Kenneth H. Olsen (Digital Equipment) - 1987 MIT Commencement Address
PRESENTER: I am pleased to welcome to the platform the honorable Walter L. Sullivan, mayor of the city of Cambridge, and Mr. Kenneth H. Olsen, founder and president of Digital Equipment Corporation. Mr. Olsen will now give the address.
OLSEN: When I graduated from MIT, I'm not sure we could pronounce the word "entrepreneur." Today, "entrepreneur" is the hot word among young people. It's a challenging word, a fascinating word. In the next 20 minutes, I'll try to tell you what I learned over 30 years on entrepreneurship.
We received a good education at MIT-- a surprisingly pertinent education. I can even say I learned double entry bookkeeping from Samuelson's economics book. But there was one thing missing. We were never taught any theory of work, any philosophy of work, anything about job satisfaction and what to look for.
Ed Shine, professor of industrial psychology at the Sloan School, once said--
--that job was the most important thing in a person's life. And yet the job was one thing we very rarely talk about. I can't, in 20 minutes, answer that need. But entrepreneurship does give an interesting vehicle around which to think about one's job and one's goals in a job.
The place of entrepreneurship n society is obvious. The traditional enterprises do not or will not or are reluctant to try new ideas, new approaches, to gamble, to risk, to pay the price for competition. It's the place of the entrepreneur to introduce new ideas, new products, new approaches.
Few entrepreneurs survive very long, either because they're successful or because they fail. But out of many approaches comes good. Like with evolution, with many attempts, better things arrive.
When I left MIT 30 years ago, I had attained just about everything I had dreamed for. I had an opportunity to do much more research, much more elegant research with much more resources than I had ever dreamed. At $12,000 a year, I was able to feed my family. And I had everything that I wanted.
But one thing was missing. Nobody cared. The industrial world didn't care what we were doing. They said we were too academic. I'm afraid that's what we say to MIT sometimes today.
We felt we had to prove something to the world. And we wanted to try our dream out. We had a dream at that time, which was demonstrated at MIT. And that was the place of interactive computing.
Normal computing at the time was considered big, expensive, awesome, beyond ordinary people. Interactive computing was exciting, fun. People could interact directly with a computer. And we had demonstrated the usefulness of this at MIT. And it was our dream to show the world what it could do.
At MIT, we saw a and worked in a trusting atmosphere, a generous attitude, and at the same time, an enormously competitive intellectual atmosphere, which was very productive and great fun. There was a team spirit, which meant that everyone knew what the goals were and everybody worked together towards them. We had technical ideas to demonstrate, but we also wanted to prove that this same environment could work outside of MIT.
We went to American Research and Development Corporation, just across the river, and told them we wanted to start a company. This was not the right time. A recession was starting. Electronic companies started during the Korean War were not doing well.
But they were fascinated. And in time, they asked us to make a presentation to their board. And they gave us three pieces of advice. First, they said, don't use the word "computer," because Fortune Magazine said no one was making money at it or they were about to. So we took the word out of our proposal. The lesson there is, of course, you have to be adaptable.
Secondly, they suggested that 5% profit was not enough for people to risk their capital on. You see, we had studied in the [INAUDIBLE] Library all good companies, and they all seemed to make 5% profit. So we promised 10%.
Now, the lesson-- and we made 10% most of the time. The lesson there, of course, is obvious. If you aim for a high goal, you might not make it. But if you aim for a low goal, you surely aren't going to make a high goal.
And then we were told that we should promise fast results, because most of the board was over 80.
So we promise to make a profit in a year. And the lesson there is, of course, just like with a home budget. If you don't have short goals, you're encouraged to spend more money than you're taking in.
They bought our plan, and they gave us $70,000. The nice thing about $70,000 is you can watch every single dollar. For the $70,000, they had more than 70% of the company. And with that, they gave us freedom. And they didn't interfere. When things were going poorly, they didn't interfere to straighten us out. When things were going well, they didn't interfere to exploit what was going well.
They did have a long-term interest in the good of the company and the good of the country. We never finished our business plan. We didn't have a big book filled with spreadsheets and colored graphs. We did have simple profit and loss statements and balance sheets.
And when American Research could see that these financial plans were in our head and in our hearts, that we made them, that we understood them, we remembered them, and they were simple enough to be a model for us to run a company on, they committed to make the investment, and never did ask for a beautifully bound proposal.
Today, when plans are made by computer or by staff, they have more detail than one can keep in their head. I sometimes fear that the elegant mathematics of a P&L statement and balance sheet loses its usefulness when people put too much detail into it.
Today, when someone would leave us to become an entrepreneur, as I'm saying goodbye to them, I will sometimes say, when you say your prayers at night, pray for your P&L statement. If your P&L statement is not so simple that you can remember every line, if it's not yours and it's not in your heart, you don't know what you want and you don't know what your plans are. So far, a few people have taken that advice.
We learned a lot. We moved into an old mill and paid $0.25 a square foot per year for space with watchmen service and heat. We moved the furniture ourselves. We built the walls and partitions. We did the photography in my basement. We printed circuit boards with real silk on wooden frames, etched them in aquarium tanks from the 5 & 10. Sometimes, we spilled the etching solution on the furniture store below. I think we bought the same furniture set several times.
We learned accounting and all the steps and manufacturing. And all of this was good education-- developed a sensitivity for a whole organization.
When we first met with our accountants, we told them we wanted big company accounting. In our very humble office, with lawn furniture and leftover roll top desk, it took a lot of convincing to let them know we really wanted big company accounting.
When we finally had the system set up, we discovered it cost more to do than the manufacturing did. But after we were in business for 12 months, we did make a profit-- not much, but a profit. We very proudly took our statement down across the river to General Doriot, president of American Research, and gave him our statement.
He looked at them, and then looked up and scowled. And he said, no one has ever succeeded this soon and survived. The challenge was obvious. He had watched many people start companies over many years. And success is almost completely destructive of entrepreneurial spirit. It stops one from taking risks. One delegates the financial statements to staff or a computer. And one loses the humility necessary to learn.
The traditions of science, and indeed, the church, had been that humility is necessary to learn-- to explore, to search for the truth. Today, much of science, and the church too, feel that any humility, any lack of self-confidence, will make it hard to get money. And without money there is no science, or no church.
However, it seems to me that the humility that comes with the spirit of learning, probing, experimenting, trying, doing, redoing, and redoing again, is the only way to improve most things, and particularly the world of elegant technology.
After a small number of years, we had to face the question of how to introduce entrepreneurship throughout the company. We were doing well. We had gone to be a $14 million company. No one wanted to make changes. But we were a company of people full of ideas of what other people should do, full of ideas where we should spend money, what products we should do. And there was only one entrepreneur to keep it all in perspective.
We then broke the company into a number of entrepreneurial product lines. Each one had complete responsibility for his segment of the business. And everybody else was there just to service these product lines.
Many of the people quit. Some of the board left us. It's not easy to make changes when things are going well. Everyone felt they were demoted. You can't mathematically demote everybody. But the results were magnificent.
Within a year, we had doubled our profit without hiring anybody. And for many years afterward, we grew 20%, 30%, 40% a year, and made very good profit. The reason is obvious. When people have complete responsibility for their part, they do very well. When they make mistakes, they correct them. And the effectiveness of people in charge feeling responsibility, feeling creative, is truly impressive.
Now, one of the warnings we had was that with the entrepreneurial attitude, where people were competing with the outside world and competing with the [INAUDIBLE], other groups inside, there'd be a tendency to sacrifice ethics in order to survive.
I was surprised, I must admit, to find out that, to an overwhelming degree, most people want to be ethical and work for an ethical company. If the standards are clear and it is honest, it is honesty and ethical activity that is expected.
People are honest when the company is honest with them. People are honest with suppliers and customers when they realize that the company is not interested in its short-term goals, with any other activity that might take place. And given the opportunity, people are willing to sacrifice the short-term pressures, which the financial community puts on so strongly, in order to look for the long-term and good of the company and for society.
Now, no one ever told me the long-term problems with entrepreneurship. And they're kind of obvious. First, humility does not come easily with a successful entrepreneur. It's almost contrary to his nature. Without humility, it's hard to learn, and it's hard to grow with a job.
Secondly, with success and growth, it's easy to turn planning, budgeting, and financial work over to staff and to computers. An entrepreneur without the P&L statement in his head has no power. And with no power, the frustration is put on other non-teamwork activities.
And then thirdly, of course, an entrepreneur is the last person on Earth to give entrepreneurship freedom to somebody else. The challenge I face today is to keep over 100,000 people working together in one direction and still maintain the entrepreneurial spirit. The challenge we as a society have is to do that in all our organizations.
For a number of years now, we in the Western world have been in competition with communism-- our economic freedom versus their controlled economy. We won the contest, hands down. No thinking person will argue for the communist approach.
But yet, we won the contest, and yet we're in disarray. Can you imagine someone arguing with Congress that they want to take risks, to tolerate duplication, to pay the price for competition, to give freedom, to allow people to try new ways? Can you imagine newspapers allowing this to go on without terrible criticism?
When business people get together, it's quite common to snicker and laugh at the failures of communism. Their central planning, their absolute intolerance of duplication or competition, their fear of risk taking, their lack of motivation, and no direct reward devastates the communists.
But back in the American company, within the company itself, there is central planning, aversion to risk taking, no duplication, no competition, and rewards are not directly tied to risk taking. Many of us, as we read, like to think that Gorbachev would like to explore economic freedom for his country. We realize that he has limitations. He has to convince his staff first. We wish he had more freedom.
The American business leader sometimes would like to try duplication, competition internally. But as you can guess, he too has staff who are very well-educated, taught all the analytical skills, know how to use computers, taught to be brilliant in the conclusions they come to, but absolutely averse to risk taking, internal competition, or any of the entrepreneurial activities that are so fruitful.
A few weeks ago, I was sitting between a minister and a translator on the other side in the Great Hall in China. And none of the conversation was done without going through the translator, except when I asked one question. How is it that China has gotten so quickly from being short of food to having a surplus of food?
And with that question, without the translator, the minister came back and said, we have reforms. He knew how much a farmer got for a chicken, how much a farmer got for an egg, and how many chickens he needed in order to make more than the minister made. We have very little of that spirit in our country, which claims economic freedom.
I think many of you have demonstrated that people who don't want to run their own business will often jump at the chance to take entrepreneurial responsibility for a segment of a business or a school, if the goals are clear and they can take part in the planning and are given the freedom to take risks.
I wouldn't suggest that running a business is the important thing to do. The important thing is to make a commitment to a job, to improve things, to influence the world. And I'd also suggest that one of the most satisfying things is to pass on to others, to help others, to be creative, to take responsibility, to be challenged in their job, and to be successful in that thing, which is, if not the most important thing in their life, almost the most important thing.
Sometime, hopefully a long time from now, when I have to tell people, it's all yours, I'm leaving, they will say to me, Ken, won't you stay one more year? It's so much fun, so challenging to work for you. And my ambition is to leave when people will still say that, and that they'll remember me as one who challenges them, influences them to be creative and to enjoy work and have fun for a long time. Thank you.