Deadly Sins the Tech Industry Can't Seem to Shake
The technology industry moves so fast and values change so much that its collective attention span and memory can be as ephemeral as a game of Angry Birds. So when I heard that Ken Olsen, the pioneering founder of the Digital Equipment Corp. (DEC), had died this week at age 84, I was reminded of all the good -- and bad -- that occurred in his career, showing the unlearned lessons that still plague the tech industry.
Olsen did a lot of things right: He was one of the very first high-tech entrepreneurs to realize that a business could be founded with venture capital, and he parlayed a $70,000 investment into a company that once employed more than 120,000 people with sales of $14 billion. Along the way, his company invented the minicomputer.
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But Olsen had his blind side. He famously said, "There is no reason for any individual to have a computer in his home," and he dismissed Unix as "snake oil." Olsen and his investors were made wildly rich by the sale of his company to Compaq Computer, which in turn was bought by Hewlett-Packard in 1992. By the time those two transactions were in the history books, all -- or nearly all -- of the value that Digital brought to the table had been destroyed, along with the careers of thousands.
Bringing up those long-ago quotes and failed deals is not to belittle Olsen. But failure can be more instructive than success, and those mammoth misjudgments shed light on mistakes that are still all too common in the technology industry. We're about to enter a new cycle of mergers and acquisitions, which is when many of these errors are committed. It's easy to make false parallels, but the demise of Sun Microsystems as an independent company seems to echo the fall of Digital and the destructive cycle of Wall Street-inspired mergers.
"Not invented here" remains a high-tech sin
In the early 1960s, computing meant IBM and IBM meant the mainframe. Olsen, though, challenged the conventional wisdom with a line of small (compared to giant mainframes), powerful minicomputers that didn't cost millions of dollars.
To make his concept a reality, Olsen and his partner, Harlan Anderson, approached George Doriot, a Harvard University business professor and venture capitalist, for the money to start a business. "Olsen was probably the first [technology entrepreneur] to see the value in going after money through venture capital and using it to build a company," said Dennis Byron, a longtime industry analyst who is now a senior researcher at IT Investment Research. Digital peaked in the late 1980s with sales of about $14 billion, and by then a whole industry had sprung up nearby in Massachusetts's Route 128 corridor.
But like many other founders, Olsen found it difficult to envision a product that was very different than the one he built his company around. He was very slow to see the value of personal computers, dismissing them as "toys." Eventually, Digital tried to enter the market with a PC called the Rainbow, recalls Byron, but it was based in part on proprietary technology, rather than standard components. It went nowhere, and almost no one remembers it.