Able to grin about it now, Barnholt went on, “The reason they all failed and the reason they were big is that someone was already there.” To borrow a phrase from Silicon Valley consultant and author Eric Ries, they “achieved a failure.” Their ideas made sense. The technology was great. They executed on their plans well. But they still failed.
HP’s assumptions turned out to be wrong because of what Barnholt calls intangible factors, the realities beneath the surface: the underlying customer problems, needs, preferences, and supporting market dynamics. They were not discovering new opportunities or developing new products, they were relying on the success of competitors to identify the areas they targeted. They weren’t being creative. Barnholt then leaned back in his chair and summed up the experience by saying: “That’s how I learned the importance of making a lot of little bets.”
Ironically, a much more creative discovery and experimental approach to innovation had been central to making Hewlett-Packard into a market-leading behemoth. According to HP veterans, including Chuck House, who also coauthored a history of the company called The HP Phenomenon, in earlier years, cofounder Bill Hewlett loved to make what he called small bets to uncover unpredictable opportunities. That approach helped HP pioneer handheld calculators. In 1972, HP’s first calculator, the HP-35, would retail at $400 at a time when the market for scientific calculators did not yet exist. The technology was remarkable and the calculator could fit into your pocket. But the price tag was hefty, especially at a time when the alternative was inexpensive slide rules. People inside HP were torn about what to do. So, they hired SRI International to do some market research. SRI was then considered the premier computing research group. They had done pioneering work for General Electric, RCA, and others. “They knew more about computing than anyone,” House recalls, “and they said, ‘This thing can’t sell.’”
Bill Hewlett wasn’t so sure. He had just spent several hours on a plane talking about the HP-35 with the person next to him, who thought it was amazing. Hewlett suggested, “Why don’t we build a thousand and see what happens?” It was an affordable bet. Within five months, HP was selling one thousand calculators a day and could barely keep up with the demand.
For many years, when Bill Hewlett and Dave Packard led HP, the company never did traditional market research. Instead, HP got most of its ideas for new products by informally observing or talking with customers to identify problems and needs. HP’s first computer, in fact, began as a small bet after customers using HP voltmeters (an instrument for measuring electric circuits) complained about not being able to transcribe the meter’s six digital readouts per second. “So, the guys at the [HP] lab said, ‘You know, we’ve heard about these “computer things.” Suppose they could grab the data?’” House recalls. Reflecting on his experiences, Ned Barnholt came to a similar point of view and said, “A lot of our most successful ideas over the years came from the bottom up, by really understanding user needs.”
Reprinted by permission of Free Press, copyright © 2011 by Peter Sims.