Only entrepreneurs paranoid survive

When the October 30, 1994, Professor of Mathematics Thomas Nicely, the company MathWorks, sent a seemingly innocent memo’s network CompuServe (a former technical forum), I did not imagine that I would highlight one of the most dramatic transformations of industrial society in general and the technology sector in particular.

Crises destroy the bad companies; good companies survive them; large companies improve them.
(Andy Grove, December 1994)

Business ideasNicely I had discovered a miscalculation in the then new Pentium microprocessor manufactured by Intel, a giant who almost monopolized the production of CPUs of microcomputers. Almost 100% of PCs and servers under DOS operating system or the incipient Windows, use Intel processors.

In 1994 Pentium processor was a new generation, which represented a huge advance in the speed of data processing, which approached Intel servers to the capabilities of large and expensive equipment central medium or high range, while maintaining a much lower price.

Nicely memo was read by Terje Mathisen in Norway four days later, he confirmed the existence of an error of “floating point” in an entry posted on an Intel forum. On November 14, another mathematician of MathWorks, Tim Coe, made ​​an estimate of the “worst case possible” in the calculations. And the next day, Cleve Moler, a colleague of both, published another entry, summarizing the findings so far.

Intel responded with a note of support acknowledging that he knew the decision before product launch, but stating that this would have no impact on users of commercial software . It is that the error began to appear in some cases from the ninth digit decimal.

This could have ended there, but two JPL engineers (Jet Propulsion Laboratory) of NASA, worried about the precision required for scientific instruments, advised suspend buying Pentium computers. This came to the attention of Steve Young, CNN reporter who broke the news in the program Moneyline. They were followed by notes on the New York Times and other newspapers. Since then the snowball and could not stop.

In the following weeks, the budding Internet forums were filled with angry comments against Intel. The phone lines were saturated Company of angry calls from PC users claiming to have received a “defective” product. Manufacturer explanations not convincing at all. Their managers do not understand the situation reached: they were used to dealing with computer manufacturers, who were his clients, never with the end user.

To make matters worse, the main customer of Intel, IBM, announced on December 12 that it would suspend production of Pentium computers. They had their own tests and thought that the error could be more common than estimated INTEL. That was devastating. The market value of the company collapsed, threatening their very existence.

To overcome the crisis, Intel had to face a profound transformation. Realizing a bath of humility, he began to recognize the error and apologize to consumers in general. Then he announced a program returns without justification and established a network of centers globally for users who want to replace defective processors. He pushed a budget of $ 475 million for this program.

“Strategic inflection point”

What had happened? How a leader had come to this situation? Andy Grove, CEO of Intel at the time, explains in his excellent book “Only the paranoid survive”: there had been a “strategic inflection point” that the company had not seen it coming.

Since the release of personal computers in the ’80s, computers it was no longer a privilege of a few large companies, laboratories and government agencies. By 1994, small companies, professionals and families had multiplied by millions the number of PC users. The computer was already used not only to work but to play games, watch movies or listen to music on CD, or contact.

These new customers were very different from those of large enterprise users. Beginning because they had spent their own money on the product and the PC considered like any other commodity, by which they were accustomed to before the minimum guarantees failure (protection and consumer agencies). Intel had not failed to see the PC as a capital asset or means of production.

On the other hand, the “Pentium case” revealed, perhaps for the first time, the viral power of the WWW, even in its early stage. The first judgments very quickly spread globally, generating collaboration among actors located thousands of kilometers from distance . Forums and email acted as fast vehicles of communication to spread the news of the failure among users.

INTEL experience anticipated the “strategic inflection points” which are currently produced in the Digital Age. But it would be a mistake to think that this only affects the large companies and high tech start ups. The digital revolution is affecting companies of all sizes and sectors.

Consider as traditional as the taxi, revolutionized by Uber, Bla and similar sector. Or the small hotels and cottages, competing with Airbnb. Even the sectors that Google made ​​virtually disappear with their free online services: city guides, encyclopedias, etc. Not to mention the small specialty shops, or courier companies. Today, no sector of the economy is foreign to these changes.

Based on their painful experience, Andy Grove, with much criticism, acknowledged that he personally without excuses failed to identify the “strategic inflection point” of your business, (which gives authority to speak). The crisis served as a learning to establish changes in the way of running the company, reformulate the organizational structure and change their way of relating.

And thanks to its future action (as a counselor, communicator and teacher Business School), the “strategic inflection point” is on the agenda of executives of companies of any size. It is the “paranoia” (positive) of managers and entrepreneurs, which describes very well, trying to discover new trends and anticipate changes, which has saved many businesses and generated many new opportunities.

In these notes, we will explore some techniques to identify, at the right time, strategic inflection points and how to adapt to them. We will see some examples of areas populated by SMEs who have suffered or are suffering rapid changes, from the digital revolution. And we own the SME sector as a whole, which has undergone a huge transformation over the last five years, bringing new opportunities and renewed for entrepreneurs.

Final note: By the way, just a few people asked to change their CPUs and the cost to Intel was immaterial. Most consumers was satisfied knowing that could, if there was a fault. There were other reports of errors but as far as Matworks investigated were always attributable to other causes. The only known person who detected an error without massive volume tests was … Thomas Nicely own.

In 1995, Grove did make a key including a flawed Pentium on one side and the phrase that appears in the picture on the other. He gave a personal letter to all employees of the company. In 1998, he resigned as CEO for health reasons but retained the presidency until 2004. Today, with 79 years, he remains director of the Company.

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