Books – Page 148 – artdiamondblog.com

Kroc Increased the Mortgage on His Home to Regain Control of His First Entrepreneurial Venture

Ray Kroc was the founder of the McDonald’s chain, who wrote an autobiography called Grinding It Out. Back on August 12, 2009, I made a few comments on the book, and said that in some future entries, I would be quoting a few passages that I thought were worth remembering.
Well, the future has finally arrived.
Kroc’s first entrepreneurial venture was Multimixer, a machine that efficiently made milkshakes. Kroc had sold a controlling interest, and wanted control back:

(p. 56) “All right,” I said, “how much?”

I don’t know how he kept from choking on his own bile as he mouthed the figure: “Sixty-eight thousand dollars.”
That’s all I remember of our conversation. I’m sure I said something. But I was so benumbed by his outrageous demand that I couldn’t think straight. To add acid to the irony, he wanted the whole thing in cash. Of course, I didn’t have that kind of (p. 57) money. So what we worked out was the culmination of the devilish deal he had tied me to. I had to agree to pay him $12,000 cash. The balance was to be paid off over five years, plus interest. My salary had to remain at the same level and my expenses in the same range. So, in fact, what I was doing was paying him the profits of my company.
I didn’t know where in the hell I was going to raise the money, but I had made up my mind to do it. In the end, most of the cash came from my new home in Arlington Heights. I managed to get an increase in the mortgage, much to Ethel’s dismay. Her apprehensions about my becoming Mr. Multimixer had been laid to rest at this point, and I don’t think she ever got over the shock of discovering that we were nearly $100,000 in debt. She couldn’t seem to handle it.
For me, this was the first phase of grinding it out— building my personal monument to capitalism. I paid tribute, in the feudal sense, for many years before I was able to rise with McDonald’s on the foundation I had laid.

Source:
Kroc, Ray. Grinding It Out: The Making of McDonald’s. Chicago: Henry Regnary Company, 1977.

Entrepreneur Kurzweil Brought Sunshine to Stevie Wonder’s Life

(p. 265) On the snowy morning of January 13, 1976, . . . , there was unusual traffic on Rogers Street. Outside the gray one-story buildings with their clouded tilt-out windows, vans from various television channels maneuvered to park. A man from the National Federation of the Blind struggled over a snow bank onto the sidewalk and began tapping earnestly to get his bearings. A dark-haired young man set out on a three-block trek to the nearest vendor of coffee and donuts for the gathering media. In the room at number 68, two engineers poked at a gray box that looked like a mimeograph machine sprouting wires to a Digital Equipment Corporation computer. Several intense young men in their early twenties debated when to begin a demonstration of the device. The short, curly-haired leader of the group, twenty-seven-year-old Raymond Kurzweil, refused to start until the arrival of a reporter from The New York Times.

The event was a press conference announcing the first breakthrough product in the field of artificial intelligence: a reader for the blind. Described as an “omnifont character recognition device” linked to a synthetic voice, the machine could read nearly any kind of book or document laid face down on its glass lens. With a learning faculty that improved the device’s performance as it proceeded through blurred, faded, or otherwise illegible print, the machine solved problems of pattern recognition and synthesis that had long confounded IBM, Xerox, and the Japanese conglomerates, as well as thousands of university researchers.

. . .
(p. 266) Stevie Wonder, the great blind musician, called. He had heard about the device after its appearance on the “Today Show” and it seemed a lifelong dream come true. He headed up to Cambridge to meet with Kurzweil.

. . .
As Kurzweil remembers, “He was very excited about it and wanted (p. 267) one right away, so we actually turned the factory upside down and produced a unit that day. We showed him how to hook it up himself. He left with it practically under his arm. I understand he took it straight to his hotel room, set it up. and read all night.” As Wonder said, the technology has been “a brother and a friend . . . . without question, another sunshine of my life.” Wonder stayed in touch with Kurzweil over the years and would play a key role in conceiving and launching a second major Kurzweil product.

Source:

Gilder, George. Microcosm: The Quantum Revolution in Economics and Technology. Paperback ed. New York: Touchstone, 1990.
(Note: italics in original; all ellipses added except the ellipsis internal to the last paragraph, which was in the original.)

Self-Financing was Key to Chips & Technology’s Survival

At a key juncture, Gordon Campbell’s self-financing was essential to the survival of his Chips & Technology firm. Chips & Technology produced the chip technology that was the foundation of the clones of the IBM AT (286) PCs. And Chips & Technology turned out to be profitable after one year.

(p. 228) Campbell remembered the words of Nolan Bushnell: “You are not a real entrepreneur until you’ve got to meet a payroll from your own bank account.” There was truth in those words. There was a sense in which Gordon Campbell was still real a real entrepreneur.

If you are a real entrepreneurial hero, you do not get your start by rolling out of bed one morning in rumpled pajamas to answer the telephone at Oakmead Plaza and find that it’s the man from Kleiner-Perkins announcing you’ve won the lottery (for spinning out of Intel with Dr. Salsbury and the rest). Real entrepreneurs do not usually become paper millionaires and Ferrari corsairs in a public offering without ever experiencing the warm sensation of a profitable year. Raphael Klein had put up his house to save Xicor; he was an entrepreneur. In the desperate silicon panic of the summer of 1985, Gordy Campbell too was going to join the club.

The venture capitalists were all waiting for Campbell to fail. He had no chance of money from them. But other sources would also be difficult. Campbell had been careful to buy no real assets and channel all his money into intellectual capital. Morris Jones’s Amdahl 470–a powerful mainframe that ran the company’s CAE programs—was a second-hand machine, leased by the month. The rest of their CAD and CAE equipment was either designed by Jones and his team. including two defectors from Silicon Compilers, or it consisted of various IBM workstations. The company’s most valuable asset, beyond its ideas, was a compaction algorithm that Jones had developed from a Bell Labs model. It allowed the scaling down of CMOS technology into difficult non-linear volt warps near 1-micron geometries. Couldn’t mortgage that at a bank.

Campbell could scarcely believe what was happening to him. There was nothing to do but use his own personal money to keep the company afloat. But if the truth be known, his personal funds were running a bit low. It was out of the question, of course, to sell the Ferrari. He could hardly putter forth onto Route 280 and down toward Sand Hill Road like a beggar with some tin cup from Toyota. Campbell’s other wealth, though, was mostly in SEEQ stock that was then selling at $2 per share and going down.

Campbell would have to sell at the very bottom of the market and use his own last personal wealth to finance a company with no revenues and a burn rate of some $4,000 a day. He gasped and did it. He went through a couple of cliff-hanging months, with shortened fin-(p. 229)gernails. But the act of personal sacrifice was catalytic. Within a few weeks, several of the employees and other friends also put up some money, including $200,000 from his financial officer, Gary Martin. Before the year was our he had raised another indispensable $1.5 million from a number of companies in Japan, including Kyocera, Mitsui, Yamaha, and Ascii, Kay Nishi’s PC software firm that represented Chips in Asia. By July, the IBM graphics enhancement chip set was finished and Chips & Technologies was a company almost fully owned and controlled by its employees.

By July 1986, when the chip set for the IBM AT computer was finished, most of the world had decided that the AT would be the next major personal computer standard. In the United States, Tandy, PC’s Limited (now Dell), and several other then unknown manufacturers bought the Chips & Technologies set. Tandy became the leading AT compatible producer, assembling the computers in a factory in Fort Worth manned by immigrants from twenty countries led by an immigrant from Japan. Among the purchasers of the Chips set in Europe were Olivetti, Apricot, Siemens, and Bull. Nishi signed up NEC, Sony, Epson, and Mitsubishi in Japan; Goldstar, Samsung, Daewoo, and Hyundai in Korea; a number of companies in Taiwan; and the Great Wall Computer Company of China. Most of these firms –plus Compaq and a slew of producers of IBM add-in graphics gear–also were buying the graphics enhancement chip set.

At the outset. Campbell had boldly predicted profitability in a year and a half: In fact, the firm was profitable by the last quarter of the first year.

Source:

Gilder, George. Microcosm: The Quantum Revolution in Economics and Technology. Paperback ed. New York: Touchstone, 1990.

50 Venture Capital Firms Turned Down Campbell’s Chips & Technology

(p. 224) Campbell’s idea for a company was to use a silicon compiler to put those boards into custom silicon and to provide a means by which scores of companies could produce AT clones faster, cheaper, better, and more reliable than IBM’s.

Campbell drew up his business plan and brought it to some fifty venture capitalists. A moneyed yawn issued from Sand Hill Road, echoed down the canyons of San Francisco’s financial district, and reechoed through downtown Manhattan. A jaded group that had funded some forty very hard disk projects and some fifty rather floppy computer firms within the previous two years, venture capitalists eyed Campbell’s boyish manner and lightweight look and they contemplated his business plan (a personal computer chip project during a PC and semiconductor depression), and they identified the heart of his overall strategy (compete with IBM). They rolled the firm’s proposed name over their tongues: Chips & Technologies. Wouldn’t Microtech be better? Then they laughed nervously. Not this time, Gordy.
Finally, Campbell found a friend: Bill Marocco, who had built the SEEQ headquarters, and had once offered to support a future project. Marocco put up $1 million, and Chips & Technologies was off the ground.

Source:

Gilder, George. Microcosm: The Quantum Revolution in Economics and Technology. Paperback ed. New York: Touchstone, 1990.

Another Boeing BHAG Takes Flight

“Members of the public watched the first test flight of the Boeing 787 on Tuesday in Everett, Wash.” Source of caption and photo: online version of the NYT article quoted and cited below.

In their stimulating business best-seller Built to Last Collins and Porrus have a chapter in which they argue that one way to attract and retain the best employees is to give them a difficult but important project to work on. They call such projects “BHAGs,” which stands for Big Hairy Audacious Goals. Among their main examples (e.g., p. 104) of BHAGs were Boeing’s development of the 707 and 747.
Boeing’s latest BHAG is the 787 Dreamliner.

(p. A25) EVERETT, Wash. — The new Boeing 787 Dreamliner lifted into the gray skies here for the first time on Tuesday morning, more than two years behind schedule and burdened with restoring Boeing’s pre-eminence in global commercial aviation.

“Engines, engines, engines, engines!” shouted April Seixeiro, 37, when the glossy twin-engine plane began warming up across from where spectators had informally gathered at Paine Field. Ms. Seixeiro was among scores of local residents and self-described “aviation geeks” who came to watch the first flight.
Moments after the plane took off at 10:27 a.m., Mrs. Seixeiro was wiping tears from her eyes. A friend, Katie Bailey, 34, cried, too.
“That was so beautiful,” Ms. Bailey said.

For the full story, see:
WILLIAM YARDLEY. “As 787 Takes Flight, Seattle Wonders About Boeing’s Future.” The New York Times (Weds., December 16, 2009): A25.
(Note: the online version of the article has the title “A Takeoff, and Hope, for Boeing Dreamliner” and is dated December 15, 2009.)

The reference for the Collins and Porras book is:
Collins, James C., and Jerry I. Porras. Built to Last: Successful Habits of Visionary Companies. New York: HarperBusiness, 1994.

Entrepreneur Gordon Campbell Was an Uncredentialed “Complex Man”

(p. 222) Among the entrepreneurs of the microcosm, none were nimbler than Gordon Campbell, the former founder and president of SEEQ. Taking Phillip Salsbury and other non-volatile memory stars out of (p. 223) Intel in 1981, Campbell had begun meteorically. But after a few years, SEEQ’s E-square technology had slipped against Xicor and the industry went into its mid-eighties slump. While many experts bogged down in the problems of transition, however, Campbell seized the opportunities. In a new firm, he would demonstrate beyond cavil the new balance of power in electronics.

He left SEEQ in 1984 and at once steered his Ferrari back into the semiconductor fray. But few observers favored his prospects. If the truth be known, many semiconductor people thought they had already seen plenty of Gordon Campbell, company president.
Campbell is a complex man, with a rich fund of ego and a boyish look that belies his shrewd sense of strategy and technology. To a strong-minded venture capitalist such as Frank Caulfield of Kleiner, Perkins, Caulfield, & Byers–or even to a smooth operator such as John Doerr—Campbell appeared to be a pushover. A man with no money, no social ivy, no advanced professional degrees, no obvious scientific mastery, he was a disposable tool: some kid who had snuck into the E-square huddle at Intel and popped our into the end zone just in time to make a miracle catch of several million dollars in venture capital.

Source:

Gilder, George. Microcosm: The Quantum Revolution in Economics and Technology. Paperback ed. New York: Touchstone, 1990.

Bert Sutherland Was the “Hero of Xerox PARC”

The failure of Xerox to take advantage of the innovations developed at Xerox PARC, is a legendary example of management failure. A couple of books have been written on the subject that I hope to read sometime.

(p. 194) Beyond his efforts in VLSI design, Bert Sutherland had supported the work at Xerox PARC that led to the “windows” and the “mouse” on nearly every workstation and many personal computers, from Apple and Atari to Apollo and Sun. He formed the research department that made Ethernet the dominant small computer network and that conceived the “notebook” lap computer. Xerox’s lead in IC design gave the company the tools–if the firm had only understood them–to lend new special features to every copier and printer and even to create the kind of electronic “personal copiers” later pioneered by Canon.

Bert Sutherland was the hero of Xerox PARC: that is history. But that was not life. In real life, Xerox fired him in 1979. While he worked day and night on the novel projects in Palo Alto that were to give Xerox an indelible role in the history of computer technology, jealous rivals conspired against him at headquarters. They said that his research, which would fuel the industry for a decade, was irrelevant to the needs of the company. In corning years, the research leadership that replaced him would make the company nearly irrelevant to the needs of the world.

Source:

Gilder, George. Microcosm: The Quantum Revolution in Economics and Technology. Paperback ed. New York: Touchstone, 1990.

Microsoft Hired Good People and Gave Them the Space and Privacy to Think

Not Microsoft. “Mark Clemente, a Steinreich Communications vice president, in the firm’s smaller Hackensack, N.J., office.” Source of caption and photo: online version of the WSJ article quoted and cited below.

The article quoted below documents the trend in business toward small, and more open offices. I believe that this trend is largely a mistake.
Another trend in business (see Levy and Murnane 2004) is for more jobs to involve thinking and creativity. Thinking and creativity are harder in an environment of noise and frequent and unpredictable interruptions.
David Thielen’s book on the secrets of Microsoft’s success that said that Microsoft emphasized hiring really good people, and then respected them enough to give them an office with a door, so they could have the space and privacy to think and create (e.g., pp. 17-35 & 147-150).
Microsoft had the right idea.

(p. B7) The office cubicle is shrinking, along with workers’ sense of privacy.

Many employers are trimming the space allotted for each worker. The trend has accelerated during the recession as employers seek to cut costs and boost productivity.
. . .

Tighter quarters and open floor plans also can present challenges. David Lewis, president of OperationsInc LLC, a Stamford, Conn., provider of human-resources services to more than 300 U.S. companies, says open floor plans and low cubicle walls can create discord and lead to increased turnover.
“Now everybody knows everybody else’s business,” he says. “It actually starts to create a level of tension in an office that never existed before. People can’t focus on work because they’re on top of each other.”

For the full story, see:
SARAH E. NEEDLEMAN. “THEORY & PRACTICE; Office Personal Space Is Crowded Out; Workstations Become Smaller to Save Costs, Taking a Toll on Employee Privacy.” The Wall Street Journal (Mon., DECEMBER 7, 2009): B7.
(Note: ellipsis added.)

The Levy and Murnane book mentioned above, is:
Levy, Frank, and Richard J. Murnane. The New Division of Labor: How Computers Are Creating the Next Job Market. Princeton, NJ: Princeton University Press, 2004.
The Thielen book is:
Thielen, David. The 12 Simple Secrets of Microsoft Management: How to Think and Act Like a Microsoft Manager and Take Your Company to the Top. New York: McGraw-Hill, 1999.

Establishments Assume New Methods Are Unsound Methods

(p. 188) For the next two years, Conway coordinated her efforts under Sutherland at PARC with Mead’s ongoing work at Caltech. But she was frustrated with the pace of progress. There was no shortage of innovative design ideas; computerized design tools had advanced dramatically since Mead’s first efforts several years before. Yet the industry as a whole continued in the old rut. As Conway put it later, the problem was “How can you take methods that are new, methods that are not in common use and therefore perhaps considered unsound methods, and turn them into sound methods?” [Conway’s italics].

She saw the challenge in the terms described in Thomas Kuhn’s popular book The Structure of Scientific Revolutions. it was the problem that took Boltzmann to his grave. It was the problem of innovation depicted by economist Joseph Schumpeter in his essays on entrepreneurship: new systems lay waste to the systems of the past. Creativity is a solution for the creator and the new ventures he launches. But it wreaks dissolution–“creative destruction,” in Schumpeter’s words– for the defenders of old methods. In fact, no matter how persuasive the advocates of change, it is very rare that an entrenched establishment will reform its ways. Establishments die or retire or fall in revolution; they only rarely transform themselves.

Source:

Gilder, George. Microcosm: The Quantum Revolution in Economics and Technology. Paperback ed. New York: Touchstone, 1990.
(Note: italics in original.)

Paul Johnson’s Defense of Winston Churchill

British historian Paul Johnson. Source of caricature: online version of the WSJ conversation quoted and cited below.

(p. D6) Now, at 81 and after years of producing enormous, compulsively readable history books, Mr. Johnson has just written what, at 192 pages, is probably the shortest biography of Winston Churchill ever published.
. . .
He gives credit to his success as a historian to his simultaneous and successful career in journalism. “You learn all sorts of tools as a journalist that come in extremely useful when you’re writing history,” he tells me as we sit in the drawing room of the West London house he shares with his wife, Marigold, “and one is the ability to condense quite complicated events into a few short sentences without being either inaccurate or boring. And of course a lot of the best historians were also journalists.”
. . .
The book includes refutations of many of the negative myths that have grown up around Churchill. For instance, that he was drunk for much of World War II. “He appeared to drink much more than he did,” Mr. Johnson insists. “He used to sip his drinks very, very slowly, and he always watered his whisky and brandy.”
Mr. Johnson certainly does not agree with the often-echoed criticism made by Prime Minister Stanley Baldwin that Churchill had every gift except judgment: “He made occasional errors of judgment because he made so many judgments–some of them were bound to be wrong! . . . On the whole, his judgment was proved to be right. He was right before the First World War in backing a more decent civilized society when he and Lloyd George created the elements of old-age pensions and things like that. He was right about the need to face up to Hitler and he was right about the Cold War that the Russians had to be resisted and we had to rearm.”
He is convinced that “Churchill was more than half American . . . all of his real qualities generally come from his mother’s side.” And despite Mr. Johnson’s own Oxford education (he was there with Margaret Thatcher), he believes that Churchill benefited from never having gone to college: “He never learned any of the bad intellectual habits you can pick up at university, and it explains the extraordinary freshness with which he came to all sorts of things, especially English literature.”

For the full conversation, see:
JONATHAN FOREMAN. “A Cultural Conversation with Paul Johnson; Winston Churchill, Distilled.” The Wall Street Journal (Thurs., DECEMBER 10, 2009): D6.
(Note: the online version of the interview is dated DECEMBER 11, 2009.)
(Note: ellipses within paragraphs were in the original; ellipses between paragraphs were added.)

The reference to Johnson’s biography of Churchill, is:
Johnson, Paul M. Churchill. New York: Viking Adult, 2009.

For 30 Years “Poincaré’s Elegant Math Prevailed Over Boltzmann’s Practical Findings”

(p. 182) . . . , Poincaré’s elegant math prevailed over Boltzrnann’s practical findings. For some thirty years, Boltzmann struggled to get his ideas across. But he failed. He had the word, but he could not find a way to gain its acceptance in the world. For long decades, the establishment held firm.

So in the year 1906, Poincaré became president of the French (p. 183) Académie des Sciences and Boltzmann committed suicide. As Mead debatably puts it, “Boltzmann died because of Poincaré.” At least, as Boltzmann’s friends attest, this pioneer of the modem era killed himself in an apparent fit of despair, deepened by the widespread official resistance to his views.
He died, however, at the very historic moment when all over Europe physicists were preparing to vindicate the Boltzmann vision. He died just before the findings of Max Planck, largely derived from Boltzmann’s probability concepts, finally gained widespread acceptance. He died several months after an obscure twenty-one-year-old student in Geneva named Albert Einstein used his theories in proving the existence of the atom and demonstrating the particle nature of light. In retrospect, Boltzmann can be seen as a near-tragic protagonist in the greatest intellectual drama of the twentieth century: the overthrow of matter.

Source:

Gilder, George. Microcosm: The Quantum Revolution in Economics and Technology. Paperback ed. New York: Touchstone, 1990.
(Note: ellipsis added.)