Conference hydra::dejavu

387.0. "KEN OLSEN'S MIT COMMENCEMENT SPEECH" by FDCV13::PAINTER (Is we is or is we isn'...) Wed Jun 17 1987 18:23

This is a copy of Ken Olsen's remarks at MIT's graduation on June 1.  Mr. 
Olsen was the Commencement speaker.

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	When I left MIT 30 years ago to start a business, I'm not sure I 
could pronounce the word entrepreneur. Today, entrepreneur is a hot word.  
It's a challenging word, a fascinating word.

	I'll try to tell you in a few minutes all that I learned in 30 
years about 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 or what to look for.  Ed Schein, industrial psychologist at 
the Sloan School once said that work is the most important thing in a 
person's life.  Yet the job was the one thing we very rarely talked 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 in our society is obvious.  The 
traditional enterprises do not or will not, or are reluctant to try new 
ideas  and new approaches, and to gamble, to risk, to pay the price for 
competition.  It is the place of the entrepreneur to introduce new ideas, 
new products, and new approaches.  Few entrepreneurs survive very long, 
either because of success or because of failure.  But out of many 
approaches comes good as with evolution, improvements come with many 
attempts, better things arrive.

	When I left MIT 30 years ago, I had attained just about everything 
I had dreamed of.  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.  I had everything that I 
wanted.  But one thing was missing.  Nobody cared.  The industrial world 
didn't care, they said we were too academic.  I'm afraid that's what we say 
about MIT 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 by 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 and fun, and people 
could interact directly with the computer.  We had demonstrated the 
usefulness of this at MIT.  It was our dream to show the world what it 
could do.

	We saw at MIT a trusting, generous attitude, and at the same time, 
a tremendously competitive intellectual atmosphere which was very 
productive and a great deal of fun.  There was a team spirit which meant 
everyone knew the goals and everyone worked towards them.  We had technical 
ideas to demonstrate but also wanted to prove that this environment could 
work outside MIT.

	When we decided to start a company we went to the American Research 
and Development Corporation which was just across the river.  That was not 
the right time for starting a company.  A recession had started.  
Electronic companies started during the Korean War were not doing well.  
They did invite us to make a proposal to their board of directors, but they 
gave us three pieces of advice.

	First, they suggested that we don't use the word computer because 
Fortune Magazine said no one was making money at it, nor was about to.  So 
we took the word computer out of our proposal.  The lesson there of course 
is that you have to be adaptable and you have to sell your ideas.

	Secondly they suggested that the promise of five per cent profit 
on sales was not high enough for someone to risk their capital on.  We had 
studied in the Lexington Library that all good companies  seemed to make 
five per cent profits so we promised 10 per cent.  And we made 10 per cent 
most of the time.  The lesson there, of course, is obvious:  If you aim for 
the high number, you might not make it, but if you aim for a low number, you 
were surely not going to make a high goal.

	We were told that we should promise fast results because most of 
the board was over 80.  We promised to make a profit in one year.  The 
lesson was that, like a home budget, a business budget without short term 
goals, encourages spending more money than is coming in.

	They bought our plan, and they gave us $70,000 in capital.  The 
nice thing about $70,000 is that you can watch every dollar.  With that, 
they owned more than 70 per cent of the company, but with that, they gave 
us freedom, and they didn't interfere.  They didn't interfere to straighten 
out things when things were going poorly, and they didn't interfere to 
exploit things when they were going well, and and American Research 
definitely had a long term interest and wanted to produce something useful 
for society.

	We never finished our business plan.  We didn't have a big volume 
of spread sheets and dozens of colored graphs.  We did have simple profit 
and loss statements and simple balance sheets, and when American Research 
could see that these financial plans were in our head and in our heart, 
that we made them, understood them, remembered them, and they were simple 
enough to be a model for us to run the company daily and weekly and monthly 
using them as the model.  They committed to invest in us without waiting 
for a final beautifully bound proposal.

	Today, when plans are done by computer or by staff, they have more 
detail than one can keep in his head.  I sometimes fear that the elegant 
mathematics of a P&L and balance sheet loses its usefulness when people put 
too much detail into it.

	When people leave us today to become entrepreneurs, I advise them 
to, when they say their prayers at night, pray about your P&L statement.  
If your P&L is not so simple you can remember every line, or if it's not 
yours and not in your heart, you don't know what you want and you don't 
know what your plans are. So far, few people have taken that advice.

	We learned a lot in those early years.  We moved into an old mill 
and paid 25 cents a square foot per year for space with watchman service 
and heat.  We did everything ourselves, from building the offices to moving 
the equipment.  We did the photography in my basement, and printed our 
circuits with real silk on wooden frames and etched them in aquarium tanks 
we bought from the five and ten.  We sometimes spilled the etch solution 
onto the furniture store below.  I think we bought the same set of 
furniture several times.  We had the opportunity to learn accounting, and 
all the steps in manufacturing, things which, in time, became very valuable 
because we became sensitive to people in many different jobs.

	When we met with our accountants, we said we wanted big company 
accounting.  In our very humble offices, with lawn furniture and a leftover 
rolltop desk, it took a little bit of convincing to let them know that we 
really wanted big company accounting.  When they set up this system we 
discovered it cost us more to do the accounting than it did to do the 
manufacturing.

	After we were in business 12 months, we indeed made a profit, not 
much, but a profit.  We very proudly went down to show it to General 
Doriot, president of American Research.  he looked it over and looked up 
and scowled and he said no one ever has succeeded this soon and survived.  
The challenge was obvious.  He had watched many people start companies and 
success almost completely destroys entrepreneurial spirit.  It stops one 
from taking risks; one delegates the P&L statement to staff or to a 
computer, and one loses the humility necessary to learn.

	Traditions of science and of the church are that humility is 
necessary to learn, to explore, to search for truth, and knowledge. So much 
of science and religion today feel that any show of humility or lack of 
self-confidence makes it hard to get money, and without money, there is no 
religion and no science.  However, it does seem to me that humility that 
comes with the spirit of learning, probing, experimenting, trying, doing, 
redoing, and redoing again, is the only way to keep improving most things, 
particularly in 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 become a $14 million company.  No one wanted to make changes.  We had 
become a company of people who were full of ideas of what other people 
should do, full of ideas of where we should spend money, what products we 
should do but with only one entrepreneur at the top.

	We then broke the company up into a number of entrepreneurial 
product lines.  Each one had a manager with complete responsibility for his 
segment of the business and everyone else served him.  This went over like 
a lead balloon.  Many quit; some of the board quit.  Everybody thought they 
were demoted.  You can't mathematically demote everyone.  But the results 
were magnificent. Within a year we had doubled our profit without hiring 
anybody.  For many years afterwards we grew 20, 30, 40 per cent 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 
responsible, feeling creative, is truly impressive.

	One of the warnings that we had was with entrepreneurial attitude 
when people were competing with the outside world and competing with those 
inside there would be a tendency to sacrifice ethics in order to succeed.  I 
was somewhat surprised, I must admit, to find that, to an overwhelming 
degree, most people want to be ethical and work for an ethical company if 
the standards were clear and honesty and ethical activity were expected.  
People are honest with the company when the company is honest with them, 
and people are honest with the suppliers and the customers when they 
realize that the company is not interested in any short-term goals and with 
any other activity that might take place.

	When 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 good of the company and for society.

	Now no one told me about the long-term problems with 
entrepreneurship.  And they're kind of obvious.

	First, humility does not come easily with the successful 
entrepreneur.  It is almost contrary to his nature. Without humility it is 
hard to learn new things and hard to grow with the job.

	Secondly, with success and with growth, it is easy to let the 
planning, the P&L statement be done by staff.  An entrepreneur without the 
P&L in his head and his heart has no power.  The frustrations put on other 
non-teamwork activities.

	Thirdly, and entrepreneur is that last person on earth to give 
entrepreneurship to someone else.

	The challenge I face today is to have more than 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've won the contest and 
yet we're in disarray.  Can you imagine someone arguing with Congress that 
they want to take risk, to tolerate duplication, to pay the price of 
competition, to allow people to try new ways?   Can you imagine newspapers 
allowing this to go on without terrible criticism?  When American business 
people get together it's quite common to snicker and laugh at the failure 
of communism -- their central planning, their absolute intolerance of 
duplication, or competition, their fear of risk-taking, their lack of 
motivation and no direct rewards devastate 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 and 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 conclusion they come 
to, but are absolutely adverse 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 
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 having a shortage of food to having a 
surplus of food?  And with that question 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 to make more than a 
minister made.

	We have very little of that spirit in our country which claims 
economic freedom.

	I think many of you have demonstrated that many people who don't 
want to run their own businesses will often jump at the chance to take 
responsibility for a segment of a business or a school if the goals are 
clear and they can take part in planning and are given he freedom to take 
risks.

	I would like to say that running a business is not the important 
thing but making a commitment to do the whole job, making a commitment to 
improve things, to influence the world is.  I'd also suggest that one of 
the most satisfying things is to pass on the others, to help others to be 
creative, to take responsibility, to be challenged in their jobs and to be 
successful in the thing which, if not the most important, is almost the 
most important.

	Sometime, hopefully a long time from now, when I have to tell 
people that I'm leaving, they will say to me, "Ken, why don't you stay 
another year, it has been so much fun, so challenging working for you."  My 
ambition is to leave when they are still saying that and I can be 
remembered as someone who challenged them, who influenced them to be 
creative and enjoy work and have fun for a long time.



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