Founders - #29 The HP Way: How Bill Hewlett and I Built Our Company

Episode Date: July 2, 2018

What I learned from reading The HP Way: How Bill Hewlett and I Built Our Company by David Packard.---[0:01] How Steve Jobs was inspired by David Packard[1:00] Books are the original hyperlinks[4:30] Profit is the measure of how well we work together[9:00] HP's first product[11:00] Podcasts before podcasts[14:00] Many of the things I learned in this process were invaluable, and not available in business schools[15:00] More businesses die from indigestion than starvation[16:30] The importance of maintaining a narrow focus[20:00] Growth from profit[21:00] Lessons from the Great Depression = No long term debt[26:30] A Maverick's persistence[29:00] How to avoid layoffs in a recession[30:20] Employees should outgrow you[31:00] The perils of centralization[35:00] Closing with optimism ----Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work.  Get access to Founders Notes here. ----“I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — GarethBe like Gareth. Buy a book: All the books featured on Founders Podcast

He had neither Ellison's conspicuous consumption needs, nor Gates' philanthropic impulses, nor the competitive urge to see how high on the Forbes list he could get. Instead, his ego needs and personal drives led him to seek fulfillment by creating a legacy that would awe people. A dual legacy, actually. Building innovative products and building a lasting company. He wanted to be in the pantheon with indeed a notch above people like Edwin Land, Bill Hewitt, and David Packard. And the best way to achieve all of this was to return to Apple and reclaim his kingdom. Welcome to Founders. This is my podcast about the biographies of entrepreneurs and founders. For every podcast, I the biographies of entrepreneurs and founders.

For every podcast, I read the life story of someone who created something special, and then I share some of the ideas that I found interesting from the book. Now, what I just read to you is an excerpt from the book Steve Jobs by Walter Isaacson. And I wanted to start there today because of this idea that I've talked about on several podcasts before. And the idea that books are the original hyperlinks, that they can lead you from one idea to another idea or from one person to another person, allowing you to go deeper in whatever subject you're learning about. And today's podcast is an illustration of that idea. I was introduced to David Packard because Steve Jobs' book that I read and also did a podcast on a few months ago, that book referenced Bill Hewitt and David Packard a lot.

That piqued my curiosity and when I went searching for books about them, I found David Packard's book, The HP Way. And that is the one I want to talk to you about today. So before we jump into this book, today's podcast is brought to you by Blinkist. Blinkist is an app that puts big ideas from the world's best nonfiction books in powerful little packs that you can read or listen to in just 15 minutes. So when I was thinking about how to describe Blinkist, the idea that stuck out most of my mind after using it is I would describe Blinkist this way. So what would happen if you hired a bunch of people to read nonfiction books for you and then distill the most important information into a 15-minute summary? Well, that's exactly what Blinkist has done. And you can access their entire library of over 2,200 plus nonfiction book summaries on your phone to either read or listen to.

Over 5 million people have downloaded Blinkist. Blinkist's app has been nominated by Apple as one of the best in the app store. Blinkist has received the World Summit Award granted by the United Nation in the learning and education category, as well as a Google material design award for brand expressiveness. So if you're interested in learning more about Blinkist, you can go to blinkist.com forward slash founders. That's B-L-I-N-K-I-S-T.com forward slash founders, and you can get 20% off and start learning faster today. Okay, so let's get into the book, The HP Way, How Bill Hewitt and I Built Our Company by David Packard. So as I've mentioned a couple other times before,

I've really been enjoying the autobiographies that some founders write because there's no fluff. And this is another example of that. This book is only about 190 pages and he moves very rapidly through his life story and then spends the bulk of the book detailing his thinking around how to build a successful company. Let me read this one paragraph from the prologue. I think it's a good introduction of why I would recommend reading the book. This is David Packard speaking. During the first few years of operating the Hewlett Packard Company,

Bill and I developed a way of doing things, a management style, that included some features not common to management in those days. This became known as the HP way. This book is the story of Bill Hewlett and me and the Hewlett Packard Company, which we spent our lives building and operating. I'm just going to jump right into a series of ideas that I highlighted and I found were really interesting. This is an excerpt actually from a speech he was giving to HP managers several years after the successful founding of the company. So this is actually him talking in 1960 and something he hits on a lot. So he goes, last of all, I want to say that

I've mentioned our primary objectives, but none of these can be accomplished unless the company makes a profit. Profit is the measure of our contribution to our customers. It is a measure of what customers are willing to pay us over and above the actual cost of an instrument. Only to the extent that we can do something worthwhile, can provide more for the customer, will he year in and year out pay us enough so we have something left over. So profit is the measure of how well we work together. It is really the final measure because if we cannot do these things so the customer will pay us, our work is futile." So, skipping ahead a little bit, he comes up with the idea to form his own company with

Bill Hewitt while they're still at Stanford. And a huge influence on them was one of their professors named Professor Turman, who's actually really played an integral part in establishing the Hewlett-Packard company. But before that, because this is taking place in the 1930s, he has to delay his plans to start the company to get a job. And then this section will also serve as another introduction to our ongoing series of critics don't know shit, which is just in almost all of these books, I would say that I'm reading about founders and entrepreneurs. There's multiple examples of before they were successful, what they were trying to do, other people trying to tell them that what they were doing is a waste of time. So I little tongue in cheek, I refer to that as

critics don't know shit. David Packard is much more polite than I am, and we're going to see here in the last paragraph. So let's go right to his words. But our plans were set aside when, in the spring of 1934, I received a job offer from General Electric. The country was then in the throes of the Great Depression, and jobs were scarce. This is the professor. Terman encouraged me to take the GE job, pointing out that I would learn a great deal that would provide useful in our own endeavor.

I drove up to begin my job with GE. On my first day, I met with a Mr. Boring who had interviewed me at Stanford. He knew of my interest in electronics. At the time, electronics was still called radio, but told me there was no future in electronics at the time. Electronics was still called radio. But told me there was no future for electronics at General Electric and recommended that I concentrate my work and interest on generators, motors, and other heavy components for public utility plants

and electrical transmission systems. I have often thought of the irony of Mr. Boring's advice because our electric firm, Hewlett-Packard Company, has become larger than the entire General Electric Company was at the time he gave me the advice. And this is his description of the first meeting of the company that would later become HP. During my first visit to Palo Alto, I got together with Bill Hewitt, and at the time we had our first official business meeting. The minutes of the meeting, dated August 23, 1937, are headed, Tentative Organization Plans and a Tentative Work Program for Proposal Business Venture. 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. Our proposed name for the company? The Engineering Service Company. So in the book David goes at great lengths to talk about how important relationships are with people. He specifically talks about how important his relationship with people. He specifically talks about how important his relationship with his co-founder was and some of the activities and things they did to further understand each other and to become like a more cohesive unit.

And then he also expounds on that because he talks a lot about managing different personalities and stuff. But this part, he talks about the benefits of being different, of having, even though they had similar interest they were also very different people and he felt that uh that benefited this difference benefited hp in the long run so here he's talking about his co-founder they also

revealed something we hadn't planned but that was of great benefit to our partnership namely that our abilities tended to be complementary bill Bill was better trained in circuit technology, and I was better trained and more experienced in the manufacturing process. This combination of abilities was particularly useful in designing and manufacturing electronic products. Something else I found interesting was how they decided how to name the company. And it said, we flipped a coin to see whose name would come first in the company needless to say bill won and then on the very next page they talk about uh well here's a nice little story of hp's first product bill's audio oscillator represented the first practical low cost method of generating high-quality audio frequencies needed in communications, geophysics, medicine, and defense work. The

audio oscillator was to become the Hewlett Packard's company's first product. In November we built a model of the audio oscillator and took it up to Portland, Oregon to an Institute of Radio Engineers conference. The response was positive enough that we decided to make a run for it. There we took pictures of it and produced a two-page sales brochure that we sent to a list of about 25 potential customers. We designated this product the Model 200A because we thought the name would make us look like we'd been around for a while.

We were afraid that if people knew we'd 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 weeks of January, came back several orders, and some were accompanied by checks. So I included that part, like I try to do it every podcast, because we're probably familiar with HP and all the success they had is building into like a multi-billion dollar company over 70, 60 or 70 so years. But like Jeff Bezos always likes to say, like he compares the building of a new business to like the, an acorn growing into a large oak I always like to remind

myself and and I said extension that you of the beginnings are always humble everything starts small this company that was gigantic winds up doing billions of dollars a year in revenue probably hundreds of thousands employees it started off with one product and a mail it they took some pictures of and mailed out to about 25 people. So you can't get, you know, much smaller than that. There's a note on the next page that I left myself that says podcast before podcast. And you'll see what I mean about that. So they meet this guy, Charlie, who's really interesting character in his own right.

Charlie Litton. He was just one of those guys that could do everything, and he did everything for himself. Really just genius inventor and an all-around interesting person. But he was doing something that heavily influenced David Packer, which I'm going to tell you about now. So Charlie did something else important as well. He loved to expound and philosophize on new ideas. And whenever he wanted to learn more about something, he'd organize a seminar at his shop and invite me and a few other people, usually from Stanford. These seminars

occurred several times during 1938. I can remember a number of discussions about physical phenomenon such as wave theory and quantum mechanics. We also talked about business philosophy. Charlie was very conservative in this regard. As eccentric as he was, he knew you had to support your company and pay your bills. I learned a lot about running a business from those conversations.

And the reason I left a note that said podcast before podcasts, because there's tons of things to the internet. There's obviously tons of different ways that you can learn video lectures, YouTube, books, everything else. But I learned a lot in addition from reading, from listening to podcasts. And a seminar that had David Packer and a few other people from Stanford and Charlie Litton back in 1938, you could only consume that information if you were physically present.

And I think the wonderful thing about podcasts and why they're so important to my life now is because it allows you to be like a fly on the wall in some conversations that you may not otherwise be able to access in your day-to-day life. And I just think, I tell my daughter all the time, like you have no idea how lucky you are that you're born, like you're born where the internet was around forever, like, since you've been alive. And,

I don't know, just such a great invention for all of humankind. All right, so let's keep skipping ahead. Oh, this was really interesting, too. Something very surprising. So they start work in 1938 and they're in their first full year. It says at the end of 1939, our first full year in business, our sales totaled $5,369 and we had made $1,563 in profits. We would show a profit every year thereafter. And again, I just included that because we know HP is a multi-billion dollar company, even though they've really struggled the last 10, 15 years since the founders died and are no longer in charge. But they started out with their first full years of sales of $5,000. So on a few pages later, again, David just has a really no-nonsense way of talking,

just delivering the information that is helpful to you he talks about the the benefit of having to do everything yourself at the uh in the early stages of a company and it says in those early days bill and i had to be versatile we had to tackle almost everything ourselves from inventing and building products to pricing packaging and shipping them from dealing with customers and sales representatives to keeping the books. From writing the ads to sweeping up at the end of the day. Many of the things I learned in this process were invaluable and not available in business books.

This other, I love, this quote I'm about to tell you is something, so I read this book last, I think, for the first time, maybe six months ago or something like that. And I highlighted this section the first time I read it and it stuck with me to the point where I use this quote in conversation. So it says, he's talking about what he learned

from a banker who, he went to go see this guy. They wanted to take out like a loan just so they could build some products, like a short-term loan. Got turned down by the first bank, winds up going to the second bank, and they wind up having a successful relationship over the next few decades. But he tells David something that he remembers his whole life. So he goes, I spent a full afternoon with him and I have remembered ever since some sage advice he gave me. He said that more businesses die from indigestion than starvation. I have observed that truth, the truth of that advice many times since then. So let me just repeat that. He said more businesses die from indigestion than starvation. It's also a warning not to take out more debt than he could handle at the time.

And something that stays with him the whole time. So Bill and David had a very anti-debt stance. And I think we're going to cover that in a little bit. So skipping right ahead. This is the impact of World War II on HP's business. HP was not a defense contractor in the sense of designing and building equipment solely for the military. But since much of our equipment was bought by military services and by defense contractors, we grew rapidly during the war. Our annual sales volume moved up to a million dollars very quickly. by the end of the war we employed over 200 people."

Oh I like this idea too. So this is David Packard on maintaining a narrow focus. Though these instruments differ from one another, all were designed to measure and test electronic equipment. They reflected our strategy to concentrate 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, not only in the early days of the company, but later on as well. So what he's talking about there is there was a couple times where like a large customer would come to them, and especially especially during the war they would offer them these huge production contracts but they would decline them because they thought they were out of the scope of what

they were capable of and if they ramped up to meet production they didn't think it would be sustained and they weren't interested in building fast uh only for the sake of it collapsing so they wanted like a solid base by doing what they did best, is the quote that he used. So as he becomes more successful with HP, he spends time like buying up land and he becomes a cattle rancher. And then ever the student, David Packard takes away some lessons from cattle ranching that he applies to managing his ever-growing enterprise. So this is him speaking again. I have enjoyed many pleasures as the result of my experiences as a rancher. I've also learned a thing or two. Every season we would round up the cattle from

the range and drive them to the corral. I think it's 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 applying steady, gentle pressure from the rear worked best. Eventually, one would decide to pass through the gate and the rest would soon follow. Press them too hard and they'd panic, scattering in all directions slack off entirely and they just head back to their old grazing spots this insight was useful throughout my management career and skipping ahead a little bit here's I think what he's talking about here is company culture before the term company culture was widely used so he says any, any group of people who have

worked together for some time develops a philosophy, a set of values, a series of traditions and customs. These in total are unique to the organization. So it is with Hewlett Packard. We have a set of values, deeply held beliefs that guide us in meeting our objectives, in working with one another, and in dealing with customers, shareholders, and others. Our corporate objectives are built upon these values. These objectives serve as a day-to-day guide for decision making. To help us meet our objectives, we employ various plans and practices. It is the combination of these elements are values, corporate objectives, plans, and practices that forms the HP way. So this is taking place about halfway through the book. And then for the rest of the book, almost every chapter is built around one of their core values. So I'm not going to,

like I do with everyone, I'm not going to read every single objective. If you're interested, obviously read the book because there's going to be every single objective. If you're interested, obviously read the book because there's going to be things that stick out to you based on your own experiences that maybe I didn't pick up on. But I do want to talk about some of them. And this is this idea where the first one he talks about is growth from profit. And so, well, let me start there before I jump ahead. At Hewlett Packard and other companies as well, people's materials, facilities, money, and time are the resources available to us for conducting our business. By applying our skills, we turn these resources into useful products and services. If we do a good job, customers pay us more for our products than the sum of our costs in producing and distributing them.

This difference, our profit, represents the value we add to the resources we utilize. That's a really interesting definition of profit. The difference, our profit, represents the value we add to the resources we utilize. Profit as a representation of the value added to the resources utilized. I like that idea a lot. It is impossible to operate a business for long unless it generates a profit. And so if a company is to meet any of its other objectives, it must make a profit. So on the very next page, left a note, it says no long term debt. long-term debt and we're going to see how his uh early like growing up during the depths of the depression uh made a lasting impact on how he managed his business so it said 60 years ago keep in mind he's writing this book a few years before he dies so i think it was written in the 90s maybe the early 2000s okay so 60 years ago our country was in the depths of the great

depression thousands of businesses had shut their doors and one of every three people in the labor force was out of work. Bill Hewitt and I were raised during that depression. I think eventually I'll be able to pronounce the last name of Hewitt. I think I've said it like six different ways every time. Back to the book. We had observed its devastating effects on people, including many families and friends who were close to us. Now, this is a really interesting experience he's going to have here.

My father had been appointed as a bankruptcy referee for the state of Colorado. When I returned to Pueblo during the summers of the 1930s, I often helped my father in looking up the records of those companies that had gone bankrupt. Here's this really important observation. I noted that the banks simply foreclosed on firms that mortgaged their assets, 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.

From this experience, I decided our company should not incur any long-term debt. For this reason, Bill and I determined we would operate our company on a pay-as-you-go basis, financing our growth primarily out of earnings rather than by borrowing money. We knew self-financing was possible because General Radio, a company we admired, had been in business several years, had been successful, and had never sought outside financing. Our feeling was if they could do it, we could do it.

And we have done it for more than half a century. So I think there's two important things there. One, I empathize with this point about low long-term debt. So we didn't live, people listening to this right now didn't live through the Great Depression, obviously, or not many people lived or old enough to live through the Great Depression. But we did experience the global recession, real estate slowdown in the late 2000s. And you realize that what he was saying here, that I noted that the banks simply foreclosed on firms that mortgaged their assets and they were left with nothing.

And then comparing that to those firms that did not borrow money, had a difficult time, but they ended up with their assets intact. I think you could say the same thing about people that were highly leveraged in real estate and you saw the detriment that did, that most of them blew up and lost everything. Whereas opposed to people that were not specaged in real estate and you saw the detriment that did that most of them blew up and lost everything where as opposed to people that were not speculating in real estate uh they might have temporarily lost some money let's say they had money in the market or whatever the case

may be but as long as they didn't panic they've been restored their wealth has been restored almost wholly by that by now um and that's something that stuck with me. So I talk about the impact that books have had on me. And one of the most impactful books that's just fundamentally changed my worldview was The Big Short by Michael Lewis. The reason I say that that book was so impactful to me is because you realize that there was about 100 people or less that profited handsomely off of the mass delusion that everybody was engaging in. So everybody thought, okay, real estate's going up, up, up. There's a huge opportunity. And there's like this mass hysteria. And then you have a small group of contrarian thinkers or

people thinking from first principles realizing, oh, this is the error. And not only do they believe it, but they put their money behind it. Okay. So I had to go look it up. This is the part in the big short that I found really perspective altering is maybe the way to put it. So the guy's name is Steve Eisman. And he said, he'd go to meetings with Wall Street CEOs and ask them the most basic questions about their balance sheets. They didn't know, he said, they didn't know their own balance sheets. Once he got himself invited to a meeting with the CEO of Bank of America, Ken Lewis, I was sitting there listening to him. I had an epiphany. I said to myself, oh my God, he's dumb. A light bulb went off. The guy running one of the biggest banks in the world is dumb. They shorted Bank of America along with UBS, Citigroup, Lehman Brothers, and a few others.

So the reason I say that is because that it fundamentally changed my outlook on life is because there's a lot of emphasis that humans put on of accumulating credentials, like going to a specific school or becoming the CEO of a large company or becoming a partner at a law firm. And these are like heuristics that are supposed to be shortcuts for us to identify people that know what they're talking about compared to people that don't. And then you realize that almost nobody knows what they're talking about. And in that situation, like you had somebody like Ken Lay, who didn't even know his own balance sheet, didn't understand the risks that his banks were taking, and then winds up with a multi-billion dollar loss. So hopefully that rant made sense to you. But the second part that I thought was important about the no long-term debt section from the HPE way was that they realized that they could self-finance because they saw other companies that they admired general

radio in the sense that uh that had done so already and i think that's part of the reason why reading these books and doing this podcast is important to me because it's a way for me to learn from people that i uh that i admire even if i didn't live at the same time that they did. There's this great little anecdote in the book called A Maverick's Persistence. I just want to read this thing in full to you. Earlier, I mentioned that sometimes management's turndown of a new idea doesn't always effectively kill it. Some years ago at an HP laboratory in Colorado Springs devoted to oscilloscope technology, one of our bright energetic engineers, Chuck House, was advised to abandon a display monitor he was developing. Instead, he embarked on a vacation to California, stopping along

the way to show potential customers a prototype model of the monitor. He wanted to find out what they thought, specifically what they wanted the product to do and what its limitations were. Their positive reaction spurred him to continue with the project even though on his return to Colorado he found that I, among others, had requested it to be discontinued. He persuaded his R&D manager to rush the monitor into production and as it turned out, HP sold more than 17,000 display monitors, representing sales revenue of $35 million to the company. Several years later, at a gathering of HP engineers, I presented Chuck with a medal for extraordinary contempt and defiance beyond the normal call of engineering duty. So a few chapters

later, he has a chapter called Trust in People. It's one of the tenets of the HP way. But I highlighted just one paragraph. It's about continuing education as a requirement since techniques lose relevancy. So this is him speaking. If an organization is to maximize its efficiency and success, a number of requirements must be met. One is that the most capable people available should be selected for each assignment within the organization, especially in a technical business where the rate of progress is rapid. A continuing program of education must be undertaken and maintained. Techniques that are relevant today will be outdated in the future, and every person in the organization must be continually looking

for new and better ways to do his or her work. In the same chapter, they talk about, there's two other ideas that he has that I love. And it's called, one is his unique idea on how to avoid layoffs during a recession. And the other is this idea that employees should outgrow you, which I haven't come across too frequently. So let's handle the layoff thing first. Another example of sharing, though, in a much different way occurred in 1970. Because of a downturn in the U.S. economy,

our incoming orders were running at a rate quite a bit less than our production capability. We were faced with the prospect of a 10% layoff. Rather than a layoff, however, we tried a different tack. We went to a schedule of working nine days out of every two weeks, a 10% cut in the work schedule with a corresponding 10% cut in pay. Okay, so they're going to try to avoid laying off people. What they're going to say is we're going to cut your pay 10%, but we're going to cut your work back 10% as well. This applied to virtually all of our U.S. factories, as well as to all executives and corporate staff. Now keep in mind, at the time this is happening, HP has already been in business for over 30 years.

At the end of a six-month period, the order rate was up again, and everyone returned to a full work schedule. Some said they enjoyed the long weekends, even though they had to tighten their belts a little. The net result of this program was that effectively all shared the burden of the recession. Good people were not released into a very tough job market, and we had our highly qualified workforce in place when business improved. And then this idea of employees should outgrow you. Some people have left HP and have successfully started their own companies. There are at least a dozen of these entrepreneurs and their companies now employ more than 40,000 people.

That's amazing. Are we upset that they left us? On the contrary, Bill and I understand and respect the entrepreneurial spirit. And we are pleased and proud that they once worked with us and have done so well. We are also flattered that in building their companies, they have adopted many of the management principles and practices embodied in the HP way. And he has a section called the perils of centralization, which is something I'm, I think, predisposed to like.

So it says, it has been my experience that most business executives are quick to praise the concept of decentralization. But when it comes to their own organization, many are reluctant to adopt. Perhaps the idea of turning over a portion of their authority to others is too unsettling. From personal experience,

I've learned that even widely decentralized companies should be alert to signs of cumbersome centralization. HP had a real test in this regard. So he's going to go into a part when they were getting, when they were in a downturn, and then how him and Bill managed to bring the company back to life. Beginning back in the 1970s, when it was clear that a good deal of our future business lay in computers and computer-related products, many HP managers began to look at IBM as the model company. IBM's organizational structure was highly centralized, and many thought that was the way to go. Another factor pushing the trend towards centralization was the new demands placed on the HP organization by the computer business.

Prior to entering the computer field, the HP organization was structured for the instrument business with decentralized divisions responsible for well-defined product lines and operating with a good amount of independence. So he's talking about the struggles of transitioning from entire, basically reinventing the company, transitioning to an entire new product line. This structure had worked very well for instruments

and some thought it could be applied with equal effectiveness to computers. But working against that idea were two principal characteristics of the computer business. One, new to HP, was the whole area of software. How do you organize to produce software? Where does it report? What types of people and skills do you need? Second, the computer business is a systems business. It requires many elements, software, mainframes, peripherals, operating systems, to be combined in a saleable product supported by strong service and maintenance. Good coordination is essential. I think what he's describing in that paragraph is exactly what made Apple so successful.

HP responded to these challenges by trying various forms of organization. There were divisions, group structures, then various task force, councils, and committees intended to prove coordination. I think you can already see, based on that sentence, where this is going to go. Over time, these efforts began to create a complicated bureaucracy.

Problems needed prompt and intelligent decisions were being referred through level after level of management with unwieldy committees. Decisions were often postponed for weeks or even months. By 1990, we faced a crisis. Committees had taken over the decision making process at HP and decision cycle times had ballooned. So before I continue, think about this. When he started talking about the perils of centralization, he's talking about the transition that was happening back in the 70s. This slowly built up almost unabated for almost 20 years. So now he's in by 1990, we're in a full-blown crisis. Committees had taken over the decision-making process at HP,

and decision cycle times had ballooned. For example, one central committee, the Computer Business Executive Committee, was intended to achieve a better focus and coordination for computer activities. Instead, it was slowing vital decisions just as our company entered the lightning-fast competitive world of computers in the 1990s. In fact, the paralysis was spreading to areas of the company that had nothing to do with computers.

That we were struggling was no secret. Our stock had fallen to $25 a share. And this is where they're fixing it now. Bill and I began systematically visiting several HP facilities and meeting with employees at all levels of the organization to find out what really was going on. Eventually, we knew what we needed to do. Too many layers of management had been built into the organization. We reduced them. Needless to say, the Computer Business Executive Committee was disbanded, as was much of the bureaucracy.

Most important, computer operating units were given greater freedom to create their own plans and make their own decisions, resulting in a much more flexible and agile company. By 1993, our stock was up to $70 a share. And I want to close with a little bit of optimism here, which I think is a good default mode. 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 21st century than it has been in the 20th century. Hewlett Packard Company is a good case in point. It took 40 years for the company Bill Hewlett and I started in 1939 to reach $1 billion in annual sales, and a major part of that was from inflation. So 40 years to reach $1 billion. In the 1994 fiscal year that ended last October, we began the year with $20 billion in worldwide sales and added $5 billion to that by year's end. This occurred with essentially no inflation.

Other technology companies have shown similar growth. Just as it has in the past, our growth in the future will come from new products. In 1994, we spent $2 billion in the new product development. Beginning by 1939, we generated at least $6 of profit spread over five or six years for every dollar spent on new product development. And this is a really important point I think he makes here. By new products, I mean products that make real contributions to technology, not products that copy what someone else has done. This must be our standard in the future, just as it has been in the past.

Recently, there has been much discussion about developing an information superhighway. This can be accomplished with products and technology already in place. And this is, I think, is his most important part of this entire section. The 21st century, however, will be much more than an information age. It will be an age in which many kinds of new products contribute to a better life for all the people in the world. Our company will work hard to contribute its share. So I just wanted to close with that little note of optimism that we are unbelievably lucky to be alive when we are.

The fact that what he's saying, that we're in the age of countless new products that can contribute to the betterment of everybody. So if you like the podcast that I make and you want me to make more, please go to Apple Podcasts or iTunes and leave a five-star rating. You can leave a review too. I'll read what you write there. I've read all of them so far. But even if you listen to it on other podcast players, Apple Podcasts, it's super important because the more ratings that this

podcast gets and the higher the rating is, the more it's going to be shown to other people, which means just more people are hearing these ideas. And if you're a fan of entrepreneurship and founding and building things, like I consider myself an evangelist for these ideas, these ideas can be really powerful, especially the ideas, uh, written, written in these books. So hopefully by leaving a rating and leaving a review and it helps spread the word for this product, uh, this podcast rather. And, um, if you've already left reviews, um, and you haven't done an Apple podcast, I mean, do it anywhere. If you listen to Stitcher, wherever you're listening to this at now, but also share this with your friends, uh,

entrepreneurs or people interested in founding, founding companies, building new products, wherever you're listening to this at now. But also, share this with your friends. Entrepreneurs or people interested in founding companies, building new products, they usually run in packs. So if you like it, I'm sure some of your friends might like it. And I just appreciate the favor if you help me spread this message. Other than that, I'll be back very soon. Actually, I'll be back next Monday with a new podcast. Thanks for your time, and I'll talk to you soon.