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



In this episode of "Founders," hosts explore the life and philosophy of Steve Jobs, as detailed in Walter Isaacson's biography, and the influence of tech pioneers like Edwin Land, Bill Hewlett, and David Packard. They discuss the interconnectedness of ideas and people, using books as "the original hyperlinks," leading them to delve into David Packard's "The HP Way." The hosts, supported by the Blinkist app, emphasize the importance of legacy, entrepreneurial spirit, and the "HP way" of business, which includes a focus on profit as a measure of value, avoiding long-term debt, and maintaining a narrow focus. They also touch on the perils of centralization and the significance of a company culture that encourages growth, innovation, and the entrepreneurial drive, even if it means former employees outgrowing the company to start their own ventures. The episode concludes with a message of optimism for the future of technology and its potential to improve lives.

Summary Notes

Personal Drives and Legacy Building

  • Steve Jobs sought fulfillment through creating innovative products and a lasting company.
  • Jobs' ego needs and personal drives were different from his contemporaries like Ellison, Gates, and others.
  • He aimed to build a dual legacy that would awe people and surpass other notable figures in the tech industry.

"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."

This quote highlights the unique motivations of Steve Jobs compared to his peers, emphasizing his desire for creating a lasting impact through product innovation and company culture, rather than wealth or philanthropy.

The Pantheon of Innovators

  • Steve Jobs wanted to be remembered as a significant figure in technology, above others like Edwin Land, Bill Hewitt, and David Packard.
  • His return to Apple was a strategic move to reclaim his position and fulfill his personal aspirations.

"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."

The quote underlines Jobs' ambition to be recognized as an extraordinary innovator, surpassing other respected figures, and indicates that taking back control of Apple was a critical step in achieving this goal.

  • The concept that books are the original hyperlinks, leading readers to explore related ideas and individuals.
  • The podcast explores biographies of entrepreneurs and founders, drawing connections between different innovators.
  • The book "Steve Jobs" by Walter Isaacson led to an interest in David Packard and Bill Hewlett.

"Because of this idea that I've talked about on several podcasts before, and the idea that books are the original hyperlinks."

This quote introduces the concept that books can interconnect thoughts and people, acting as a catalyst for further exploration and learning.

The HP Way

  • David Packard's book "The HP Way" is a concise autobiography detailing the management style and founding of Hewlett-Packard.
  • The book emphasizes the importance of profit as a measure of a company's contribution to its customers and the effectiveness of teamwork.

"This book is the story of Bill Hewitt and me and the Hewlett Packard Company, which we spent our lives building and operating."

The quote succinctly describes the focus of David Packard's book, which is the story of the founding and growth of Hewlett-Packard and the unique management style that came to be known as "The HP Way."

Profit as a Measure of Success

  • Profit is crucial as it reflects the value customers place on a company's products over their cost.
  • Profitability is a key indicator of a company's success in meeting customer needs and the effectiveness of its teamwork.

"Profit is the measure of our contribution to our customers... It is really the final measure, because if we cannot do these things so the customer will pay us, our work is futile."

This quote emphasizes that profit is not just about financial gain but is a measure of the company's ability to provide value to customers and the success of its collective efforts.

Founding of Hewlett-Packard

  • David Packard and Bill Hewlett were influenced by their Stanford professor, Professor Terman.
  • The Great Depression delayed their plans to start a company, leading Packard to work at General Electric first.
  • Critics often doubted the potential success of the founders' endeavors, a common theme in entrepreneurial stories.

"During my first visit to Palo Alto, I got together with Bill Hewitt, and at the time we had our first official business meeting."

This quote marks the beginning of the partnership between Packard and Hewlett, which would eventually lead to the founding of the Hewlett-Packard Company.

Complementary Skills and Company Naming

  • Packard and Hewlett's complementary skills in circuit technology and manufacturing contributed to HP's success.
  • The company name was decided by a coin toss, which Bill Hewlett won.
  • HP's first product was an audio oscillator, which had a positive reception and led to the official launch of their business venture.

"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."

This quote illustrates how the different strengths of the co-founders were harmonized to create a successful company, with each contributing their expertise to different aspects of the business.

Early Beginnings and Strategic Naming

  • David Packard discusses the deceptive naming of their first product to imply company longevity.
  • They received orders and payments shortly after their initial marketing effort.
  • The initial success was surprising given the company's lack of experience in producing a finished product.

We designated this product the model 200 a because we thought the name would make us look like we'd been around for a while.

The quote highlights the strategic decision to name the product in a way that suggested the company had a history of product development, aiming to instill customer confidence.

HP's Humble Origins and Growth

  • HP started with a single product and grew into a multibillion-dollar company.
  • The company's beginnings were modest, with initial marketing involving simple photographs mailed to a small number of people.
  • The narrative underscores the idea that all large enterprises start from small, humble beginnings.

The beginnings are always humble. Everything starts small.

This quote emphasizes the universal truth that every large company, including HP, started from a small, often unremarkable, origin.

Influence of Charlie Litton

  • Charlie Litton was a key influence on David Packard, described as a genius inventor.
  • Litton hosted seminars on various topics, including wave theory, quantum mechanics, and business philosophy.
  • These seminars and discussions contributed significantly to Packard's business education.

Charlie did something else important as well... He loved to expound and philosophize on new ideas.

The quote shows how Charlie Litton's seminars and discussions on new ideas played a crucial role in shaping David Packard's business philosophy and approach.

The Value of Podcasts and Accessibility of Information

  • The discussion transitions to the value of podcasts in learning and information dissemination.
  • Podcasts allow for remote participation in discussions and learning opportunities, which was not possible in Charlie Litton's time.
  • The internet is praised for providing unprecedented access to knowledge.

But I learned a lot in addition from reading, from listening to podcasts and a seminar that had David Packard and a few other people from Stanford and Charlie Litton back in 1938.

This quote underscores the transformative role of podcasts and the internet in learning, providing access to knowledge that was once limited to in-person attendance.

HP's Initial Financial Success

  • HP's first full year in business ended with modest sales and profits, but it was profitable from the start.
  • The company's growth is highlighted, showing the contrast between its early financials and its later success as a multibillion-dollar entity.

At the end of 1939, our first full year in business, our sales totaled $5,369, and we had made $1,563 in profits.

This quote provides concrete figures on HP's initial financial performance, illustrating the company's early profitability and setting the stage for future growth.

Versatility in the Early Stages of a Company

  • David Packard emphasizes the importance of versatility in the early stages of a company.
  • He notes that hands-on experience in various aspects of the business was invaluable and not something that could be learned from books.

In those early days, Bill and I had to be versatile.

The quote reflects on the necessity for founders to have a wide range of skills and take on multiple roles within the company during its early stages.

Prudent Financial Management

  • David Packard recalls advice from a banker about the dangers of taking on too much debt.
  • The banker's advice to avoid 'indigestion' from overexpansion became a guiding principle for HP's financial management.

He said that more businesses die from indigestion than starvation.

This quote encapsulates the wisdom of cautious financial management, highlighting the risk of business failure due to overexpansion rather than a lack of opportunities.

Impact of World War II on HP

  • World War II led to rapid growth for HP due to demand from military services and defense contractors.
  • HP's sales volume increased to a million dollars, and the company expanded to over 200 employees.

HP was not a defense contractor... but since much of our equipment was bought by military services and by defense contractors, we grew rapidly during the war.

The quote describes how external factors, such as World War II, can accelerate a company's growth due to increased demand for its products.

Maintaining a Narrow Focus

  • David Packard speaks about the strategy of focusing on a group of complementary products rather than diversifying into unrelated areas.
  • This focus was crucial for the company's success during and after the war.

Though these instruments differed from one another, all were designed to measure and test electronic equipment.

The quote highlights HP's strategic decision to maintain a narrow focus, which was instrumental in the company's growth and success.

Lessons from Cattle Ranching

  • David Packard draws parallels between cattle ranching and managing a business.
  • He learned the importance of applying steady, gentle pressure to guide without causing panic or resistance.

Applying steady, gentle pressure from the rear worked best.

This quote illustrates how experiences outside of the business world, such as cattle ranching, can provide valuable management insights.

The HP Way and Company Culture

  • HP developed a unique set of values, traditions, and customs that became known as the HP way.
  • The company's corporate objectives were built upon these deeply held beliefs, guiding decision-making and interactions.

Any organization... develops a philosophy, a set of values, a series of traditions and customs.

The quote explains how organizational culture forms and influences every aspect of a company's operations, long before the term 'company culture' became popular.

Definition of Profit

  • Profit is the value added to the resources utilized in business.
  • Profit is essential for a business's survival and achieving other objectives.
  • Profit is the excess of customer payments over the sum of costs in production and distribution.

"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 cost in producing and distributing them. This difference, our profit, represents the value we add to the resources we utilize."

The quote explains that profit is not merely financial gain but the value created through the transformation of resources into products or services that customers value more than the costs incurred.

Impact of the Great Depression

  • The Great Depression had a profound effect on business strategies.
  • Observations during the Depression influenced David Packard's approach to managing business finances.
  • Avoiding long-term debt was a key lesson learned from the Depression's impact on businesses.

"So 60 years ago, our country was in the depths of the Great Depression... From this experience, I decided our company should not incur any long term debt."

This quote reflects David Packard's decision to avoid long-term debt for Hewlett Packard, based on his observations of businesses during the Great Depression and the survival of those without significant debts.

Self-Financing Business Model

  • Hewlett Packard aimed to finance growth from earnings rather than borrowing.
  • The model was inspired by other successful companies like General Radio.
  • Self-financing is considered possible and sustainable based on historical examples.

"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."

David Packard explains the strategic decision to self-finance Hewlett Packard's growth, emphasizing the importance of relying on earnings rather than external financing.

The Big Short and Financial Literacy

  • The book "The Big Short" by Michael Lewis had a significant impact on understanding financial markets and crises.
  • A small group of people profited from the 2008 financial crisis by understanding and betting against the mass delusion.
  • Credentials and positions do not always equate to knowledge or competence.

"And then you realize that almost nobody knows what they're talking about."

This quote underscores the realization that many high-ranking individuals in finance, including CEOs, may lack a deep understanding of their own company's financial situation, as highlighted in "The Big Short."

Avoiding Layoffs and Valuing Employees

  • Layoffs can be avoided during economic downturns through alternative strategies.
  • Employees are encouraged to seek continuous education and improvement.
  • The concept of employees outgrowing the company is valued.

"Especially in a technical business where the rate of progress is rapid, a continuing program of education must be undertaken and maintained."

David Packard emphasizes the need for ongoing education and skill development within the company to ensure that employees and the business can adapt to rapidly changing technologies and markets.

Innovation and Persistence

  • Employees are encouraged to pursue innovative ideas, even in the face of management skepticism.
  • Persistence in innovation can lead to significant financial success for the company.
  • Chuck House's story exemplifies the value of defiance and determination in pursuing a project that management initially rejected.

"Earlier, I mentioned that sometimes management's turndown of a new idea doesn't always effectively kill it... He persuaded his r and 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."

This quote tells the story of Chuck House, who defied management's decision and pursued his innovative idea, which eventually became highly profitable for Hewlett Packard, illustrating the value of innovation and persistence.

Response to Economic Downturn

  • HP faced a potential 10% layoff due to orders running lower than production capability.
  • Implemented a 10% cut in work schedule and corresponding pay cut instead of layoffs.
  • This policy applied to all US factories, executives, and corporate staff.
  • After six months, the order rate increased and full work schedules resumed.
  • The strategy allowed HP to retain its workforce and share the recession's burden equally.

We were faced with the prospect of a 10% layoff rather than a layoff, however, we tried a different tact. 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.

This quote explains HP's strategy to avoid layoffs by reducing both the work schedule and pay by 10%, which was an alternative approach to handling economic downturns.

Entrepreneurial Spirit at HP

  • HP employees who left the company successfully started their own ventures.
  • Over a dozen entrepreneurs who were former HP employees now employ more than 40,000 people.
  • HP founders respected and were proud of the entrepreneurial spirit of their former employees.
  • These entrepreneurs adopted many of HP's management principles in their companies.

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.

This quote highlights the success of former HP employees who started their own businesses, reflecting the company's positive impact on fostering entrepreneurship.

The Perils of Centralization

  • Business executives often praise decentralization but hesitate to implement it.
  • HP faced challenges in centralization, especially during the transition to the computer business.
  • The computer business introduced complexities such as software organization and system integration.
  • HP attempted various organizational structures to improve coordination, leading to bureaucracy.
  • Decision-making became slow and complicated, affecting the company's performance in the fast-paced computer market.

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.

This quote introduces the idea that while many executives theoretically support decentralization, they are often hesitant to apply it within their own companies.

Overcoming Bureaucracy and Revitalizing HP

  • HP's decision-making was hindered by excessive bureaucracy and committees.
  • By the 1990s, HP faced a crisis with slowed decision-making and a stock price drop.
  • Founders visited HP facilities to understand the issues and initiated changes.
  • Layers of management were reduced, and computer operating units were given more autonomy.
  • These changes led to a more agile company and a significant increase in stock price by 1993.

We reduced them. Needless to say, the computer business executive committee was disbanded, as was much of the bureaucracy.

This quote indicates the decisive actions taken by HP's founders to dismantle the excessive bureaucracy that was impeding the company's efficiency and agility.

Exponential Growth and Future Optimism

  • HP took 40 years to reach $1 billion in sales, partly due to inflation.
  • In the fiscal year 1994, HP achieved $25 billion in sales without inflation.
  • Growth is attributed to investment in new product development.
  • HP emphasizes creating products that make real technological contributions, not just imitations.
  • The future will involve products that improve life for people globally, beyond just the information superhighway.

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.

This quote showcases HP's significant sales growth in 1994, demonstrating the company's success in expanding its business without relying on inflation.

Podcast Promotion and Listener Engagement

  • The podcast host encourages listeners to leave a five-star rating and review on Apple Podcasts.
  • High ratings and reviews increase the podcast's visibility to others.
  • The host considers themselves an evangelist for entrepreneurship and building things.
  • Listeners are asked to share the podcast with friends interested in entrepreneurship.
  • The host expresses gratitude for listeners' support and promises to return with new content.

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.

This quote is a call to action for listeners to support the podcast by leaving a positive rating on Apple Podcasts, which helps increase the show's reach.

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