#291 David Packard Founder of HP

In this episode, the hosts discuss the legacy of David Packard, co-founder of Hewlett-Packard (HP), and his unique approach to business. David Packard's philosophy, as recounted from his autobiography "The HP Way," emphasized that companies should seek to contribute and improve lives, not just pursue profit. He believed in customer obsession, constant innovation, and the importance of teamwork. Packard's commitment to quality and his 'pay-as-you-go' approach to business growth, avoiding long-term debt, were pivotal to HP's success. His story is interwoven with insights into Silicon Valley's history, including the influence of figures like Fred Terman and the significance of HP's garage as the birthplace of Silicon Valley. The episode also touches on Packard's influence on Steve Jobs and the broader tech industry, underscoring his belief in the potential for future growth through meaningful products.

• David Packard believed a company's existence isn't solely for profit maximization.
• Importance of a company is measured by unique contributions and improvements to people's lives.
• HP's success is attributed to the cycle of contribution leading to success and vice versa.
• Packard's contributions extended beyond HP, significantly impacting Stanford University and various charities.
• Despite a focus on contribution, Packard emphasized the necessity of high performance and customer satisfaction.

"David Packard rejected the idea that a company exists merely to maximize profits. While this is an important result of a company's existence, we have to go deeper to find the real reason for our being."

The quote encapsulates Packard's belief that profit is a result, not the sole purpose, of a company's existence. The true measure of a company's worth is found in its unique contributions and the positive impact it has on society.

• David Packard's autobiography, "The HP Way," documents his and Bill Hewlett's journey in building HP.
• Packard's intent was to pass on his knowledge to future generations of entrepreneurs.
• His autobiography was published a year before his death, encapsulating over 50 years of experience.

"What's amazing to me is how many times you and I have seen this desire to document what they learned over, in David's case, over 50 years, half a century as an unbelievably successful entrepreneur, to document what he learned during that time and pass it down to future generations of entrepreneurs."

This quote highlights the importance Packard placed on sharing his extensive knowledge and experience with future entrepreneurs, ensuring his legacy would continue to guide others after his passing.

• Packard shared a similar philosophy with Jeff Bezos regarding customer obsession.
• Both leaders emphasized the importance of focusing on customer satisfaction and unique contributions.

"The third time I read Jeff Bezos's shareholder letters, something Jeff repeats over and over again in those letters is that you need to obsess over customers."

The quote draws a parallel between David Packard's principles and Jeff Bezos's philosophy, both stressing the critical role of customer obsession in achieving business success.

• The influence of David Packard and Bill Hewlett extends beyond HP, shaping Silicon Valley's history.
• They set a high career standard in the tech industry, serving as role models for future leaders like Steve Jobs.

"In the valley, the ultimate career standard was set by David Packard. Only Packard had accomplished all of this. He set the bar and the valley had honored his achievement by making him the unofficial mayor of Silicon Valley."

This quote underscores Packard's monumental impact on Silicon Valley, establishing a benchmark for success and being recognized as a pivotal figure in the tech industry.

• Packard's childhood curiosity in mechanics and electronics laid the foundation for his future endeavors.
• His determination and resilience were evident from a young age, as seen in his persistence with handling a difficult horse.

"Even as a young child, I spent hours curled up with the family World Book Encyclopedia. I got a thrill from looking at pictures of railroads, bridges, motors, generators, and other mechanical and electrical equipment."

The quote reflects Packard's lifelong passion for understanding and creating mechanical and electrical devices, which eventually led to the founding of HP.

• Stanford University and Professor Fred Turman played critical roles in Packard's career.
• Meeting Bill Hewlett at Stanford was pivotal, as their partnership was instrumental in HP's formation.

"The second event was becoming acquainted with Professor Fred Turman at Stanford. It was Fred who sparked my interest in electronics and who later encouraged and helped Bill and me go into business for ourselves."

This quote highlights the significant influence of Professor Turman in guiding Packard's interests and encouraging the partnership that would lead to HP's creation.

• The core management team of HP formed during their college years due to shared interests and classes under Fred Terman.
• Terman's influence was significant in their interest in radio engineering and the subsequent formation of HP.
• The team, including Bill and David, worked together at HP for over 30 years.

"The management team of HP, many of them working for over 30 years in the company."

This quote highlights the longevity and stability of the HP management team, which was rooted in the early relationships formed in college.

• Fred Terman's interest in radio engineering led him to connect with industry pioneers in Palo Alto.
• Terman would take his students, including the future HP founders, on tours of these early companies.
• The founders were inspired by the success of radio firms established by individuals with limited education, seeing greater opportunities for those with a strong theoretical background.

"Fred Terman's keen interest in radio engineering induced him to become acquainted with almost all the pioneers in that industry, many of whom were located in the Palo Alto area."

This quote emphasizes Terman's central role in introducing his students to the burgeoning field of radio engineering, which would later influence their career choices and the founding of HP.

• The group of friends aspired to start their own company before graduating, focusing on electrical components.
• Their plans were delayed by the Great Depression, leading David to accept a job at General Electric (GE) on Terman's advice.
• Terman believed the experience at GE would be valuable for their future business.

"Why don't we start our own company? And so they have tentative plans to start an unnamed company."

This quote reflects the early entrepreneurial spirit of the HP founders and their initial plans to create a company, even without a clear product in mind.

• David Packard's time at GE taught him important lessons that he later applied at HP.
• He learned the importance of following personal interests and that the potential size of new industries is unpredictable.
• Personal communication was key to ensuring quality control, leading to the management philosophy of "management by walking around" at HP.

"Personal communication was often necessary to back up written instructions. That was the genesis of what became management by walking around at the Hewlett Packard company."

This quote captures the lesson David learned about the importance of direct communication in management, which became a cornerstone of HP's corporate culture.

• The first official business meeting for HP took place in Bill's garage, with discussions on potential products like high-frequency receivers and medical equipment.
• The group was aware of the emerging technology of television and aimed to keep abreast of advancements.
• The garage would later become a historical landmark and the birthplace of Silicon Valley.

"The minutes of the meeting are headed Tentative organization plans and a tentative work program for a proposed business venture."

This quote shows the meticulous planning and foresight of the HP founders, even in the early stages of their venture.

• David Packard's resignation from GE marked a significant financial risk but was driven by hope and excitement for the future.
• The founders' self-reliance and willingness to learn and do things themselves were key traits in their success.
• Their entrepreneurial journey was characterized by a strong work ethic and the ability to balance multiple commitments.

"Lucille, which is his wife, always remembered the moment she dropped my letter of resignation in the mailbox. Mailing that letter cut our financial ties, but we were hopeful and excited about what the future had in store."

This quote conveys the emotional and financial leap of faith taken by David and his wife when committing fully to their business venture.

• HP was profitable from its first year and remained so for 50 years.
• The company's first product, an audio oscillator, was successful due to its practicality and affordability.
• Fred Terman and Charlie Litton provided crucial support and resources during HP's early production phase.

"We weren't expecting much from our first mailing, but amazingly enough, in the first couple of weeks, several orders came back, and some were accompanied by checks."

This quote illustrates the surprising early success of HP's first product and the validation of their business model.

• The relationship between HP and Charlie Litton was both collaborative and competitive, highlighting a culture of camaraderie among early tech entrepreneurs.
• The founders of HP were willing to share ideas and resources, fostering a supportive environment for innovation.

"He never saw us as competitors, but always as compatriots."

This quote shows the friendly and cooperative relationship between HP and Charlie Litton, which was beneficial to HP's early growth.

• David Packard and his colleagues regularly held seminars to discuss new ideas and business philosophy.
• These discussions were not just theoretical; they directly impacted their business strategies and practices.

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 he would invite me and a few other people.

The quote emphasizes the proactive approach to learning and knowledge sharing that was part of the company culture, encouraging innovation and strategic thinking.

• The company actively participated in conferences to showcase their audio oscillator.
• Their first significant sale was to Walt Disney Studios for the movie "Fantasia".
• The sale was secured due to the cost advantage of their product over the competitors.

They actually sell a batch to Walt Disney. And more importantly, David tells us why. There was people who expressed considerable interest in our audio oscillator. One of them was Bud Hawkins. He was the chief sound engineer from Walt Disney Studios.

This quote highlights the importance of networking and showcasing products to potential customers at industry events, which led to their first major sale.

• As the business grew, the need for more space became apparent.
• The company's expansion was a sign of success, but also required adaptability and foresight.

By 1939, our business had grown to the point where we needed additional space. We set up an office in the front section of our new building, while the back room held a few machine tools and assembly benches.

This quote reflects the company's growth trajectory and the practical steps taken to accommodate expansion, illustrating the challenges and milestones of a growing business.

• In the early days, founders had to be versatile and handle all aspects of the business.
• They faced frequent cash flow problems, which were common for startups.

From inventing and building products, to pricing, packaging, and shipping them, from dealing with customers and sales reps to keeping the books, from writing the ads to sweeping up at the end of the day.

This quote demonstrates the hands-on approach required in the early stages of a business, with founders often taking on multiple roles to ensure all business functions are managed.

• David Packard describes the process of seeking financing options and establishing credit.
• They faced rejection from the Bank of America but found success with the local Palo Alto National Bank.

We tried to establish some credit with the Bank of America. They sent a man out to look us over. He was not impressed.

The quote outlines the challenges of securing financing and the importance of perseverance and exploring different options when faced with initial rejection.

• The advice from a retired engineer at Wells Fargo to avoid over-expansion was a key takeaway for the company.
• The concept that "more businesses die from indigestion than starvation" influenced their cautious approach to growth.

More businesses die from indigestion than starvation.

This quote encapsulates the wisdom of measured growth and the risks associated with overextending a business beyond its means to manage effectively.

• The company's philosophy was to reinvest profits and avoid long-term borrowing.
• This strategy was influenced by the founders' experiences during the Great Depression.

Grow from profits. Bill and I decided we were going to reinvest our profits and not resort to long term borrowing.

The quote underscores the company's financial strategy to sustain growth organically through profits rather than relying on external debt, reflecting a conservative and sustainable approach to business expansion.

• HP focused on building a group of complementary products rather than diversifying into unrelated areas.
• This strategic focus was deemed essential for the company's success.

I believe this decision to focus our efforts was extremely important.

This quote highlights the strategic decision to maintain a narrow focus, which allowed HP to build expertise and a strong product line in their chosen field.

• HP established a program with Stanford University to attract top engineering talent.
• The program allowed HP engineers to pursue advanced degrees while working full-time, with tuition paid by the company.

More than 400 hp engineers have obtained master's or doctorate degrees through this program.

This quote illustrates the company's commitment to education and professional development, which contributed to hiring top talent and fostering innovation within the company.

• David Packard drew management insights from his experiences as a cattle rancher.
• He learned the value of applying steady, gentle pressure to guide rather than force outcomes.

Applying steady, gentle pressure from the rear worked best.

This quote reflects the management philosophy of guiding and encouraging rather than pushing too hard, which can be counterproductive, a lesson drawn from a non-business context but applicable to management.

• David Packard emphasized the importance of profit as the foundation of business growth and security.
• His experiences during the Great Depression shaped his views on the dangers of debt and the value of financial prudence.

It is impossible to operate a business for long unless it generates a profit.

This quote reiterates the fundamental business principle that profitability is crucial for long-term operation and growth, a core tenet of the company's philosophy.

• Economic downturns can lead to the foreclosure of businesses that are heavily mortgaged.
• Companies that avoid borrowing money can survive tough times with their assets intact.
• David Packard notes the importance of maintaining assets and avoiding long-term debt for business longevity.

"The bank simply foreclosed on the businesses that mortgaged their assets, and those businesses were left with nothing. The businesses that did not borrow money, they had a difficult time, but they ended up with their assets intact, and they survived."

This quote emphasizes the risk of borrowing against assets and the potential benefit of a conservative financial approach during economic downturns.

• Hewlett-Packard (HP) was determined to finance growth from earnings rather than borrowing.
• David Packard and Bill Hewlett's strategy was to operate on a pay-as-you-go basis.
• This financial approach was sustained for over half a century.

"Should not incur any long term debt. For this reason, Bill and I determined we would operate the company on a pay as you go basis, financing our growth primarily out of earnings rather than borrowing money."

This quote outlines the foundational financial strategy of HP, which focused on self-funding and avoiding long-term debt.

• Wall Street's fixation on quarterly earnings can lead to manipulative practices.
• Reducing R&D can temporarily improve profits but is detrimental in the long run for tech companies.
• Good new products are essential for the success of technology companies.

"That Wall street had this fixation on quarterly earnings, and he points out. That those are really easy to manipulate, that you could cut back on R&D, and suddenly you have more profits."

The quote criticizes the short-term perspective that can result from Wall Street's focus on quarterly earnings, highlighting the negative impact such a view can have on a company's future innovation and growth.

• HP's success is tied to its commitment to creating unique, innovative products.
• Copying existing products on the market is not the path HP wanted to take.
• Innovation is central to HP's philosophy and is considered crucial for customer improvement.

"Good new products are the lifeblood of technical companies."

This quote encapsulates the importance of innovation for technology companies, as posited by David Packard, and how it's critical for long-term success.

• HP aimed to avoid being a "me too" company by not merely copying products already on the market.
• This philosophy is shared by other innovators like Edwin Land and Johnny Ive.
• Differentiation is key to the success of new businesses and products.

"Bill and I knew we didn't want to be a 'me too' company merely copying products already on the market."

The quote reflects HP's strategy to differentiate itself through innovation rather than imitating existing products, which is a common thread among successful technology companies.

• HP started in the 1930s and successfully adapted to the computer age.
• The company's ability to pivot and embrace new opportunities was crucial to its growth.
• Embracing the opportunities in front of you can unlock unforeseen, larger opportunities in the future.

"In 1994, HP sales in computer products were $20,000,000,000...30 years earlier...our sales total were just 125,000,000. And they were entirely in instruments. Not a penny was from computer sales."

This quote demonstrates HP's remarkable growth and transition from a company focused on instruments to one that became a leader in computer products.

• Chuck House, an HP engineer, demonstrated the value of persistence and belief in one's ideas.
• Despite being advised to abandon a project, House's conviction led to a successful product that generated significant sales.
• The story illustrates the fine line between insubordination and entrepreneurship.

"Instead, he embarked on a vacation to California, stopping along the way to show potential customers a prototype model of the monitor. Their reaction spurred him to continue with the project, even though he found that I had requested it to be discontinued."

The quote tells the story of Chuck House's persistence in the face of management's rejection, which ultimately proved beneficial for HP.

• HP emphasizes the importance of customer satisfaction and creating products that serve customer needs.
• The company learned from its Japanese division the value of meticulous attention to detail and high-quality standards.
• The Japanese division's success in quality control led to improved quality targets company-wide.

"Gains in quality come from meticulous attention to detail. And every step in the manufacturing process must be done as carefully as possible, not as quickly as possible."

This quote highlights the lesson HP learned about the importance of quality and attention to detail, which became a company-wide standard.

• David Packard reflects on the growth of the electronics industry and the potential for future advances.
• The 21st century is seen as an era of exponential growth and new product contributions to a better life.
• Packard's perspective is one of relentless optimism regarding the potential for innovation and improvement.

"The 21st century will be an age in which many kinds of new products contribute to a better life for all the people in the world."

This quote conveys David Packard's optimistic outlook for the future, emphasizing the role of innovative products in improving lives globally.