Only the Paranoid Survive

ANDREW S. GROVE

Reviewed by Jack

As one of the founders and a former CEO of Intel, Andy Grove helped create a leading technology business. At first blush, Only the Paranoid Survive appears to be an autobiography or business narrative, but the subtitle explains the true focus of the book: How to Exploit the Crisis Points That Challenge Every Company. This book is an effective crusade for a method of crisis management, or perhaps crisis identification, that is well served by Grove’s wealth of experience in a competitive market.

The cornerstone of Grove’s book is the Strategic Inflection Point (SIP). Grove advocates the use of Michael Porter’s five-forces model to help determine the competitive well-being of a business. In addition to customers, competitors, suppliers, substitutes, and barriers to entry, Grove suggests a sixth force, “complementors,” which are businesses that offer complementary products, like what paper is to ink. A company experiences a strategic inflection point when one of these six forces topples its strategic plan, like a ripple becoming a tsunami, silent movies instantly antiquated by talkies, or what Wal-Mart did to Main Street America. When a monumental change like this happens, management is forced to take alternative actions. “The business responds differently to managerial actions than it did before. We have lost control and don’t know how to regain it. Eventually, a new equilibrium in the industry will be reached. Some businesses will be stronger, others will be weaker.”

Even in retrospect, the moment an SIP happens can be hard to recognize, but an unattended SIP can be deadly to the future of a company. Grove uses the analogy of a lost hiker. At some point along a hike, the hiker realizes that he is lost but doesn’t know when he actually became lost, when his foot first veered off the path. Rarely does he at the same moment realize: “‘Things are different. Something has changed.’” Grove advocates awareness as the main weapon against being defeated by an SIP. Just as with the hiker, how one reacts to an SIP is key to orienting oneself once an SIP has been recognized and acknowledged.

Grove then offers an example from Intel in the early 1980s, when the Japanese arrived in the memory chip market and ate Intel’s lunch because the Japanese companies could make the chips cheaper and more efficiently. Grove emphasizes again just how difficult it is to identify an SIP. He uses the metaphor of “signal vs. noise” for distinguishing whether a threat or problem is the real deal or just a temporary blip on the radar. Grove states that the only way to know whether a market or internal change signals an SIP is through “the process of clarification that comes from broad and intensive debate.” Grove admits that in this situation, Intel waited too long to acknowledge that they were facing a real SIP due to significant concern about how Intel’s existing customers would react to any change in business as usual. What Intel ultimately did was get out of the memory chip market—which was their main business at the time—and move into making processor chips.

The author’s analysis of how the computer industry went from a vertical market built with DEC, Wang, and IBM—who made the hardware and software for their own machines—to a horizontal market consisting of Microsoft, Dell, and HP is valuable. When this SIP ran through the computer business, Novell became a “first mover” in networking in the new horizontal industry. Novell, a small, vertically oriented company doing both hardware and software, literally ran out of money to pay suppliers and had to redesign itself. Within a few years, Novell became a billion-dollar business because it was able to react to the SIP quickly. As Grove points out, it is easier to be the best with a narrow focus like networking than by making the best computers with the best software in a vertical business.

“Managing, especially managing through a crisis, is an extremely personal affair.”

The book business I started has had three serious Strategic Inflection Points in its lifetime. The anxiety and stress of feeling lost but not knowing how we took the wrong path, just like Grove’s hiker, were low points in my career. No business or market is static, and Only the Paranoid Survive will convince you to “look over your shoulder” at the potential incoming train that may be a Strategic Inflection Point, and know whether to jump the track or get on at the next station. JC

Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company, Currency/Doubleday, Paperback 1999, ISBN 9780385483827

WHERE TO NEXT? Here for more on Porter’s five forces Here for how to lead through an SIP Here for how a company navigated through an SIP | EVEN MORE: Andy Grove by Richard S. Tedlow; Swimming Across by Andrew S. Grove; Direct from Dell by Michael Dell with Catherine Fredman