#87 Thomas Watson (IBM)

What I learned from reading The Maverick and His Machine: Thomas Watson Sr. and The Making of IBM by Kevin Maney. ---- ---- Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work. Get access to Founders Notes here. ---- “I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — Gareth Be like Gareth. Buy a book: All the books featured on Founders Podcast

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• 0:01David Senra?

  Thomas Watson began his life at age 40, after Dayton, Ohio nearly ruined him. In Dayton, Watson experienced fantastic success and near destruction. All of it had to happen for IBM to exist at all and for Watson to take his place among history's great business figures. Alright, so that's an excerpt from the book that I read this week and the one I'm going to talk to you about today, which is "The Maverick and His Machine: Thomas Watson Sr. and the Making of IBM," and it was written by Kevin Maney. Before I jump into the book, let me just tell you where I found this book. I was actually listening to Marc Andreessen talk.

• 0:41David Senra?

  He's the one that invented the Mosaic browser, which turned into the company Netscape. But he's also rather well-known because he's the co-founder of the venture capital firm A16Z. And he was talking and I was taking notes on some of the stuff he was saying. And let me just read this to you. He says, "The entrepreneurs of the past were extreme characters. I'm thinking of Thomas Watson Sr. If you want to know what it's like to work for someone who is harsh, read a book on Thomas Watson Sr. He makes all of today's entrepreneurs look like cream puffs." So as soon as I heard him say that, I just went ahead and ordered the book. He also blurb for the book too, but Marc, like every single other founder that I've studied, studied founders that came before him.

• 1:25David Senra?

  In fact, he says something that I think is really pertinent to like what we're doing here, like the point behind founders. So this is another quote from Marc. He says, "There are thousands of years in history in which lots and lots of very smart people worked very hard and ran all types of experiments on how to create new businesses, inventing new technology and new ways to manage, etc. They ran these experiments throughout their entire lives. At some point, somebody put them down in a book." For very little money and a few hours of time, you can learn from someone's accumulated experience. There is so much more to learn from the past than we often realize. You could productively spend your time reading experiences of great people who have come before you and learn every time.

• 2:08David Senra?

  So I just bring that up because this is one of my free episodes of Founders. If you're a long time listener, you already know. I gave half my podcast away for free. I don't have ads or any other ways to support the podcast, except for people that actually are learning from the podcast and get value out of my work. And then the other half, I call it the Misfit Feed. You sign up. It is a way to pay a small amount per month. Or actually, now, there's an annual option, too. So if you're interested in supporting the podcast and hearing half of all the podcasts I've ever done, I do two extra podcasts every month just for the Misfits, and you can unlock the entire back catalog. And I think what Mark is saying here, for very little money and a few hours of time, in this case, on a monthly basis,

• 2:53David Senra?

  you can learn from someone's accumulated experience. I think that's the best way to clearly tell you, like, what's the value proposition for these episodes of Founders. But if you listen to them, I think it's pretty obvious to you. All right, so let me go ahead and jump into this book. There's a lot of notes here, and this is gonna be... It's a strange one. I'm just gonna tell you that upfront. You know what? I'm not gonna run over my own points. So let me get into... We're gonna start out in the introduction of the book. And at this time, I'm gonna tell you more about his early life, like I always do. But for now, I wanna tell you about this opportunity, because, you know, it's kind of a weird way to start a book, saying that, you know, he had a lot of success in Dayton, but it almost destroyed him. Like, what does that mean? And then what does it mean starting your life at 40?

• 3:38David Senra?

  So he's being recruited. He works for this company called National Cash Registers. I mean, as the name... You can pick up from the name, they sell cash registers. And they have, basically, a monopoly on cash registers, which was a giant industry in the early 1900s. So he's telling his dad, he's like, "Oh, I'm getting promoted. They're gonna let me run my own business, my own subsidiaries of National Cash Registers." And then I'm gonna tell you why that's so bizarre, though. But before I get into that, I just think this is really good advice that he gets from his dad. So he says, "He told his father that he'd have a budget of $1 million, an amount that was unfathomable to both father and son." Keep in mind, like I said, this is the early 1900s. I think it's 19... Yeah, 1903. And then this is what his dad said that I thought is good advice.

• 4:23David Senra?

  He says, "Well, I'm very pleased about that because what you've been doing," meaning he was just a sales manager for the company, "what you've been doing hundreds of men can do, but now you're doing something different, something new." And I think that is even more true today. I think that it's really smart moving forward to anchor yourself around what actually makes you unique, especially in the information age. Alright, so let me tell you about this fake company that National, that I'm gonna just call them NCR moving forward, that NCR makes and they want Watson to run. And they're creating a fake company because they want to build a monopoly. And this is important to the story of Watson's life because he winds up catching a charge, a criminal charge. They try to put him in jail.

• 5:07David Senra?

  And that's why he says his life starts at 40 and is almost destroyed. And I'll tell you more about that in a minute. So it says, "He went undercover while creating the," it's called "The Watson Secondhand Cash Register Company, a phony entity set up and funded by NCR. NCR wanted the secrecy so it could slip into the used business, meaning used cash register business, quietly and ruining it from within." Watson's a rather highly skilled operator though. So this fake company actually grew into a successful, profit generating company, and it was all a ruse. "The profits were an unintended consequence. The business's real purpose was to destroy the competition." So what does that mean? Well, in the late 1980s, NCR is run by this guy named Patterson. And Patterson's extremely important to the life story of Watson as well.

• 5:51David Senra?

  And I'm gonna tell you more about him. But he was basically like a cult leader and a dictator and somebody that Watson essentially, like, almost like an older brother, father figure, that Watson essentially patterned his life after. He took some of Patterson, Patterson has some good ideas about running business and a lot of terrible ones. And Watson borrowed both the good ideas and unfortunately the terrible ones. So it says, "In the late 1890s, Patterson realized that NCR was creating its own competition. NCR was so good at making cash registers that the machines tended to last for years. Independent dealers started buying used cash registers from establishments that either went out of business or purchased newer models. The dealers then buffed them up and sold them,

• 6:32David Senra?

  more often than not to someone who otherwise would have bought a new NCR machine." So this occurring to a dictator personality like Patterson was completely unacceptable to him.

• 6:46David Senra?

  So it says, "For nearly five years, Watson ran the used operation and ran it well. It was an extraordinary success." He's young, I think he's like 20, say like 27 at this time, right around there. "In city after city, used cash register businesses were devastated." Okay, so then I want to tell you more, a little bit more about this Patterson. And the note I left myself is, Patterson created a cult. And what I didn't know at this point in the book, that becomes extremely obvious once the book is finished. Patterson created a cult, Watson did too. Early IBM, the only way I think, the only accurate way, based on the information and

• 7:28David Senra?

  the reporting in this book, and the author does a fantastic job, because he has access, like IBM gave him access to all their archives, and there's tons of information in this book that are available nowhere else. Watson created a cult. I remember watching this documentary on Scientology, I think the leader of Scientology now is this guy named David Miscavige. Watson and Patterson have heavy, heavy David Miscavige Scientology vibes. So I just need to put that up there. Like, there's gonna be some things today that we're gonna learn about Watson that are good ideas that we could take to our own lives. There's gonna be a lot that's not, I wouldn't recommend replicating. This was a very flawed, like everybody, I mean, I'm an imperfect human being too, so

• 8:12David Senra?

  I'm not trying to cast judgment, but you can't understand the life of Thomas Watson without realizing that he's got something, he's got extreme tendencies and personalities in both directions. So it says, "If Patterson sermonized that it was right that NCR had an obligation to rid the business of interlopers at whatever cost, Watson would have seen no reason to argue. Watson had grown up poor and had failed in his early attempts at business. He wanted to escape his past. He looked up to Patterson like a religious figure."

• 8:48David Senra?

  And the, the inner circle of Watson, once he, he gets to IBM and then he develops the culture of, you know, he ran the business from the time he was 40 till almost 85. It's the same thing. It's the exact same thing. It's, it's really kinda spooky. Um, so this is a little bit more about Patterson's personality. He says Patterson ran NCR like a Napoleonic dictator. He was a tyrant. He wanted total control of NCR and the lives of everyone who worked there. He fired men without reason and prompted them, prompted them equally without reason. Uh, excuse me, promoted them equally without reason. He was a master of manipulation. So one of my favorite, um, this is gonna date me. Uh, one of my favorite, uh, movies, funniest movies when I was a kid.

• 9:33David Senra?

  I don't know. I was probably like 10 years old when it came out was, um, Jim Carrey's Ace Ventura Pet Detective. And he, he has this, this funny scene where he's realizing like the person he's trying to capture and the detective are the same person. So he's like Einhorn is Finkel, Finkel is Einhorn. When I'm reading about Patterson and Watson, I kept saying that over and over again. Patterson is Watson, Watson is Patterson. So I just read that paragraph to you about Patterson. Now I'm gonna read the exact same paragraph, but read it with Watson and it is still true. Watson ran IBM like a Napoleonic dictator. He was a tyrant. He wanted total control of IBM and of the lives of everyone who worked there. He fired men without reason and promoted them equally without reason. He was a master manipulator.

• 10:18David Senra?

  Everything that was said that the author's saying about Patterson is definitely true about, um, about Watson. Now, this is actually interesting because I learned a new word this week. Let me pull it up. So I'm, you know, I'm not gonna be able to pronounce it. I was listening to a podcast about an author who wrote a, um, he wrote a biography on Churchill, which is kinda interesting, like writing one now because there, he says there's over a thousand biographies of Churchill. Winston Churchill is one of the most, has to be one of the most studied people in, in, in human history. And so I was interested in the process of writing a biography of like what, like his. How are you going to write something new that's been studied so frequently?

• 11:02David Senra?

  And he brought up the point with the person he was interviewing because the person he was being interviewed by had read the book. And he's like, "It's definitely not a hierography," however you pronounce that word. And so I had to look that up because I've heard the word before, but I didn't know what it meant. And so it's a biography that idolizes the subject. It's auditory writing about another person, the writing of lives and saints. And same situation here, the author, Kevin, he definitely did not write a hierography or however you pronounce that word. He does praise a lot of Watson's decision-making or personality traits that led to his success. But he also, which I loved, he points out that there's a downside.

• 11:44David Senra?

  He calls him narcissistic, completely self-involved, a master manipulator. And I'm not trying to cast judgment on him. I understand that unfortunately, the traits that can make us extremely successful, when applied in the wrong way or in an improper domain, can also lead to your downfall. They can be extremely negative. I just think it's important for us to understand that about human behavior and to constantly be aware of it. Every single person, every single founder we've studied so far, has great traits and they have their traits that make them imperfect. And Watson was no exception to that.

• 12:23David Senra?

  So before I get into his early life, and I want to tell you, even though in hindsight, this company's like a fake company, he took it really, really seriously. And he studied not only from Patterson and other people that came before him, but other people that had similar jobs to him. And so in studying them on trying to do his job better, he actually accidentally discovers the machine that IBM would come to monopolize. Because just like Patterson built a monopoly and a trust, IBM, early IBM was that. They controlled like 90% of the accounting and tabulating market. And this is an era before computers.

• 13:08David Senra?

  So they were electromechanical machines. They were not computers. That's not the, like you think of the IBM, you know, maybe 30, 40 years ago, they're on computers now, they do all kinds of different stuff. It's rather remarkable that the company's still, I just looked up, they do like 80 billion in revenue last year. But... This is how he discovers a machine that in a few years from now, he builds a company that would actually monopolize. So he meets with a friend of his that works at Eastman Kodak. Kodak, George Eastman, the founder of Kodak, I actually have a book on him. He'll eventually appear on a future Founder's episode. But this guy, he's, Watson's meeting with his friend named Ames. And he says Ames had the same kind of jobs as Watson, a sales manager, but he just worked at Kodak. Ames told Watson that he had a new system that could monitor the performance of each

• 13:53David Senra?

  salesman. So this is Watson talking. He says he had a chart on the wall. He said, "Here is Hambley," this guy, the sales guy, "in Kansas City, and he did so and so. And on such and such day, he was in St. Louis, and he went through this, and my..." He's talking about sales numbers here. "And my head began to swim around because I thought, in fact, to tell you the truth, I thought I was just about as good a sales manager as Ames." I said, "Bill," that's his first name, "by gracious, I would like to find out how you know how to do that." So essentially Ames has a better way to monitor the performance of the salespeople that he's put in charge of managing. Ames walked Watson to the accounting department and showed him, they're called Hollerith

• 14:34David Senra?

  machines, after the person that invented them, "which tabulated information using holes punched in cards. This just opened my eyes, Watson." So he real, Watson said, "So he realized, 'Oh, I thought I was doing a good job, and then I was exposed to somebody who's actually doing a way better job.'" So at this point, let me step back in the story. I want to tell you a little bit more about his, um, his early life, because it is rather inspiring, the fact that, you know, he grew up really poor, dies really wealthy, and didn't really, and didn't really start his own company till he was 40 years old. So he's born in 1874. Watson lived nowhere near anything that could be called a city. He lives in this family farm out in like rural New York. Watson's father never knew success.

• 15:17David Senra?

  He combined farming and lumbering, but fell victim to calam, to, to bad luck and his lack of business savvy. The Depression of 1873 to 1879 kept the family struggling, all through Watson's youth.

• 15:29David Senra?

  And this is a really important sentence here. It says, "Watson didn't seem to have any outstanding talents. He found little value at school, so he winds up leaving school early. I don't even know, maybe like the equivalent of like a high school education, maybe a little less than that. So he winds up looking for work and he gets a job keeping the books at a general store. This is in 1891. He winds up, then he gets another, his first job is a salesman. So another thing to understand, Watson is, he's a co-founder of IBM. He essentially runs it because IBM is basically a one-person company, especially because the other co-founder dies and I'll tell you a little more about him. But Watson thought of himself as a salesman.

• 16:12David Senra?

  He thought salespeople were the most, like that's, that's his first few jobs, that's how he, why he had success, that's where, who he managed for most of his career. And so this is him getting his first sales jobs after the job at the general store. And he was selling sewing machines and musical instruments in the back of a wagon. I mean, that's, that's insane. So it said, "Watson to call on potential customers." This is Watson's first salesman job. "The work frustrated him. He made little money. Watson quit and moved to Buffalo to try selling sewing machines." He had some success at here, but he has this experience early on. Watson's superstitious, so this is actually an important experience in his life.

• 16:55David Senra?

  So he'd sell sewing machines during the day, and at the end of the day, he'd end most of his days at a local saloon. "One evening, Watson stopped in a bar and stayed until closing. When he came out, his horse and wagon and the sewing machines on it had been stolen. Watson reported his loss to his boss and was promptly fired. Watson concluded that alcohol could never be mixed with business." So this is important because I don't know if he drinks for the rest of his life. In fact, he has such control over, remember when I referenced Patterson wanting control over not only like the work that his employees do, but their entire lives? Watson would, would look down upon and basically preach the idea that you're not to drink. If you work at IBM, you are not to drink, even off-hours.

• 17:34David Senra?

  And it's because of this, this, this unfortunate experience that he had early on. "Watson tried selling shares in a building and loan company for a man named C.B. Barron until Watson eventually figured out Barron is more of a huckster, so he's fakes, selling fake shares. Next, Watson opened a butcher shop. The shop ran out of cash and Watson had to sell it." I'm spending a lot of time here, just so you understand, like, he was not born with any skills, not really educated, didn't really have successful 40, that doesn't matter. It didn't stop him from being able to create and run a wonderful business. Um, so I think, you know, I like to dispel this myth that if you don't figure things out, if you're lucky, I'm not saying like wait till you're older to try to try to do it.

• 18:17David Senra?

  If you know what you do and you have success when you're early. And I've, I've talked to a lot of people that listen to the podcast through email. And there's a lot of like, I'm, I'm super impressed by a lot of, I call them kids. I don't mean that derogatory because when I was 19 or 20, I didn't, certainly didn't feel like a kid. Um, but you know, as you get older, your definition of the youth, they, everybody looks, and you won't understand this if you're this age now, but you certainly do if you're older, like, uh, like, you know, when you're 19, 20, you think you're an adult and you are, but like, then you get to your 30, you're like, oh, 19, 19 or 20 year old looks like a kid. I'm sure like, when I'm, when I get to my 40s, it'll be the same thing. So, um, I'm just amazed at how like ambitious and like on point, a lot of these young people are.

• 19:01David Senra?

  It's extremely inspiring, but I would say that's more likely than not. Understood, like if you're one of those people, you have an advantage and don't let your foot off the gas in that case. Um, because most people don't get it together, you know? Um, there's tons of examples in these books where people not really figuring out till later in life. Uh, Watson was one of, an example of that. So it says, Watson trucked to the local NCR office to transfer the installment payments on the store's cash register to the butcher shop's buyer. This is how he gets a job. At the NCR office, he talked, this is another like important event in his life. At the NCR office, he talked with salesman John Range. Watson asked Range for a job and continued calling on Range until Range said yes. So that's another thing.

• 19:45David Senra?

  One thing I did learn from, from Watson is the value of perseverance. He definitely did not give up easily. Um, so as you could imagine, Watson is super motivated because he's not been having success. He's every single thing he's doing is one failure after another. He has no money. He doesn't want to live life like that. So it says, Watson liked Range and soaked up everything Range could tell him about selling. Nine months after joining NCR, Watson moved up to full sales agent in Buffalo. Four years later, NCI, or excuse me, NCR, assigned Watson to run its struggling Rochester, New York office. Watson, only 27, turned the branch around and made it one of NCR's best. Okay, so now I'm gonna skip several years ahead. Now, the reason I wanted to tell you about that part because the fact that he took his

• 20:28David Senra?

  job so seriously, the fact that he was so successful at it led him to the opportunity to run that fake company, right? So, we're gonna fast forward to him running the fake company for a while. We're gonna be 1912 when he actually gets indicted. Now, this is important to understand because he has to go through these distress and the struggles to...IBM would not have existed, at least not in the incarnation it was when Watson ran it, without this. And I think it's extremely important to understanding that it was like a fuel to him. And so, let me just read some of these highlights to you. So, there's a newspaper article in February 22nd, 1912. It says, "The lead headline, NCR Men Indicted By The Federal Grand Jury. Thirty officials and employees of the National Cash Register Company were indicted on charges

• 21:13David Senra?

  of criminal violation of the Sherman antitrust law." So, not only is Patterson indicted, but Watson's one of the 30 people. And this destroyed him. It says, "The shock of the reality of a jury proclaiming him guilty," because they wind up losing a case, "of being labeled a criminal had a profound and lasting impact. If there was a single moment when Tom Watson changed, when he decided that a squeaky clean image and reputation were paramount in business and in life, this was that moment." He was portrayed as a villain. I don't ever think he recovered from that. That's actually the writer...it's actually the writer...I don't know if you call him a friend, but he definitely knew Watson. That was Peter Drucker, who you might know because I've referenced one of the best quotes about entrepreneurship come from Peter Drucker.

• 21:55David Senra?

  He says, "Entrepreneurship is not an art or a science, it's a practice." That Watson didn't recover was to his benefit. The trial and verdict forced him to realize that there were also bigger things in his job and his advancement. It also gave him something to prove, that he wasn't a self-centered crook. If Watson had never been brought to trial, he wouldn't have become the kind of leader who could build IBM. Another interesting personality trait about Watson is, so, they're convicted criminals, then they take it to appeal, and while they're appealing it, they're offered a...if I'm not mistaken, and I might have the timeframe wrong, but they're offered, you know, like a plea agreement. Say, "Hey, just admit wrongdoing and then, you know, you're not..." I think they might have got probation. They weren't gonna go to jail. Every single other person but Watson took that deal.

• 22:41David Senra?

  He's like, nope, not taking it, not taking it, not taking it. Like, I'm not gonna, like, he was so important to him to not have made wrongdoing, even though he was definitely guilty. He was 100% guilty. But again, he had, um, uh, you know, everybody talks about Steve Jobs, um, reality distortion field. Watson had that too, to, to an extreme. And unfortunately, he applied it to like his family life, jobs, all kinds of stuff. And it might've worked in business, but I'll tell you a little bit more about, uh, you know, where he, he messed up in my opinion as a, as a father. Um, so the appeal, they wind up winning on appeal. Uh, I forgot the, the exact reason why, um, and I didn't include it in the, the highlights of the show, but just know that he's not going to go to jail. Um, actually, he doesn't, at this point, what I'm about to read, he doesn't know he's not going to go to jail.

• 23:26David Senra?

  So he gets, Patterson has, like I said before, he's like Scientologist vibes to me. This like, at least the documentary I'm referencing where David Miscavige, then manipulates everybody around him, Patterson's doing the same thing. And he doesn't like the attention that Watson was getting. And he went up firing him, kicking him out of the company, which is kind of crazy. So let me just tell you about Watson's time. This is where it talks about how it destroyed him. He has to start over at 40. He said, he had been at NCR for 17 years. This is the terrible situation he found himself in before founding IBM. So this is important. At the age of 40, Watson lost his job and felt the need to leave the city he had adopted as home, while his wife was about two months shy of delivering their first child. Worse, he still had a jail term hanging over his head.

• 24:09David Senra?

  What company was going to hire a top executive who might soon go to prison? Watson started making trips to New York to see what jobs he could find. So think about that. Like, it's hard enough starting a company. Imagine starting a company when you're 40, you don't have too much money. Uh, you could be potentially in jail for a year, and your wife was about to give birth to your first child. I mean, the amount of stress had to be extreme. So he winds up meeting this guy, Charles Flint. Charles Flint is going to be the co-founder. He's essentially the founder of what becomes IBM. Watson becomes co-founder after, like, Charles starts the company first. Right? Um, I want to spend some time talking about Charles Flint because I haven't found another book on him. And Charles Flint has an unbelievable life story.

• 24:53David Senra?

  And I can't believe I can't find a biography for about him. Um, because if I did, I would do that immediately. Uh, so let me just tell you a little bit more about that. So this is Watson had an appointment with Charles, Charles Flint, who would change Watson's life with a job offer. Sixty-four years old when he met Watson, Flint had already packed his life with more adventures than a roomful of ordinary men. Flint started his first dockside business at eighteen. He came from a, a family of shipbuilders and captains. Uh, they were, this is in the, on the coast in Maine. Uh, so he started his first business at eighteen, uh, and then he won a job with trader William Grace. This guy is famous in his own right. Uh, William R. Grace by approaching him on a ferry and saying he'd initially work for him for free.

• 25:34David Senra?

  In eighteen seventy-two, Grace organized W.R. Grace and Company as a shipping and trading firm and asked Flint to join as a partner. Uh, interesting enough, this, this company, Grace and, uh, W.R. Grace and Company is still in business after a hundred and thirty years. I love seeing stuff like that. Uh, W.R. Grace established the Marine Midland Bank. They sent the first commercial ship through the Panama Canal. They introduced shrink, shrink wrap packaging to the food industry and grew into today's chemical and construction materials conglomerate. What? It's amazing. Flint got involved in, this is, this is the crazy life that Flint lived. Remember, he's a co-founder of IBM in addition to all this stuff. Flint got involved in South American shipping and politics.

• 26:16David Senra?

  An opportunistic arms trader, Flint retrofitted commercial ships with dynamite guns and sold them as battleships to warring South American nations. He smuggled torpedoes across Colombia to his military customers in Peru.

• 26:31David Senra?

  Theodore Roosevelt, then the Secretary of Navy, asked Flint to use his skills to help the United States obtain warships. Flint and Roosevelt become friends. Flint had been a friend of President Roosevelt, uh, Harrison and McKinley. An acquaintance of dictators and royalty around the world and a sportsman who hunted and fished with steel magnets Andrew Carnegie and Charles Schwab.

• 26:53David Senra?

  That's one of the craziest paragraphs I've ever read in any book. "He was jovial and supremely self-confident. He rarely failed to deliver on promises, no matter how outrageous. He loved inventions and gadgets. He latched on to automobiles soon after they were first sold to the public, and funded a race car in the late 1890s. He had one of the first incandescent lights installed in a New York City residence." So, the reason I'm including this, because this goes through a bunch of the founders that we've covered. We've covered Carnegie. I've talked a little about Charles Schwab in relation to Carnegie. I'll eventually do a book on him by himself. He's buying cars from Ford, who I've covered at length, like, I don't know, three or four different times. I just covered the book Empires of Light, which talks about the very first houses

• 27:36David Senra?

  in New York City being lit up by Thomas Edison. J.P. Morgan being the very first one. Another one. He says he saw the potential of airplanes and got involved with the Wright Brothers. I did a podcast on them as well. "Cutting a deal to sell their airplane overseas." "Flint's international trading led him in 1872 to start pulling together rubber exporters, until he eventually created a monopoly called U.S. Rubber." So, that's the important thing about Flint. This is before the Sherman Antitrust Act, his life at least. And that's what he did. He set up trusts. He'd buy a bunch of companies, eliminate competition because he thought it was more efficient, and he did this. So, he says, "Over the following 30 years, Flint put together 24 trusts." And so, a little bit about this point in history to understand.

• 28:21David Senra?

  Like, now, you know, they'd be in jail. He'd be in jail if he did this. "But trusts were tolerated and seen by many at the time as beneficial. Years later, attitudes towards trusts would take a dramatically darker turn. Among his trusts, Flint had his hits and misses. One of his last, and one of his worst, and it would be, one of his last was one of his worst, and it would be the unlikely and inglorious beginning of IBM." So, what does that mean? IBM was not called IBM. Watson names that later. It is called, one of the worst company names in history, Computing. So, he merged three or four companies together, including those Hollerith machines I mentioned earlier, and he calls the company Computing Tabulating Recording Company, or CTR for short. "It didn't work. CTR started life bloated with debt.

• 29:06David Senra?

  It achieved no economies of scale and no market advantages of a trust. Flint desperately needed someone to come in and save his experiment." That's when Watson walked through Flint's door.

• 29:19David Senra?

  So Flint is gonna partner up with Watson even though Watson has a jail sentence hanging over his head. I already told you this point, but it's worth repeating a few pages later. He considered starting a business but didn't have enough capital. The antitrust verdict guaranteed that Watson would find hard to borrow money or lure investors. So I, the note I left myself was, listen, think about the point in Watson's life that was the beginning of IPM. No money, convicted criminal, and a looming jail sentence. So they do a deal, he's gonna bring him in as a partner, and the note I left myself is, never cap your upside. This is actually really smart, makes Watson eventually, this agreement right here is gonna make Watson, there's a list, like it's early like Forbes 400, except it's not on net worth, it's on actual income.

• 30:00David Senra?

  And Watson becomes the highest paid CEO in America for several years. That helps him become super famous. So this is, Watson would get 5% of CTR's profits. It gave Watson great financial upside. So I think that's just a rule in life, never cap your upside. I've never had a job, or any kind of environment where I had a capped upside. I was lucky enough, my first job I got at 15, I worked at a car wash, and a few months later I got promoted to become a detailer. And when you're a detailer, you get paid hourly, you get paid tips, plus you get paid commission on not only the jobs you do, but if you sell, you can, if like, if you, when you're not detailing, if you sell like a upgraded service, you get a percentage of that.

• 30:45David Senra?

  So you could sell, let's say you get 3%, I forgot what it was, this is 15 years ago, more than that. But um, yeah, you get, let's say 3% of the sale, 3% for doing it, hourly rate, plus tips. So while I was in high school, I was making like, at the time, this is early, early 2000s maybe, I don't know the exact year, maybe year 2000. And I was making like $400 a week in high school. Like, it was actually really, it taught, it was a really good lesson for me, that never capping my... Never capping my upside, never working for like an agreed amount salary. I've never done that in my entire life. Because I think like you don't, companies are paying you a salary and then they're capturing the upside if they do well. Obviously, people like that for stability because what if something goes wrong and the company has to pay for the downside?

• 31:29David Senra?

  But I think for as an individual, you definitely want to cap, never cap your upside. That's why people are entrepreneurs, because they feel the market's not going to accurately like assess their true value and that they'd rather prove what their value is. So in here, Watson does a great deal. He's getting 5%. Think about that. I don't know how long this goes on, but it definitely happened several years into, because IBM was this massive company during World War II, and he's getting 5% of the profits. So he makes a lot of money. Now unfortunately, his net worth is never, I mean, it's still really good, but you know, he owned at that time with, once the shares get diluted, he owned like 1% to 2% of IBM. So he made a lot of money. Obviously, he's paying income tax on that money, but his net worth was never commensurate

• 32:13David Senra?

  with the amount of money he made because he had such a small ownership. Okay, so I think this is a great idea. Watson didn't storm in with a vision, meaning now he's running the company. He certainly did not proclaim that he saw tabulating machines as CTR's path to greatness. The only vision Watson communicated to CTR in those first few months was that the company was going to become a glorious institution. This is what I mean. He's starting, he is laying the foundation of his cult right here. We're going to be a glorious institution. We're going to be great. This is actually like the positive aspect of a cult, without the manipulation part, but telling people and convincing them and being optimistic, I think, is really, really smart. Considering CTR's condition, that pronouncement was enough to convince a lot of CTR employees

• 32:57David Senra?

  that the new boss was a nut. Many who had been with CTR saw our company decline, not one of greatness. So it's a big problem. You're taking over a company, everybody thinks it sucks. Even if it does suck, you have to convince him that in the future it won't. The restraint showed Watson at his best. A charismatic, forceful leader who because of circumstance chose to apply patience and savvy. Watson's force of personality, though, would not stay in reserve for long. Now, right after this, he learns that he's not gonna go to jail. And then the book talks about, this is his why. This is what was driving him. This is why he gets so insane later on in life. Watson finally broke free of the worst episode of his life. But the desire to bury his past now consumed him. He had to prove Patterson made a mistake.

• 33:41David Senra?

  And he had to prove to the world that he was a moral and straight-shooting businessman. To do that, Watson needed to build CTR into a great and admired company. And this is where we see that the separation between Watson, the person, and IBM, the company, starts to evaporate, to the point, at the very end, there is no separation. And I'm not recommending that, I want to be clear. Like, he was, I would say, a terrible husband and a shitty father. And that's why, towards the end of the book, like, I started having a distaste for him. I think the perseverance, the optimism, the charisma, I like those characteristics. But I have a hard time respecting anybody. I don't care if you make a billion dollars. If you're a crappy dad, like, you failed at life. It doesn't matter.

• 34:26David Senra?

  And I think, you know, I mean, there's some stories in the book that I'm not even gonna talk about. They're just, it's terrifying, the way he would talk to his kids. He would talk to his kids' wives later on in his life. Like, he was just, he was obsessed with status and like, other people, like, adulating. He would self-adulate, but like, he constantly craved compliments from other people. People that got promoted in IBM were the people that would kiss his ass all the time. That's a bad idea. That's a terrible idea in business. And if it wasn't for the fact that he essentially, like, he had some good strategic moves, that, essentially why IBM was successful at this time, was because he creates a monopoly. He does exactly what Patterson did. He had 90% of the market. That's why it's successful.

• 35:11David Senra?

  He confuses that with, like, his own greatness. And if he had, if he was operating in a normal environment where he did not have a monopoly and his staff, they talked about like he want, his son eventually takes over the company. But he makes, you know, he doesn't let go till he's like 85 or something like that. I forgot the exact age. If, but he said if his son didn't take over, he had nobody that was qualified to run the company. That's an indictment on your leadership. If you run a company for 40 years and you, and you have not, there's nobody that can take your place, God forbid you die early or whatever the case is, nobody, because he didn't keep anybody around. He did not, he only wanted people to tell him how great he was. This is, it's a weird book, man. It's, it's bizarre to me. Um, now there's some good ideas. I mean, this is not one of them. This is, I jumped way ahead.

• 35:56David Senra?

  What I just got done telling you is way, is probably 20 years, maybe 15 years in the future where we're at. This IBM doesn't exist yet. See, he hasn't renamed it. He, it's still CTR. He does have, I think, somewhat of a good idea here. I, it's not always a good idea, obviously. It depends on the talent that you have, but he did prefer to promote from within. He liked training his own people. Why? Because he's building a cult. Uh, Watson ran, uh, on the seat of the pants in sync. He reached into every corner of CTR to find talented executives. He did not look outside of the company. So I'm saying it's, it can be a good idea. I need to rephrase. Sometimes you need to go outside the company. Uh, when I joined the company, Watson said in a speech years later, uh, there were plenty of ideas lying around, but many of them seemed too big for the organization to handle.

• 36:39David Senra?

  The directors told me, you have to go out and hire outside brains before you can build up this company. I told them that's not my policy. I like to develop men from the ranks and promote them. Um, so he has this, he has this quote, he says, I've preached and preached and preached. This is actually a good idea too. I just, I guess what really influenced my, the way I think about him. And again, this is my opinion. It doesn't matter. Like it's not important what I think to anybody except myself, like. There's a lot of quotes in the book from like they you remember he went to IBM the author went to IBM's archive and like the minutes of these meetings I just cringe I would never allow anybody to talk to me like that. And but at some point or I'm like alright well there's people that are viewing Watson different than I'm viewing him like they're ostensibly

• 37:25David Senra?

  adults if they don't like the environment they can leave I just don't think you should treat people this way. Um so he says but he does have good ideas he says I preach and preach and preach to study the business study the business study the business so I believe in that I think anything that your craft like you should be you should study you should try to be as as you're you're gonna spend half your waking life working on something you might as well be as good as possible at and I I I um I'm motivated by and admire people that that in all forms uh that that get really good at their craft so I think what he's saying here but like here's an example of um some quotes from some of these meetings he says the fact that I criticize some some one or two or three little things doesn't mean that

• 38:05David Senra?

  you men haven't been working and haven't been trying it doesn't mean that I'm dissatisfied with all of you either but in business especially in a business like ours where there are so many things to take into consideration it behooves every man to analyze every report that comes out it says Watson's criticized their retention rates. Um so in this meeting this is what I'm talking this is now my own notes that I'm summarizing because I don't want to read an entire page here I'm just telling you what happened. Um he says Watson criticized their retention rates he was wrong and they weren't as bad as he thought but he was still mad because they didn't know it was a mistake they didn't know their own numbers. So to me you should know your numbers you study the business like you're what are you doing at work like don't do anything unless you're gonna do it well right um that's a good like

• 38:49David Senra?

  we're never gonna achieve that goal all the time because we're imperfect but it's a good like uh something to like a north star if you will but He doesn't like, the problem is like, he's yelling at them and then he's not even right. You see what I'm saying here? Like, he's saying, "You should know your numbers." But you didn't even, you didn't even have the numbers correct. So that's what's, like, he does all these kind of weird decisions and the way he talks. And like, he has meetings where he's got 12 of his highest-paid executives, and he'll spend two hours just talking. And they don't say anything. There is no pushback, as far as what I'm learning, what I learned from the book. And that's just not, I, I don't understand why, one, from, uh, from the founder/CEO perspective, why you'd want that environment. Two, why you'd, like, you know how bored these people must be?

• 39:32David Senra?

  Uh, and then, and then I thought to myself, "Well, David, you might be wrong." Like, they might have, have really loved this guy that they literally think, like, he's, everything out of his mouth is just pure wisdom. And they can't, they, they love to sit there and be lectured to. It's just, it's not, not for me. Uh, this is another example note that I leave a lot in the book. Watson was building a religion. Watson was building a cult. I leave these notes everywhere. Uh, so, let me give you an example. "He preached about health, a topic far afield from a typical business presentation. He told the audience, 'Get enough exercise, fresh air, eat the proper quality of food, and get enough sleep.'" A whole package of Watson-like traits began to percolate through CTR. Watson carried the culture of his old company, NCR, uh, inside of himself.

• 40:15David Senra?

  He transplanted aspects of it into CTR. In both companies, salesmen who, who met or beat their quotas became club members for that year. They attended a week-long annual convention. Watson would reconstitute other NCR cultural artifacts, such as the Employee Country Club, a schoolhouse for training, and a company-wide newspaper that served as a propaganda organ. Watson pushed to infuse optimism into the culture of CTR. So that's a positive, uh, among, uh, see of, you know, there's a bunch of negatives in here. "He wanted everyone to share his faith in the company's future. Most of the people inside his CTR never had a reason to think grandly about the company." Again, these are good things, uh, that he's doing. "CTR had been falling apart, but Watson wanted employees to see what he saw, that CTR had a vision of something way beyond our present conception,

• 41:00David Senra?

  meaning our present state. I think that's a good idea, and I think it also applies to individuals." "All those things mean unlimited opportunities for every one of us who started in this business." Slowly, Watson won converts to his religion, and it talks about, either you converted or you left. There was really no gray. Um, you were gonna buy in, or you were gonna be expelled. Okay, so now this is actually a good strategy that Watson does. At the time, CTR is going to lose a bunch of their patents. So the note is like, "What do you do when your technology is outdated and your patents are about to expire?" He doubles down on innovation. So he says, "Better technology translated into sales." Thinking of the lessons from his friend Charles Kettering, Watson decided to fund a laboratory full of engineers like Kettering. So it might be Kettering, but I think I've heard it pronounced Kettering.

• 41:45David Senra?

  You might have heard that name before. He was a founder, sold his company to GM. And then Charles Kettering winds up being the head of research at General Motors from like 1920 to 1947. So it kind of overlaps with like what some people think is like the glory years of General Motors. And he did that by doubling down on engineering. So he gets this idea. They met, Charles and Watson met at NCR. And eventually Charles left NCR to start his own company and then sells that to GM. So he's learning from other people around him, very smart, and this idea of saying, "Hey, the only thing like we're going to be able to do is invent our way out of this predicament." So this says, "In 1917, Watson recruited James Bryce, who would come to rival Kettering as one of the most important..."

• 42:28David Senra?

  or Kettering as one of the most important product developers of the century. Brilliant and moody, with a dry sense of humor, Bryce was named CTR's chief engineer. He worked on or directed nearly every new tabulating product over the next two decades. He ended up with more than 400 patents to his name, and in 1936, he was honored by the US Patent Office as one of the 10 greatest living inventors. This is the very foundation of which IBM built its monopoly on. So this is a really good strategic decision here by Watson. I just, I thought this was funny. I don't know if this joke is going to land, but I think Watson was the Kanye West of his day. He gets sent a survey about himself for the National Encyclopedia of American Biography.

• 43:15David Senra?

  And you're gonna see um his answers. His answers showed that he was in the early stages of a couple of tendencies that would worsen as he grew older. Self-absorption and overconfidence. See, it's not just, I mean, the author's the one that really convinced me of, that's why I keep saying like this guy was a little crazy. The author talks about this over and over again. Self-absorption, narcissism, narcissism, overconfidence, like all this stuff. One section asked for physical and mental characteristics. Watson answered in the third person. A tall, erect figure and dark eyes, dark, direct eyes that appear to see through people and situations at first glance. He's talking about himself. This is crazy. And with complete understanding are probably the two physical characteristics that dominate one's initial impression of Mr. Watson. His manner of speaking is to the point.

• 44:00David Senra?

  Eyes and speech tell of a keen mentality that is always alert and searching. Another heading was special gifts and avocations. Watson answered. Mr. Watson has a pronounced gift for public speaking and he's continually being called upon to exercise it. Do you know where this public speaking is taking place? It's taking place within the company, IBM. Who decides who speaks? Watson. He's saying he's a great public speaker and he's always called upon to exercise it. He's calling upon himself to exercise it. This guy's insane. Under dominating personal characteristics, he answered. Tremendous vision, indomitable will, unswerving determination. So, I laugh when I read stuff like that. That's obviously the negative part. Here's another positive part. He's gotta figure out what his product's gonna be.

• 44:45David Senra?

  So, he's like, he's gotta figure something out. They were selling time clocks and scales and all this other stuff. And says, um, you know, those products were not excite. Tabulating machines would. So, he's realizing this. It's a good decision by him. Uh, they were increasingly becoming known as punch card machines because they recorded information using holes punched through rectangular cards. A peculiar language that no one but a specialist could read. Yet, and this is why I think it's a good idea. Yet, tabulating machines had a quality that caught people's imagination. Other machines automated physical work, making hands more productive. Tabulating machines automated mental work, making brains more productive. There have never been anything quite like them. So, it's almost like a very prehistoric, um, I can't think of the word I'm looking for, but like a computer, but like a, such a tiny version of one.

• 45:30David Senra?

  But this is why I think it's interesting because he got in at the very beginning. So, he actually has a chance to shape the industry. So, this is because there had not been nothing quite like these tabulating machines and because they were only beginning to be adopted by an industry, the field in 1920s laid wide open to new ideas.

• 45:45David Senra?

  For this reason, Watson increasingly turned his attention toward data processing, as he called it well before most anyone else. So he's ahead of his time. He clearly understands the importance. And I think the reason I bring this up is because mainly in the world of atoms and not, or mainly the world of bits, not so much in the world of atoms, like we're in the very beginning, like what Jeff Bezos talks, day one of the internet. I think a lot of different parts of the internet are wide open for people to still invent and shape what the future's gonna look like. Just like in Watson's day, the tabulating, and this is extremely important. Like, think about how many businesses needed, need data processing. All of them? A ton of them.

• 46:28David Senra?

  So, he's got a giant market here. So he ditches the slow-growth industry. Go for, I'm reading my own notes, "Go for the one that has a future and one where you can have an advantage." I kinda just said that. Well, this is him laying it out to, I think he's already renamed it to IBM, because it says, Watson then pointed to where IBM wanted to go. "There isn't any limit for the tabulating business for many years to come." This is all quotes from him. "We have just scratched the surface in this division. I expect the bulk of increased business to come from tabulating. Because the potential, the potentialities? I don't even know what that word is, are greater, and we've done so little in the way of developing machines in this field. Underneath that statement lay a number of reasons other than the thrill of new technology. Why Watson zeroed in on the

• 47:12David Senra?

  punch card business. When seen together, the reasons click like a formula for total domination. IBM would never be able to make sure it was a world leader in scales or time clocks, but it could make certain that it was the absolute lord of data processing. The formula began with patents. Watson had learned the value of patents while at NCR and from Kettering. Inventions could drive sales, and patents could keep competitors at bay by preventing them from introducing similar It is a formula in full boil in the technology industry of the 2000s. What is the author saying there? That history doesn't repeat, human nature does. He's doing same stuff happening today. Or in this case, when the book was written, what, like 10 years ago, 15 years ago? That was happening in the 1920s.

• 47:59David Senra?

  Says once, let's see, what was I trying to remind myself? Once you decide what you want to do, find other ways to optimize your strategy. For example, we want patents and we'll, okay. It's actually, so he makes a decision that's the hardest part. Then he's going to drive forward and he's, he just said, I'm going to build this company on patents, right? Well, one way to get patents, right? What I was saying, find other ways to optimize your strategy. Well, for example, we want patents and we'll either invent them, but we'll also buy them. We'll buy yours too. And that's what he does. Watson acquired more, uh, more patents by buying upstart competitors. For instance, IBM bought, uh, Jay Roden Pierce, another guy, fledgling punch cards machine company to get Pierce's patents. And to get Pierce, who would go on to win more patents as an IBM engineer. Controlling the key patents on tabulating systems helped make life difficult for the competition

• 48:42David Senra?

  because competitors would have to invent entirely new technology or license IBM patents. That's one paragraph is also why when, almost right before he dies, uh, he gets hit, IBM gets hit with, with an antitrust suit because of this. Because they're dom, they, they created a monopoly. And now here's another example of, of really good ideas and, um, personality traits from, from Watson. It's not like he was a super talented person. He, let me, let me just read and you'll understand.

• 49:11David Senra?

  I mean, like, he was obviously talented, but I mean, he didn't have like innate talent. He just thought about things and, and, and made some good decisions. He made some big bets and he got them all right. Uh, data processing was a young technology. Watson realized clever engineers would be able to improve punch card machines. Clever salesmen would find new applications, new customers. The company that could fund the best research and development and the best marketing could outdistance any competitor. So he's laying out his blueprint here. Uh, and it just applies to every company. IBM was the one company that could afford both. Watson had no epiphanies. No voice spoke to him about the future of data processing. Cause I'm not a big, uh, believer in that you can predict the future. I think our, the world that we live in is way too much complex. And you should go about it in, in almost like a Watson type manner. He had no epiphanies, no voice spoke to him about the future of data processing.

• 49:56David Senra?

  He didn't have a grand vision for turning IBM into a punch card company. He got there little by little. One observation after another over a period of 10 to 12 years. If Watson did possess tremendous vision, an abdominal will and unswerving determination, referencing his own answer to the survey, the traits served him by helping him toil through more than a decade of figuring out what his company would be. I think this applies to almost every single company. The overnight success is largely a myth. Very few people get it right at the very beginning. When I'm reading this, this is very much why I admire the way Jeff Bezos thinks of companies. You invest the time, you be patient, and you persevere.

• 50:41David Senra?

  And he has a great quote that I reference all the time. This is a quote from Jeff Bezos. "The biggest oak starts from an acorn. You've got to be willing to let that acorn grow into a sapling and then into a small tree, and then maybe one day it'll be a big business on its own. You've got to invest the time." Watson's showing this. He didn't know what he was doing. He's just, "Oh, I'm going to make a couple of good decisions and keep going. Figure it out." Okay, so Watson, he collected friends, but he also studied especially other founders. And there's a founder a few years older than him that he learned and came to almost love. And it's this guy named George F. Johnson. Again, there's no, I couldn't find any books on George F. Johnson either, or else I would because it's interesting.

• 51:24David Senra?

  Says Johnson was already the industrial king of the region. This is, he has a company close to where IBM's, some of IBM's buildings are. Watson was a recently fired executive facing a jail term and running a company that, as Johnson would later say, he's describing what the condition of CTR when Watson came on board, had all the intents and purposes of collapsing. Johnson, even with that though, it kind of shows you Johnson's like this really sweet, nice guy. Johnson met with Watson and offered Watson encouragement and assistance. He did that. He had no, Watson could offer him nothing. Nothing. And he still did this. I think it's a good idea. Watson would always say how much he appreciated it. Johnson proved to be a manager like no other of the era. In an era, age of carpetbaggers and all-powerful business barons, Johnson felt a company should be a community of equals,

• 52:09David Senra?

  all working towards the same goals and sharing in the wealth he created. According to the author, he's the one that comes up with the idea of profit sharing. One of his oft-repeated slogans was, "I'm out to make all of this concern," meaning a company, "not to try, not to take all of I can out of it." He put everyone on a first-name basis, a stark contrast to the era's accepted business formality. This is something Watson did not learn from him. He did not like people to call him Tom. He built homes and sold them to employees at cost. He offered free meals in a company restaurant, free legal aid and medical care. He built glorious extravagant parks and left them open to the public. In 1919, Johnson instituted a plan that he dubbed "profit sharing," modestly commenting that it was a comparatively new idea in an industry, an idea that is common today.

• 52:52David Senra?

  He decreased the workday from nine and one-half hours to eight hours, prompting 12,000 employees to spontaneously rally around his home to thank him. Johnson never stopped winning the reverence of his workers. So, I don't want you confused. He's friends with Watson. Watson was much meaner. Johnson never stopped winning the reverence of his workers and the communities in which they lived. As time went on, he used money and his personal fortune to build one of the world's largest public swimming pools. He's built a series of carousels that he donated on the condition that they forever be free to anyone who wants to ride them. A few of them remained operating and free to the public into the 21st century. Watson's management approach in the 1910s came nowhere near Johnson's. IBM ran its factories for efficiency.

• 53:35David Senra?

  Although IBM didn't treat manufacturing employees any worse than most companies of the day, it didn't treat them particularly well either.

• 53:44David Senra?

  So, learning from Johnson is causing Watson to change some of the stuff because he has to compete with Johnson. He says his factory is set in a labor market where most people, particularly the best workers, wanted to work for Johnson. The residents weren't so sure about IBM. The smart thing for Watson to do would be to follow Johnson's lead.

• 54:04David Senra?

  Before I read this to you with my own notes, this is the mentality I find is very common in founders, but also taken to some degree, you have to ask yourself, like, is this the environment that you want to create? I don't think there's one right way to create a business. I don't think there's one right way to manage a business. I think you have to be who you are. I'm just telling you, this is not for me. Watson felt he could unleash tirades at his managers with impunity, and for the most part, he could. No one dared question or cross him. Executives rationalized his behavior by telling each other, if you weren't worth putting together, he didn't bother to tear you apart. That's like some Stockholm syndrome stuff to me. They were willing to take it because they wanted to be part of IBM. They were building machines that had never been before existed. They worked with brilliant engineers and sharp managers who blended together to form

• 54:49David Senra?

  this odd, but magnetic cult of sober people who made the company their life and ambition. Few other American companies offer the promise and excitement of IBM or such an opportunity to get rich. And some people liked it. You know, I'm just saying, that's why I've never worked in a big company, I just couldn't. But, you know, it doesn't matter, like, there's some people like it. So, many felt blessed to be able to follow Watson. He was such a strong personality, so sure of his leadership and so driven, people hitched themselves to him like rail cars to a locomotive. Once they did, and once they proved their loyalty, Watson gave back, whether it was bonuses, quick promotions, paid vacations, or compassion during an illness or family crisis. Watson did have a religious faith about IBM.

• 55:33David Senra?

  He had unrelenting optimism in the face of calamity. This is how he acted in the Great Depression. Melancholy had seized most of the business world. The US economy contracted by 8% in 1930 and another 7% in 1931. Unemployment rose to more than 20% of the population. Companies closed factories and cut production. Companies were in no position to install new tabulating machines. The market for office equipment plunged 50% in 1930 and kept sinking. Watson knew the facts about the broken economy, but the situation didn't fit his plan, so he decided to bulldoze through the facts. His words always reflected optimism. Watson's action backed up his words. He made two dangerous decisions. One, he would keep factories running and lay off no one. And two, he would... would increase spending on research and development even as companies around the

• 56:17David Senra?

  world slashed their R and D budgets. These decisions came within a sliver of ruining the company. So they almost run out of money, but when the economy picks up again, they have by far the best R and D, they have tons of well-trained employees and they have the best R and D department, the best products. So it winds up working out. It's a huge gamble. If it failed, if the depression would have extended and the business didn't pick up, it would have been the end of the company, but it wasn't. And Watson did this throughout his whole life. He would place his fate, his fate in innovation. So you have to, like, he has skin in the game. I have respect for him in that case. So it talks about like, he's in the middle of depression, he's building this giant R and D facility. They say it's very similar to like Xerox's Palo Alto, like the park that's, that's famous

• 57:01David Senra?

  or Microsoft's research in the late 90s, research center in the late 90s. So it says, "How could Watson justify this? He spent a million dollars for something as am, as ampheris, amorphous, I'm sorry, as research and development when businesses were falling apart and nearly one quarter of Americans barely had enough to subsist. But building the lab had a logic to it. Somehow Watson had to stimulate demand. He had to come up with products that companies couldn't resist, whatever the economic conditions. Again, thanks to Charles Ketering's influence, Watson believed that R and D would drive sales. So Watson decided to build up a lab, pull engineers together and get them charged up to push the technology forward." That's why I think like this, he's such a perplexing person to me.

• 57:45David Senra?

  He's such a, like a bizarre, like, he's got really good ideas like that and then cringey personality traits. And yet, to me, I do still find it inspiring in the sense that like, it's just another example that you do not have to be a perfect person to build a great business. Alright, so check this out. He's doing all this and he's kind of saved. By something he has no control over. So in 1935, the depression's so bad that the US Congress passes the Social Security Act. Actually, that's the whole name, the Social Security Act. And overnight, the demand for accounting and data processing machines exploded.

• 58:27David Senra?

  Because every single business now had to do data processing and accounting on a scale never before seen in the United States. And guess what? IBM could meet the demand because it had increased the production the last few years. So it's kind of luck in that sense because he didn't control it, but he was the only company prepared. So it says, "This period of time became IBM's slingshot. Revenue jumped from 19 million in 1934, going up to 25 million in 1936, and then it would go all the way up to 31 million in 1937. It would climb unabated for the next 45 years." This is where IBM comes, the IBM that we know. And it builds the foundation, although it almost goes on there in 1990s. "From the moment until the 1980s, IBM would utterly dominate the data processing industry.

• 59:09David Senra?

  A record of leadership that was unmatched by any industrial company in history." I think Watson's in his, he might be in his 50s now. "Peter Drucker asked Watson years later if he had anticipated the Social Security Act. Watson said that he hadn't. Of course, the act was debated and written about well before it was passed, but Watson said he had no idea it would impose such a record-keeping burden on businesses and the government. No one did. Otherwise, Congress might never have passed the act. Watson did not foresee that act, combined with IBM's readiness, would not only save the IBM, but propel it toward tremendous growth." Okay, so I mean, that's essentially the most important thing to know about IBM.

• 59:54David Senra?

  Like from here on, for the rest of Watson's life, well, towards the very end, he brings his son on board. And they eventually have to get into the new field they call electronics. IBM would have never gotten to electronics, two things. If the son wasn't already in the company, and two, if the antitrust suit didn't happen. Because they had to venture into, like, they had to go move into more competitive markets. Because the government was correct, like, they definitely had a monopoly with the punch card machines and all that technology. This, though, so IBM's also famous for their...

• 1:00:33David Senra?

  Their slogan, it's called "Think." And this is actually a good idea by Watson, I think. Um, I like it. So it talks about his morning routine, I'm just gonna skip over my... So he's gonna eat, finish breakfast, he's gonna usually leave, okay? But then he does something, on some days, that's really smart, and I think

• 1:00:53David Senra?

  sometimes doesn't look like work, but is work. "Unless he needed time to think through an idea, he wouldn't go into the office unless he had thought through four or five items he wanted to get done. If that meant sitting with a cup of coffee for an hour or two, that is what he would do." That very much reminds me, it's attributed to, sometimes I've heard it attributed to Abraham Lincoln, but it's that quote, "If you give me six hours to chop down a tree, I'll spend the first four sharpening the axe." I do think, um, rigorous, uninterrupted, deep thinking about something. Now, obviously you could take that to, to, to the extreme, where like, if you don't pair it with action, that, that's kinda, it's not beneficial. But, this is something Watson would allow even his employees.

• 1:01:37David Senra?

  If they came in late and they were actually thinking about a pro- a problem, that's, he encouraged it. He had the word "think" everywhere, in people's offices. They also had a bunch of like, it was really weird, like, uh, in the book it talks about, a lot of the offices and headquarters would have, you know, how many offices are you gonna have, like, tons, maybe hundreds? They would have framed pictures of Watson in there. So, again, more culty vibes, but this is actually a really good idea. And, and then the dedication, because this guy's a workaholic, worked all the time. He, that's all he thought about. And still, he would sit down and be like, "I need to think about this, I need to come up with a, a better solution." And understood that it's, it's, uh, it's extremely important. So, this is, um, I'm gonna quote at length here now,

• 1:02:22David Senra?

  something I've talked to you about before, that, uh, a question I kept, you know, I thought about a lot when I was reading this book. Like, "How could someone with so many faults, build a great company?" And, you know, the, the takeaway is that perfection is not required. And so, to that, I think it's, it's motivating to me, hopefully it's motivating to you. It's like, there's no such thing as a perfect human. But yet, even, in spite of our weaknesses or, or imperfections, like, we, we still can do this.

• 1:02:52David Senra?

  Alright, so it says, "Thomas Watson was volatile and self-aggrandizing. He could be domineering, unbending, demanding, and a maddening micromanager. His company, however, projected an aura of classiness, excitement, and strength. IBM was a darling of American business. It had marshaled monopoly control over tabulating machines and automated accounting systems, which had become critical to the operation of companies in every major industry. The company's traits and successes attracted the most talented people coming out of universities. Those elite men and women in turn built better products, came up with better ideas,

• 1:03:33David Senra?

  and managed their departments more effectively, making the company yet more successful, which attracted more talented recruits over and over again in a virtuous cycle. How could a man burdened with so many glaring faults build a great company? Watson inspired loyalty. He came through for people when they needed him, and he did more than they expected. He took extraordinary action during the Dayton flood. There's a huge flood in Ohio, and he wound up organizing a massive relief effort. He was extremely helpful there. And acted similarly when Birkenstock's son was killed. One of his employees, one-year-old son was killed in a car accident, and he was there for them. When Irf Gordon lost everything, that's somebody that he'd had worked for in like

• 1:04:16David Senra?

  four decades, would write letters because he was like poor and destitute, and Watson would send him money every time. Then, once after Gordon died, he had four daughters, and his daughters wrote letters saying about how much Watson's acts of kindness meant to them. And when the trains crashed in Port Jarvis, same thing, train clash with a bunch of IBM employees, he was there. He did smaller versions of such deeds often. The beneficiaries never forgot, and the effect of those acts rippled out. The stories got around. As much as he promoted himself and thought the world revolved around him, Watson also generously gave credit to others. He would publicly name those who came up with a great idea.

• 1:04:58David Senra?

  He lauded his engineers whenever possible in speeches to audiences outside IBM. He rarely failed to thank and praise the thousands of employees. People who met him often ended up telling him secrets as if he was a best friend, or accepting his advice as if he was a father. Different people were drawn to him for different reasons. But something made everyone want to look at him and many to follow him. The cult was so fervent. You either bought into it or eventually resigned. Once the non-believers were sifted out, the company was left with an army instinctively devoted to Watson and IBM.

• 1:05:42David Senra?

  Some of Watson's small decisions and actions were horrendously bad. But the big ones, he got right.

• 1:05:52David Senra?

  That is where I'm going to leave the story. Where we're at in the story, he still runs the company for like another 15 or so years. If you want to read the full, if you want to get the full story, I leave a link in the show notes. It's also available at founderspodcast.com. It's Amazon affiliate link. If you buy the book using that link, I get a small percentage of the sale, no additional cost to you. It's a great way to support the author for all the work they do. Support yourself by reading a great book and support me and the ongoing production of this podcast. Speaking of the ongoing production of this podcast, I just want to remind you that if you haven't already, if you're one of the many people that have sent me nice messages, have left reviews, done all these nice things, talked about how much you've learned from this podcast, but have not yet signed up to Misfit, please do consider. It's a small amount of money.

• 1:06:37David Senra?

  You can sign up on the annual plans, even less money on a monthly basis. And it's, it's, it's a way for me to keep this podcast going. It's the only way I'll be able to dedicate all the time that I do. And I still think that out of all the entrepreneurship podcasts out of there, I don't, that come out on a weekly basis, I don't think anybody else prepares more than I do. I have the hardcover version of this book. This is like a, I don't know, like a 14, 15 hour read. Takes me longer obviously because I have to stop and highlight and think about it. It's the hardcover version's 450 pages. So it's an unbelievable amount of information I have to go through to try to. Floating this idea about like, really thinking about the podcast like, like idea, idea archaeology that I'm going through, just like the way somebody goes through and

• 1:07:20David Senra?

  studies like a site for relics. Like, I'm studying these books and sifting through hundreds of years of, of history to pull out interesting ideas because the same, for the same reason of the quote that I opened the podcast with about Mark Andreessen. Like, there's a value in studying them. There's tons of smart people, most of which, you know, there's more smart people dead than there probably, than there are alive. And they have all these ideas for us to, to use. I mean, they spent, that there's hundreds of years of history where lots and lots of very smart people worked very hard, ran all types of experiments. And then, they ran these experiments throughout their entire lives, and at some point, somebody put them down in a book. So, I think that's obviously very valuable information. So, I am asking you, if you have not done so already, please sign up. It takes unbelievable

• 1:08:03David Senra?

  amount of time. You can listen to these, the Misfit Podcasts, which are private exclusive feeds in your podcast player like anything else. You unlock all the old ones that I've done, all the past ones I've done. Plus, I do two every week. The one I'm doing next week, so I want to talk to you about that real quick. I am almost done with, this may, this is, this, I'd be shocked if this wasn't the longest podcast I ever do. I'm read, I'm reading 50 years of Warren Buffett's shareholder letters on Berkshire Hathaway. And the book, so I have the hardcover book. I made a mistake, though. I bought the hardcover book that only goes to 2014. It's 700 pages, but it's not like, it's not like a normal,

• 1:08:43David Senra?

  you know, book. It's the size of a textbook. Cause it's 50 years of Warren Buffett laying out how he thinks about business. And so, that's the next Misfit Podcast I'm doing next week. I had, I just had to buy the Kindle version because I realized, the, the hardcover version I bought, if you look it up on Amazon, you'll see that there's a yellow copy. Don't buy the yellow copy, because that's the 2000, it goes to 2014. It's a light blue copy that goes to 2018, maybe 2019, 2018, actually. Anyways, I'm releasing that. Now, here's the problem. There is a slight chance that it's not going to come out on time because I am in, there's a hurricane coming right towards me. And it's called Hurricane Dorian. It might be a category four. If it's that big, I gotta get the hell out of here. I can't stay here.

• 1:09:28David Senra?

  So I might have to evacuate. I'll know by like tomorrow. By the time you listen to this podcast, there's a good chance I might have fled. I've been through enough of these things. I'm not, I can't stay for a storm like that. There, it's extremely, extremely dangerous. So, I'm gonna bring all my equipment, all my books, everything with me. But, I have no idea where I'll be or what the conditions will be or anything. So if I, if I'm obviously interrupted like that, I won't be able to record. But I'll update, I might just like record like a little episode on, on my iPhone and release it and tell you guys, you know, publish it to the podcast feed so you see that, that it's not coming out on time. Hopefully, that's not the case. I mean, these things, these storms are unpredictable. They, the cone, the uncertainty is just off the charts. So I have no idea what's gonna happen. And so, I just have to react to that uncertainty.

• 1:10:13David Senra?

  So, there's a chance. So if you haven't signed up for the miss it feed, do that. Not only do you, you're doing it for selfish reasons to support yourself because there's tons and tons of valuable information in, in the miss it feed. Just like there's tons and tons of valuable information in the free feed. But not only that, you're gonna get, the amount of information, I mean, the amount of useful information that Warren Buffett has that's gonna appear in this next podcast would pay for years of subscription to the, to the miss it feed. You're gonna spend half your waking hours working. And if you could find ideas from really smart people, you can pay your work. The return on that investment, and that's why I really think about it. Like, I don't think about it in price. I think about it really is an investment. This is an educational thing that you're buying.

• 1:10:55David Senra?

  It's professional research, in the words of Bill Gurley and Danny Meyer, the founder of Shake Shack. That's what they call, like, their extra work that they do. Professional research. I really like the term. So anyways, I, I think it's a no-brainer. Hopefully you do as well. If you're getting any value, please do consider doing that. Thank you very much. I will update you. And then next week, Warren Buffett, I have like, this week was insane. This is the most, I think, this week, I ordered 10 different books sent to me by listeners. So if you have a...

• 1:11:22David Senra?

  A book that you want, that you recommend, that you want me to cover? Send it all over, send them over. I'm pretty sure I've ordered every single one, just whatever. Like, I don't need to think about it. I just buy it. There's like, I don't even know what my queue is right now. It's gotta be more than 40 different books that I have to get to. So I don't know when they'll be out, but if you have sent me a book, I will eventually turn it into a Founder's episode. You know, that's what, that's almost a year worth of books. It's really quite remarkable. So send that to me. You can send it to me on Twitter, @founderspodcast, or you can email me, [email protected]. Thank you very much for listening. Thank you very much for your support. If you like the podcast, tell your friends about it. I will talk to you next week.