolution and this becomes the Hungarian revolution of nineteen fifty six against the Soviets. The Soviets roll tanks into the city and like brutally Suppress. the revolution, but in the chaos, a whole lot of people are able to escape across the border to Austria. and make it to the west. And Andy is one of those people. He literally walks out of Budapest. He gets a train out of Budapest and then he walks across the border to Austria.

35:07 From there he's able to get to The US he as a refugee, he comes to New York City at twenty years old. with twenty dollars in his pocket and nothing else. And just shows up. And when he gets there, he uh he's taken in by some extended family in New York City. He changes his name to Andy Grove so that like people can pronounce uh Andres Groff is uh not uh not easy to pronounce by uh his professors. He gets a scholarship and works his way through City College of New York.

35:37 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 wrote writes an article when he graduates in um Would this been fifty nine, maybe? Fifty nine or sixty? 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. Super cool. Yeah. Uh On the back of that, he goes out to California. He goes out to

36:05 Berkeley. He gets his PhD in chemical engineering at U C Berkeley. graduates in nineteen sixty three and joins, of course, the best company, technology in the world at that time. Fair California. Fairchild semiconductor. And that's where he meets Noyce and Moore. And so then legend has it. I think this is probably apocryphal. But even if it is apocryphal, like it's I feel like half the stories we tell are apocryphal or sort of reinvented in some way. That's true. That's true. But if it if it's not true it The spirit would have been true.

36:35 go to Arthur Rack when they're starting Intel in nineteen sixty eight to get funding. The legend is that Arthur Rack told them that he was gonna refuse to finance the company Unless they recruited Andy. out of Fairchild to come join them as the first employee. So Arthur, who's an in he organized the initial investment in Fairchild, but then

36:59 I think I mean he must have stayed close with with the people. 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. Yeah. I mean this is a kid that we're he's now five years out of his PhD program. And he had already of course he was developed a great reputation within Fairchild, but like Pretty cool that like Bob Noyce and Gordon Moore make you their first employee when they're starting Intel. And Arthur, you know, knows all about you.

37:31 So he joined he was employee number one. when the company was started in nineteen sixty eight. By nineteen seventy nine, he had been promoted many times he became president. So m Gordon Moore was the CO of the company. I think Arthur Rock was the chairman on the board. And or maybe maybe Noyce was the chairman and maybe Noyce and Brock swapped off.

37:51 Noise might have been the first CEO and then they swapped and Gordon became the CEO. Yeah, it feels like it's like a Google or a Twitter type situation. Yeah. I think that's I don't think it was a Twitter. I think they were all friends. Uh but Andy uh got promoted to be president in nineteen seventy nine. So we're now back in the mid nineteen eighties. Intel is underseas from These uh

38:14 Japanese memory manufacturers that are flooding the market with highly superior products. superior, cheaper, and in much greater quantities. Like in much greater quantities. There is there is no answer for if you're Intel for what to do. Yeah. It's it's like it's nineteen eighty four. And Andy, thankfully, isn't living under a communist uh oppressive regime, but he's still having brutal nightmares here. Uh and so he actually then writes the book then that you mentioned, which is so great and is just like classic of Silicon Valley.

38:43 Only the paranoid survive. All about this. The quote that actually starts. Only the paranoids survive. uh that Andy starts the book with.

38:52 is sooner or later something fundamental in your business world will change. And So apt. Yeah. An app for Intel.

39:02 at this moment. Yeah, and what's crazy to think about is like this is a dramatic story about Intel mostly because of what a successful company they became. But that dramatic thing that happened for their industry was just one industry and just one change. And what we're seeing now is a massive dislocation in every industry. And so like suddenly this story becomes very relevant for anyone doing business in anything, which is a

39:28 Kind of a crazy. Crazy moment. Well, hopefully sales of uh the book only the Paranoid Survive will uh will will uh spike. They'll they'll benefit from uh from this moment. So what changed for Intel, right? Like obviously it was that these superior in every dimension, Japanese producers entered

39:47 the market. But Intel itself was caught so off guard because their relationship to the competition up until this point, like we said, they didn't understand that they were in a commodity business until this point. It was so crazy that You know, Ben is a as as we talked about Intel usually had the best technology, the best chips. They were six to twelve months ahead of the competition. But

40:11 Because these are physical chips that have to be created and Intel didn't have enough production resources to meet demand. They did this thing that sounds crazy right now, but was just totally normal in the industry back then. They did second

40:27 Surcing. And so some people might know what this means. This is completely gone by the way side. It's a byproduct of uh military contracts. uh where the military They needed to ensure that they would be able to get enough of what they wanted to buy. And so they would award the contract to

40:45 a you know primary manufacturer that was gonna make what they were buying, but then they would encourage that manufacturer to go to their competition, give them their designs for making the product, and let the competition's factories Make. The product to ensure that the customers had enough demand. So Intel did this. Whenever they would win contracts, they would bring in their competitors. Chief among them AMD, which people are gonna know. Interestingly, AMD itself came out of Fairchild a couple months after Intel. So crazy that both Intel and AMD did. I know. And so they would kinda compete against each other for being primary source on the contracts.

41:21 that they were bidding for. But then kinda no matter who won, they would bring the other one in and just give them the reference design and fill it out. And so Intel was doing this with their competition. And they actually part of how the Japanese got up the learning curve so fast was they came in as second source for Intel during the late seventies on a bunch of these contracts. Yeah, so here's the quote from only the paranoid survive, which I highlighted this when I was reading on Kindle because I was like, You're gonna be kidding me. So He said um

41:50 The Japanese memory producers appeared on the scene. Actually, they had first shown up in the late seventies to fill the production shortages we had created when a recession pulled back our investments in production capacity. The Japanese were helpful then. They took the pressure off of us, but in the early eighties they appeared in force. An overwhelming force.

42:09 Yeah. And what is this overwhelming force that they're now appearing with? So At one point Andy and his team And the sales team gets a hold of a sales memo from one of these Japanese companies. He doesn't say which one. And here's the quote of how of the battle card against Intel. It says, Win with the 10% rule. Find AMD and Intel sockets. I assume sockets being like where they were selling into quote 10% below their price.

42:34 If they requote go ten percent again, don't quit until you win. So they're l literally willing to go to the bottom to win every contract. Ruthless. And and they have two advantages there. One, their actual cost of production is dramatically cheaper because of the dramatically larger scale they were producing at. And two, their access to capital was much better. So they had a a cheaper cost of capital. 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. Yeah, and this is what we were talking about earlier. So, you know, Intel, like you're saying, their market share Totally nose dives, but because the market is growing, their revenue doesn't actually drop that much. 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. It's like it's like Uber and Lyft, you know, bashing each other over the head and all the margin. Yeah, there's no profit anymore. And so this creates what 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.

43:36 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 porters, five forces of the business. In this case, competition. Competition comes in, it's 10x stronger, like you're uh you're up a creek here. Yeah, and and relaying that to current times. Competition is unlikely up, but demand is likely way, way down. And so it's likely that the buyer power has has uh, you know, evaporated in many, many industries where consumer spend is down, or travel or hospitality, or people with with you know freezes to whatever corporate spend they had. I mean it is just like Again, just trying to to to bring it home to relevance here, a different crisis, but a very Yeah, there's a 10X change in your in your customer behavior inside of Intel. It's chaos. And and Grove writes about this, that like there's tons of infighting

44:26 Everybody has a conflicting opinion. We are the memory company. Like that's the only thing we can possibly do. And so people are yelling at each other. It's like, you know, the engineers are like, the sales team needs to work harder and the sales team's like, we need, you know, the engineers need to make better technology for us to sell. And Some people are like, well, we should just like vastly increase our, you know, our fab production to have more capacity and compute directly with the Japanese. And then other people are just like, This is totally unfair. And there's some people that are on sort of the right path, but still like uh everything looks like a nail because they've got a hammer. They're saying, Oh, we need to do um like value added memory. Like we need to we need to add additional features to the memory that make it not a pure commodity. Then w then we can make margin from selling these extra features in the memory to the customers. And so they're like getting this notion that we can't compete head on. We have to flank them in some way, but they're not flanking far enough. Like they just are like running at them with different guns. You know, when you're uh 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 uh the previous year. I'm not.

45:32 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 nineteen eighty five. Where Moore and Grove are talking about this situation. I think I think Andy says it was in his office.

45:54 I didn't tell. And They're uh they're standing there, they're talking to each other. And Grove. says to Andy says to to Gordon.

46:02 You know, I mean things are like bad. Uh it's like you know, if the board Kicked us out. And brought in a new CEO. What do you think the new CEO would do to Like in response to this situation.

46:15 And Moore looks at him and he says, just point blank, he's like, Well, they just get us out of the memory business. And no one had no one had actually like like been like you said, like people were kinda dancing around there, but nobody would be willing to bring that up of like the This is like Uber saying we're gonna get out of the ride sharing business. Which Right, right. Listeners can't see uh Ben shrug there. Um so Grove uh writes in the book he says you know as soon as Moore said that he just stared he says, I stared at him numb. And then Grove responds, Well.

46:51 Водивс. Walk out of the door to this office. Rehire ourselves Turn around, come back in. And do just that. And so that's what they do. They actually physically walk out of the office, they ceremonially fire themselves, rehire themselves, and walk back in. And then that psychologically like gives them

47:11 the clarity of like No, this is what we need to do. Uh we need to Get out of this business. It's a it's a cinematic moment, imagining that. There. sort of uh chutzpah that it takes then to go and actually pull this off

47:26 people in the company correctly have laundry lists of reasons why you can't possibly do this. And and they're s uh different than the emotional ones that I was talking about. We are the memory company. We can't possibly change. Like even if you just take that stuff away And you look at the other businesses that they're in. The m the main, the obvious one that they should go focus on is CPU. They have some other stuff, but CPUs are kind of the thing. It's super immature. There's not necessarily their A team on it. They have no production capacity. They they've only been doing it for a very short period of time. There's not necessarily customer pull yet. Like the the We're talking about nineteen eighty five. The Mac has just come out.

48:05 And remember, the Mac didn't use Intel chips, they used Motorola chips. So like the PC was not a thing yet. You know, I mean it was a thing, but it wasn't like the PC was like VR today. Right. And the things the sales guys are complaining about is that It was a complete breakthrough and we I think they invented the CPU or at least sort of our our get credit for that. And maybe the it was a four double O four was the the the big first one. They created this amazing thing, you know, they're working on the three eighty six in the corner of a of a building. Um for anyone who knows sort of the X eighty six Processor like that's the first anyway. So No, the X eighty six exists, but the three eighty six we're gonna get to it in a sec. It was magical. So the the that's happening, but th the sales team would correctly object Uh, this is not a complete product line. Like we we can't possibly go and sell

48:55 with like one or two product like the these sort of like point solutions like we need a whole product line and memories we have a whole product line so we can be effective with customers. Like not to mention their quotas, right in their livelihoods. Right. Yeah, like the whole company's freaking set up to hawk memory. And so m everybody correctly has lots of reasons why they cannot shut down the memories business and wholeheart switch to to Intel. I'm sorry, to switch to Sounds. Switch. So Yeah, so Mort and Grove walk out of the office for the second time and Andy starts going around like

49:32 giving speeches about how they're gonna get out of the memory business. And uh and like all hell breaks loose. So Andy tells the head of the memory division to come up with a plan. to get out of the business. And he like revolts. He doesn't do it. And so Andy's like Andy removes him and puts somebody else in charge of the memory business. That guy doesn't do it either. It's like the Saturday night massacre. He's like, Yeah, yeah, no, I know you brought me in to get us out of the memory business. Cool, I'm gonna do that. And then he takes like six months and then comes back and says, Okay, cool, I'm gonna make it so that we After after the current RD that we're doing and then we produce all of those, we're not gonna do any additional R and D on on new ones after that. And Andy's like

50:14 Are you kidding me? You don't know what you're doing. Dude, I told you to get out. Oh So finally it this takes like basically all of nineteen eighty five where they're just trying to like and this is and this says so much about organizations, right? Here you've got The founder, co-founder and CEO of the company and the president of the company who was the first employee who were literally telling the company to stop doing something and the company cannot stop doing it. It gets to the point where Andy is personally going to factories and just laying everyone off on the spot and saying Hey, like w we really need to get serious about this. We just need to shut this factory down. It's it's it's an old factory anyway. It's too small to to do like it. We really shouldn't be operating in any way. But I'm doing this in part'cause we have to shut this you know this thing down. But it's also a statement to the company of like I'm closing the memory factories. And we're gonna turn some into CPU factories, but like

51:08 This one isn't it and everybody needs to see that I'm freaking serious about this. 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 um as much grace as you possibly can, um, and and sort of be with those people in a hard time. But like It it was crazy the amount of uh dramatic measures that he had to take even as the president to influence

51:32 Yeah, well it's like a two front 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 nineteen eighty five, 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 gonna 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

52:03 Brilliant about What Really Andy did. And and how they led the company was If they had just done that, then

52:13 Then the same cycle would have played out. over the next 10 to 15 years. Like Intel was in the lead. They basically invented the microprocessor. They were the X86 architecture was how the standard IBM PC and IBM PC clones were based on. And uh they would have been the leading chip producer, but anybody else could have come along and produced chips. And in fact four zero zero four, which is for a calcul actually for a Japanese calculator, BusyCorp, I think that they created it. Um and then but then the first X eighty six architecture was the eighty

52:47 They made the eighty Eighty six, but then there was the eighty eighty eight that was in the first IBM PC. And was then th they had the eighty eighty, which was the Alter. Yeah, that's right. And then there was the eighty one eighty six and then the eighty two eighty six. Right. And so that's where we were at this point in time. And they were second sourcing. Just like they did with all of their product lines. No way.

53:10 Also, yeah, they were second sourcing and AMD was the second source on the one eighty six and the two eighty six, and I think maybe before that too, but they had a major contract in place with AMD To do. To be the second source for uh for the two eighty six. Now

53:26 Like you said, they were working on the three eighty six and they knew and Andy knew that the the three eighty six was gonna be something special, while the all the other iterations on the eighty six processor had been increased speed and more, you know, um more transistor density. The three eighty six processor was gonna be the first thirty two bit processor. Oh everything before that was sixteen bit. So this was gonna 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.

54:05 And he 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 gonna second source this. We are gonna be the primary and sole source. You want a three eighty six processor, you gotta buy it. You want a thirty two bit eighty six uh X eighty six compatible architecture processor, there's only one place in the world to get those, and that is directly.

54:29 From Intel It's kind of amazing what happens. I mean you even look at to how this translates all the way to today. So I want to like just pause for a moment and and David like come back to it's crazy what happens. But you think about today There's basically two types of chip companies. There's fabless, and there's companies that have their own fabs like Intel. And when I say like Intel, I pretty much mean Intel. And so You've got like the TSMCs of the world, the Samsung. Samsung who's who's designing

55:00 At this Time. All these arm based chips that are designed by These fabulous companies and then built in a separate chip fab in a commodity way that are decoupled. You know, you have the separate designer from the manufacturer. And Intel to this day still manufactures one hundred percent of their designs themselves.

55:20 Yep. So This is what happens. So remember they had this they had this agreement. With AMD to be. the second source, and I believe that agreement technically was supposed to continue into the three eighty six processor, until breaks it and says, Nope, nobody else is gonna gonna do this. You want the

55:38 thirty two bit X X eighty six process, you gotta come to us. A MD sues them. Intel counter sues and I did not know this. And it ends up it drags out in court. I forget who actually wins, but at the end of the day it The judgment is that

55:55 AMD. Able to market. X eighty six architecture chips. But the Intel's not gonna be forced to give them the designs. So AMD has to in a clean room reverse engineer. No way. Yeah, so that takes them another couple of years to do that. It ends up being That's like the Ataria story.

56:16 It is the E Sports story. The EA the EA Sports uh Sega Genesis story. So it ends up taking six years for AMD. From it's night the end of 1985 when Intel ships the 386 out the door. Uh I believe Compaq Computer is the first customer for the 386, and as then that's like the beginning of Compact's Rise, uh and Intel rises with them, and then everybody, all the PC manufacturers use use. Until three eighty six processors. It takes until nineteen ninety one before AMD can get a competitive product out there. So during the whole first six years of the P C wave Intel is the only

56:53 player providing CPUs, the most important component of the computer. And then What happens in nineteen ninety one when AMD finally Gets. Their competing product out there.

57:05 That's when Intel launches the Intel Inside campaign. Yeah. Uh which is just like so brilliant on Two levels. One, it's like one of the best pieces of Marketing of all time.

57:18 They really invented the ingredient brand. Exactly. It was them and like Nutra Suite were like the only ingredient brand, successful ingredient brands of all time. But They do something super, super smart. That prevents AMD from countering with any kind of similar

57:35 Tactic. Which is the way I didn't realize they're still doing the research. The way the Intel Inside Marketing Campaign worked. was Intel of course spent a bunch of money, marketing it directly. Right. So then of course the the customers with then demand from the manufacturer like oh I'm only buying this Dell or Compaq if it has an Intel inside, which is Well so that's what I thought. But here's the more powerful piece. Of course that's true. But they went Intel went to all of the

58:02 P C manufacturers to Compact to Dell to Gateway to everybody to 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 fifty percent of your marketing costs if you include in your marketing collateral that you have Intel inside. Oh, that is so smart. Isn't that just like killer? And so that's like

58:27 The the amount of marketing expenditure associated with that is enormous. There's no way that AMD, who's been out of the game now for five, six years, can do anything even close to matching that level of spend. And so Intel just like it's like a tsunami that just like washes over the whole market. Wow. That's like the um Bobby Axelrod billions quote, uh

58:50 When you know you have an advantage. Press it. Yeah. Yeah, they're and I think that, you know, uh Andy doesn't talk really at all in the book about that. But I think that was another decision kind of on the level of Maybe not quite as big as soul sourcing the three eighty six, but like

59:08 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're gonna be willing to do anything to maintain it. Wow. So

59:25 Andy becomes CEO of the whole company, uh Gordon retires in nineteen eighty seven, once this is this whole wave is underway. Andy served as CO of the company from nineteen eighty seven to nineteen ninety eight. Revenues rise from one point nine eighty seven to ninety eight. So eleven years, yeah. Eighty seven to ninety eight. And then he retires and becomes chairman. The company revenues rise from one point nine billion in eighty seven when he becomes CEO after they'd already selling started selling the three eighty six to over twenty six billion when he retires in nineteen eighty eight. And in nineteen ninety seven, right before he retires,

1:00:02 Famously Time magazine names Andy. They're man of the year. The story is so incredible. Like you've got this Kid born this Jewish kid born in nineteen thirty six in Hungary, who by like All statistical probability should never have even survived.

1:00:21 And like here he is leading and turning around like the preeminent Silicon Valley. company in this new industry and becoming Time Magazine man of the year. Like Incredible.

1:00:33 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 P C and the the sort of P C IBM P C clones or copycats. Well, I think it was that It was it was nineteen eighty one.

1:00:53 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 to use the DAC the X eighty six architecture. Thus you needed an X eighty six compatible chip. For all PCs. I don't know if they really realized the value that they they had when the IBM PC sort of chose

1:01:18 Intel to be the supplier for that one, but like I assume they knew it was some amount of a big deal, and it speaks to how much even though we can sort of rip on Intel for dragging their feet for so long and taking forever to get out of the memories business, like they they did have the beginnings of a backup plan and like they had started working on this new emerging market. because they had R D at their core and believed they needed to be on the cutting edge, believe they needed to be investing in technology. New plant lines. 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. Yeah. I was gonna save this for playbook, but but Andy talks about this and only the paranoid survive. Like I the time to innovate is not when you find yourself in a strategic inflection point. It is well before then. Like you constantly should be looking for new product lines.

1:02:10 looking for diversification. Um You know, honestly, like Uber has done a great job of this, right? Like Where would Uber be if not for Uber Eats and Uber Freight and like So Uber? Eat in the US. Last week or two weeks ago eclipsed

1:02:24 Ride sharing. in revenue for the very first time. And like when you look at these graphs, it's ridiculous because it's Uber Eats going up slowly and then Uber you know, ride train obviously falling off a cliff, but it's insane to see like right now in time, because of the investments done over the last three, four years, Uber. has revenue.

1:02:44 Like Well and compare that to lift, right? Who doesn't have you know, I think they're now launching a delivery type product, but uh Strategic inflection point is not the time to be launching new products. Yeah.

1:02:56 Yeah. Well I'll I'll catch us up to Intel today. The number and I think David quoted something like this earlier. When Andy came in annual revenues at Intel were one point nine billion dollars. Nothing too bad. When he left in ninety seven, it was twenty six billion dollars. 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, uh

1:03:25 We couldn't find the profit margin stats on those, but like they were bleeding money on the one point nine well, uh before maybe not the one point nine in nineteen eighty seven, but whatever hundreds of millions of revenue they had in nineteen eighty four, they were losing boatloads of money. And then they were immensely profitable by When Andy left. Well to give you a and I give you a picture of the economic profile of this company today, so it increased then from twenty six billion when Andy left to seventy two billion in twenty nineteen. They're a hardware company and their net income is twenty one billion dollars on that seventy one billion. So it's that's what, uh twenty five percent.

1:04:02 Net income market. That's pretty that's pretty damn good. Right. Right. 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 missed the mobile wave and lots to criticize, but like Pretty behemoth of a b I mean it's a two hundred and sixty billion dollar market cap business even in this crazy stock market environment that we're in right now.

1:04:25 Yeah. Well it's funny too. I mean uh uh listeners should go listen if you haven't already to our ARM episode. You know, in much the same way That Intel was able to Change the way.

1:04:38 that the market operated and business was done to generate a lot of power in their CPU business. They were then, you know, partially disrupted by ARM who came along and said, We're gonna do a completely different uh take a completely different approach to entering the business in a way that Intel is not gonna be able to respond to. Yeah. Yeah.

1:04:58 The disruptor becomes the disruptee at some point. And uh You can stay vigilant and you can stay paranoid, but Yeah, you have to have leader after leader after leader that that truly Truly believes that. So I want to tell you one crazy thing, David. I don't know if you caught this. An announcement made in July of twenty fifteen from Intel. I don't think I did. So they announced that they were going to be shipping a new product.

1:05:24 called obtain memory. So in addition to their CPU business, which we all know very well, uh they were shipping a new type of memory. uh that back in the biz the main value prop was to make computers uh that had hard drive spinning discs as speedy as SSDs um and so it was indeed a value added memory they're not just shipping uh DDR2 uh um DRAM Here we are with uh with Intel. Making it bet on memory. And and to underscore this, I just read the annual report from Intel last year. They have three operating segments. They have a data centric one and uh PC centric one, and those are both responsible for about half of their

1:06:03 uh revenue. The PC centric one is everything that you know of. The core I5, I seven, I9, the I think that's that's the the core of it. The data centric business is a lot of the server stuff, so the Xeons, and then they sort of lump in all these like mobile eye is up there and a lot of the acquisitions they've made. They have these big bets. And from the big bets update. They have a sentence. That's ridiculous. Currently

1:06:35 And there's three of them, but I'm just gonna end after the first currently. Our big bets are Memory. Yeah. Yeah.

1:06:43 Andy Gribb would be turning over in his grave. I know. Just just amazing. So um I don't think it's a bad idea. I think it makes sense given the current environment, but it is amazing how uh history doesn't repeat itself, but it does rhyme. Indeed. Indeed. That's part of why we do the show. Yep. All right listeners.

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1:08:49 what would have happened if uh Andy Grove had not realized this and been successful and and executed this pivot. Yeah, I mean I think it's pretty clear, right? Like Intel would be Like we said up front. Just like Shockley and Fairchild and National. I think National's still around in one form or another, but like

1:09:08 You know. Names lost to history. Yeah. Absolutely. I've literally nothing more to add to that. Yeah.

1:09:15 Should we move on to Playbook? Yeah. So uh there's one thing that we didn't discuss from the history, uh, and I think it It really belongs here in in the playbook and and for new listeners that uh are listening as part of Pottipalooza or or otherwise. This is the time when we sort of talk about themes that we pull out from the story and that is the playbook that that uh Intel ran that we can try and run in our businesses um or that we might look out for in uh in history rhyming.

1:09:42 Th the one in this story that really jumped out to me is the power of middle management. So a a thing that we didn't totally touch on was when Andy's going around You know, and and he's talking to his like mid level executives and he's saying, We're gonna get out of the in the memories business and the head of sales is like adamant and and pissed and he's you know throwing a tantrum and his you know his number next to his name and everybody under him is about cell memory and so you know then he goes to the factory and that their whole livelihood is based on this. So the head of the factory saying, There's no way like think about it, you know, we there's no way we can retool this whole thing. And meanwhile

1:10:19 The people who are actually really close to the customer, the people that are really close to the product, not 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. And so by the time the changes sort of trickle down to them. The middle management's like, Oh yeah, no, no, no, we definitely need to be doing way more in CPUs. And we sort of have a plan for that, because like while there's all this politicking and infighting at the top, like Yeah, we had a plan. No, it wasn't coordinated, it wasn't cohesive, but everybody sort of had assembled the resources that they needed to to make this happen and operationalize whatever came down when it came down.

1:11:00 Well Andy writes a bunch about this in the book. Like Like the this group of people, like you said, that are not Nigh enough of the company that they're removed from customers and caught up in all this political infighting, but they they're actually close to the actual operations and and customers. They were already doing this. They had already like just organically started

1:11:22 reallocating resources away from memories and into CPUs. Yeah. That's wild. Let's see, I've got a couple on here. We we've touched on a lot already. one of the biggest ones that I wanted to talk about we already have, which is like the time to start experimenting and and figuring out, you know, your next your response to the next strategic inflection point is well well before that happens.

1:11:44 But a couple other things. I wanna underscore again this like What it means to to be a commodity or not be a commodity in the market. Like

1:11:55 You are not gonna build a great And by great, I mean long term sustainable enduring business if you are selling a commodity. Like it's just not gonna happen. You you can start by selling a commodity and participating in a commodity marketplace, but you need to have a plan and a path to Either shift the commoditization to another layer of the stack, which Intel and Microsoft did incredibly well in the PC. uh wave of the it was the manufacturers themselves that got commoditized, or to introduce something about What?

1:12:30 You're doing and your product that allows you to have power over your competitors. Like Amazon has done this in e commerce, 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 Um, you know, whether that's prime delivery or selection or just what, that like They have they have a power advantage.

1:12:52 So I think that's that's one. And then the last two These are Smaller ones, but I think appropriate. Also for adapting that I wanted to cover.

1:13:01 That Andy talks about. You know, one he he says this quote and You know Sequoia said this in the Black Swan memo. I think Rulf said it in our in our interview with him. Andy says, looking back over my own career, I have never made a tough change, whether it involved resource shifts or personnel moves that I haven't wished

1:13:20 I had made a year or so earlier. I think the Sequoia version of this that they say in the Black Swan memo is nobody ever regrets acting swiftly, uh or something like that. It's just a good thing to to keep in mind and related to that, you know, when Andy And and Gordon.

1:13:37 fired themselves and ceremonially fired themselves and rehired themselves, like Doing something like that is so important because like Without Some performative action like that. Like It can be so hard to make the decisions you know you need to make. Yeah, it was giving themselves permission.

1:13:55 Yeah, yeah. And Andy and D mentions that and only the Paranoid Survive too, that that a lot of times when companies bring in external new CEOs, they may be just as smart as the current CEOs, but they have one distinct advantage, and that is they don't have the baggage of the way that everything has been thought about internally, and so they actually can act And do the things that need to be done without being weighed down. Yeah. And then that brings me to the the the last point. The last one I wanted to highlight.

1:14:23 Which is just like learning, being a learning machine. And that's something Andy did so well throughout his whole life. I mean even going all the way back to being a kid in Hungary. He writes, Don't bemoan the way things were. They will never be that way again. Pour your energy, every bit of it, into adapting to your new world, into learning the skill 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.

1:14:53 It's like Boy, and what a good one 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 me 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.

1:15:10 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. uh take to heart there. Yeah. I mean, especially again coming from someone like Andy who like

1:15:23 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 b many of us, uh hopefully very few of us listening to this have ever been through. Yep. Um

1:15:41 All right. Anything else you got in Playbook? Nope, that's it. Carvouts? Carvets. Let's do it. You want to go first? Yeah. So I've been on a uh Michael Lewis tear recently during the uh

1:15:54 staying at home time that we're in. And I most recently read uh The Fifth Risk. That was one that launched with a lot less fanfare than you know Michael writing Muddy Ball or Liar's Poker Or uh Flash Boys. Flashboys, yeah. Th and I felt like this one was definitely uh a little bit less sort of Glorified. But it's an amazing

1:16:18 that are basically the handbook of how to run the federal government. And I wouldn't call it like the complete handbook on how to run the federal government, but it was basically when the Trump transition team basically didn't happen and all the sort of former I I'd call them the Obama administration, but really it's the public servants that had been in government for a long time were 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 gotta know how to operate the levers here and like what all these different departments do and what budgets are for and and nobody kind of showed up. to take that from them and say, cool, like we would love to take what you did and learn from it and build on it. And we're gonna go do something very different, of course. Nobody showed up to learn like how to operate this crazy machine. And so there's this unbelievable fodder for a book, and Michael Lewis realizes this and he starts going around to all the people who helped sort of assemble transition materials and you say, Well tell me about it.

1:17:14 And and I'll and I'll write a book. And it's all these crazy cool stories that really do make you understand. how the government sort of got this brand for stodginess and how uh the US government became a thing that you didn't want to go do, whereas in the fifties, sixties, you know, there was like r reverence for it. You're a government employee. Like you're you're going in, you know, you're a public servant or you're doing something innovative or you're, you know, on the cutting edge. And now it's kind of this like

1:17:42 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.

1:17:55 In the forties 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. Yeah. Yeah, and so I found this book to be sort of three things. One, kind of crazy to read in this moment that we're in in right now. Two, a really good explanation of

1:18:13 how working for the government got the sort of brand that it has right now. Despite I don't think that really being true. I think like public servants and especially people that aren't elected but sort of go into public service Just to work at on hard problems that uh exist in government to s serve everyone. Like Yeah. brilliant, thoughtful, driven people that are totally m sort of mismarketed or misbranded. And then the third piece of it is really understanding like

1:18:42 what a lot of the pieces of the federal government are for, of course, I'm this is a very US centric view, that I just never really understood before. It's by no means comprehensive, but it's an interesting sort of s several slices of instructions on how to run the government. I sort of never have had more S service level understanding, but reverence for why infrastructure in an organization like that sort of needs to exist. Yeah, totally. I r I I need to go read it. I remember when it came out and just like you said, like I um

1:19:11 I was like, Oh my new Michael Lewis book, love Michael Lewis books, but uh, you know, like I don't know, I d I just missed that one. So Yeah, have to go back and read it. Alright, mine. is notion.

1:19:23 Uh so the hot Buzzy. Productivity company. that just raised fifty million dollars at a two billion dollar Valuation. Uh

1:19:33 And Famously what was it? They raised like an angel round of I think ten million dollars and an eight hundred million dollar valuation before that. Yeah. I think it was one V C Firm in so you can call it a venture round. Okay, okay. But it was led by like other CEOs and angels, right? Yeah. That was Pre- the world we're in now. So I tried it around that time when I first started hearing about it. And I was like, well, if I don't get this thing, it is like Way too complicated. I don't understand what's going on.

1:20:01 I got inspired to try it again. And I totally get it now. And I've become like a huge convert. I've moved most of my productivity over to it. And what I think is cool about it. I don't know if they think about it this way or I haven't heard anybody else talk about it. It really reflects the the whole no code movement. And like we've explored no code a bunch on on the L P show here and we're

1:20:24 just gonna keep doing more and more on acquired. Like I think we both think it is like such a huge powerful movement in technology right now. But what I thought was so cool about Notion is it's like This was the first time I'd seen that same kind of principle of like you don't have to be a developer

1:20:41 To create things and to shape your software that you're using in an actual consumer Application. So like what I mean by that is

1:20:52 What's hard and confusing about Notion at first is It's not like a You know, if you use like Wonderless back in the day, which I used to love, like Wonderless, like the UI designers and the developers at Wonderlist and like the team there, they decided how it worked. They were the product designers. You used their vision and it was great. What's cool about Notion is that like

1:21:13 You have the power. To shape the software. as you want it to your purposes. So like I've built In notion. a task management system that I've completely designed all the UI for

1:21:28 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, but uh like whoa, that's so powerful. So Big fan. That's cool. It's like moving the uh accessible abstraction layer up one notch.

1:21:46 Yeah, totally. And it makes you it makes you feel like uh Uh super powerful. That's cool. Yeah. All right, listeners.

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1:22:58 Thank you for joining us on this journey. If you are not currently subscribed, uh to get more required episodes and you want to. w you should. You can do that on our website at acquire dot fm or in Literally anywhere where you can listen to podcasts. Um we appreciate you, uh Both listening to this one and giving other episodes a shot too.

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