Doing the same thing over and over and expecting a different result is crazy. So why does the tech industry keep making the same mistakes?
The technology industry moves so fast and values change so much that its collective attention span and memory can be as ephemeral as a game of Angry Birds. So when I heard that Ken Olsen, the pioneering founder of the Digital Equipment Corp. (DEC), had died this week at age 84, I was reminded of all the good -- and bad -- that occurred in his career, showing the unlearned lessons that still plague the tech industry.
Olsen did a lot of things right: He was one of the very first high-tech entrepreneurs to realize that a business could be founded with venture capital, and he parlayed a $70,000 investment into a company that once employed more than 120,000 people with sales of $14 billion. Along the way, his company invented the minicompute
But Olsen had his blind side. He famously said, "There is no reason for any individual to have a computer in his home," and he dismissed Unix as "snake oil." Olsen and his investors were made wildly rich by the sale of his company to Compaq Computer, which in turn was bought by Hewlett-Packard in 1992. By the time those two transactions were in the history books, all -- or nearly all -- of the value that Digital brought to the table had been destroyed, along with the careers of thousands.
Bringing up those long-ago quotes and failed deals is not to belittle Olsen. But failure can be more instructive than success, and those mammoth misjudgments shed light on mistakes that are still all too common in the technology industry. We're about to enter a new cycle of mergers and acquisitions, which is when many of these errors are committed. It's easy to make false parallels, but the demise of Sun Microsystems as an independent company seems to echo the fall of Digital and the destructive cycle of Wall Street-inspired mergers.
"Not invented here" remains a high-tech sin
In the early 1960s, computing meant IBM and IBM meant the mainframe. Olsen, though, challenged the conventional wisdom with a line of small (compared to giant mainframes), powerful minicomputers that didn't cost millions of dollars.
To make his concept a reality, Olsen and his partner, Harlan Anderson, approached George Doriot, a Harvard University business professor and venture capitalist, for the money to start a business. "Olsen was probably the first [technology entrepreneur] to see the value in going after money through venture capital and using it to build a company," said Dennis Byron, a longtime industry analyst who is now a senior researcher at IT Investment Research. Digital peaked in the late 1980s with sales of about $14 billion, and by then a whole industry had sprung up nearby in Massachusetts's Route 128 corridor.
But like many other founders, Olsen found it difficult to envision a product that was very different than the one he built his company around. He was very slow to see the value of personal computers, dismissing them as "toys." Eventually, Digital tried to enter the market with a PC called the Rainbow, recalls Byron, but it was based in part on proprietary technology, rather than standard components. It went nowhere, and almost no one remembers it.
When Unix was developed, ironically on a computer built by Digital, Olsen rejected it, preferring to stick to his company's own operating system. Today, we'd call that "the not invented here syndrome," and it's not something the tech industry has altogether moved beyond, says Henry Chesbrough, a professor at the University of California at Berkley's Haas School of Business. "It was an ethos that saw R&D as a fortress instead of sharing and leveraging technology," he says. "You see echoes of that in AOL's failed 'walled garden' strategy and SAP's platform that was closed until fairly recently."
Olsen was forced out by his board of directors in 1992, and the company's best days were behind it. But it was still sold to Compaq for $9.6 billion in 1998. Like the subsequent sale of Compaq to HP, the merger was a fiasco. The cultures didn't match, and the technology was from different planets; Digital was built on the Alpha chip and its own OS, Compaq on Intel and Windows. It was never clear why the two companies should become one.
But Wall Street loves mergers and the huge paydays they create for the investment banks that bring them to fruition. No matter that intellectual property can be lost and thousands of employees -- along with their knowledge and experience -- are invariably pushed out when big companies merge.
Sun's McNealy didn't learn from Olsen's mistakes
The jury is still out on Oracle's acquisition of Sun. It may turn out to be the rare megamerger that works, but there's no doubt that Sun was close to death after years of red ink and strategic missteps.
Like Olsen, Sun co-founder Scott McNealy was loath to see that the product he built the company on was well past its prime. Sun's proprietary servers and their proprietary chips built the Internet, while industry-standard products became the norm -- but at Sun, they "weren't invented here."
What's more, McNealy, like Olsen, was a victim of "founderitis" and simply couldn't let go. By the time he stepped down from his post as CEO, it was simply too late for Sun to stand on its own.
To be fair, McNealy hardly stands alone in that respect. Michael Dell pioneered the direct model and did much to make PCs ubiquitous. When that idea ran out of steam, the company faltered, but Dell simply wouldn't let go of the reins. Steve Ballmer didn't found Microsoft, but he has -- as they say -- a very low badge number. He and Bill Gates were late to the Web, late to mobile computing, and late to open systems. Still, he's not going anywhere.
Nor can Oracle/Sun be singled out as the sole failed merger: Here’s a short list compiled by Steve Tobak, a former semiconductor executive now in venture capital: AOL/Time Warner, Alcatel/Lucent, Daimler Benz/Chrysler, Excite/@Home, JDS Uniphase/SDL, Mattel/The Learning Company, Borland/Ashton Tate, Novell/WordPerfect, and National Semiconductor/Fairchild Semiconductor.
Olsen deserves to be remembered with respect while we learn from his failures as well as his successes.
Olsen did a lot of things right: He was one of the very first high-tech entrepreneurs to realize that a business could be founded with venture capital, and he parlayed a $70,000 investment into a company that once employed more than 120,000 people with sales of $14 billion. Along the way, his company invented the minicompute
But Olsen had his blind side. He famously said, "There is no reason for any individual to have a computer in his home," and he dismissed Unix as "snake oil." Olsen and his investors were made wildly rich by the sale of his company to Compaq Computer, which in turn was bought by Hewlett-Packard in 1992. By the time those two transactions were in the history books, all -- or nearly all -- of the value that Digital brought to the table had been destroyed, along with the careers of thousands.
Bringing up those long-ago quotes and failed deals is not to belittle Olsen. But failure can be more instructive than success, and those mammoth misjudgments shed light on mistakes that are still all too common in the technology industry. We're about to enter a new cycle of mergers and acquisitions, which is when many of these errors are committed. It's easy to make false parallels, but the demise of Sun Microsystems as an independent company seems to echo the fall of Digital and the destructive cycle of Wall Street-inspired mergers.
"Not invented here" remains a high-tech sin
In the early 1960s, computing meant IBM and IBM meant the mainframe. Olsen, though, challenged the conventional wisdom with a line of small (compared to giant mainframes), powerful minicomputers that didn't cost millions of dollars.
To make his concept a reality, Olsen and his partner, Harlan Anderson, approached George Doriot, a Harvard University business professor and venture capitalist, for the money to start a business. "Olsen was probably the first [technology entrepreneur] to see the value in going after money through venture capital and using it to build a company," said Dennis Byron, a longtime industry analyst who is now a senior researcher at IT Investment Research. Digital peaked in the late 1980s with sales of about $14 billion, and by then a whole industry had sprung up nearby in Massachusetts's Route 128 corridor.
But like many other founders, Olsen found it difficult to envision a product that was very different than the one he built his company around. He was very slow to see the value of personal computers, dismissing them as "toys." Eventually, Digital tried to enter the market with a PC called the Rainbow, recalls Byron, but it was based in part on proprietary technology, rather than standard components. It went nowhere, and almost no one remembers it.
When Unix was developed, ironically on a computer built by Digital, Olsen rejected it, preferring to stick to his company's own operating system. Today, we'd call that "the not invented here syndrome," and it's not something the tech industry has altogether moved beyond, says Henry Chesbrough, a professor at the University of California at Berkley's Haas School of Business. "It was an ethos that saw R&D as a fortress instead of sharing and leveraging technology," he says. "You see echoes of that in AOL's failed 'walled garden' strategy and SAP's platform that was closed until fairly recently."
Olsen was forced out by his board of directors in 1992, and the company's best days were behind it. But it was still sold to Compaq for $9.6 billion in 1998. Like the subsequent sale of Compaq to HP, the merger was a fiasco. The cultures didn't match, and the technology was from different planets; Digital was built on the Alpha chip and its own OS, Compaq on Intel and Windows. It was never clear why the two companies should become one.
But Wall Street loves mergers and the huge paydays they create for the investment banks that bring them to fruition. No matter that intellectual property can be lost and thousands of employees -- along with their knowledge and experience -- are invariably pushed out when big companies merge.
Sun's McNealy didn't learn from Olsen's mistakes
The jury is still out on Oracle's acquisition of Sun. It may turn out to be the rare megamerger that works, but there's no doubt that Sun was close to death after years of red ink and strategic missteps.
Like Olsen, Sun co-founder Scott McNealy was loath to see that the product he built the company on was well past its prime. Sun's proprietary servers and their proprietary chips built the Internet, while industry-standard products became the norm -- but at Sun, they "weren't invented here."
What's more, McNealy, like Olsen, was a victim of "founderitis" and simply couldn't let go. By the time he stepped down from his post as CEO, it was simply too late for Sun to stand on its own.
To be fair, McNealy hardly stands alone in that respect. Michael Dell pioneered the direct model and did much to make PCs ubiquitous. When that idea ran out of steam, the company faltered, but Dell simply wouldn't let go of the reins. Steve Ballmer didn't found Microsoft, but he has -- as they say -- a very low badge number. He and Bill Gates were late to the Web, late to mobile computing, and late to open systems. Still, he's not going anywhere.
Nor can Oracle/Sun be singled out as the sole failed merger: Here’s a short list compiled by Steve Tobak, a former semiconductor executive now in venture capital: AOL/Time Warner, Alcatel/Lucent, Daimler Benz/Chrysler, Excite/@Home, JDS Uniphase/SDL, Mattel/The Learning Company, Borland/Ashton Tate, Novell/WordPerfect, and National Semiconductor/Fairchild Semiconductor.
Olsen deserves to be remembered with respect while we learn from his failures as well as his successes.
