Only paranoid founders survive

Photo credit: Ryan Tauss

At a recent event where I was a speaker, an audience member asked:

The Blockbuster CEO was successful in building its business to over $3.1 billion then. These people are obviously intelligent and not stupid. Why didn’t they take Netflix seriously when its market cap was at $450 million?

It’s a valid question. Agreed, these people aren’t stupid. But it’s possible they are short-sighted. They’re like a frog in boiling water. At first, it won’t notice the heat because it’s too gradual. And by the time it should jump out, it’s too late. Eventually, it gets boiled alive.

All companies in the world are frogs in boiling water. The question is, do they know the water is boiling or do they know to jump out or not? The great companies are the ones that are agile and strong enough to keep jumping from pan to pan, keeping their feet cool.

Even brilliant people can be ignorant

One of the reasons why companies keep getting boiled is because they ignore history. 89 percent of the Fortune 500 companies in 1955 are no longer in existence. Companies today may forget that.

There are more examples other than Blockbuster. We all remember Digital Equipment Corporation (DEC). It was founded by Ken Olsen (whom Bill Gates idolized as teenager).

When the first Apple PC came out, he said in 1977 that, “There is no reason for any individual to have a computer in his home.” Fast forward to today. DEC is gone and we all have a PC at home. Ken Olsen is brilliant. DEC was one of the most influential computer companies in the 1960s. And yet, somehow, he missed the boat.

Redefine yourself or get redefined

The fundamental issue here is that companies got accustomed to their business models. They rose to dominance or success in a different era. Arguably, they came to redefine their industry. But that also means that they’ve spent years, and maybe decades, making a lot of money, but also hardening their way of thinking. As every year brings in profits, every year is a verification that their way of thinking is correct and should be preserved.

Years later, their entire organization of hundreds or maybe thousands of people are all pointed in the direction of sustaining and building upon the original way of thinking.

In some cases, this is what happens when a corporate CEO comes in to take over a company. The special thing about some founders is that they remember the feeling of struggling from nothing to build a company, and they know how to reset. And for some companies, it’s built into their DNA to cannabalize even themselves.

Be paranoid

When Andy Grove met with Clayton Christensen, the author of Innovator’s Dilemma, it reshaped his thinking around how Intel should do its business. At the time, Intel was on a strong path, but Christensen warned that there would be new players coming to the fore that would threaten Intel out of left field. Being sidelined by newcomers is inevitable. That’s when Grove made the pivotal decision to get Intel into manufacturing microprocessors and dropping dynamic memory chips. This decision warded off the oncoming storm of Japanese chip manufacturers and helped Intel gain and maintain relevance into the new era of personal computing.

In Grove’s book, Only the Paranoid Survive, he elaborates on his philosophy: “The person who is the star of a previous era is often the last one to adapt to change, the last one to yield to logic of a strategic inflection point and tends to fall harder than most.”

Become your greatest enemy